An unappreciated aspect of active investing is that it sometimes it looks somewhat “passive”. Instead of trading in and out of stocks, an active investor is constantly checking and confirming their views. Assuming the facts and their opinion remain the same, their investments remain the same and, thus, this process can often look like inactivity.
It could not be further from that and, indeed, it is one of the most important actions you can take: maintaining conviction and applying patience to allow time to compound your capital.
A stock I have previously expressed a positive view on is Santova Ltd (code: SNV); I previously wrote about the Group here (A Great Business). The Group has just published their FY 24 results, thus let me revisit my view on the stock here.
At first glance, Santova’s FY 24 results are weak with revenue flat (+4.5% y/y), profit falling (-30% y/y) and a large share buy-back offsetting this decline somewhat at HEPS-level with HEPS only falling -20% y/y.
(There are some obvious positives, though, with Tangible Net Asset Value per share grew +27% y/y to 611cps (share price is c.750cps at the time of writing this) and their balance sheet remains very lowly geared with good liquidity.)
Context does matter though…
Freight rates that had shot to the moon in 2022, then spent the better part of 2023 collapsing some 80~90% down while global traded cooled into the fastest interest hiking cycle in history. Santova’s (much larger) global peers saw earnings tumble over this period by as much as -65% y/y and, thus, in context, Santova has performed spectacularly!
Digging deeper and stripping out the freight rate volatility and other transient noise, is Santova actually growing?
Well, their results presentation (see it here) shows that the Group’s grew its number of clients +6.3% y/y and the transactions through its network grew +1.5% y/y (the difference between the two shows the slowdown in global trade volumes as per client trade softened).
In my opinion, transaction volumes per client will recover to normal levels, but new client acquisition is key to long-term growth (and reveals how competitive the Group is relative to its peers).
Thus, beyond all the noise, Santova is organically growing +6.3% y/y in real-terms. Add in some normalizing of transaction volumes (i.e. higher), the recently higher freight rates (see “Suez Canal and investment rationale”) boosting pricing upwards and further client acquisitions, and it is not hard to see that Santova is not just growing but it is likely to keep growing very nicely.
This is backed up by management’s FY 25E outlook statement that “With sound leadership and a quality team, together with an improvement in market conditions, we will see a positive shift in the direction of our earnings growth.”
I agree.
The stock still only trades on a 6.0x Price Earnings (i.e. it has not re-rated at all over the last three or four years of astounding growth).
Having rechecked the facts and reassessed my opinion, my view remains unchanged. Santova’s growth story remains the same, its valuation remains low and my positive opinion on the stock is unchanged. Sometimes it takes a lot of work to have the conviction to do nothing.