Category Archives: Articles

Short selling opportunity – Toll Holdings

Toll Holdings Limited (ASX:TOL) is a large transport business. It is in an industry that largely competes on price where it is difficult to develop a sustainable competitive advantage.

Is the cost of doing business and the carbon tax taking their Toll?

TOLL HOLDINGS LIMITED Short selling opportunity   Toll Holdings

This article is published by Dean Mico.

Disclosure: The Edge Fund has short sold TOL.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

The Edge Fund – 1st Quarter 2014 Performance

For the first quarter of 2014 (year-to-date) The Edge Fund is up 5.76% compared to the ASX All Ordinaries Total Return (Accumulation) Index which was up 2.2%.

High Five Edge Fund Investors High Five 300x199 The Edge Fund   1st Quarter 2014 Performance
Despite the broader market being choppy and indecisive in the first quarter, The Edge Fund has edged ahead of the All Ordinaries total return index in 2014.

We are gunning for a fifth consecutive year of beating the index – our equivalent of a High Five!!!

Adding Quality Small Caps
The Edge Fund performance in 2014 is largely due to the research and investing undertaken in a number of high quality small caps during the past six months. If it were not for a specific focus on adding small caps to our portfolio, our performance would have been below that of the index.

By adjusting to our view of the market and adding small caps to our portfolio, we have more balance and I feel a better portfolio mix than ever before.

The Edge Fund performance graph to March 2014 The Edge Fund   1st Quarter 2014 Performance

Five (maybe three) positions remaining till June
The Edge Fund has five positions remaining until June 2014. We are in discussions with two potential new investors at the moment who may come on board in April. Therefore, the probability of only having three positions remaining for the half year is quite high.

I see some good investment opportunities setting up in the market for the second half of 2014. If you have been sitting on the fence deciding whether or not to consider joining The Edge Fund, now might be a good time to Contact Us.

This article is published by Dean Mico.


The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Short selling opportunity – RCR Tomlinson Limited

RCR Tomlinson Limited (ASX:RCR) is a business in the wrong sector at the wrong time.

RCR has recently fallen back into the long term channel and is likely to drift to the bottom of the channel over the next week or two.

RCR TOMLINSON LIMITED Short selling opportunity   RCR Tomlinson Limited

This article is published by Dean Mico.

Disclosure: The Edge Fund has short sold RCR.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

RKN – Reckon Limited

Reckon Logo RKN   Reckon LimitedReckon Limited (ASX:RKN) is a leading provider of software solutions for accounting and bookkeeping professionals, as well as small to medium sized businesses, small office/home office users and personal wealth management sectors in Australia and New Zealand.

Reckon promote that they are driven to provide contemporary software solutions that make accounting faster, easier and simply more productive.

I would imagine casual observers of accounting would be familiar with the Quicken or Quickbooks product range that Reckon has promoted and sold for many years. This Quicken brand has recently been rebranded Reckon Accounts.

The company was officially admitted to the S&P/ASX300 Index on Friday, 21 March 2014.

Does this business have a sustainable competitive advantage?
Reckon has a pipeline of recurring revenue courtesy of the 6,000 accounting businesses using its products and the 600,000 registered businesses in Australia and New Zealand using their software.

These customers providing the recurring revenue are relatively ‘sticky’. The reason being is that the cost of down-time for a business to change from one accounting software provider to another creates a significant barrier to exit for customers who would have to overhaul a lot of businesses processes and retrain staff in order to switch to another software provider. This conversely creates a significant barrier to entry for the competition.

More so a reason for growth than a competitive advantage is the company’s expansion into new international markets in the UK and across South East Asia at this stage.

What are the risks facing this business?
The obvious risk is the threat of competition largely from new market entrant Xero. While due to the recurring nature of accounting software, I do not think Xero will make large inroads into Reckon’s existing customer base. The threat comes more so from a slowing of new business momentum as new businesses may adopt Xero in favour of Reckon.

Reckon have recognised this competitive threat and developed a cloud based offering to compliment their traditional software. Reckon’s cloud based offering will help them protect their existing customer base and compete with new entrants providing cloud based technology tools.

Is it run by able and trustworthy management?
The business is run very steadily with little capital expenditure, a sound balance sheet and positive cash flow. It is the sort of business in the Buffett mould that is safe, easy, reliable and profitable.

Is it trading at a bargain price?
Based on my estimates, the company is trading at a good discount to intrinsic value with that value rising into 2015. The company did rebalance into the ASX300 index on Friday which may have caused the unusually large price surge.

Company Code Rank 2013 Actual Valuation Today’s Share Price Margin of Safety 2014 Forecast Valuation 2015 Forecast Valuation
Reckon Limited RKN Gold 1 $2.33 $2.26 20% $2.82 $3.30

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Here is a daily chart of Reckon over the past two years

RECKON LIMITED RKN   Reckon Limited

Summary
In summary, Reckon is an excellent business with stable recurring revenue. It has grown its product offering and is expanding internationally. Management run the business with a sound balance sheet and the business enjoys positive cash flow. Reckon is trading at a discount to my estimate of value now and into the future.

This article is published by Dean Mico.


Disclosure: The Edge Fund owns shares in Reckon Limited.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

WOW – Woolworths Limited

Woolworths Limited (ASX:WOW) produced an excellent half yearly report last week. Price action retested the breakout zone after the announcement and held which is very bullish. A measured move on the tri-break suggests a move to around the $38.80 area is highly probable over the next few weeks. However, I do wonder if it gets that close will it become middle aged and hit the Big 4 0 ???.

WOOLWORTHS LIMITED WOW   Woolworths Limited

11 March Midday
Sold 1/3rd trading position at $36.55. In my view, the chart was primed to push higher however it seems the SPC Ardmona deal stopped it in its tracks in the short term. See what tomorrow brings.

This article is published by Dean Mico.

Disclosure: The Edge Fund owns shares and has also added a short term trading position in Woolworths Limited yesterday at $36 even.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Short Selling Opportunity – Sims Metal Management

Sims Metal Management Limited (ASX:SGM) is a business that chose not to pay a half year dividend due to a weak outlook. SGM has lost support at $9.70 and is starting to look like heavy metal !!!

SIMS METAL MANAGEMENT LIMITED Short Selling Opportunity   Sims Metal Management

Disclosure: The Edge Fund has short sold SGM earlier today at $9.70 (Current price $9.61)

3 March 3:30pm
Covers 1/3rd at $9.52 (+18 cents or +1.9%). Hold remainder for Target 1. Makes average price now $9.79.

4 March 11:20pm
Re-shorts the 1/3rd covered yesterday ($9.52) at $9.65. So, average now on 150% of normal position now $9.74. So now +9 cents on 150% of normal position. Looking to cover this 1/3rd at lower prices and hold remainder again.

4 March 12:20pm
Covered that 1/3rd again at $9.62. Barely worth mentioning. Average short price now $9.80.

4 March 3:40pm
Covered another 1/3rd at $9.64. Looking like a small green doji which puts the odds of upside at 50/50 now. Average short price on remainder now $9.96. Will see what tomorrow brings.

5 March 10:10pm
Covered remainder at $9.75. (+21 cent on remainder or +2.1%)

11 March 9:30am
Re-shorts at $9.63.

12 March 10:35am
Covered half at $9.44 (+19 cents or +2%). Average now $9.82 on remainder.

12 March 2:40pm
Covered remaining half at $9.52 (+30 cents or +3%) on remaining half that was averaging $9.82.

14 March 3:40pm
Re-shorts at $9.52.

17 March 10:15 to 10:25am
Covered all between $9.20 and $9.27 with average $9.23 (+29 cents or +3.1%)

This article is published by Dean Mico.


The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

QBE – QBE Insurance Group Limited

QBE Insurance Group Limited (ASX:QBE) announced their annual results today which were very poor.  However, the result was forewarned and it seems already priced in.  With the Federal Reserve not buying as many bonds, bond yields are starting to creep up.  This is good news for QBE who has been languishing amidst low bond yields which has created a head wind for a few years now.  Could the market be beginning to look 9 – 12 months ahead?

Today, we have bought back at $12.20 what we sold at $15.78 on 25 November.

QBE INSURANCE GROUP LIMITED QBE   QBE Insurance Group Limited

26 February 11:50am
Sells 1/3rd at $12.83 (+63 cents or +5.1%). Average cost on remaining 2/3rds now $11.89.

3 March 3:50pm
Sells remainder at $12.72 (+83 cents or +7% on remaining 2/3rds). Why no more smiling QBE?

May look for new entry at lower prices.

11 March 3:50pm
Buys QBE again at $12.89. Updated chart showing nice little flag break and good probability of higher prices from here.

QBE INSURANCE GROUP LIMITED1 QBE   QBE Insurance Group Limited

13 March 3:50pm
Sells QBE at $12.64 (-25 cents or -2%). QBE is indecisive but now I’m not so sure.

19 March 3:40pm
Buys QBE again, this time at $12.63. The initial premise for buying QBE with Bond yields creeping up is still in play.

20 March 11:00am
Sells 1/4 at $12.92 (+29 cents or +2.3%). QBE average on remaining 3/4 now $12.53.

26 March 2:28pm
Sells remainder at $12.84 (+31 cents or +2.4%). It been rejected each day for a week around the $12.90 to $13.00 area.

This article is published by Dean Mico.

Disclosure: The Edge Fund has taken what we consider a medium term trading position in QBE Insurance Group Limited.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

WEB – Webjet Limited

Webjet Logo WEB   Webjet LimitedWebjet Limited (ASX:WEB) is an online travel agency that has operated in Australia and New Zealand for 15 years.  Webjet provides tools and technology for customers to compare, combine and book domestic and international travel flights deal, hotel accommodation, holiday package deals, travel insurance and car hire worldwide.  Webjet also operates websites in USA, Canada, UK and Mexico.

In December 2012, Webjet acquired Zuji which is the market leader in airline ticket sales in Hong Kong and Singapore.

Webjet also operates a business based in Dubai under the name Lots of Hotels.  Lots of Hotels is an online business-to-business hotel room booking service operating in the Middle East, North Africa and Southern Europe with plans to open up in new markets throughout 2014.

Does this business have a sustainable competitive advantage?

Webjet is the search engine standard in Australia and New Zealand for people shopping around for airline prices.  Webjet receives about 50 Million website views per annum creating a positive feedback loop.  The positive feedback loop occurs where more people searching on the site leads to more bookings from new customers.  Assuming a positive consumer experience, those new customers are likely to come back next time and thus creating a virtuous cycle of business growth and repeat customers.

Being an online business, Webjet have a scalable platform for growth.  Webjet have now fully integrated Zuji into its back end operations.  This allows the company to expand its offering in three main ways:

  1. Enhanced product offering across existing markets in Australia, New Zealand, Hong Kong and Singapore.  An example of this might be leveraging Zuji’s expertise in the Hotel market into Australia and New Zealand
  2. New product offerings such as the LotsofHotels concept into new markets
  3. Scaling the existing platform into new markets logically in new parts of Asia with Zuji and potentially on a global scale.


What are the risks facing this business?

One risk is the ability to maintain the ‘search engine standard’ for air travel price comparison from potential travelers.  The company does have new and increasing competition however the company has managed to stay ahead of the pack for over a decade.

The company will need to maintain that technological advantage and simplicity of use for consumers in order to maintain their market leading status.

Is it run by able and trustworthy management?
The business is run with an extremely strong balance sheet with a strong net cash position.

I watched an interview on the Switzer program last week with the CEO of the company John Guscic.  From that interview, I was very impressed as he articulated very clearly what is going well for the business, what is happening in the industry and the future direction for the business.

Is it trading at a bargain price?
The company is getting close to my estimate of value for 2014.  However, when you consider that we are only four months away from the start of a new financial year, then the business is very good value when you look a year out.

And, the company has rarely traded below my estimate of value since the GFC.  In my experience, I have observed that the share price of good quality companies such as Webjet do not stay below my estimates of value for long periods of time.

Company Code Rank 2013 Actual Valuation Today’s Share Price Margin of Safety 2014 Forecast Valuation 2015 Forecast Valuation
Webjet Limited WEB Gold 2 $2.79 $3.09 2% $3.16 $3.63

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Here is a weekly chart of Webjet going back to the GFC

The red horizontal lines denote periods where share price above my valuation and the green horizontal lines showing share price below my valuation at the time.
WEBJET LIMITED WEB   Webjet Limited

Summary
In summary, Webjet is an excellent business which has a scalable platform for continued growth.  The company has a very strong balance sheet.  The company has very good management with plenty of experience and a clear strategy in place. And, the company is trading at a discount to my estimate of 2015 intrinsic value.

This article is published by Dean Mico.

Disclosure: The Edge Fund owns shares in Webjet Limited.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Short selling opportunity – GUD Holdings

GUD Holdings Limited (ASX:GUD) is a business that is not in a great place in its business cycle. I was a one time shareholder in this business in 2011/2012 however in my view, the fundamentals have deteriorated since.

GUD has recently fallen off our approved stocks list. This time last year Fleetwood, Imdex and Sedgman also fell off our approved list along with their respective share prices. GUD-bye.

G.U.D. HOLDINGS LIMITED Short selling opportunity   GUD Holdings

This article is published by Dean Mico.

Disclosure: The Edge Fund has short sold GUD.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

Short Selling Opportunities

Prices going down Short Selling OpportunitiesAt Edge7, while share prices have been going up, we have been working hard to identify stocks that are fundamentally weak, over-priced and have dim prospects.

This activity is in complete contrast to our normal mode of operation which is to find good quality companies that are under-priced and have bright prospects.

We have put in the hard yards researching over a period of many months to identify weak over-priced stocks in preparation for the time when a market down-turn does eventuate. The premise being that we want to continue to generate positive returns for our investors even if there is a market correction.

To this end, we have compiled a significant list of these companies from the ASX market that are short-selling candidates (we will make money if we have short sold and the price falls).

Our intended mode of operation with short selling is simply to profit from over priced stocks where the underlying business doesn’t fundamentally justify a relatively high share price. We will do so when both the fundamentals (price follows value) line up with the technical price action.

We will be short selling with respect, fundamental and technical knowledge, appropriate position sizing and stop loss levels.

This article is published by Dean Mico.


The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.