Pinned valuation:
LICs recently got a hell of a razzing on Strawman.
Well, I was in the front row of the toothless mob, pitchfork in one hand burning torch in the other screaming: “Liberty! Fraternity! No Performance Fees! Down with Management Fees!” As far as I know during and after the pile-on no one was electronically guillotined. But it was a narrow escape for Reasoned Thought.
Now with what I have to say below I take a shallow breath, bow my head, stare vacantly at the ground in front of my toes and awkwardly accept the “Strawman Hypocrite of the Month” award.
With Gold and copper prices on a run, Lion Selection Group (ASX:LSX) looks interesting.
LSX is a LIC that specializes in mining stocks, principally small cap Australian domiciled mining stocks, most often gold stocks.
It has been listed for about 10 years now and the executive chair is the founder, Robin Widdup who owns about 12%. It is run by his son Hedly a geologist.
LSX has a market cap of $63m @ the selling price of 44.5 cents/share.
The balance sheet is made up of:
Cash of $66.6m
Legacy investments $10.5m
New investments $11.7m
Tax liability -$0.5m
Total value of $88.3m (see LSX latest April Presentation)
On the above LSX is trading at a discount to NTA of around 29%. A pretty hefty discount.
The Legacy investments include unlisted tin interest in Morrocco and unlisted gold interests in Japan, rock phosphate in Tunisia and gold in Mongolia. Pretty hairy stuff and after the tribulations they had in Indonesia they have shifted away from overseas mining investments.
Let say these Legacy investments are only worth half what they say, only $5.2m.
The discount to NTA becomes around 23%. Still pretty good.
What are the new investments?
They are primarily small holdings in ASX listed companies: Saturn Minerals, Brightstar resources, Sunshine metals, Alto, Great Boulder Resources and Koonenberry Gold. Also a $2m investment in Plutonic an unlisted entity with mineral leases in the Northern Territory. Total value around $12m.
What is LSX charging shareholders for their expertise? Last year management costs ran at about 2.7% of asset value. Not excessive given what they are investing in and their relatively small asset base.
You can hear Hedly Widdup talk on Money of Mine below:
Where are we in the Mining Investment Cycle? With Hedley Widdup (youtube.com)
(Anyone who can survive an Aussie high school with a name like Hedly has to have something going for him).
It is anybody’s guess if these guys strike it big or just make good money for shareholders over the next 12 - 18 months. However this looks pretty good way to invest in the current gold/copper boom with limited downside.
A stab at valuation at a 10% discount to NTA – 56 cents.
I loved that @Scoonie - and in another weird twist of fate, Australia's premier mining podcast, Money of Mine, featured Geoff Wilson and Cooper Rogers from WAM on today's Poddy - and they discussed all things LICs and mining/metals/China/etc...
Will LIC Activism Upend Aussie Funds Management? (WAM Interview) - YouTube [Tuesday 23-April-2024: Money of Mine Podcast]
"Here’s our interview with Geoff Wilson and Cooper Rogers of Wilson Asset Management, one of the biggest players in the Australian funds management world."
"JD sat down with the pair to hear how the LIC manager is seeing the current macro landscape, in particular in the US and China, to learn why Geoff has decided to dust off the old Twitter account, and to hear about WAM’s view on how activism will influence the Aussie funds management sector, what various commodities will do from here and a chat about a bunch of stocks."
CHAPTERS
0:00:00 Introduction
0:03:29 Geoff & Cooper on Money of Mine
0:03:40 Geoff becoming a Twitter power-user
0:05:19 Checking in on the USA
0:08:03 How markets look state-side
0:09:25 View on the Australian market
0:10:30 WAM view on the rate environment
0:12:28 Large cap vs small cap
0:15:05 The state of the LIC market
0:17:19 Shareholder engagement vs performance
0:21:37 Meeting management
0:23:28 Activism in the LIC market
0:25:15 Optimal size for WAM's strategies
0:27:45 Trading at NTA
0:29:08 Company buybacks
0:30:26 WAM's investment style
0:35:25 Should mining co's moats deserve more credit
0:37:27 Would WAM open a Resources LIC? [Hint: Doesn't sound likely. Geoff's opinion is that Resources-focused LICs have not worked in Australia].
0:39:38 WAM's China view
0:43:35 Copper on the ASX
0:48:18 Will lithium's recovery continue?
0:54:45 Are WAM uranium bulls?
0:58:53 Gold's decoupling from real rates
1:03:30 Value in mining services
-------------------------------
DISCLAIMER
All Money of Mine episodes are for informational purposes only and may contain forward-looking statements that may not eventuate. The co-hosts are not financial advisers and any views expressed are their opinion only. Please do your own research before making any investment decision or alternatively seek advice from a registered financial professional.
--------------------------------
I haven't listened to all of it yet - been jumping around to different chapters so far - but interesting that I haven't heard LSX mentioned yet - I must be listening to the wrong sections... or maybe the WAM lads just don't like talking about the competition - or their peers - unless they are holding some in WAR. Speaking of...
Have butchers at this:
That's from the WAR section of WAM Funds March 2024 Report: First two pages of March-2024-Investment-Update.PDF
I didn't know Lark (LRK) was an investment fund. Every other one of those WAR positions appears to be a fund of some sort that is trading below asset value, and on Commsec Lark describe themselves this way: "Lark Distilling Co. Ltd (LRK, formerly Australian Whiskey Holdings Limited) is involved in the development of previously identified investment opportunities in the Australian craft distilling industry and management of current equity investments in this industry, including the operations of the Lark, Nant, Overeem and Forty Spotted Gin Distilleries."
I haven't been digging much below the surface of LRK admittedly, but Lark's investments appear to all be in their own products. Their recent H1 report states on page 2:
Principal activities
The principal activities of the Group during the half year ended 31 December 2023 were in the production, marketing, sale and distribution of Australian craft spirits.
---
No mention of investing. However, they do have a "Whiskey Bank" of 2.4 million litres (as at 31-Dec-2023), so that's certainly an investment of sorts.
I just thought it was strange to see "Lark" pop up in WAR's top 20.
And we must remind ourselves that the original idea behind WAM Strategic Value (WAR) was to house WAM Funds investments in other fund managers' LICs, LITs and other exchange traded investment funds (WAR do not generally hold shares in any of the various companies that manage these funds, like Platinum or Magellan - but instead directly invest in the funds themselves) that are/were trading at the time of purchase at a substantial discount to their net asset value (NAV) or Net Tangible Asset (NTA) backing, and then WAR agitates (via various forms of engagement, activism and other pressure) for the gap between the NTA (or NAV) and the share/unit price to reduce in each case, with the aim of releasing/unlocking value. Short version is they try to help close/reduce the discount-to-NTA/NAV in the price that each of these funds trades at.
Incidentally, note the WAR NTA at the top of that screenshot - anywhere from $1.29 ("NTA before tax") to $1.48 ("Look Through Pre-tax NTA") as at 31-March-2024. WAR's closing share price on the last trading day in March was $1.13. They closed at $1.12 today. Perhaps they should be buying their own shares?
Additional: They already hold shares in another WAM-managed LIC, WGB (WAM Global) but they got those when they took over TGG (the Templeton Global Growth fund).
