Quarterly and yearend earnings results have been coming in for several of the companies in the portfolio. I want to take the time to update my views on the various portfolio holdings.
Sylvania Platinum
Action: Sell
I really like this company and the business they are in. If you recall this company recovers platinum group metals from mine waste dumps. The business is one of the low cost pgm metal producers in the world.
Management has been prudent and diligent in managing the company. However the company is based in South Africa and due to recent events I think it is time to make the “chicken run” out of the country.
Last week the new leader of the ruling ANC party made the following announcement.
White South African farmers will be removed from their land after a landslide vote in parliament.
The country’s constitution is now likely to be amended to allow for the confiscation of white-owned land without compensation, following a motion brought by radical Marxist opposition leader Julius Malema.
It passed by 241 votes for to 83 against after a vote on Tuesday, and the policy was a key factor in new president Cyril Ramaphosa’s platform after he took over from Jacob Zuma in February.
Yes this worked out so well in neighboring Zimbabwe (former Rhodesia) that Zim went from a large agricultural exporting nation to a net importer of food and the population faced with hunger and starvation.
I don’t know if the same will happen in South Africa but I would not bet on South Africa being able to buck history or economic laws. What I do know is that the “Mandela’s rainbow nation” is dead if it ever really was alive. Why stick around and watch these communists destroy our capital.
Capital will flee South Africa along with expertise. Time to sell with our 62% profit and move on to areas where our capital will be safer and treated with respect.
If the country continues down this disastrous path I predict a complete economic and social collapse of South Africa within a decade. A lot of people are going to die.
Trican Well Services
Action: Buy
Trican Well Services is a Canadian pressure pumping and well service business. Its recent fourth quarter and year end results were not well received by the market and the stock has sold off. In addition, the oil price has pulled back as we enter the shoulder season of weaker oil demand.
I think the selloff in the stock is because of the overall negative sentiment that still exist towards oil and gas. In particular the consensus view that oil prices will be “lower for longer”. I do not share that view as comparative inventories of liquids continue to decline.
The world economy is forecast to grow 4% this year so as long as we are not in recession demand will continue to grow. In addition, the Saudis need and want a higher oil price to stoke interest in the IPO of Saudi Aramco.
And last but not least there exists a huge investment gap in new reserves and production (due to the recent oil patch depression) that will begin to manifest itself in higher oil prices as the year goes on. I believe that will lead to increased investment in production and oil services.
In the fourth quarter MD&A management said the following about the company’s business:
Industry demand and our strong customer service has resulted in our equipment being fully booked through Q1 2018, with second quarter bookings remaining stronger than a typical spring break-up1 . The Company’s customer commitments remain strong through to the second half of the year. We recognize demand in the second half will be dependent on commodity prices. However, approximately one-half of the Company’s fleets are firmly committed to customer work programs with soft commitments on the balance of the fleet. We anticipate these soft commitments will be firmed up during the second quarter.
If you dive into Trican’s financials you will note that cashflow was $133 million for the year. The company repaid over $100 million in debt. The management continues to view the stock as undervalued and has been buying back stock with both hands.
That is just a partial chart of the Trican stock buybacks. You can go to CanadianInsider.com to track the buybacks as they get reported. The company affirmed the following in it’s March 2018 investor presentation deck:
NCIB in place to purchase up to 10% of Trican shares before October 2, 2018. Purchased approximately 11.9 million shares at a weighted average share price of $4.27 per share from October 2017 to February 21, 2018. Will continue to pay down debt and purchase shares going forward.
Basically if the oil price does not collapse the company should do nicely. If oil prices move higher than I think sentiment towards these oil service stocks will change and money will flow into them. This is another instance of reviewing my thesis (higher oil prices) and then having the conviction to wait out the market until value is recognized.
I will be looking to add to my position at these lower levels.
Part 2 to follow
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