No change in the portfolio this quarter.
No change in the portfolio this quarter.
School Specialty is as about close to an ideal Alluvial holding as a stock can be. The company is small, with a market capitalization of just under $120 million. Trading liquidity is minimal, with a handful of funds controlling the large majority of shares outstanding. And the company is boring, operating in the lowgrowth school supply industry. Scissors and glue, dodgeballs and desks. School Specialty went through bankruptcy and emerged in 2013. Since its emergence, the company has focused on maintaining sales, improving efficiency, and controlling costs as school district budgets remain constrained. The company has also focused on improving its working capital management, freeing up millions from inventory and net receivables.
The company has an operating margin of < 3%, long term debt of $128 million, $7.9 million in cash and $105 million in equity. A low margin business with high debt is not something I would like to dig into.
Cimpress does “mass customized” printing (businesses) i.e., customized printing at mass produced prices. They claim to do this by “sophisticated software and carefully architected configuration options”.
While reading on the business I kept asking myself this one question: will I know if the business became uncompetitive? I don’t think so. Pass.
The largest Burger King franchisee in the world. Owns and operates more than 800 locations under the Burger King brand.
The company has paper thin margins. Looking at Q1-3’2018 results (9 months), the company had net income of $8.2 million on sales of $871 million. This is < 1%. The company seems to be taking on debt to acquire more and more Burger king shops. The long term debt went from $160 million in 2013 to $281 million in 2017.
Too much debt, thin margins and a debt fueled expansion is not my idea of a good investment.
Coty has the entire gamut of personal care and beauty brands. It is the third largest beauty brand in the world by sales.
Our three divisions – Luxury, Professional Beauty and Consumer Beauty – are home to iconic global brands and much loved regional brands. Luxury is focused on prestige fragrances and skincare; Professional Beauty is focused on servicing salon owners and professionals in both hair and nail; and Consumer Beauty is focused on mass color cosmetics, mass retail hair coloring and styling products, body care and mass fragrances.
The company has grown revenue at a healthy clip. It went from a revenue of $4b in 2011 to $9.3b in 2018. Long term debt, on the other hand, has also grown from $2.5 billion in 2011 to $7.3 billion in 2018.
We anticipate that we will incur a total of approximately $1.3 billion of operating expenses and capital expenditures of approximately $500 million in connection with the acquisition of the P&G Beauty Business. — annual report 2018
Coty merged with P&G beauty and in the acquisition press release things were quite a bit rosier.
Coty expects to achieve total cost savings of approximately $750, million or 16% of acquired revenues, through the transaction composed of: initial synergies, reflecting P&G costs that will not transfer, of approximately $350 million; and incremental cost synergies, to be recognized over four years, of approximately $400 million, achieved through a range of efficiency opportunities that the combination of the two businesses create.
It is questionable if being big helps you in selling more products or selling them at higher prices. Maybe there is some cost savings on the manufacturing and the supply side. You may also be able to squeeze some margin out of the outlets that sell your product. But, none of this creates much value in the end. Is it a win-win for customers and the business? Probably not. I don’t think the “synergies” are passed down to the consumers. Actually, cost saving in manufacturing may reduce quality. PASS.
Callaway Golf Company (NYSE: ELY) is a premium golf equipment and active lifestyle company with a portfolio of global brands, including Callaway Golf, Odyssey, OGIO, TravisMathew and Jack Wolfskin. Through an unwavering commitment to innovation, Callaway manufactures and sells premium golf clubs, golf balls, golf and lifestyle bags, golf and lifestyle apparel and other accessories.
In 2019, they took $450m debt and bought Jack Wolfskin. This increased the sales by 37% in 2019. Their net margin is ~ 5%. From my buying experience, although Jack Wolfskin is a great brand … there are far too many competitors and the quality is not that difficult to find. I especially liked Jack Wolfskin’s children offering. My daughter’s jacket have always been from JW and she has worn them quite a lot. Last year, we switched to Reima and we have been positively happy. Reima even has girly jackets and is excellent at building warm layers for active children.
Furthermore, I don’t see why their core segment (Golf & Apparel) should grow in terms of revenue. Probably they think the same and that is why they buy growth via taking on debt.
This is what my portfolio looked like at the beginning of 2018.
This is what it looks like at the end of 2018.
A few changes that immediately jump out are:
At the end of the year, I am holding the following companies.
In order of things I would sell, if push came to shove, are: BRK, DNOW, BKNG.
In the last few years, I have suffered from one major problem: too many positions. The average number of positions that I have held is approximately 15, while my ideal number is 8 — twice as much! My dissonance arises chiefly from the oversight that this was not a number I was overly concerned about. My guiding philosophy was more akin to a collector. Once I decided that I want to own a stock, I would justify buying it and pay no attention to the relative valuation of the stock compared to the stuff I already own.
I have decided to change.
Interestingly, the motivation to change comes from the travel vloggers that espouse minimalist living. One of the actionable advice is to only buy things as a replacement for something you have. In particular, if you want to buy something, you need to throw out something else that you already own. I don’t want to be that dramatic but I would like to have more discipline when buying stocks.
In particular: the maximum number of positions that I will allow myself to have is 10, ideally aiming for 7.
I currently hold: Google, Hikma plc, Berkshire, Facebook, Distribution Now, Altius Minerals, Silver Chef, and Cheesecake Factory.
I sold all of my Lancashire position at a small loss. It was not clear to me why Mr. Brindle resigned as the CEO of the company. I did not like the level of uncertainty when the stock is selling at 1.5 times book. I am sure that the Mr Brindle must have incorporated a value based philosophy in the entire organisation — but without him, I would never buy at these prices. The inevitable conclusion is that I should hold or sell. I felt more comfortable selling.
I added to Kinder Morgan (KMI) and Tesco (TSCO.L), while getting rid of my Land’s End (LE) holdings. All in all, a very subdued month.
This post will be updated again later.
This was a transformational year for the way I think about investing. This had some drastic effects on my portfolio. In particular, I sold almost everything I did not have a good grasp on.
This year I started with 50% cash in my portfolio and it has built up through the year. I now have 70% of my portfolio in cash.
Meanwhile, the portfolio value has gone from 75,000 at the beginning of the year to 115,000 at the end. Taking out the 20,000 cash which I put inside the portfolio, the performance has been close to 20%. Interestingly, given that I was only 50% in stock, the performance has been more like 40%. But this probably is cheating.
I started a new position in Lamprell Plc (LAM.L). I bought 800 shares at £1.36 each.
I wrote about it on seekingalpha [src].