CV Capital – 31 March 2019

To my fellow shareholders,

Our accountant has finalised the FY2018 financial statements which I have sent to you by email. They have also independently calculated our pre-tax net asset per share value to be $1.0755 (Page 4) which verifies my calculation for FY2018 return of 7.6%. 

I read that Geoff Wilson, a famous Australian fund manager once described the stock market as a much better game than horse racing because one can put a bet at the start of the race and then revise the bet according to how the company is performing. One can increase the bet if the company is doing well or remove or reduce the bet if the company is faring poorly. Contrast this with horse racing where a bet cannot be changed once the race has begun. 

That analogy provides a perfect segue for why we partly sold down our position in NZME. NZME was spun off from APN News & Media in June 2016. It is a leading media company in New Zealand with two large divisions; a news print division, a radio division and a small but growing digital division. My thesis for this investment was that the sum-of-parts was more valuable than the market capitalisation and that  the decline in news print would slow, the radio division would be flat and the digital division would grow. My first and third expectations have broadly come true but the results of the radio division have been disappointing over the last two financial years. Whilst the digital division (Oneroof) shows some potential, it is still early days for this initiative. Based on the poor performance of the radio division, I think the stock is less attractive (reduced margin of safety) than when we first bought it and therefore I decided to cop a 20% loss and sell down a third of our holding to reduce our exposure. I have not completely sold out as I still believe there is a possibility that the results of radio will improve and that the digital division will gain more traction.

In my FY2018 year-end letter, I talked about Steamships Trading and how if approved, the Papua LNG project would provide a huge tailwind for Steamships and the entire PNG economy. Well a major hurdle was cleared with the signing of the Papua LNG gas agreement between PNG government and the project partners in early April. The FEED study will commence shortly and is expected to result in a final investment decision in 2020. The signing of the gas agreement was a big deal and the prospect for Steamships over a 2-3 year period is looking good.  

Our portfolio was up circa 0.9% in March. Returns are calculated once cash is received so although STW’s March quarterly dividend has been announced, it has not been accounted for as it will only be paid in April. 

Although I have been reporting CV Capital’s performance on a month end basis, I’ve done it mainly for the purposes of transparency. CV Capital’s objective is to beat the benchmark over the long term (3-5 years) and therefore I do not place too much emphasis on the current performance given the short history.

The table below shows our performance (before taxes). Our cash position is circa 25% of the portfolio.

 15 Jan 1831 Mar 19Gross
dividends
Simple Return
(pre-tax)
Compound return
p.a. (pre-tax)
CV Capital1.001.088nil8.8%7.2%
Benchmark - STW56.757.583.217.2%6.1%

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