Revisiting Some Old Calls

I am not going to get everything right. That’s why we diversify, to hedge against the unknown knowns and the unknown unknowns.

That said, you still need to have a well reasoned and aptly researched view. Being in the market is making a call, even if it is buying an ETF.

Here are a couple older views that I think are worth revisiting:

Retailers and Retail REITs: Warning Signs Becoming Reality

Sorry, Byron, we are revisiting this one, because it is really playing out like this. Read Part 1 here and Part 2 here. My belief is that we are only at the start of this negative retail cycle and it probably has another two to three years left in it. Read the latest unwitting update to this story here…

Avoid retailers and don’t forget to avoid local retail-weighted REITs.

Ascendis Health: Good Management Meeting

I had a great meeting with Ascendis Health’s (ASC) management team the other day. I must say that I like them and they have the right drive to build a real business.

Unfortunately, minus a couple harsher points, I broadly stick by my view that things are not going fantastically over there (see original article here). Sell-side analysts are just blindly plugging management guidance into models and coming up with buy recommendations, so–if I am right–there are some large shareholders who will be taking a tumble within the next year or two here.

If I am wrong, Ascendis Health is probably cheap.

Datatec: Cheap, Value Being Unlocked & Non-South African

Datatec’s (DTC) deal with Synnex continues playing out perfectly, implying a low-end, risk-adjusted valuation (per my model) of c.7000cps. If you stop risk adjusting it, I get c.7500cps. And, if you add the profit warranty payment on of $200m, you start to get silly numbers…

The point being, Datatec remains deeply undervalued.

Torre Industries: Good Management In Place

My VWAP into Torre (TOR) is a little over 250cps. I.e. It has been a bad call and a bad investment, so far.

Read my previous view here.

I recently did a whistlestop tour around the Group to its facilities and various businesses while meeting a range of its management. There is a mix of good and bad businesses within its fold, but two things really jumped out at me:

Firstly, Torre has become a real Group now. Its branding is everywhere, its culture is starting to be formed, and the atmosphere within the Group is a far cry from the share price. Management teams know that it is tough out there, but they are receptive to Group ExCo and driven to perform while being entrepreneurial in activity.

Secondly, I was really impressed with the Group ExCo, specifically CEO and FD. Both have a great grasp on the Group, its businesses and have a clear understanding of what needs to be done to turn it around and how they plan to do this.

I’ve been wrong so far on Torre, but given that it is trading at a ‘normalized PE’ of about 4.0x to 5.0x, let’s see how it performs.

P.S. I think it should be trading on a 8.0x PE at least, and management’s view is that they only ‘normlise’ earnings in reporting if the real IFRS earnings will eventually become the normalised one. I.e. I like their approach to normalising the noise to show underlying profitability.

Redefine International: Brexit Shows the Cracks

I previously noted my exit from Redefine International (RPL) here due to the systemic changes Brexit induced.

Subsequently, the GBP has weakened and RPL has lowered their distribution model to make the business more sustainable… That kind of implies that RPL was not sustainable before.

Ouch.

So far this one has played out well and I see little reason to jump back in. I think the GBP has strength from here but does RPL? If RPL is being bought for its dividend stream, and that stream is at risk. Why buy RPL?

Sun International: Not So Bright…

See my previous note on Sun International (SUI) over here, and I see that nothing has changed. The share price had a ramp while Menlyn Main opened, but it has subsequently been disappointed and I suspect that disappointment is only just beginning.

Sun International brought a lot of debt on their balance sheet for that development, so it is not nice if they achieve their targets, it is necessary

I still prefer Tsogo Sun (TSH) as a casino/hotel investment and I hold it via Hosken Consolidated Investment (HCI).

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