Best places to invest for 2014 - Crisis hit countries / companies (Part2of4)

Countries badly hit in the financial crisis of 2008 leading up to the European crisis - Spain, Greece, Portugal (or companies with proxies to this markets) seems to offer alluring prospects for the discerning investors. As we can see the world economy seems to be turning a corner with growth prospects coming in as global equities begin hitting all time high and currencies such as USD, EUR and the British Pounds are all strengthening showing the evident trend that the smart money (or herd money) may be heading back to developed countries away from the emerging markets.

That often brings about the best opportunities not by bottom fishing - but when you see that the recession has indeed ended - thats about the best time to go in.

From the way I see it, the USA stock market can go both ways - having reached an all time high by surpassing 16,000 on the DJI, my gut is that it could run up another 10-15% by mid 2014. But the smart money doesn't really like to bet on guess whether businesses are going to do well, they want certainty and that can be a hard thing to come by given the following two points.

- Stock prices have hit an all time high for DJI and S&P500. 
- With the Fed tapering on 18 Dec 2013, bond prices are expected to fall given a drop of 10 bln in monthly bond purchases from 85bln to 75bln.

With such a situation, should you go for equities or go for bonds? The contrarian principle requires you to avoid all time high purchases while it just doesn't make sense to go against the Fed if they are going to cause bond prices to collapse.

Which comes to my point - Find the gems in the countries turning the corner - good business models that have yet to be taken notice of, they can be in resource companies - gold (fallen significantly) or construction companies in european and american companies - some of which you have proxies on the local exchange here in Singapore.

More importantly, how does one exactly see the turnaround of a company/country?

Companies
1) Companies who previously were in the red have start to show green shoots of positive earnings
2) Order books are starting to build up plus management announcing their positive outlook for the year ahead.
3) Banks are beginning to extend more credit facilities to companies and companies are beginning to raise more capital from both rights/bonds (do note that the usage of the proceeds should be scrutinize with much detail as sometimes the companies do not use them productively)

- As always, the best companies know when to use their cash and when to save their bullets for the right moment.
- Local gems include companies with a low p/b value such as Liongold or beaten down resource companies such as Noble Group, Olam, Wilmar and Golden Agri Resources.
- Turnaround companies with new management, business plans and corporate finance experts - CCM group, GRP ltd and ICP ltd
- Asset manager - distressed asset purchase remains the flavor of the coming decade with more and more companies undergoing restructuring, opportunities remain abound. One local company engaging in such a situation - Global Investment Limited

Countries
1) Falling unemployment rates
2) Rising GDP figures
3) Rising housing purchases, domestic spending and income (Often being able to be seen from increase in taxes)

With that being said, following the coattails of brilliant investors and thinkers may also prove a prudent strategy. The following are countries in perspective.

Spain
Why it makes a good investment?

• Bill Gates (the world's richest man) is betting on a recovery in Spain by taking a 6% stake in Spanish infrastructure group Fomento de Construcciones & Contratas.
• Additionally, he is note alone in betting on the recovery as Spain ranked as the world’s 14th-ranked destination for foreign direct investment, with a total $28 billion in inward flows.
• Bond prices have stabilized for the country - showing the faith investors have in the government's actions
• The Spanish government is learning from Germany's unemployment problems from 2003-2007 and taking the right steps by pushing down labor costs (which have spiral up too much from 2001 - 2007 at a rate of 4% p.a.) - what many call the low cost manufacture revolution.
• 'Spanish unit labor costs fell 4 percent from 2008 to the first half of 2012, and the decline relative to the euro area average amounted to 10 percentage points, according to data compiled by Commerzbank AG in Frankfurt. As the implementation of the new labor law allows for further wage cuts, Spain may outstrip the 16 percentage-point decline against the euro region that Germany achieved in the decade through 2008, said Joerg Kraemer, Commerzbank’s chief economist'
• Tourism continues to be a strong pull for the country - and personally I love the country Barcelona (not for the pickpockets though) 
• Spanish language is still spoken by many latino countries in south america making it a big player in the future of South American (Emerging market growth)

Sources: 

1. http://www.businessweek.com/articles/2013-10-22/why-bill-gates-is-making-a-155-million-bet-on-spain
2. http://www.bloomberg.com/news/2012-12-19/rajoy-drives-spanish-revolution-with-low-cost-manufacture.html

Problems
1. Europe's population has not exactly found their way out of employment - Among the Member States, the lowest unemployment rates were recorded in Austria (4.8 %), Germany (5.2 %) and Luxembourg (5.9 %), and the highest rates in Greece (27.3 % in August 2013) and Spain (26.7 %). Source: Eurostat
2. Youth unemployment in Spain remains high at 53.2% compared with its other EU compatriots - this leaves much room to imagination as youths can be quite a ruckus bunch leading to a possibility increase in petty crimes, social unrests, riots etc.
3. Creation of jobs will take at least 5 years, any contrarian bets on a turnaround for this country can easily be unravelled by another financial crisis that may be looming around the corner.

*In Greece (55.4 %), Spain (53.2 %), Portugal (37.7 %), Italy (35.3 %), Slovakia (34.0 %) and Ireland (30.4 %) youth unemployment rates were particularly high. Germany (8.1 %), Austria (8.7 %) and the Netherlands (9.5 %) were the only Member States with a youth unemployment rate below 10 %. Source: Eurostat

Greece
1. For a country heavily reliant on exports and tourism, this country was doing a terrible job at keeping the country safe for tourists - I heard of a exchange student who was mugged on a train station by 6 individuals....apparently they didn't take anything in the end because his pants was too tight - wallet couldn't be removed.
2. Olive oils - definitely something more the world could use. Nothing too exciting happening in Greece just that agriculture and tourism - beautiful places like Santorini should warrant a visit with your other half/ family etc.

Portugal
For a country with no Singapore embassy (I think it can be hard to explain the merits of investing in such a place) - my friend had her passport 'pickpocketed', it took an entire day to convince the airlines to give us a chance to get to Vienna to get a temporary replacement. Thank God for good Singapore immigration team (MFA) who liaised with the companies and such.

I am not an expert on Portugal, nor will I try to be, but I do think this country has potential - you can even get a 5 year residency (Golden Visa) if you invest in a property there. Do see the following portion for more information on Portugal 
http://www.portugalglobal.pt/EN/InvestInPortugal/investorsguide2/Paginas/Investor%27s%20Guide.aspx

Cheers, share the word and leave a comment.
Wishing you a blessed christmas in advance!
Yours sincerely

DBS report on Myanmar

Hi all,

DBS has a really comprehensive analysis on Myanmar. Do take a look to widen your perspective of the exciting economic prospects this country holds.

http://www.dbs.com/insights/conference/2013/CountryBriefing01_Myanmar.pdf

Go BIG or go home - Yoma Strategic Holdings (Special analysis)

Dear readers,

As a follow up to a reader's request, here is an analysis of Yoma Strategic Holdings. 

1) Building up the conglomerate story
- Real Estate and Construction
- Agriculture
- Retail
- Luxury Tourism
- Automotive

Real Estate/ Construction/ Retail
The real estate story is largely intact. As the middle class begins to grow in the myanmar, the demand for quality houses continues to grow. Yoma has the equivalent reputation of capitaland (Singapore company) and it would do well to serve this. Impressively, we have begin to see the return of overseas burmese back to myanmar to help their country - restart.

Small initiatives that have great potential include a small sales office in Singapore for burmese nationals to buy houses at star city.

Mitsubishi Estate has teamed up with Yoma to work on the Landmark development 
'Located opposite Trader’s Hotel and adjacent to Boyoke Aung San market, the US$350 million project will include office buildings, serviced apartments, a hotel and a mall when completed.' This is a highly primed location and its really a very good place for future Grade A offices.

Also being built is the telecoms tower for Ooredoo - one of the winner of the telecommunications bid, such deal savvy moves speaks well of the companies ability to win deals and connect with the right partners for future growth and good yield projects.

Collaboration with Parkson to start Parkson retail mall starting a possible mall trend "similar to the Singapore retail mall story".

Agriculture
Although not a big contributor to the company as yet, agriculture has a potential. Currently being run by the former Director General, Department of Agriculture Planning in the Myanmar government. Good connections definitely are a plus in this case.

Luxury Tourism
Having bought over a hot air balloons business for $10m, the former management joined Yoma team to manage the business. Being a rather profitable business already, the business has interesting potentials as increasingly more tourists are coming to myanmar.

Automotive
With the relaxation of automotive ownerships by the burmese governments, the price of a toyota altis fell from US100,000 to about US20,000 overnight. An amazing phenomenon which would definitely lead to more ownership of cars. Yoma having a strong partner in Volkswagon is definitely in the right position having won the deal to running the after sales service centre for Volkswagon.

2) Management
Serge Pun being a well known, well connected businessman who has gone through losing everything to making a comeback is the right person to place your money on. In my opinion, he is comparable to Chua Thian Poh of Ho Bee Land group, another well connected, well respected businessman who has gone from rags to riches to rags and to riches again.

Serge Pun's successors and his sons, Cyrus Pun, executive director having graduated from London School of Economics runs the real estate department. The alternative director to Serge Pun, his other son Melvyn Pun is a former goldman sachs almuni, where he spent 12 years at Goldman Sachs in Hong Kong, where he was Managing Director, Head of Asia Ex- Japan Corporate Solutions Group. He currently heads SPA group, a sister company of Yoma.

Given the number of sizable experts in corporate finance - CEO included. I believe the company may be in a good position to utilize any possible debt and capital raising for future growth.

3) Valuations
Giving Yoma a market valuation is quite a tricky situation, should we priced in the conglomerate story? Should we add on the fact that there is a severe lack of quality pure myanmar listed company on the market? Does the management deserve a high premium on its deal savvy moves?

While the above are valid questions, it can be rather difficult to justify a P/E of 45.32 at current prices of 0.755. That being said, consider the following merits

Aberdeen asset management, a long only company with strong Graham investment principles invested in the company at $0.8/share - coatail investing may be a strategy that works here. Jim rogers owns the shares too, at a much lower price though.

Real estate is the right theme for a country where the demand is severely outstripping the supply. The first mover advantage as well as the visibility of Mr Serge Pun and well known individuals (Soros, Jim Rogers, Digicel, Volkswagon, Parkson) just to name a few want to work with this company just shows that they understand Yoma's position in the market.

Catalyst - Strong earnings would come from Star City development as well as the landmark development grade A office.

Personal conclusion

As a last note, I own 2 lots of this company and it is my dream to own 50 lots of this company because I believe it is the right company for the long run. A valuation purely on numbers call for a sell on this stock, I feel personally in 10 years, this company could be worth 3 times its current value. Additionally, I believe this is a possible 'buy and hold forever' company. Conglomerate building stabilizes the company, opening up of the country helps to boost business connections and ties, and finally the citizens own growing income can help are trends that this company continues to ride on. Highly qualitative in merits at the current moment. 

Where are the best places to invest currently? (Part1of4)

Not barring a lack of opportunities in the market due to the recent rallies in the market. I begin to think hypothetically into the future. Something many investment managers all mentioned.

"Prospects" is the key word. Think long term, think beyond 10 years, 20 years. IF you had to hold a company forever, what's it going to be. Buffett mentioned a 20x punch card, so its about holding your horses, picking the right one and boldly executing.

Which comes to the point.

Where seems to be the best places to invest your money? Clearly, something with a minimal downside and a high upside is the best place to look. A few things come to mind. They are

1) Myanmar theme stocks
2) Crisis hit countries / companies - Spain, Greece, Portugal (or companies with proxies to this markets)
3) BRIC
4) Resources - Indonesia (in particular)

Let's start with Myanmar. The golden land. A country with great potential. Intrigue by the news recently, I made a field trip post-graduation to check out the landscape in Myanmar. I was pretty amazed by what I saw.
- The country looked somewhat like Singapore in the mid 60-70s. Notwithstanding, shopping malls, quality housing and other things were being built at a rapid rate.
- A recent report showed that the office rental was higher even than that of Manhattan. The potential for Grade A offices were huge.
- Rental of a 1 room flat could go as high as USD1k/mth. That could be the annual salary of a low wage worker there.
- The wages there were the lowest in the region, you could see many retail shops with a few sales staff simply because they are cheap.
- Anything starting at a low base offers the best opportunities
- Jim Rogers is excited, so am I
- There used to be black market exchange there for local currency - kyat. Today, proper agents at the airport offer relatively good rates. USD, Euros and even Singapore dollars may be exchanged. This speaks testimony of the 3 key business partners, USA, Europe and Singapore.
- The big 4 accounting firms have opened up branches there.

I highly recommend a trip there, if you are interested,  you could send a request through the following link  http://www.goldenexpresstours.com.

My junior college friend and business partner is running a tour agency there, they can customize different packages suiting your needs. Some of his customers come from as far as Europe, he is a reliable friend.

Do note that you would have to apply for an entry visa as well as book your own flights there.

Some notable companies with exposure to Myanmar
1. Yoma Strategic Holdings
2. Tiong Seng Holdings
3. Woh Hup
4. Keppel Land
5. WE holdings
6. Interra Resources
7. Neratel
8. Yongnam

If you would like me to write on any of them, do drop a comment. Cheers!

Investment themes for the next 10 years

Interestingly, there are many investment themes, flavors of the months and such in everything from retail to ice cream to degrees and stocks.

1. Inflation
Constantly feeding into the economic system, the asset market and biting into income spending power, inflation is the one trend that continues to bump up asset prices, hard assets appreciate, commodities get more expensive etc.

Why is this important? Holding purely cash is a bad idea. Holding a basket of assets may be a better solution in the long run.

Property, Gold and a functioning business to name a few.

2. The increasing aging population
With better healthcare, quality of food, fruits and simply better standards of living. People are expected to live well beyond the age of 80 as the number of centurions keep rising.

Why this matters? Healthcare is a beautiful business model, but not just that - quality healthcare, simplified housing with safety features, special aids equipment, organic and healthy food are all areas that can target the elderly.

IHH, Raffles Medical, Cordlife, Capitaland

3. Digital technology in different fields
Managing data centres, designing a better interface for users, creating applications, simplifying thinking and using a framework to help make better decisions from oil and gas to financial programs to deciding to do an oil and gas drilling.

- Keppel T&T, Neratel, Silverlake Axis, Rex International

Keppel Reit - Undervalued large cap

Upside
In my opinion, Keppel Reit has a potential price of $1.5, a 26% upside from current price. Here is why I think so.

Improving returns
Net Property Income for YTD Sep 2013 increased 9.9% y-o-y to $100.9 million due mainly to improved performance from Ocean Financial Centre and the additional contribution from 
8 Exhibition Street, a premium freehold Grade A office building in prime central business district  (“CBD”) of Melbourne, Australia 

Rental structure

Keppel REIT’s weighted average lease expiry (“WALE”) remained at healthy levels of 8.3 years and 6.4 years for its top ten tenants and the entire portfolio respectively

Capital management
Their debt structure allows for no refinancing till 2015, an interest rate of 2.15% for debt and 75% unencumbered property.

Calendar trend

I believe a rally happens from november to december. So if you are looking at 10% upside, Keppel Reit has a reasonable profile. With a 6.6% dividend yield at current prices, it should provide some cushion to any sudden fall in prices.

Supporting trend

With rental revision for offices expected to rise next year due to Grade-A office crunch. Additionally, Ocean Financial Centre recent TOP - REIT prices may just rise soon, especially with an increased float to 55.4% from 22.5% previously, improved liquidity will help improve prices.

Risks

- Temasek just divested 109.5m shares. (To a smarter investor hopefully?)

- Highly geared at 40% debt/asset ratio (potential rights issue  for acquisitions or cushioning debt may cause sharp share prices fall)

- 99.4% occupied leaves potential for possible defaulting tenants and limited upside of 0.6%.

- Office assets in Australia may be suffering from slowing economy there - that being said, Australian govt. cutting lending rates to 2.5% would help.

Read the latest quarter presentation below.

http://infopub.sgx.com/FileOpen/Keppel.REIT_3Q2013.Results.ashx?App=Announcement&FileID=259745

Blumont and Liongold - What does the future hold for this two resource investment holdings?

Blumont
A share with a phenomenal rise over the last few months. It kept rising from 0.05 to 2.41 before crashing to its now 0.133 share price. Interestingly, a few days before the collapse, while I was on the train, I observed an aunty sitting beside me scrolling through her stock portfolio, one stock she stare at for a long while (like it could make a difference) was Blumont.

A stock that I saw everything that I was against.

- Phenomenal rises in prices for not much reason, at some point, its market cap made it worth more than SMRT or NOL while its largest acquisition is only 45m.
- No key all star management with special connections
- No key businesses but purely rising on acquisitions.

I found some interesting points that may possibly quantify an investments at current price of 0.133. Not at the previous high prices though. It was the unfolding of events plus the contrarian and bargain hunter mind of mine that seeks the cheapest price for the highest value.

At a risk of overstating anything, this is how I quantify things.

Investment highlights:
- Hong Kong-based mining entrepreneur Alexander Molyneux has been named chairman designate. He bought a 5.2% stake with a price ranging from $0.2 - $0.4/ share. So his minimum investment is at least $27m. No small sum for someone who was formerly an MD in Citibank for Investment banking in resources.
- With Alexander Molyneux on board, the company does gain some traction in creating a resource champion, especially with prices of resources at a low price now, it may makes sense to acquire undervalued assets.
-  Platinum Partners will subscribe to redeemable convertible bonds for up to an aggregate principal 
amount of US$200 million at 8.0% p.a.. A hedge fund interest continues to provide more support for its possible business credibility. Proceeds to be used to fund the announced investment in Discovery Metals Limited.
- Discovery Metals Limited is a credible investment, its current price of 0.7, was previously a privatization target by a billionaire. (which failed)

Risk
- Blumont yesterday said its one-for-two rights issue at five cents apiece was over-subscribed by about 37 per cent, raising gross proceeds of some $43.05 million. (The flood of new shares may continue to provide more downside pressure)
- No certainty of strategy. While company has additional $43.05m of cash, the NAV at 0.4 shows that it is valued 3x bookvalue at current price.
- Certain downside may still persist as people are running for cover.

Conclusion
- New chairman, new investors and strategic alliances can help this company to grow. But the lack of clear strategy other than mere acquisitions and aiming for lofty ambitions.
- While I am positive that the new chairman and the investment hedge fund appearance will help the company grow. I remain skeptical of any credible upside unless more funds are deployed through share placements.
- Target price 0.2 (upside of 50.4%)

Liongold
- Former Citibank Investment Banking MD at the helm (a smart dealmaker)
- More quantifiable assets and undervalued by most metrics (compared to similar sizable gold miners in the region and much cheaper than CNMC goldmine)
- Mere acquisitions only, not much good in terms of creating a good strategy. Unless a profitable strategy is drawn out, I remain skeptical of the price. On a pure gold mining value, it could be worth anything around 0.30/share (100% upside)

Disclaimer : Caveat Emptor (Buyers beware), the writer has no positions in this two stocks.

Extra notes on Platinum Partners
PPVAF is a multi-strategy hedge fund established and registered in the Cayman Islands with assets under management in excess of US$700 million and is managed by Platinum Partners 
(the “Firm”). The Firm is a New York based investment management group with more than 
US$1 billion in assets under management. The Firm was founded in 2003 by Mr. Mark 
Nordlicht, an investor with over twenty years of experience in asset management. The Firm 
manages a number of funds, including PPVAF.

Extra notes for Blumont

• Copper (September 2013): Blumont entered into a concurrent convertible bond and equity placement agreement (the “Placement”) with Discovery Metals Limited (“DML”), a copper exploration and production company listed on the Australian Securities Exchange (“ASX”) and Botswana Stock Exchange, for a total investment consideration of approximately A$116 million. Pursuant to the Placement, Blumont acquired approximately 11.56% of the total issued share capital of DML; 
• Thermal Coal (September 2013): Blumont entered into a conditional share subscription agreement to acquire up to 15% of the potential enlarged issued share capital of ASX and Johannesburg Stock Exchange-listed coal mining company, Resource Generation Limited, for a total investment consideration of between A$20.97 million and A$22.11 million; 
• Copper (August 2013): Blumont acquired approximately 10.7% of the total issued share capital of ASX-listed Kidman Resources Limited, a company focused on the exploration and development of precious and base metals deposits within Australia; 
•  Uranium (July 2013): Blumont entered into a conditional sale and purchase agreement to acquire the entire issued and paid up share capital of investment holding company Powerlite Ventures Limited (“Powerlite”) for US$7.88 million (including the assignment of shareholders’ loans of an aggregate of US$4.5 million), giving the Group exposure to uranium projects in Kyrgyzstan and the United States of America through Powerlite’s interests in Azarga Resources Limited (“Azarga”), a major Asia-based uranium development and investment company. On 28 August 2013, the Group announced it was expanding its commitment to the uranium sector by increasing the size of its existing convertible loan facility to Azarga by US$6 million to US$21 million;
• Coking Coal (July 2013): Blumont entered into a conditional agreement to acquire approximately 12.75% of the enlarged capital of ASX-listed Cokal Limited (“Cokal”), which focuses on coal exploration and metallurgical coal production, and has interests in coal exploration tenements in Central Kalimantan, Indonesia and Tanzania. On 7 October 2013, Blumont entered into a binding term sheet to extend a loan facility of up to US$8 million in principal amount to Cokal to fund the continuation of development work at Cokal’s projects; 
• Gold (July 2013): Blumont led a consortium of three partners to enter into a conditional agreement to acquire approximately 43.47% of the enlarged issued share capital of ASX-listed minerals explorer Prospect Resources Limited; 
• Thermal and Coking Coal (March 2013): Blumont acquired approximately 11.5% of the total issued share capital of ASX-listed Celsius Coal Ltd., a coking coal explorer focused on developing coking and thermal coal deposits in the Kyrgyz Republic; and 
• Iron Ore (December 2012): Blumont entered into a conditional sale and purchase agreement to subscribe for 2.5 million ordinary shares, representing the entire issued share capital of Hudson Minerals Holdings Pte Ltd., for a purchase consideration of up to S$48.0 million (including the assignment of shareholders’ loans of not less than S$5.5 million). 

From website (http://blumont.listedcompany.com/newsroom/20131017_225826_A33_A3FB3FCF7EABD2F748257C07004EBD37.2.pdf)