Wolf Money(portfolio update end Oct 2021) long post!
Lone Wolf Fund(LWF)
Portfolio as at end of October
2.) Cash
Commentary
Today marked the 100th post of my blog. It had been a good self discovery journey since I started this blog in January. Some good books, food and stocks were found. I will like to encourage all to partake your own self discovery. There are plenty of beautiful things in our surrounding waiting to be discovered. Just take some time to smell the rose. It is worthy of every moment.
Most markets including our STI did well in the month of Oct. The huge correction predicted by the market commentator turn out to be a wimp. The Straits times index was up close to 4 percent for the month of Oct. My portfolio had a quiet month in term of capital movement. As mention in my previous update I am unlikely to do much to my portfolio currently due to lack of opportunities that I am comfortable with in putting my capital to work. I continue to be steadfast with my holding in Keppel Corp. LWF was up 3 percent thank in no small part to the surging price in Keppel Corp share. It had broken out of the consolidation range of $5.20-$5.30. Next level of interest is around the $5.60 mark. I will spend more time talking about Keppel Corp since it is the only stock in my portfolio.
News coming out of the company had turned decisively positive from middle of the month. First the conclusion of the outstanding legal issue with Sete Brazil over the ownership of 6 rigs. The ownership of 4 partial completed rigs had been transferred to Keppel without liability and refund to both parties. The rest of the 2 rigs are part of the undisputed debt subjected to judicial restructuring. There are advance negotiation by Sete Brazil with a UK company for the sale of that remaining 2 rigs. The settlement allow clarity for Keppel to negotiate a deal with Temasek on the possibility on setting up an asset co for the purchase of their legacy rigs and trade receivables which will hopefully release the shackles that had plagued Keppel Corp underperforming share price. I am hopeful of a successful conclusion soon.
Secondly the divestment of $580m of M1 network asset to a JV with Keppel DC had been put on pen and paper. The deal is expected to conclude by year end. No gain are expected from the sale but getting cash to fund M1 future growth is essential. The Bifrost cable project is quite interesting. It allow M1 to control the infrastructure of internet which give the company a competitive advantage over rival teleco. The sale will also boost Keppel ability to fund a higher year end dividend. I am expecting at least another 13c for final year dividend. A total of 25c for the whole year and 30c normal dividend for next year without any consideration for special dividend which could happened if divestment program continue to bear fruit. 3-5b worth of assets are stated for divestment by 2023, so far close to 2.4b worth of divestment had been announced.
Unfortunately towards the end of the month negative news surface again(it has been a start stop affair with Keppel shares this year, they seem to be unable to shake off the bad luck) on the legal tussle with EIG investment fund bought the price back to earth. EIG is trying their luck to claim 1.1b from Keppel due to their fail investment in Sete Brazil. The plaintiff is putting the blame on Keppel due to the corruption case involved Keppel O&M which the plaintiff assumed KOM was instrumental to the failure of Sete Brazil. The first law suit was dismissed by the NYC court and the plaintiff is seeking a summary judgement on their second lawsuit. Although I think there are no merits for the case but having a billion dollars lawsuit hanging over the head can weigh on the share price. If I assume the worst case where the court decide to award the plaintiff half of the claim to the tune of 550m. It will only affect Keppel’s earning by 30c which in grand scheme of things really doesn’t affect them much. Currently there are no date for the summary judgement. One can only wait.
SPH shareholders will be voting on the takeover by Keppel Corp in mid Nov. Finger crossed on the outcome of the egm. The integration of both companies can start once the takeover is voted on. The takeover is well timed by Keppel. Imho Keppel paid an attractive price for SPH which bode well in term of creating value for Keppel shareholders in the future. There are unlikely to be negative surprises in term of SPH’s asset quality due to predominantly Singapore and UK assets. I would be very worry if Keppel start acquiring a foreign company with large foreign assets for huge sum of money. In general, The track record of Singaporean company spending big acquiring foreign companies had been poor at best.
Did the American SingPost postman delivered the made in US YHS curry can food and Osim massage chair to my house this afternoon? Hmm...Maybe not 🤔
As I was about to post my blog, OBS and JV partner had come out with a competitive bid for SPH at $2.10 in cash which is slightly superior than Keppel cash plus shares bid of $2.099. Interesting turn of event at the time when shareholders of both sides are scheduled to vote on the offer. A full blown takeover war might be negative for Keppel. Keppel might raise it offer price to match the offer by OBS and partner. Imho the value preposition of acquiring SPH continue to make sense for Keppel if they don’t raise the takeover price by more than 10 percent. I felt vindicated to see the undervalued SPH having a competitive bid but not so as a Keppel shareholder with the company having to cough out more for SPH if they want to be successful with their takeover.
Keppel in its 3Q/9M update painted a positive picture. Revenue is up 14 percent to 5.5b. No net profit was disclosured. I guesstimate net profit may come in around 520-530m excluded divestment gain. Around 29c eps. I am expecting the 4Q to be stronger due to some profit from property sales coming in the last quarter. Gearing ratio is down to a healthy 0.76 help by issued of prep securities(it has the ability to lower debt ratio even thou it is still consider a debt instrument) and divestment gain. Keppel O&M merger talk with Sembmarine and Temasek on setting up asset co(divestment of rigs and receivables) are progressing steadily. They hope to have an agreement before the year is up. 2.4b of divestment had been announced and company had received 1.6b of cash so far. They mention some soft spot in China property market due to debt problem with some Chinese developers which affect buying sentiment. The company continue to exhibit confidence in their land bank in China as most are in popular cities. The company also highlighted their historical low cost land bank. The company has once again committed to enhance shareholders return from divestment gain.
Keppel records sharp earnings growth for 3Q & 9M 2021 with improvements across all business segments
Singapore, 28 October 2021 – Keppel Corporation Limited (Keppel) has today released its voluntary business update for 3Q & 9M 2021. Net profit for the first nine months of 2021 was a sharp reversal from the net loss registered a year ago, with all segments performing better year on year. Even excluding revaluations, major impairments and divestments in both years, net profit for 9M 2021 was also a significant improvement year-on-year. The Company’s net profit for 3Q 2021 also grew strongly compared to a year ago, with all segments registering improved performance. Source Media announcement.
The market went past Oct with flying colour. At least for the next couple months we can celebrate the year end festivities sitting easy. Next year will be a different ball game. Tapering and interest rate watch will dominate my attention. The current market uptrend is a mature bull which warrant a closer look at the health of the bull. The main differences between investment and gambling, first there are no house odd stacking against you. One could hold on to a good stock until the odds are in your favour. Secondly there are no pressure to swing the baseball bat(to buy) and there are no three strike rule(to sell). Time is always on the side of an investor, make time your friend, not your enemy. Engaging in stock market activity doesn’t result in a winner takes all situation similar to the hit series squid game on Netflix and the best part no one got killed at point-blank. Happy Holidays, keep the beer off while driving. Please watch out for red light, green light. 🚥 God bless 🙏
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