James Morton of Santa Lucia Asset Management presented his theses on five deep value investment opportunities at Asian Investing Summit 2019.
James discussed IRB Infrastructure Developers (India: IRB), Technovator (Hong Kong: 1206), Accordia Golf Trust (Singapore: AGT), West China Cement (Hong Kong: 2233), and Clipan Finance (Indonesia: CFIN).
Thesis summaries:
IRB Infrastructure is the first REIT like structure in India. It is a diversity of toll road holdings. It has high single digit growth, with low leverage (circa 25%). The low leverage allows M&A without new equity. The M&A spread is 400+ bps (DPU enhancement likely). The current yield is approximately 18%.
Technovator is a smart and “green” construction company. It was incubated by Tsinghua University. It is a profit sharing business model. The share price declined 86% from May 2015 peak. The stock is cheap with a P/E of 3.0x and P/B of 0.3x. China Nuclear is in the process of acquiring the control block (26%) from Tongfang.
Accordia Golf Trust is an owner of golf courses. The worst weather on record (2017/18) hurt demand. However, demand is now returning to normal. The big seller cleared out 12/18. The earnings recovery and overhang removal are supported by an 8% yield. This was an overlooked company. In Q3 2018, the company experienced top management changes and refinanced the debt structure. There is a potential M&A activity ahead.
West China Cement is one of three leaders with collectively an 80% share in the core areas (leader in Xian). The company is benefiting from environmental policy. There are no major cap requirements for at least 3 years. This has a benign supply/demand dynamic. The excess capacity is disappearing. The company has an attractive value profile with 2018 estimates: below 4x, and 0.5x NAV MTM. Another entity (Anhui Conch) tried to buy WCC for HKD 1.69, when earnings were half the current level.
Clipan Finance recently took over all new car business from the parent company, Panin, in Q4 2017. The portfolio has repositioned through factoring out, less leasing, and more auto. This name trades at very low absolute valuation multiples for 2018 with M/B of 0.3x, and P/E of 4.5x. The earnings growth trajectory is 3x the P/E multiple. Also, this name has very low multiples relative to sector peers on key metrics, with a 50% discount on M/B.
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About the instructor:
James Morton founded the business and is CIO at Santa Lucia, Singapore. He has 40 years experience in financial services, and 25 in portfolio management. He has managed the CIM Dividend Fund since inception in February 2001. CIM Dividend is rated 5 stars by Morningstar and won two gold medals from Sauren, German fund manager in 2017 and in 2018 for excellent fund management in the Asian Equity category. He had specific responsibility for Mackenzie Cundill Recovery from 1998 to 2018. The Recovery Fund won Morning Star Global Fund of the year in 2003 and 2005, and the Morning Star Canadian Investment Award for Best Global Small/Mid cap Fund for 2010. It also won the Lipper Global Small/Mid Cap Fund of the year in 2009 and 2010.
James Morton’s previous employment includes Bain & Co, Arthur Young, Citicorp and Samuel Montagu. He holds an MBA from Stanford Graduate School of Business, an MA from Stanford Food Research Institute and a Law Degree from Cambridge University.
James Morton edited The Financial Times “Global Guide to Investing”, and wrote “Investing With The Grand Masters” a Pitman/FT publication, “Investing with Young Guns“ a Pearson/FT publication, and “Prince Charles Breaking the Cycle” Ebury Press. He has been a guest commentator on CNBC, PBS, Bloomberg, London News Radio, Sky and business radio stations in the US.
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