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Small cap high yielders

General discussions about equity high-yield income strategies
simoan
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Re: Small cap high yielders

#341645

Postby simoan » September 21st, 2020, 9:35 am

Arborbridge wrote:So safer to take out all CAPEX, but then you can find this is unfair on good companies which keep profitably ploughing back.

Arb.

I'm sorry but Capex is the cost of keeping the business running, so how on earth can you ignore it? However, you're right that the Return on that Capital is the sign of a good company with management that allocate capital effectively, measured as ROCE. This again is a metric that the big oil companies score very badly on and the small caps I listed earlier all score highly on.

All the best, Si

Arborbridge
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Re: Small cap high yielders

#341653

Postby Arborbridge » September 21st, 2020, 10:17 am

simoan wrote:
Arborbridge wrote:So safer to take out all CAPEX, but then you can find this is unfair on good companies which keep profitably ploughing back.

Arb.

I'm sorry but Capex is the cost of keeping the business running, so how on earth can you ignore it? However, you're right that the Return on that Capital is the sign of a good company with management that allocate capital effectively, measured as ROCE. This again is a metric that the big oil companies score very badly on and the small caps I listed earlier all score highly on.

All the best, Si


Sorry, I didn't mean ignore it, but just don't try to decide whch is maintenance and which is capex for expansion which will bring profits down the line. In other words - err on the safe side by assuming it is all "bad" capex.
As I then mentioned, this can be misleading for companies who genuinely use reinvestment to expand and produce further profits, rather than to just keep things going.

Arb.

dealtn
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Re: Small cap high yielders

#341655

Postby dealtn » September 21st, 2020, 10:20 am

simoan wrote:
dealtn wrote:
Arborbridge wrote:
This is one problem with FCF - what really is the relevant cash flow to equity? and associated with that is the difficulty of finding it.
Although, on the face of it, it ought to easy to calculate, I've always found there are difficulties - one example would be distinguishing between capex for invesment and that for maintenance. It is not always obvious from the accounts unless you can see through smoke.



Yes this is a valid criticism, and why the numbers are only a start.

A company that has high capex, with positive NPV on that capex, needs to be differentiated from one where capex is merely replacing (or worse, not even that) the depreciation of its plant, machinery etc.

To be honest I don't think it is a valid argument. You shouldn't use the FCF in any particular year but an average over say a 5 year period (as you have shown for BP and Shell earlier) tells you all you need to know about the economics of a company. Earnings can be manipulated by exceptional items on an annual basis but cash is much less easy to manipulate (unless you are the CFO of Patisserie Holdings!).

Ultimately, you don't need to analyse Capex. Keep it simple - dividends are paid from free cash, the cash in the bank, or a combination of both. If you have a company that is highly indebted and giving all (or more) of it's cash and free cash to shareholders on a quarterly basis, eventually you have a problem. The first thing that happens is that the dividend payment doesn't rise which has been the case with BP and Shell for several years. The warnings were there.

All the best, Si


I'm not disagreeing. Only that there are some specific situations where you can think of capex differently to others. Start ups. Long lead time from investment to payoff, such as new drugs etc. In general though, and particularly for well established companies averaging and analysing over a number of years eliminates a lot of unnecessary forensics.

Combining FCF with a ROCE measure is a good suite of analytic tools and "nasty surprises" are rare and events like CAKE.

Arborbridge
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Re: Small cap high yielders

#341660

Postby Arborbridge » September 21st, 2020, 10:27 am

dealtn wrote:
I'm not disagreeing. Only that there are some specific situations where you can think of capex differently to others. Start ups. Long lead time from investment to payoff, such as new drugs etc. In general though, and particularly for well established companies averaging and analysing over a number of years eliminates a lot of unnecessary forensics.

Combining FCF with a ROCE measure is a good suite of analytic tools and "nasty surprises" are rare and events like CAKE.


I'll taske the advice to look at ROCE too. It was a factor I used to filter on (when following a more "Jim Slater" oriented search routine), but have rather ignored in recent years.


Arb.

Stan
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Re: Small cap high yielders

#351619

Postby Stan » October 29th, 2020, 10:24 am

Any Bioventix BVXP. watchers here today?

langley59
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Re: Small cap high yielders

#351622

Postby langley59 » October 29th, 2020, 10:29 am

Stan wrote:Any Bioventix BVXP. watchers here today?

I hold, pays a good yield and has grown enough in capital terms for me to be able to take my initial cost out.

dealtn
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Re: Small cap high yielders

#351653

Postby dealtn » October 29th, 2020, 11:13 am

Stan wrote:Any Bioventix BVXP. watchers here today?


Goes xd today is that your reference? Or are you referring to something else?

Stan
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Re: Small cap high yielders

#351668

Postby Stan » October 29th, 2020, 11:48 am

Yes I was interested re XD, I have held before but wondering at what price I can get back in, also wondering if there was anyone else of that mind on here.

dealtn
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Re: Small cap high yielders

#351684

Postby dealtn » October 29th, 2020, 12:31 pm

Stan wrote:Yes I was interested re XD, I have held before but wondering at what price I can get back in, also wondering if there was anyone else of that mind on here.


You can get back in at about 4100p.

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Re: Small cap high yielders

#351726

Postby Stan » October 29th, 2020, 2:34 pm

The best I could get was 4120 which I rejected, I set a limit order at 4===, price hidden just in case any MMs are looking in.

dealtn
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Re: Small cap high yielders

#351930

Postby dealtn » October 30th, 2020, 10:36 am

Stan wrote:The best I could get was 4120 which I rejected, I set a limit order at 4===, price hidden just in case any MMs are looking in.


Can't tell if you are joking but MM won't be watching or even care.

How did you leave your order? A limit order with a regular online stockbroker will not be on any system other than the broker, and will get triggered if the offer price matches, and then the "system" will try to execute against an offer still at that price. You will often get a small price improvement if that's the case.

If you leave a true order on the market then it will show as an executable visible Level 2 position. A seller could hit and trade at your price, so the market (offer) price doesn't necessarily need to fall for you to trade at your price. To do this though you need a "proper broker" who communicates with the market platform, or market maker, and you will pay more for such a service.

Presently the market shows a wide Level 1 price 4030/4200, but there may be Level 2 prices within that. If your desired price is 4100, say, then the sellers at 4200 (or below) might decide to hit the 4100 bid, but if your 4100 bid is only on your broker platform that won't happen.

Stan
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Re: Small cap high yielders

#351938

Postby Stan » October 30th, 2020, 11:16 am

Many thanks for that DT I didn't know much of that .. I will have another think and reflect until the Dow opens.

Oh and my bit about the MMs .. I approach is one never knows ;)

dealtn
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Re: Small cap high yielders

#355868

Postby dealtn » November 12th, 2020, 2:22 pm

Stan wrote:The best I could get was 4120 which I rejected, I set a limit order at 4===, price hidden just in case any MMs are looking in.


The wider market is considerably higher, and you can probably pick up BVXP close to 4000p now if you are still interested?

Spet0789
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Re: Small cap high yielders

#355897

Postby Spet0789 » November 12th, 2020, 3:27 pm

simoan wrote:
Arborbridge wrote:So safer to take out all CAPEX, but then you can find this is unfair on good companies which keep profitably ploughing back.

Arb.

I'm sorry but Capex is the cost of keeping the business running, so how on earth can you ignore it? However, you're right that the Return on that Capital is the sign of a good company with management that allocate capital effectively, measured as ROCE. This again is a metric that the big oil companies score very badly on and the small caps I listed earlier all score highly on.

All the best, Si


The huge limitation of Capex is that it only really captures investment in 'stuff'. It's a 19th century metric.

Buy a factory and install a widget production line? Capex.
Pay an amazing developer to write 100k lines of code which will earn you tons of money? Cost.

Companies that plough money into investing in intangibles which will make them tons of money in the future will have low capex and reduced earnings - Amazon being a very obvious example.

Of course the hard part is telling the difference between monetisable but intangible R&D, and a flabby cost base.

dealtn
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Re: Small cap high yielders

#355920

Postby dealtn » November 12th, 2020, 4:16 pm

Spet0789 wrote:Companies that plough money into investing in intangibles which will make them tons of money in the future will have low capex and reduced earnings - Amazon being a very obvious example.



You think Amazon is a good example of a low Capex company. Capex in the last quarter alone was $11bn.

SalvorHardin
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Re: Small cap high yielders

#356154

Postby SalvorHardin » November 13th, 2020, 11:55 am

One to consider is Ocean Wilsons Holdings. It's a Bermudan investment company, quoted in London, whose assets can be broadly split into two parts:

1) 41.444 million shares in the Brazilian port, shipping and logistics company Wilson Sons, quoted in São Paulo. This holding is 58.25% of Wilson Sons and at current prices is worth roughly £250.8 million.

2)) A global investment portfolio, worth $281.8 million as of 30th September 2020. Let's say a 3% rise since then so that's roughly £218.6 million.

So that's net assets of £469.4 million. Current share price is roughly 675p, there are 35.363 million shares issued, so the current market capitalisation is around £240 million. Consequently the shares are trading at a 49.9% discount to NAV.

Ocean Wilsons cut its proposed dividend from 70 US cents to 30 cents back in March, following Wilson Sons cutting its previously declared dividend due to the coronavirus. Since then Wilson Sons has paid an extra dividend so Ocean Wilsons in turn has declared a second dividend of 40 cents to get back to 70 cents. So the shares yield 7.9%, paid gross without withholding tax.

Ocean Wilsons' current discount to NAV is quite a bit lower than I'm used to; since I first bought its shares the discount has typically been in the region of 20% to 30%. I put quite a bit of the increase in the discount down to coronavirus fears specific to Brazil.

Now obviously there is quite a bit of risk in this. A hugely concentrated portfolio in Brazil, a country where many people will not want to invest because of the coronavirus and the general social and business climate in Brazil. Its accounts are complex, because it has to consolidate Wilson Sons accounts. I largely ignore the accounts and instead value Ocean Wilsons as an investment company which has a huge shareholding in one company. Its share price usually has a large bid-offer spread, sometimes as high as 3%.

FYI Wilson Sons has been in existence since 1837 when it was founded by two Scottish brothers, Edward and Fleetwood Pellow Wilson. It is one of Brazil's oldest companies and IMHO it is conservatively run. Ocean Wilsons' recent quarterly update (linked below) commented on Wilson Sons performance, noting that profits in the first nine months of 2020 had fallen by 53.3%, this was mostly due to the fall in the Brazilian Real against the US Dollar.

https://www.investegate.co.uk/ocean-wilsons-hldgs/rns/quarterly-update/202011120700050522F/

Ocean Wilsons was put forward in the early 2000s on the TMF value shares board, back when its share price was below 80p. The usual suspects objected to it even being discussed because it is a fund and foreign.

Ocean Wilsons website
http://www.oceanwilsons.bm/investors

Wilson Sons' share price and Wikipedia page
https://www.bloomberg.com/quote/WSON33:BZ
https://en.wikipedia.org/wiki/Wilson,_Sons

Charlottesquare
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Re: Small cap high yielders

#366767

Postby Charlottesquare » December 16th, 2020, 2:42 pm

Salvor

Thanks for Ocean Wilsons Holdings, on the back of your post I purchased a very small number on 23rd November at £7, as I type they are sitting at £8.35/£8.60.


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