Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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Roger Montgomery believes Cash Converters is a high quality business, but can this reseller of second hand goods surpass JB Hi-Fi as Roger’s preferred retail stock? In this appearance on Your Money Your call Roger also shares his thoughts on OneSteel (ASX:OST), Treasury Group (ASX:TRG), Lynas Corporation (ASX:LYC) and Focus Minerals (ASX:FML). Is Focus the mystery gold stock Roger Montgomery has been buying for The Montgomery [Private] Fund? Watch this interview to find out! Watch the interview.
The attachment of ‘value’ to physical assets is not unusual. Roger Montgomery says assets of the intangible variety – the economic goodwill (rather than the accounting variety) – are more valuable. Read Roger’s article at www.eurkeareport.com.au.
Roger Montgomery and Ross Greenwood talk about the Federal budget and the legalities of the compulsory acquisition of shares in a takeover situation. Roger also shares his thoughts about the tidal wave of new floats. Has a new business caught Roger’s Value.able eye? Listen to podcast.
Back on March 10 here at my Insights blog I pieced together a little jigsaw puzzle that served as a warning to Value.able Graduates researching Carsales.com.au:
“…Relationships it seems, matter. And so they should.
“In the end, it is not cars, boats and planes that bring joy, but the quality of the relationships you develop.
“This week (commencing 7 March 2011) I read that Carsales.com.au had been sold out of Nine Entertainment Co, the rebadged PBL Media (which is owned by CVC Asia Pacific).
“Reading Terry [McCrann’s] article caused a rumour I heard last year to become louder in my mind.
“The rumour was that a group of customers of Carsales.com.au (ASX:CRZ, MQR:A1, Value.able Margin of Safety; -24%) were thinking of leaving to start a rival that would be funded by News. You could understand News’ interest, given it is losing the online automotive classifieds race to Drive (Fairfax) and Carsales.
“If this is true, and if Terry is also on the mark with the intimacy of the relationships amongst Australia’s media barons, both individual and corporate (excluding Fairfax), then it would be reasonable to assume that the status quo should be maintained until after Carsales had been spun out of the former PBL, finding itself completely owned by institutions and private investors.
“Now that hurdle is out of the way, let’s see if Carsales does lose any major customers.”
That was the crux of my 10 March blog post – that Carsales’ biggest customers were about to leave to start a rival with Newscorp.
Just 2 months have passed and if you didn’t already know, guess what? Splitsville.
The Carsguide brand, owned by News Limited and a consortium of foundation dealers that includes Automotive Holdings Group Limited, A.P Eagers Group and Trivett, plus a few other dealerships representing a quarter of Australia’s car dealers, will hop into bed together in a joint venture and share Carsguide’s revenue.
Chairman and chief executive of News Limited John Hartigan told one journo, “We will be investing in the new company, doubling the number of staff and throwing our combined resources and expertise behind the joint venture, with the intent of aggressively growing the business.”
Please refrain from posting any banter as comments, just your highest quality thoughts and experiences investing in online businesses. How have you faired investing in online businesses?
Posted by Roger Montgomery, author and fund manager, 13 May 2011.
Stuart sent me an email yesterday that provides some insight into what investors are experiencing right now.
Stuart wrote “…each time the level at which I would like to sell has seemingly been within short striking distance, somewhere around the world there has been an earthquake, tsunami, nuclear meltdown, Eurozone bailout, currency fluctuation, credit downgrade, flood, famine, pestilence, war or some other extraneous event – that spooks the markets and triggers another backslide in the portfolio valuation. The investment headwinds just don’t seem to be letting up…”
I hear you [Stuart], but what is anyone doing about it? Many investors hold verrucose portfolios of A5/B4/B5/all ‘C’ MQR companies, waiting for the price to rise back to some psychologically relevant level – their purchase price, for example.
But the market does not recognise such nostalgia. By holding onto stramineous stocks, you not only miss out on hoped-for gains. You also miss out on the gains from companies you could otherwise own – an opportunity cost! At best, the existing portfolio thus produces occultation, if not obfuscation. What are you doing this weekend? Re-reading Value.able?
When I was young, I spent time on the land fox hunting, under the tutelage of my friend’s father. I remember I had a tough time pulling the trigger. John and Ray explained to me that a single feral cat can devour more than a 100 lizards, birds and native mice in a week. The destruction wrought on native fauna by the fox is not dissimilar.
John and Ray then explained; don’t think of the fox you are aiming at, think of the many thousands of other animals you are saving. It’s a harsh reality and surprisingly, it applies to your share portfolio.
Don’t think about a perfect exit from the rubbish in your portfolio. Think about the extraordinary companies you could own if you no longer held the rubbish. The best time to clean your portfolio is always ‘now’.
What would you prefer? A portfolio of A1 businesses whose value is forecast to rise from $170.00 today to $211.39 in 2013 (yielding $8.98 this year, rising to $12.41 in 2013)? Or a portfolio of so-called ‘blue chips’ whose value has decreased 30 per cent over the past ten years and is forecast to increase just five per cent over the next three?
Take a look at the following chart. It’s the A1 Index from January 2009 to today. The constituents are the 20 biggest A1’s listed on the ASX by market capitalisation. The red line is the poor old ASX 200. As you can see, there is genuine merit to sticking with quality.
So who are A1s? It’s been a while since I last published a list of A1s with conservative valuations… Go and research the companies in this list, then return and share your comments with our Value.able community.
* MIN 2012 valuation substantially higher ($9.78). 2011 is low here because of the capital raising’s impact on ROE that year.
What makes Matrix Composite, Nick Scali, JB Hi-Fi, Oroton, ARB Corp., Centrebet, DWS Advanced, Mineral Resources, Platinum Asset Management, M2 Telecommunications, Monadelphous, Wotif, Fleetwood, GUD Holdings, REA Group, Thorn Group, Carsales.com, Blackmores, Cochlear and Reckon extraordinary?
Re-read Part Two of Value.able then come back and share your insights. Go right ahead and share whatever you know or think, but only about the companies in the above list.
Just as your portfolios need a clean out, so does my Insights blog.
Please refrain from posting any banter as comments on this post. Just your highest quality thoughts only.
1) Please keep your comments to the format below and we will build a useful library of insights.
2) Do not post any questions to me or other bloggers at this post.
Here’s the format to follow:
COMPANY NAME
Insights: If you work in the industry or have before, or perhaps you work for one of the companies or a competitor. Do you have a special or unique insight. ONLY comment if your insights are of the genuine industry variety.
Extraordinary prospects: Why does the future look bright for this business? Or if you don’t believe the future will be as extraordinary as the past, why not?
Competitive Advantage: What sets this business apart from its competitors? Don’t debate other’s comments, just post your own thoughts without reference to others.
Debt: How has management managed capital? What is your evidence?
Cashflow: Track record of cash flow?
The Value.able community, Graduates and I look forward to reading your insights.
Posted by Roger Montgomery, author and fund manager, 11 May 2011.
Owning a bank based on an island – that’s pretty attractive. Choosing one bank is no easy decision, but on balance, over the next few years, Roger Montgomery anticipates the ANZ to prove superior, provided costs can be controlled and expectations don’t put the price up beyond intrinsic value. But if you want to buy the best bank in terms of economic performance, it would be CommBank. Unfortunately, it is now expensive. Ranked by the Montgomery Quality Ratings only, the banks are all A-class companies, but which receives Roger’s coveted A1 Montgomery Quality Rating? Read Roger’s article at www.eurekareport.com.au.
Less than an hour ago, Microsoft Corp. agreed to buy the Internet telephone company Skype SA for $8.5 billion. The company was started by Niklas Zennstrom (who remained CEO until September 2007) and Janus Friis (one of Time Magazine’s 100 Most Influential People 2006) in 2002 and they sold it to eBay in 2005 for $3.1 billion.
eBay bought Skype in 2005 for $3.1 billion and sold 70% to private equity for $2 billion in late 2009. Up until yesterday, it was owned by private equity, the Canadian Pension Plan Investment Board and eBay. Now Microsoft is buying the company for three times what private equity paid —an increase in value of more than $5.5 billion in about 18 months. Skype’s original founders also ended up in the syndicate through their company Joltid.
It is the biggest deal in Microsoft’s history. Some of that 36-year history includes a friendship between former CEO Bill Gates and Warren Buffett. One wonders if Warren was consulted because the initial metrics are staggering. Some may argue the high price is because Microsoft was competing against an imminent IPO. With more than $50 billion in cash (much held offshore for tax purposes), Microsoft merely needs to beat the aggregate cash return, which in the US is somewhere just north of zero.
Skype’s ‘customers’ made 207 billion minutes of voice and video calls last year – up 150% on 18 months ago. Most of those calls however are free. Less than 9 million customers per month, or a little more than five percent, paid Skype anything.
The company did produce revenue of $860 million last year, but Skype lost $7 million. $8.5 billion is quite staggering. I think Skype is great and I know many who use it to avoid paying anyone for phone and video calls.
You may recall Microsoft has previously bid $47.5 billion for Yahoo Inc. Yahoo rejected Microsoft’s advances and Microsft dodged a bullet; Yahoo is now available at half the price.
Perhaps we are not in bubble territory? Perhaps it all works out? Perhaps its just a repeat of Foster’s purchase of Southcorp – on a much grander scale? Or perhaps Microsoft will start charging everyone for a call? A charge of 1 cent per minute – and no loss of customers – would be worth $2.07 billion in revenue… What percentage of Skype’s free riders do you think would submit credit cards etc. to subscribe and be willing to be charged?
Posted by Roger Montgomery, Value.able author and fund manager, 11 May 2011.
In the words of leading finance journalist Alan Kohler, Roger Montgomery is “one of the nation’s smartest and most successful value investors”. Sam Birmingham reviews Roger Montgomery’s stock market guide book, Value.able. Read the review.
Back in September 2010, WeBe identified Roger Montgomery as one of their top five financial bloggers. Sam Birmingham interviewed Roger Montgomery on his unconventional Value.able stock market investing philosophy. Read the interview.
In Peter’s daily email for Switzer.com.au he describes Roger Montgomery as Australia’s “Share wizard”. View the Email.
