Having started Augustusville in March, the portfolio is down 8.6% for H1 2022. Here is an update with some thoughts on performance, positions & the market
Hey Carsten, just wanted to say great blog and post! I found your blog recently and discovered I own some similar positions. I too believe that companies are not overly cheap at the moment, but I'm finding some interesting special situations like ALJ Regional.
Thanks Lollapalooza. Yeah, ALJ is clearly interesting - after the Phoenix Colour Sale and the Faneuil Asset Sale they should hold more than 2.50USD in net current assets. Question is what they are looking to do with it. I do not trust management too much here so it is more of a small position for me. Are there any other special situations you can point me to? Best Carsten
Yes, I don't trust management very much either. Another similar situation is BBX Capital, (posted on Clark Street Value) it trades below net current assets and has some real estate in Florida that is basically being assigned zero value. But again the management is questionable here. Harbor Diversified is also another interesting one, it's a regional airline that will likely be liquidated next year and shares currently trade below the likely liquidation value. If it's interesting, feel free to check out the post on this blog: https://twoandtwenty.substack.com/. Alluvial Capital also wrote about it in their Q1 letter: https://seekingalpha.com/article/4504974-alluvial-capital-management-q1-2022-letter-to-partners.
Industrias Banchoco was an interesting merger arb but the spread has narrowed some now. The controlling family (owns 75%) offered to buy the remaining shares at $48, was trading at $40 at one point, trades at $44 now.
Thanks a lot for the idea-drop. I looked at HRBR and agree it is a compelling situation. My problem for Augustusville buying it is that I have a relatively recent IBKR account and still need to convince them to allow me into OTC stocks (which is more difficult than it usedto be as you probably know).
Have not looked at BBXIA but putting it on the list even though it is OTC aswell.
Industria Bachoco is the Mexican poultry business, right? Hmm, I like Mexico a lot, but have not done Merger Arb there. Will take a look too.
Yes, Industrias Bachoco is a leading Mexican poultry producer. There's not too much info on the tender offer launched by the family, but seems interesting since they own 75% already and I think shares are likely on the lower end of historical valuation, so downside should be more limited.
Sorry for late reply - I was on holidays for a week and took a break from posting. Probably you saw the discussion on the Admiral thesis on Valueandopportunity. It is highly recommended and my thoughts are really not much deeper. I considered Admiral as a price leading company with an outsider mentality in an attractive industry. Now we are experiencing that such perception is temporary and the industry is facing hefty challenges. V&O also discusses potential effects from single factors like cost inflation (worse combined ratio), a reversal of reserve releases, worsening investment income and others. If you add all these up, it feels pretty threatening. However, I do not think the picture is so bleak. Admiral, IMHO is still one of the best (lowest cost, most profitable) companies, they have reinsured a greater portion of their book than competitors and I assess for them to be fairly rational, so a market shake-up may even provide an opportunity.
Given the price collapse, I added a few bps to my position around 1,900 which was too early. I think the risk/reward is good here and the company will recover. There is a lot of uncertainty and we will need to wait for their earnings release on 10 August (or an earlier profit warning) to get a better feeling of where we really stand.
Hey Carsten, just wanted to say great blog and post! I found your blog recently and discovered I own some similar positions. I too believe that companies are not overly cheap at the moment, but I'm finding some interesting special situations like ALJ Regional.
Thanks Lollapalooza. Yeah, ALJ is clearly interesting - after the Phoenix Colour Sale and the Faneuil Asset Sale they should hold more than 2.50USD in net current assets. Question is what they are looking to do with it. I do not trust management too much here so it is more of a small position for me. Are there any other special situations you can point me to? Best Carsten
Yes, I don't trust management very much either. Another similar situation is BBX Capital, (posted on Clark Street Value) it trades below net current assets and has some real estate in Florida that is basically being assigned zero value. But again the management is questionable here. Harbor Diversified is also another interesting one, it's a regional airline that will likely be liquidated next year and shares currently trade below the likely liquidation value. If it's interesting, feel free to check out the post on this blog: https://twoandtwenty.substack.com/. Alluvial Capital also wrote about it in their Q1 letter: https://seekingalpha.com/article/4504974-alluvial-capital-management-q1-2022-letter-to-partners.
Industrias Banchoco was an interesting merger arb but the spread has narrowed some now. The controlling family (owns 75%) offered to buy the remaining shares at $48, was trading at $40 at one point, trades at $44 now.
Lollopalooza,
Thanks a lot for the idea-drop. I looked at HRBR and agree it is a compelling situation. My problem for Augustusville buying it is that I have a relatively recent IBKR account and still need to convince them to allow me into OTC stocks (which is more difficult than it usedto be as you probably know).
Have not looked at BBXIA but putting it on the list even though it is OTC aswell.
Industria Bachoco is the Mexican poultry business, right? Hmm, I like Mexico a lot, but have not done Merger Arb there. Will take a look too.
Yes, Industrias Bachoco is a leading Mexican poultry producer. There's not too much info on the tender offer launched by the family, but seems interesting since they own 75% already and I think shares are likely on the lower end of historical valuation, so downside should be more limited.
Your opinion to Admiral would be interesting.
Sorry for late reply - I was on holidays for a week and took a break from posting. Probably you saw the discussion on the Admiral thesis on Valueandopportunity. It is highly recommended and my thoughts are really not much deeper. I considered Admiral as a price leading company with an outsider mentality in an attractive industry. Now we are experiencing that such perception is temporary and the industry is facing hefty challenges. V&O also discusses potential effects from single factors like cost inflation (worse combined ratio), a reversal of reserve releases, worsening investment income and others. If you add all these up, it feels pretty threatening. However, I do not think the picture is so bleak. Admiral, IMHO is still one of the best (lowest cost, most profitable) companies, they have reinsured a greater portion of their book than competitors and I assess for them to be fairly rational, so a market shake-up may even provide an opportunity.
Given the price collapse, I added a few bps to my position around 1,900 which was too early. I think the risk/reward is good here and the company will recover. There is a lot of uncertainty and we will need to wait for their earnings release on 10 August (or an earlier profit warning) to get a better feeling of where we really stand.
Ich bedanke mich vielmals für die Antwort.