Wolf Money(Portfolio update for end Nov 2021)
Lone Wolf Fund(LWF)
Portfolio as at end of November
2.) Cash
Commentary
The market goes through a serious correction towards the end of the month, the ghost of covid 19 refuse to leave us for good. STI and LWF was down about 5 percent respectively for the month of Nov. Medical expert are calling the South Africa variant to be more contagious than the Delta variant. Very little are known about the new covid variant. The market is likely to have their fingers off the buy button until the world had a better understanding of the new virus. Caution is the main order of the day. Correction might be ugly in some days. To be honest, the market was finding a reason to correct after the good run. It had been a few months since the last big correction. Whether this correction turn out to be a the start of a bear trend, it is too early to tell.
LWF had a quiet month watching tea leave in the tea cup as I wait for Keppel multiple corporate actions to bear fruit. As the rare takeover tussle for Singapore Press Holdings grab the attention of the market. I continue to plough ahead with my Keppel shares. The surprising bid for SPH by OBS JV throw a spanner in Keppel’s works as it involved two Temasek linked companies at the opposing end. Keppel is 20.5 percent own by Temasek. A Chinese poem by 曹植 Cao Zhi can best describe the situation. I have not account for the unexpected domestic affair within Temasek(Seatown) family in my investment thesis for Keppel.
A Poem within Seven Steps
曹植【三国】(cáo zhí, sān guó)
By Cao Zhi, Three Kingdoms Period (AD 220280)
煮豆燃豆萁，
(zhǔ dòu rán dòu qí,)
Boiling beans by burning the beanstalks,
豆在釜中泣。
(dòu zài fǔ zhōng qì.)
The beans are sobbing inside the pot.
本是同根生，
(běn shì tóng gēn shēng,)
Both of them were from the same root,
相煎何太急？
(xiàng jiān hé tài jí?)
Why should the beanstalk torture the beans so eagerly?
The writer was third son of the late king Cao Cao and was famous for his talent. When his brother Cao Pi became the king, he was asked to compose a poem within seven steps duration, or he would be executed. In the poem, Cao Zhi uses “the beanstalks torture the beans” as a metaphor to expose Cao Pi’s brutal oppression. The phrase “tong gen” means the beanstalks and the beans grew from the same root, and also refers to the poet and Cao Pi being born of the same parents. In this case, Cao Zhi asked Cao Pi reprovingly why should Cao Pi torture his own brother so eagerly.
The competing bid cause Keppel to raise their offer for SPH to $2.361 in part K Reit shares and cash. The new offer is at the top end of my fair value calculation for Keppel to bid for SPH, any higher bid may not create any shareholder value for Keppel. Keppel Corp may still turnout to be a winner in a losing battle. A successful takeover bid by the other party will bag Keppel Corp a 34m break up fee. The delay Egm for Keppel shareholders to approve the deal will be held on the 9th of Dec. I had submitted some tough questions for Keppel’s management to be answered in the upcoming Egm. I hope my questions can get some airtime during the virtual meeting. Who will be victorious on the road to Mandalay? It will be decided after 9 Dec during SPH Egm. Unlike the poem “Mandalay” by Rudyard Kipling, there is no beautiful Burmese girl waiting at the end of Mandalay Road, only SPH prime property awaits.
“Mandalay” Poem by Rudyard Kipling(Partial)
By the old Moulmein Pagoda, lookin' eastward to the sea,
There's a Burma girl a-settin', and I know she thinks o' me;
For the wind is in the palm-trees, and the temple-bells they say:
"Come you back, you British soldier; come you back to Mandalay!"
Come you back to Mandalay,
Where the old Flotilla lay:
Can't you 'ear their paddles chunkin' from Rangoon to Mandalay?
On the road to Mandalay,
Where the flyin'-fishes play,
An' the dawn comes up like thunder outer China 'crost the Bay! .......“Oh Man! Delay” by Lone Wolf(Partial)By the old Four Seasons Hotel, lookin' eastward to the Seatown
There's a Orange Valley a-settin', and I know she thinks o' me;
For the wind is in the Mapletree, and the General they say:
"Come you back, you dismay shareholders; come you back to SPH!"
Come you back to SPH,
Where the old Money lay:
Can't you 'ear their paddles chunkin' from HPL to SPH?
On the road to SPH,
Where the CapitaLand malls play,
An' the dawn comes up like thunder outer Singapore Keppel Bay! Oh Man! Delay, Keppel Egm was delay! Oh Man Delay!
(Keppel’s delay Egm circular)
The takeover tussle exposed Keppel Management preconceived notion of their comfort zone on gearing. I have been asking them for years what is the gearing ratio which the management is comfortable with. The standard answer is always just under 1x. After this takeover saga, it really doesn’t matter what the management comfort level of gearing, utimately what matter is the market perception about the company gearing level. What if SPH is worth a lot more? Do Keppel have the financial muscle to undertake a much higher cash offer without the share price feeling the heat or without undertaking a right issue to raise cash from suffering shareholder to fund the takeover. I seriously doubt so. Keppel Corp gearing should be kept way below 0.5x in my personal opinion. The market perception of Keppel wanting to avoid bigger cash layout by offering K Reit as part currency for the takeover was obvious. Going into a takeover tussle without a robust enough balance sheet is akin to bring a knife to a gun fight! On the positive they are doing the right thing by selling non core assets to raise cash and cut debt. This month another 200m worth of assets were sold. M1 560m network sale will be concluding in Dec baring any negative surprise at Keppel DC Egm. Gearing are likely to drop below 0.85x if the SPH takeover is unsuccessful.
In the month of Dec, I expect the market to be quiet as fund managers gave themselves a well deserved holiday break. The outcome of Keppel takeover of SPH will be decided by both sets of shareholders in Dec . I wish everyone a great year end holiday. God Bless.
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