A Totally Event-Driven Portfolio
Jun 27th 2012 9:14AM
Updated Jun 27th 2012 9:16AM
LONDON -- Today's featured investor focuses on special value situations, which he hopes will perform irrespective of the general market. He isn't too concerned about overall market direction, as he's heavily invested in five holdings only -- which make up more than 80% of his portfolio.
Fools know today's investor, "DesWalker2," as a real shrewdie. Des likes to find fundamentally good value that is going unrecognized by the market, where his additional research gives him even more of an edge.
Of his own strategy, he says: "Hedge funds would call my style 'event driven.'"
The macro view
But before we get into specifics, let's hear what Des has to say about the macro picture anyway: "I'm not a bull or a bear on the global indices at current levels but think making money via index tracking or blue-chip investing will be tough for years to come due to reduced visibility of earnings. This explains my decision to focus on very specific 'special situations' which have deep value, ideally with some form of outer via either corporate action or large and fairly visible dividend streams."
So let's have a look at DesWalker2's special situations:
North Atlantic Smaller Companies Investment Trust (ISE: NAS.L) The North Atlantic Smaller Companies Investment Trust accounts for a whopping 30% of his investments. The trust mainly invests in U.K. and U.S. listed and unlisted companies, with around one-third of assets in the U.S.
Des is a big fan of CEO Chris Mills, who owns almost a quarter of the trust and recently bought more shares. With an overall valuation of 146.6 million pounds at 1,039 pence per share, the boss has a lot at stake. The latest diluted net asset value, or NAV, was 1,426 pence.
The portfolio is ripe for corporate action and further NAV uplifts. It also gives me added exposure to Gleeson, which accounts for over 5% of the net assets. The near 30% discount is way too large.
Gleeson (ISE: GLE.L) The aforementioned Gleeson accounts for 25% of Des' portfolio in its own right. It's easy to see why. The urban housing regeneration and strategic land-trading specialist made a small operating profit in the last half year and had a net tangible asset value of more than 97 million pounds, with a cash balance of 15.1 million pounds, versus its current valuation of 56.7 million pounds at 107.7 pence per share.
According to Des:
- "Gleeson has the best balance sheet I can find anywhere on the market. It has a very confident management, has restructured well through the downturn with quite a few divestments and achieved a big increase in the land-bank."
- "Gleeson has a history of returning cash to shareholders via special dividends, and is ripe for some form of corporate action in due course with Chris Mills controlling over 27% via NAS and his other funds. There are also large unrecognised tax losses to be utilised by the company itself or a major house-builder via an acquisition."
- "It's only marginally profitable at the moment because Gleeson is working its way through land bought by the previous management at higher prices from 2006-07. But the new land will be on stream in the coming financial year, which should boost profits."
This is a real minnow, with a market cap of less than 3 million pounds at a share price of 28.5 pence.
It's very cheap on an EBITDA/EV basis, is run by a very sound board and has James Leek (of Torday and Carlisle fame) as chairman who's a smart cookie. ... It pays a yield of over 3% but could afford to treble that with ease. There are no de-listing intentions according to the recent AGM, as James Leek doesn't think it's fair to shareholders.
SOCO International (ISE: SIA.L)
SOCO International is a very popular share with many Fools. Des likes it as an asset play with some form of corporate action being the potential outer. He attended the company's recent annual general meeting and left feeling more confident than previously. Soco accounts for 9% of his portfolio. The shares are currently 278 pence.
Des sees Work as having strong management, an increasing global footprint, clever restructuring through the tough times and a potential private-market value at a multiple of the current share price of 13.25 pence. With a market cap of just 3.7 million pounds, this is another tadpole.
More from Des:
There's a strong board with two very experienced non-execs who are independent. There's no intention of de-listing, but nor does the board have any expectation that the AIM market will ever value the business correctly. So it remains alert to various possibilities following a strategic review last year.
So there we have it. As Des says:
All attempted Alpha with no market correlation whatsoever. So when the market tanks, I'm usually either flat or up. But I underperform by a mile when the FTSE 100 is flying and everything is going up.
And just in case you're wondering about the username, DesWalker2 is a Sheffield Wednesday fan old enough to remember the Premiership glory days!
By the way, if you harbor ambitions to join Des among the ranks of successful private investors, this special free report -- "Ten Steps To Making A Million In The Market" -- may well help you on your way! The report is for ambitious investors only.
He avoided techs in the dot-com bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor."
Further investment opportunities:
The article A Totally Event-Driven Portfolio originally appeared on Fool.com.David owns shares in Gleeson and SOCO International. He doesn't own shares in any of the other companies mentioned. The Motley Fool has a disclosure policy . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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