Analyzing Bargain Stocks

Active investment managers have taken severe beatings over the last few years as money piles into passive index funds. Manning & Napier  (MN), Inc. is a US-based registered investment advisor. It earns fees serving wealthy individuals and institutions via separately managed accounts, mutual funds, and collective investment trusts. The company has suffered declines in assets under management (AUM) from $25.1 billion two years ago to under $19.5 billion as at December 31 st , 2019. Almost all its funds have underperformed their benchmarks (though not by a lot) over five and ten-year periods. Revenues have declined from $314m in 2015 to $138m in 2019. In such a backdrop of continually declining revenues, the bargain hunter would hang his/her hat on liquidation value. Examination of the balance sheet reveals net liquid assets i.e. cash, short-term investments, and short-term receivables net of all liabilities of $81m. The company's common stock is selling for under $49m

How do you value the stub of a business that sold off its consistent earnings generator? Galliford Try Holdings plc (formerly known as Galliford Try plc) is a UK-focused construction company that sold a large chunk of its business (Linden Homes and Partnerships & Regeneration divisions), which accounted for about half of its revenues before disposal and over 100% of its profits. What remains is a business with ‘Buildings’, ‘Infrastructure’, and ‘PPP Investments’ segments that generated revenues of GBP 1.311 billion and pre-tax losses of GBP 28.6 million in the last twelve months (before “exceptional” items comprising several one-off items). The company has an order book of GBP 3.2 billion and management are targeting a 2% profit margin. The net debt as at December 31 st 2019 was GBP 225m. After the disposal on January 3 rd  2020 and receipt of consideration, however, management assert that the group operates with a net cash position of GBP 225m. The adjusted balance

Oil is currently trading at multi-decade lows. Seplat Petroleum owns stakes in eight oil blocks in the Niger delta region. It owns 40-45% of each of them, operates four, and is a non-operating partner in the remaining four blocks. Seplat is listed on the London stock exchange and in Nigeria. It owns proved and probable oil reserves of 509 million barrels, which will last it till 2042 at current production levels of 47 to 57,000 barrels per day. Its production costs are a mere $6.20 per barrel giving it enormous staying power even in the current oil slump (with WTI crude at $20 today). This doesn’t factor in the hedging of all its sales to the third quarter of 2020 at $45 per barrel. The company generated pre-tax profits over GBP 260m in the last two years though it wasn’t immune from losses during previous oil slumps (and exacerbated by militancy in the region). Net cash flows, even after acquisitions have enabled fairly consistent dividends at just under GBP 50m a year.

Most investors have low tolerance for deficiencies in corporate governance. Ferrexpo is a classic case of an excellent business soiled by corporate governance issues. The company is the world’s third largest iron ore pellet manufacturer and supplier to the steel industry with an 8% market share. Its assets are in Ukraine and listed on the main board of the LSE. Its iron ore reserves would last another 55 years at the current rate of production. The controlling shareholder appeared to be close to the previous political regime in Ukraine. He is now subject to several investigations into his businesses even resulting in a Ukrainian court ordered freeze of the company’s 50.3% stake in a subsidiary. This only prohibits transfer of the shares and doesn’t affect the operations of the business. Such are the political risks associated with Ferrexpo.   Prior to this, the company’s troubles began with the discovery of questionable donations of $120m to a Ukrainian charity named ‘B

The opioid crisis in the US claimed many lives and the US government went after pharmaceutical companies manufacturing drugs for opioid recovery with a vengeance. Indivior, an LSE listed company, was one of them. It manufactures buprenorphine-based prescription drugs for opioid dependency and related mental disorders. The US Department of Justice (DoJ) is suing the company for $3bn in damages, which would more than wipe out the equity of the company. Its current net worth, adding back provisions of $438m for the case, stands under a mere $650m as at December 31 st , 2019. Further, its blockbuster drug ‘SUBOXONE’ went off patent in February 2019, which spawned generics competition, and was the main reason for decline in revenues from US$ 1bn to $785m in 2019. Operating profits before taxes fell from $292m to $178m. Management has indicated further revenue losses in 2020 to US$ 525-585m with losses of $20m to $50m – primarily to grow market share for its two recently approv

The UK construction industry has taken several blows in the recent past – once Brexit uncertainties were beginning to lift, it has to deal with a pandemic. Costain plc is a UK-focused technology-based construction company serving the transportation and natural resources segments. It has an illustrious history of UK construction and serves primarily large customers. 2019 was a sub-normal year for the company owing to contract delays, cancellations, adverse arbitration judgments and other one-off factors. Previous to that, it generated pre-tax profits of around GBP 40m. Operating cash flows were adversely affected recently due to prompt payments to suppliers required by UK regulations. Other cash flow squeezes by customers requiring greater financial strength from their contractors - partly as a result of recent failures of other large contracting firms (e.g. Carillion) – has prompted the company to propose a rights issue of GBP 100m, which is fully underwritten by bankers and

The House always Wins. Plus500 offers online trading services for ‘Contracts for Difference’, which are essentially bets between two parties on the value of an underlying. It’s listed on the main board of the London Stock Exchange. They offer contracts on 2,800 underlying financial instruments (including cryptocurrencies) across eight developed market regulatory jurisdictions excluding the US. As the broker, high trading volumes and high volatility (that attracts speculators) are good for business. It appears to hold a strong competitive position in transparent regulatory regimes, which bodes well for the stability of future earnings. It’s a rare business that thrives in a pandemic, and all indications are that Plus500 is having a better year in 2020 than 2019. The company’s revenues declined substantially from 2018 to 2019 as a result of EU regulations crimping its operations. It lost 34% of its active customers and 25% of average revenue per user (ARPU). 2019 was th