CV Capital

CV Capital – 30 April 2018 update

To my fellow shareholders,

April has been a good month for the overall market. The market losses in March were pretty much all recouped in April. In relation to our portfolio, a combination of a big position falling by 2.7%, two smaller positions increasing by 15.9% and 3.3% in April meant that increases in our portfolio for the month were not as good as our benchmark.

We bought a position in Capral.  I am familiar with the company having invested personally in Capral (prior to CV Capital) and even wrote a thesis here. This investment is a result of me having more confidence in the company after following and learning about it over the course of 12 months coupled with a recent pullback in its share price.

Capral represents the sort of investing situation I find attractive. It has limited downside and there are multiple ways of making a return. Capral is trading below its working capital, this means even in the event of liquidation (which is unlikely given it has no debt and profitable), the most we would lose is a small proportion of the sum invested. On the other hand, there are many outcomes which can lead to a higher share price:

  1. The automation project scheduled in FY2018 and consolidation of WA’s warehouses result in cost savings that could potentially lift net profit by 30%.
  2. A favourable outcome of the anti-dumping case against the large Chinese aluminium importer may led to reduced imports and allow Capral to increase its market share.
  3. Lower Australian dollar may reduce imports and result in Capral increasing its market share.
  4. The possibility of the market re-rating Capral given its actually making a decent return on the book value of its assets and paying 12.8% gross dividend yield at current prices.
  5. Corporate action that unlocks the value of the tax losses (currently $281.2 million).

Our portfolio is currently made up of seven counters with two large position exceeding 20% weighting each, two more positions having weightings between 10%-15% each and the rest below 10% weighting each. Other than one preference share, the rest of the positions are ordinary equities.

The table below shows our performance (before taxes) from inception to 30 April 2018. I have not prepared these returns on a compounded basis to make it easier for you to rework the calculations.  Our cash position is circa 17% of the portfolio.

 15 Jan 1830 Apr 18Gross dividendsReturn (inc
CV Capital1.001.05905.9%
Benchmark STW56.755.980.790420.1%

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