Thursday, January 2, 2014

The Year in Review

In the end, 2013 looked like this (I have scaled the numbers to a beginning net asset value of US$100,000):

Security  Value  Gain Return Days held
Precia             6,819           1,609 23.6% 202
XPO Logistics           15,063             (183) -1.2% 38
Northgate Plc             9,013               540 6.0% 120
Hawaiian Holdings (equity)           24,530         11,104 45.3% 364
GEA           12,020           1,063 8.8% 13
Northgate           14,636         11,992 81.9% 337
Cybergun             3,290         (1,086) -33.0% 343
Lamprell           13,695           2,767 20.2% 213
Conrad             6,195           2,604 42.0% 177
Cybergun 8% bonds           14,007         18,075 129.0% 45
Hawaiian Holdings (equity)           10,018           1,374 13.7% 114
Consciencefood             7,521                 69 0.9% 132
Epicentre Holding             9,001             (222) -2.5% 201
Emeco             5,065               675 13.3% 104
Emeco             4,174           2,969 71.1% 62
Emeco           14,777           1,613 10.9% 124
Unitek Global Services             2,897               602 20.8% 13
Axia Net Media           11,052           1,103 10.0% 6
Hawaiian Holdings (calls)*             6,561           8,103 123.5% 134
Alaska Comm Sys             8,515         (1,282) -15.1% 104
Republic Airways Holdings             5,143               303 5.9% 22
The Dolan Company             5,773               110 1.9% 72
Mayur Uniquoters           13,483           9,986 74.1% 104
Zytronic Plc             7,117           1,416 19.9% 21
Lombard Risk Management             9,040               616 6.8% 65
Republic Airways Holdings           11,697               303 2.6% 54
"Reserved"           15,038           1,666 11.1% 22
Lamprell           11,112               681 6.1% 4
Tax Liability       (15,189)
After-tax Gain         63,384 63.4%
Average Cash         22,589 16.3%
S&P 500 31.9%
Performance relative to S&P 500 + 31.5%

and was experienced in this way:

Much of the year was spent trying to undo mistakes made in the back half of 2012. My posture on January 1, 2013 was not up to the task of keeping up with a bull market and, absent some fixes, would have resulted in a disappointing performance (again, the values are scaled to a start of year net asset value of $100,000):  

Cost ($USD) Gain ($USD) Return
GEA          11,376          1,415 12.4%
XPO Logistics          17,349          9,046 52.1%
Northgate Plc          17,058        11,943 70.0%
Hawaiian          26,912        12,534 46.6%
Cybergun            2,949         (1,182) -40.1%
Precia            6,383          1,808 28.3%
Tax Liability         (5,335)
After-Tax Gain        30,230 30.2%
Average Cash        17,973
S&P 500 31.9%
Relative Performance -1.7%

In any case, I've shifted things around enough that I am reasonably satisfied with how I am currently positioned:

The best laid schemes of mice and men / often go awry. Still, I suspect that there's enough wiggle room in there to see me through to a doubling of NAV within two years. Being explicit about the risks, catalysts and price targets of the portfolio-as-a-whole is a useful exercise that I should have engaged in this time last year but didn't.

And I'm still holding too many names but I hope to reduce the number down to four or five within a few months.

Happy New Year.

EDIT (January 3): It has been suggested to me that the "tracking portfolio" page is not particularly illuminating, not least since it doesn't correspond to calendar years. I agree & I've adjusted it accordingly. Also, I've taken the opportunity to reduce the number of holdings by selling out of Republic and Alaska Comm Systems. 


  1. Nice job Red. That's it, nice job. :)

  2. hi red, nice blog

    i am wondering, why you like more HA than RJET??

    it seems to me that RJET is way more cheaper than other airlines

    how do you justify such a large position in HA? any catalyst?. 6 motnhs ago it was very cheap on EV/EBITDAR or PER etc...

    but now it seems to be trading with modest discount wit its peers

    thanks very much ;)

  3. Hi, and thanks.

    HA is really three businesses:
    1) the interisland business is a monopoly that generates ~200m in EBIT
    2) the Hawaii to mainland US business has had a negative EBIT of ~$110m;and
    3) the Intl business now generates ~$100m in EBIT.

    Capacity reductions in Segment #2 will mean that the losses there reduce; growth in the intl business will mean that EBIT there will rise.

    So, I see consolidated EBIT of$250 to $300 not too far away.

    More importantly, there are natural buyers for the interisland business and a cheap price paid for that business (and everything else being scrapped for parts) would mean that HA is (still) trading below its "margin of safety".

    Third, 2015/6 is cash flow time; it has basically paid for its aircraft needs for the next 20 years so that operating cash flow will more or less equal free cash flow. When that happens, something's going to have to give.

    The discount between HA and the others is still wide when you measure it using relative TEV/EBITDAR multiples. HA is basically still at a 50% discount to the others even though it is better than them in every way (lower cost, better moat, etc).

    There are some niggles in the relationship between RJET's GAAP depreciation and its debt amortization schedules that introduces some uncertainty. RJET is also a contractor and so is not the master of its destiny. That weighs on my mind too.

    That's more or less why.

  4. Excellent thinking

    do you think that HA could have some benefit if price of oil drops??

    or due to the hedges, they can't benefit form that event.

    A very little reduction in their 700M$ annual expense in fuel could have a big impact on earnings...

    thank you RED ;)

  5. Ah, yes, thx for reminding me: HA is also that large a position because it balances the cyclical and countercyclical forces at play in my portfolio.

    To see this, you can cheat and look at what happened to HA's share price and earnings when oil prices fell in 2009.

    The proper reasoning, though, is that when jet fuel prices fall, interisland fares fall much less.

    This assumes, though, that downcycles are accompanied by lower jet fuel prices -- usually so but not necessarily so.

  6. Red,

    Great work Red!
    Question on Emeco.. what is the Secondary issuance at <=$0.32? I dont think that I saw that in your previous analysis.


  7. I think that was actually supposed to be >=$0.32

  8. Hi, Those are notes to myself about what I think would be a worst case scenario in a reasonable world. I don't doubt that the company could issue shares at about that price.