Well that was a pretty exciting week… If I’d told you Monday afternoon that the market would end the week up, I bet you wouldn’t have believed me…
After falling 4.1% Monday, the market closed higher each of the next 4 days, finishing the week 1.37% up on last Friday’s close.
We didn’t do any buying this week, but finished the selling of yet another holding as we attempt to consolidate back to nearer to 20 holdings, which is what I consider to be the ideal amount given the relatively modest assets of the fund.
We in fact hold 27 positions still, but 2 of those amount to only $1,700 worth as we investigate a couple of interesting opportunities. We could reasonably ignore these holdings, which we have to go down to the 4th decimal place to measure. Actually, including these 2 tiny placeholder positions, our 8 smallest holdings in fact only amount to 3.93% of the equity portfolio. So 96.07% of our portfolio is in the 19 largest positions, so we are satisfactorily concentrated despite the apparently excessive number of holdings.
The disposal this week was our interest in FFI Holdings. Actually, we have eliminated this holding over the course of August, completing the process this week. FFI Holdings are a food processing business who have a side business involving some investment property they have been steadily developing and selling off, retaining some as a rental income stream.
The food processing business is a decent operation, earning a fair, though unspectacular return on capital, but for a period the investment property appeared to give the prospect of meaningful valuation upside, whilst protecting the downside of an investment in FFI.
Unfortunately, the addition of meaningful rental earnings from the property portfolio have been somewhat eroded by a recent decline in the food business. The food business appeared to be doing better in the second half of FY15, and if the trajectory continues, FY16 could be much improved, but I believe on a risk/reward basis, I can find a better home for the capital at present.
Our IRR over the holding period was 12.2%. Given the investment did not perform nearly as well as expected, this shows the value of an inexpensive purchase price, a below expectations result is at least not a terrible one.
FFI is a very well run business I should add. Listing in 1988 at around 30 cents per share, and paying a steady stream of dividends, the buyer at IPO has had a roughly 12-fold increase in their capital alongside their dividends. The owner since IPO has probably earned pretty close to the 12.2% IRR we did during our holding period. In a tricky industry, the CEO and Board (with substantial ownership interests) have done a very good job of exploiting the limited opportunities that presented and if they continue to operate the food business well and squeeze some additional revenue from the investment property, they can probably continue to generate a decent return somewhere near the historic average. But I aim to do better than decent (I really hope for indecent returns if I’m honest), so I will move our capital to (hopefully) greener pastures – Tony Hansen 28/08/2015
|
|
Apr 1st 2011 |
Jul 1st 2015 |
Current Price |
Since July 1st 2015 |
Since Inception |
|
EGP Fund No. 1 |
1.00000 |
1.57872 |
1.61339*1 |
2.20% |
89.76%*2 |
|
37333.23 |
50922.68 |
50319.69 |
(1.18%) |
34.79% |
EGP Fund No. 1 Pty Ltd. Up by 2.20%, leading the benchmark by 3.38% since July 1st 2015. Since inception, EGP Fund No. 1 Pty Ltd is Up by 89.76%, leading the benchmark by 54.97% all-time (April 1st 2011).
*1 after a 31 May 2013 dividend of 2.333 cents per share (cps) plus 1.000 cps Franking Credit, a 31 May 2014 Dividend of 7.000 cps plus 3.000 cps Franking Credit and a 31 May 2015 Dividend of 8.6667 cps plus 3.7143 cps Franking Credit
*2 calculated based on dividends reinvested
