Portfolio Update – December 2017

It’s been a long time since I’ve gotten on here to write about my stocks. No real excuses, just prioritized some other things. I’m sure nobody was really calling the police wondering what happened to me, so I’ll just jump right into this. Let’s start with one where I was very wrong.

Calidus Capital Corp

Good God was I wrong on this. The whole privatization thing still hasn’t happened, so the timeline, which was so important to the thesis, fell apart. And Callidus has been in the news for less than ideal reasons lately (all press is not good press in this case). I’m still inclined to believe that some deal will happen that will turn out good for shareholders at a certain price. I just have no way of knowing at what price one would need to buy to end up happy. I sold the last of my Callidus and good riddance. If you go back to the Callidus post you’ll see some commenters were right about this piece of shit. I’d like to thank them for at least trying to warn me.

Diversified Royalty Corp

I was right about this one, for approximately like six weeks. Once I wrote this post explaining I thought DIV was worth less than its current price, it went down, pretty close to my target price. I was feeling the way I imagine Charlie Munger feels every day, though I knew I was still infinitely dumber than him. I wrote that post at the end of June. In August DIV announced it was acquiring the Air Miles royalty and suddenly I looked stupid again. I have not done deep due diligence on DIV since this deal, because I saw the price rise and rise and rise past what I thought it should at first glance.

Unfortunately I know quite a few shareholders of DIV who like to remind me of this mistake and wave their $3.50 shares in my face. Personally I think it’s a waste to get paper shares just to mock me but to each their own. I try to tell them I’ll accept an error of omission but they stick their shares in their ears yelling that they can’t hear peasants like me, and I end up sulking away.

Input Capital Corp

This is one where I was right about shares being worth less (not worthless). This fall I rethought my thesis and decided that the proper way to value Input Capital is on the “book value” of the reserves. This is pretty easy to calculate: Metric tonnes of reserves * (estimated sale price of canola – obligated crop payment) = “book vale”. The new marketing streams Input has started selling has risen the crop payment to farmers without proportionally rising the tonnes in reserve. This has caused the value of reserves to drop. By my estimate, Input is likely worth about $1.30 right now, maybe a little less. I sold the last of my shares around $1.68 I believe.

This is one where the growth story fell apart and I lost faith in management (capital allocation leaves a lot to be desired). Management states they have a “land and expand” strategy of signing small deals to give farmers a taste of their benefits, then will sign the farmer to a much bigger deal, and that there are cross selling opportunities between marketing and capital streams. I’m not sure this is true, but if the execution comes through then there is still a lot of opportunity for Input shares to be worth much more. Right now that takes a leap of faith however and I can’ justify holding.

Stella-Jones

Stella-Jones has appreciated quite nicely. I bought this as a GARP play in the low $40’s and high $30’s. Sitting at $50 I’m not sure I’d be buying, but execution has been going well so I wouldn’t be opposed to it either. It’s been boring and hopefully stays boring just the way it is supposed to.

Ergoresearch Ltd.

Not much to report. I’ve been happy with results and a bit surprised that the share price hasn’t moved at all. The company has $8 million of cash (~$0.11/share) but has some start up costs for some new services. I’d like to see the share buybacks continue. I remain long.

Integrated Asset Management

This one raced past my target price, but announced good news and I still like the business. Since I’ve written about IAM they have performed as I expected, increased the dividend to $0.08 (which will now be paid quarterly) and just recently bought back 1% of the float, which is making for a very nice shareholder’s yield. I am happy to remain long.

Brookfield Property Partners

I’ve never written about BPY.UN because I doubt there’s any value I can add. BPY.UN is very undervalued with a well covered dividend, trading under well under NAV. A hiccup in the plan is the proposed GGP deal. If Brookfield buys GGP, my BPY shares essentially become GGP shares. From what I can see GGP is very undervalued as well, but BPY.UN becomes a different bet. When you buy a Brookfield entity, you are buying their expertise so it takes a certain amount of trust. Without the GGP deal overhang I would likely be adding more under $29, but I’d like to get some clarity before buying more.

Gran Colombia Gold

This is one I bought in the summer, and was trying to write a post about it as the share price rose higher and higher. I may try again to write that post, but there are other very good write-ups out there I can point you to since that’s easier. One particularly good blog post is here: https://reminiscencesofastockblogger.com/2017/07/27/buying-gran-colombia-gold-a-levered-free-cash-flow-generating-gold-producer/

I continue to hold and would like to add more. Anything under $2.00 has an absurd margin of safety.

Atlas Engineered Products

This is the most exciting opportunity I see in the market, and is the reason I dug up my old wordpress login to write again.

Atlas recently started publicly trading and is a small roof truss manufacturer on Vancouver Island. Organically it is growing 25% YoY, and has profits. Atlas went public via RTO in order to become a consolidator of the very fragmented roof truss industry. Since going public Atlas has announced two deals, acquiring a $3 million revenue company in mainland BC and another in tiny Clinton, Ontario, which is notable for being within striking distance of London and Kitchener-Waterloo. This deals have been for extremely reasonable prices, so I’m excited to see what other acquisitions are out there to be made.

I’ll be writing about Atlas this week and hopefully the price hasn’t appreciated too much before I have a chance to publish it. Good chance I’ll be buying Atlas for quite a long time.

Watch List

As far as companies I need to look at more, I am just starting to dig into the Dream family of companies. From what I can see they (particularly the parent and Dream Alternatives) are cheap but the different lines of businesses are taking me a while to sort through and evaluate. If anybody has any thoughts on the Dream family please leave them below, I’m all ears. I have experience having bought and sold DIR.UN but I’m sure that old DD isn’t applicable anymore.

 

 

 

 

2 thoughts on “Portfolio Update – December 2017”

  1. Still like the IAM and GCM. Did you consider the GCM.DB.X instead of the common? I own both but own more of the debs because of the income. They are not reflecting any optionality at this price.

    Also, have you looked at any energy names? I own a few like PPR, ATU, IPO. GXE and CPG. The equities have really lagged the commodity. Plus something like PPR has a lot of ways to win with it trading at a third of reserves and 4x cash flow but also they have a lawsuit vs Canada that has gone through its final arbitration hearing and the potential for Quebec shale policy to be finalized in 2018. Both events could be worth multiples of the current market cap.

    Curious about your thoughts.

    1. I bought GCM.DB.V and GCM.DB.X for my father who likes that it pays an income, it will be paying for his trip to Florida this year. As opposed to selling the common to buy the debs, if the relative values stay roughly the same I’ll be adding to my position by buying GCM.DB.X. When I wanted to initiate my position I had no USD so that was the sole deciding factor at the time.

      At the moment I’m starting due diligence on HWO, but in general it takes a huge margin of safety to invest in the energy space. I’ve been seeing some good value in the space (from afar), so I’ve been meaning to take a closer look at some names. PPR is one I’ve looked at before, I’ll have to check it out again, thanks for the heads up.

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