Friday, February 9, 2018

Bought Boustead

I've followed Boustead for a while.  Also see TTI's blog for a more detailed look.

Here's my valuation for a stock price of 83c:

First, net cash is 28c/share.  This includes some cash required for working capital.  Gives a stock price of 55c.

Next, the segments with recurring earnings:

  • I estimate Geo Spatial earned 2.8c/share in the last 12 months.  After estimating taxes subtracting some HQ costs
  • (Boustead Singapore's share of) Boustead Project's Leasing Segment's after-tax earnings were 1c/share.
So 3.9c/share of recurring profits.  That gives an ex-cash PE of 14.

And we are getting the Engineering and Design&Build segments for free.  These should be coming off multi-year cyclical lows.

The risks are:
  • Long term: Much of Boustead's past success is from the old CEO's capital allocation skills.  Will this continue under the next generation?  The company has been looking to deploy cash for a long time, without success.  Hopefully they will remain conservative.
  • Short term: Geo-Spatial's revenues would drop if the AUD dropped.  Also if the Australian Government cut spending.

Bought 36000 shares at 82.5c on 6th Feb.  Thats half my position, will buy more if the stock price drops to 75-76c.  I'm content to hold them long term, and - at this stage in the business cycle - may end up holding them through the next crash/recession.

This stock does not seem to be affected much by the current correction.

Friday, January 5, 2018

Sold LBrands

2 days ago the stock dropped 15% on a bad sales report, breaking its uptrend:

This is not a Buffet-like stock that I want to hold for years, so I sold at $50.20.  Profit around USD 800.

I am now just under 60% in cash:

Friday, November 10, 2017

L Brands (NYSE:LB)

Quick look at L Brands:
  • Owns 2 major brands: Victorias Secret (underwear) and Bath & Body Works (like Body Shop).  
  • 2/3rd of operating profit is from Victoria's Secret, 1/3rd from B&BW.  
  • 97% of profits from US & Canada.  They have only recently started expanding e.g.: opened flagship stores in China and Singapore last year.
  • While B&BW has been growing, Victoria's Secret has suffered declining sales in the past 2 years, causing their stock price to drop almost 50%.  Last week they reported their first positive monthly comparable-sales number in ten months, driving the stock up 8%.

Competitive Position

They are the largest player in the US: IBISWorld estimates they have over 60% of the lingerie market, Bernstein gives around 30% of the women's underwear market (and increasing).

Victoria's Secret is in the mid-to-slightly-expensive range.  They sell at the $35-50 price point, compared to:
  • La Perla ($100+ to $700) range
  • Gap ($17-$70)
  • Target ($10-20)
  • Walmart ($8-15)
  • Amazon's Iris & Lilly brand ($10) - at these prices, Amazon is not competing with VS.

Changing fashion and Trends

Bralettes - a cheaper bra with no wiring - have become popular recently, hurting VS's profits.  However these are only suitable for B-cups and below.

A major competitor is American Eagle's Aerir brand.  Its aimed at teenagers, and rather than the airbrushed model look, they have the girl-next-door look.

Aerie has has has 15-25% quarterly same-store sales growth for the past 5 quarters.

Source: eMarketerRetail

Victoria Secret's competing brand, Pink, is also growing, but at a lower rate.  Their Annual Report states "low double-digit sales growth over last year" (not same-store sales).   So Aerie is beating them.

Can this industry be disrupted by online competitors, especially when it comes to offering a better fit and greater variety?  I would guess not, but who knows?

The Numbers

L Brand's profits dropped in 2016 and 2017:

Profit breakdown:

Because the "COGS, Buying and Occupancy" costs are one line on the income statement, we can't model their operating leverage (e.g.: An x% drop in sales leads to a > x% drop in profits, due to fixed costs - mostly rental).

ROE is meaningless because the company has long periods of negative shareholder equity!  Due to share buybacks and dividends, leaving minimal retained earnings.  Shares outstanding have steadily decreased:

Debt is a bit higher than I'd like, at around 6X projected 2017 earnings.  Its also been increasing:

I don't like the way they have borrowed in order to buyback shares and pay dividends.  Smells like financial engineering.  But they are still safely able to pay the interest.

Most of it is fixed rate debt:

    Source: Company presentation

Off-balance-sheet liabilities look OK: Negligible operating leases at 12m.  104m of real-estate guarantees as contingent liabilities. 


Buying this is a bet that their 2-year losing streak is over and same-store-sales keep recovering.  I'm betting on this because of VS' long history of growing market share, and I think that selling high-priced lingerie online will be difficult.

The stock is cheap, and a recovery is not priced in.  Its trading at 13X trailing earnings, and 20X projected 2017 earnings - trough earnings, hopefully.  I think it should trade at 15 to 20X earnings.  I think the US economy will be strong over the next few years.

I don't want to hold a retail company for years, due to recession risk and changing consumer trends.  If same-store-sales and earnings increase over the next year, the stock should be re-rated, and I'll sell.


Monday, November 6, 2017

Bought L Brands (NYSE:LB)

Bought 304 shares of L Brands at $47.91 on 6/Nov/17.  Total cost USD 14659.59.

Busy now, will write more on the weekend.

Wednesday, October 18, 2017

Bought Scorpio Tankers (STNG)

Scorpio Tankers owns a large fleet of product tankers.  They just completed a merger,  and management is aggressively betting that product rates will rise in the 4th quarter this year.  From their 2Q transcripts:

"we remain optimistic on the product tanker market outlook with fundamental drivers of our market that will remain largely unchanged. We expected demand growth actually to overtake supply growth in the second half of this year and this is happening with demand setting itself around the 4% mark supply being between 1% and 2% going forward....being already in positive territory makes us believe that it shouldn't take us too long."

At current rates, their operating cashflow is neutral to mildly-positive - rates need to raise in about 9-12 months, or else this company has to raise money from the market.  This stock is like a 1-year call option on product tanker rates.  It may go to zero, or go up several times if product tanker rates improve.

Bought STNG yesterday, 785 shares at USD 3.70, total cost USD 2901.29.  Its 0.5% of my portfolio.

Sunday, September 10, 2017

Offshore Support Vehicles

Owners of Offshore Support Vessels have have been hard by the oil price downturn.  Where are we in the price cycle?

What are OSVs?

Offshore Support Vessels (OSVs) are small vessels used to support both deepwater and shallow water rigs.  The main types are:
  • Anchor Handling Tug Supply (AHTS)
  • Platform Supply Vessel (PSV) 
  • Diving Support Vessel (DSV)
  • Construction Support Vessel (CSV)
  • Utility vessels.  Sometimes with Remote Operated Vehicle (ROV)
There seems to be a clear distinction between the first 2 types: AHTS (tug boats) and PSVs (supply boats).  There is a less clear distinction between the other types - an old AHTS may be converted into one of the 3 last types.

Different vessel types support different phases of a well's lifecycle:

Industry Overview

There are currently around 5000 to 5500 OSVs globally, with around 1500 to 2000 currently idle 1,2,3,4

The industry is highly fragmented.  The largest player, Tidewater, has a global fleet of 300 vessels, but they are so small that they are also a price taker:

Vessels operate in certain areas (e.g.: SEA, North Sea, Gulf of Mexico (GoM)).  They can move from one area to another to balance out supply & demand, but there are legal restrictions on some areas, for example:
  • Vessels in Indonesia have to satisfy ownership and crewing restrictions.
  • Vessels in US waters (GoM) need to comply with the Jones Act: the vessel must be owned, crewed and operated by Americans, and must never have been owned by a foreign company.

The Capital Cycle

New Supply

The OSV industry has followed the normal boom-bust capital cycle.  The most recent boom cycle started in 2006, and has seen over 400 vessels delivered till now.  Vessels from this boom are still being delivered, but drop off sharply in the coming years: 410 vessels are expected to be delivered the remainder of this year, 98 in 2018, and 5 in 2019:

Some vessels on order may be cancelled (e.g.: from speculative buyers) and some may never be put into operation.


Despite lease rates being below operating costs, only a negligible number vessels have been scrapped.  Since January 2015, only 2% of OSVs have been scrapped.  OSVs have low scrap value since they have little steel.  Delivering the vessels to be scrapped may cost more than the scrap price.

Unused vessels have been stacked instead.  Its possible they will never be reactivated, as this costs more the longer the vessels have been stacked (e.g.: required 5 year survey)5.  Due to safety concerns, charters may not lease ships that have been in lengthly layups.

The industry has been rife with bankruptcies:
  • The largest global player Tidewater (TDW), has just emerged from bankruptcy.
  • Gulfmark Offshore (GLF), with 70 vessels, has filed for bankruptcy several months ago.
  • In the Singapore market this year we've had Ezra and Swissco
These bankruptcies are not reducing industry capacity.  Vessels are simply sold off at fire sale prices, giving a low cost base to the buyer.  Or the company is resurrected with new shareholders, a new pile of cash, reduced debt and a lower cost base.


Quite a few reports predict increased OSV demand:
  • Pareto predicts a gradual recovery: If oil remains between $50 and $60, they predict an additional 130 rigs from 2018 to 2020, leading to additional work for around 390 to 520 OSVs.
  • Douglas-Westwood predicts OSV expenditure to grow at a 4% CAGR between 2017-2021: DSVs at a 6% CAGR, MSVs (consisting of CSVs and Utility Vessels with ROVs) at 7% CAGR, and pipelay expenditure at negative 4%.


There will be a recovery sometime.  We are waiting for laid-up ships to slowly rust, until it is uneconomical to put them back into service, while...hopefully...demand rises gradually at a single digit CAGR over the next few years.  

I have no idea when the turnaround will happen.  From the numbers above - especially if the 400+ expected new ships are delivered - no one can see it happening this year.  But these type of industry numbers won't tell us anything till after the turnaround.  Technicals will tell us, but will give a lot of false starts.  If I was going to buy, I would take very small positions, and spread out my buying over time.

1 Tradewinds article: Crisis batters OSV hub (19th/Apr/17): "We have around 5,000 OSVs in the market and about 3,000 are working." 
2 Tradewinds article: Rig's Inflection Point offers hope of gradual recovery (7th/Sep/17): "About 1500 to 1800 OSVs are sitting idle now." 
3 Clarksons Offshore Support Vessels front page: "OSVs in service: 5301" on 10/Sep/17." 
4 Offshore Support Journal: Greenshoots of Recovery in downbeat OSV market (6?Apr/17): "There were also around 1200 vessels laid up globally of a fleet of around 5,500 vessels
5 Some numbers here: "According to Clarksons Research records, just under 50% of laid-up OSVs no longer have an active class certificate as of February 2017. Two thirds of these out-of-class vessels are older units built prior to 1990....However, 856 of the laid-up OSVs appear to still have an active class certificate. These are skewed towards the younger end of the fleet...However, this number might decline in the future: 22% are scheduled to have their five year special survey in 2017 and a further 24% in 2018.....Financing special survey costs is also an issue for active OSVs, as well as those in lay-up. Considering the active fleet (3,688 units at start February 2017), 641 OSVs have their special survey due in 2017 and a further 721 vessels in 2018. The majority of these (over 80%) were not under long-term contract. " 

Wednesday, August 16, 2017

Sold Snap Options

Sold at $3.19.  Profit USD 2182.43.

Q2 earnings were bad and SNAP shares fell.  But they haven't been falling in the past few days: staff were allowed to sell on Monday, and even allowing a few days for the paperwork with brokerage accounts, they are not selling now.  Maybe the big drop is already priced in.  Since my short-term options are up 45% on volatility, and most options expire worthless, take the small profit now.

At what price would I turn around and buy Snap?  The app and the user-base has value.  But since the common shares have no voting rights, they're probably worth zero.