Only in illiquid smallcap land could you find a stock like Michael Hill $MHJ.AX - 8 consecutive qtrs of SSS growth despite on/off lockdowns; a loyalty program growing 4x in a yr, and structural margin improvement under new mgmt - trading at 4x EBIT w massive net cash...🤔🤔
Work to be done to figure out how sustainable the improvement is but given it started well before COVID; has continued growing thru COVID; and online sales still only 6% of group (ie not massive rush to online), I think it has legs...
Consider also that group EBIT margins still likely only 11-12% vs NZ margins in the low-20s (smallest mkt so its not about scale). Plenty of room to improve margins as loyalty biz/repeat customers increases, lower costs thru rent renogs, etc...
This brand has been around for 40 yrs, it is not some fly-by-night new-fangled thing. Aus/NZ will remain largely closed for next 18mos. What will the punters spend their money on? Stuff like this...
V illiquid stock so tiny position for me given this but I expect the founding family either LBOs it or sells out to P/E once operational turn around complete. 4x EBIT (and I think ~6-7c DPS, ie 7.5% div yield) at current seems wrong for a potential multi-yr consumer growth story.
Long small. This is illiquid. DYODD, GLTA 🙏
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The amount of value you can find when you go down the mkt cap curve is fairly astonishing. Today's eg: The Works, $WRKS.LN, a UK-listed games retailer at <2.5x pre-COVID EV/EBITDA - w no debt.
As always the goal is to find situations where it's v difficult to lose $$
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If you look up 'world's best businesses' you won't find $WRKS.LN looking back at you but that's not what this is about. Post restructuring in 08 the concept has successfully grown to 500 stores, generated ~220mm GBP revs pre-COVID, and put up ~13mm in EBITDA:
Today's mkt cap is ~34mm GBP so ~2.5x EV/EBITDA. Note this biz was putting up positive LfLs, successively, pre COVID and growing the concept (toys/games/gifts, kinda like $FIVE in the US).
Ie this is not some left-for-dead shrinking concept.
It's been a little while so let's catch up on a few ideas. Am not going to cover every detail but will give thoughts on a few live situations I've tweeted about in the last few months (in no particular order).
Unless otherwise disclosed I'm long all these names, DYODD 👇👇
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1) Cambria Auto, $CAMB.LN. See original 🧵 below.
Looks like Lavery is gonna steal the co for 80p but not yet confirmed. Am voting NO, but given capitulation of other holders + bullshit workaround he pulled on board it seems tough.
Assuming it gets done at 80p, this will simply be a sub-par outcome but - given entry in mid-high 70s - certainly not a disaster and a positive return. Still, will likely leave a bad taste in the mouth 🤮🤮
Raper Capital Origin Story, pt 4. We have arrived at 2017.
I had moved back to buyside (in London) to get more experience so performance is simply static long book only (essentially forced to close short book and no new trading)...bit boring 😰
Still there are lessons to be had. 2017 was a v good yr for the mkt - SPX +19% - and a good yr to run naked long. I did pretty well - +21%, 2.2 Sharpe, mirrored the mkt but a touch better:
I was running v concentrated w chunky positions in $AER, $5184.T (Nichirin), $TFG.NA and $TOWR so there was a bit of vol mid year but ultimately returns were worthwhile (ball only dropped on $AER in 2018...)
Entering 2016 I was pretty confident. Now in Singapore, I had put up v high, and uncorrelated, returns thru 2014/2015, and built my capital base substantially. But it was still subscale and one goal I had in 2016 was to 'bootstrap' my own fund launch...
Unfort it all went a bit pear-shaped in 2016. Here's how I did: +1.3% vs SPX +10%, so first year of underperformance. Sharpe collapsed to objectionable levels (0.2). I got hurt badly on shorts this year (3 out of 5 top losers were shorts):
2015 was a very different kind of year to 2014. Obviously the SPX went down (-1% but still down). I had moved from NYC to Singapore so my natural focus also shifted back to Asia, and in particular, Japanese stocks.
Shorting saved me in 2015, bigly. Here's how it went...
+39% vs SPX -1%, so obvi still a good outcome but it felt very hard at the time. My Sharpe fell, substantially, to 1.6 and I suffered a number of sizable drawdowns...making the yr much trickier:
For the sake of total clarity, this was a JOKE. I was not +850% in 1H...but I appreciate all the (undeserved) 💕
Tbh I'm not really a fan of posting recent, out-of-context PnL. But I am a fan of looking back on past performance and trying to learn the right lessons...
So I'm introducing a new segment, the 'Raper Capital Origin Story', pt1. if this is wildly unpopular it may prove to be part 1/1. Otherwise I will do these occasionally ad hoc.
Let's start at the beginning - 2014. I had just left a HF job (long/short credit), and was in NYC...
...having worked in finance for ~6yrs at the time (and invested PA for 12-13yrs at that point). But this was the first yr i attempted to 'prove' i could make it as a full-time investor.
My initial account was not large (sub 7 figs). Ie I needed to make big bets (fine w me!)...