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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Yes! Bridie Barry, Peter Switzer and Kim Slater have invited me to appear on three shows tomorrow (Thursday) night on the Sky Business Channel.
First at 6.30pm is Market Moves with Bridie Barry.
Then at 7pm Peter Switzer and I have something very special planned. Our mission? To create the Switzer Montgomery Portfolio. Only businesses that pass the Montgomery Intrinsic Value and Quality Rating and Switzer Scaredy Cat Wise Investor Test will be admitted. This is one not to be missed.
And I will finish off the night answering your questions on Your Money Your Call. The number at the studio is 1300 303 435 (lines open at 8pm) or email your questions prior to the show to yourmoney@skynews.com.au.
Upcoming appearances are posted on the Talks page here at my blog and also on Facebook. If you miss any of the shows, I publish the highlights to my YouTube channel shortly after.
Posted by Roger Montgomery, 22 September 2010.
If you missed my appearance on Switer TV last week, here are the highlights.
Part I: How do Roger Montgomery and Peter Switzer select stocks for the Switzer Montgomery portfolio?
Part II: What stocks make it into the Peter Switzer Roger Montgomery portfolio?
The pending float of QR National will stir up plenty of memories. Some good, some bad. Its time to crunch some numbers. Read Roger’s article at www.eurekareport.com.au.
Everyone has their own unique way of learning new skills.
Michael had the opportunity to read Value.able whilst on holiday in Bali – in his own private plunge pool.
Michael’s classroom may be slightly more lavish than Jesse’s offshore rig, but reassures us that a comfortable chair and place to put your feet up is all that’s needed to put Value.able into practice. And here is more evidence from Young Les who managed to find his own deserted island.
Posted by Roger Montgomery, 16 September 2010.
Looking for top-quality stocks? Ignore the ‘blue-chips’ and start with Roger Montgomery’s list of A1 businesses – those with enduring quality as evaluated by the Montgomery Quality Rating. Read Roger’s article at www.eurekareport.com.au.
While everyone else seems to have moved on from reporting season, I’m still digging my way through a mountain of analysis. I am almost done.
Based on the amount of comments contributed here at my blog it seems you have enjoyed reading my insights as much as I have enjoyed sharing them.
Before I get into what I have uncovered from last week’s filings, congratulations are in order. Gavin was the first Value.able Graduate to correctly pick the three companies I omitted from Part III’s second table – congratulations Gavin. Gavin picked all three despite there being thousands of companies listed on the ASX and only having six pieces of financial data. Amazing!
Congratulations are also in order to Mike and Pat, who picked all three. Great digging fellow Value.able Graduates!
The missing companies are ARB Corporation (ARP), Wotif.com (WTF) and Mineral Resources (MIN).
As always, please undertake your own research and seek and take personal professional advice before you go rush out and buy anything.
I also wanted to say a big thank you to all who have posted comments. Our Value.able investing community has benefited greatly from your contributions and insights and I am excited by the great sense of community that you have developed. I must say a special thank you to our regular contributors – the quality of your comments are amazing, and more importantly, respectful and non-judgmental. Keep them coming!
If you haven’t yet posted a comment, now is a great time to start. The Value.able community is here to share ideas and help each other. If something is on your mind, I guarantee there is someone else with a similar question. So please contribute as much as you can or ask as many questions that you may have.
Now onto my lists – despite all my digging, there is only one new entrant into my A1 Montgomery Quality Rating this week. With three companies experiencing rating declines, on a net basis we actually lost two A1s. You can see them below.
Dominion Mining (DOM) had the largest rating decline, from an A1 to an A3. It still displays high quality metrics – with $16m in cash on the balance sheet and no debt (just watch out for those capitalised exploration expenditures), but my Montgomery Quality Rating declined. Why?
As you know, I tend to shy away from commodity businesses. It is not that they are difficult to understand, but rather difficult to forecast with a great deal of confidence – forecasting how much they will produce and when, their cost of production and/or project establishment and development costs and then ultimately, what price they will get for their production. There are simply too many variables that management can get wrong and many that are completely out of their control.
To this point I proffer Dominion (ASX: DOM), which in the most recent financial year, despite a higher average gold price, saw production slip from 98,755 ounces to 80,570 and cash production costs blow out from $438 to $697 per ounce. The combination of lower production and lower efficiencies transformed a highly profitable business into a barely profitable one in the space of 12 months. Now that’s operating leverage!
Indeed if you took all of the hitherto-labelled ‘resource evaluation and mine development expenditure’ expenses straight to the Profit and Loss account as opposed to the Balance Sheet, DOM would have made a loss of several million.
Given the many variables and accounting flexibility, if exposure to this sector is your goal, perhaps your focus could move from those who ‘look for’ and ‘produce’ to those who ‘service’ – the suppliers of the picks and shovels and those engineering businesses that install, maintain and replace all the picks and shovels. In my opinion, there are fewer variables and the economics haven’t changed since the days in 1851 when a gold rush in Ballarat saw 10,000,000 grams of gold delivered to Melbourne’s Treasury.
Back to my A1’s… the only entrant this week is Centrebet International (CIL). Remember that this is in addition to the 30 revealed so far in my previous posts – Part I, Part II and Part III. My A1’s now total 31.
CIL is in the business of online wagering and gaming and appears to have carved out a niche in Australia’s multi-billion dollar gambling market.
Take a look below and you will also see those companies that have achieved an A2 Montgomery Quality Rating since my previous blog post. The average ROE of this group is an impressive 23.39% (albeit around half that of my A1’s) with an average gearing level of -36.05%. There are plenty of Balance Sheets here reflecting a net cash position.
Combine my A1s and A2s (78 in total) published in the past couple of weeks and you have an excellent starting point from which to begin your own digging (by doing your own research and seeking independent personal and professional advice).
I will also mention that I may own any of the above companies and that I may buy or sell at any time – even tomorrow, and I am under no obligation to keep the list up to date in any way, shape or form. Before you do anything, YOU MUST conduct your own research and I insist you obtain independent personal and professional advice considering your needs and circumstances.
Value.able gives you the simple steps to follow to estimate a value for each company yourself and some thoughts to consider in regards to qualitative factors, such as competitive advantage. If you are not already a Value.able Graduate, why not?
Also remember that the share price may halve tomorrow. DO NOT buy shares in any company simply because I like it or own it – that is not investing, that is speculation. Speculating that I am right is not investing. That is the exact opposite of the value investing doctrine I espouse.
Reporting season will soon be a distant memory and the media, analysts and ‘investors’ will start to think about other things… the economies of the US, China and Europe will start to tickle the minds of idle analysts and commentators, but your focus should remain on great quality companies trading at very big discounts to intrinsic value.
Posted by Roger Montgomery, 15 September 2010.
I met with Justine and Dickie, the CFO and COO of Decmil recently, and got a good understanding of how cash flows through the business.
I am comfortable that the disastrous acquisition track record of the past is now just that; past. The board now appears stable, culture within the business appears to be excellent and if Justine and Dickie’s enthusiasm is anything to go by, their reputation, which has taken 31 years to build, will see them continue to secure projects from blue chip clients (don’t ask me what ‘blue chip’ means).
There are of course macro risks in supplying picks and shovels. The GFC for example didn’t dent BHP and RIO’s aspirations, but it did dent the banks’ willingness to lend on new projects. A macro shock could thwart the capex plans of many resource companies and this would inevitably impact Decmil and its peers. Operating leverage however is not as high as you may think and I invite you to investigate.
So go forth and conduct your own research and as always, seek professional financial advice. You can also use the steps in Value.able to calculate the value of Decmil yourself.
Posted by Roger Montgomery, 14 September 2010.
That’s what Peter Switzer asked me on Wednesday night on the Sky Business Channel. My response? I focus on A1 businesses that I need to focus on the least (just twice a year when half and full year results are released). As for the stocks… you’ll have to watch the interview.
Switzer TV with Peter Switzer was broadcast on 8 September 2010 on the Sky Business Channel. Click here to watch other interviews at my YouTube Channel.
Posted by Roger Montgomery, 10 September 2010
A protracted financial downturn is a lot like banging your head against a brick wall: it feels fantastic when it’s over. Simon Hoyle asked Roger Montgomery how his A1 and A2 companies fared through reporting season. Read article.
Foster’s has rejected a $2 billion private equity bid for its wine business, saying it “significantly undervalues” the Treasury Wine Estates. Roger Montgomery observed “It’s a very tough business with low barriers to entry, very low barriers to imitation and there’s a huge amount of choice… They will use a large portion of debt to make the acquisition so they only need very small improvements in earnings before interest and tax in order to generate very large returns on the equity that’s actually invested and that’s because of the leverage they use. Read transcript.
Roger Montgomery is a fund manager. He also runs his own Self Managed Superannuation Fund (not that he will be able to access it for a while yet). So what is Roger’s SMSF investment strategy? Focus on A1 businesses that you need to focus on the least (just twice a year when half and full year results are released). In Roger’s opinion the optimum number of shares in a portfolio is between 12-24 (more details in Value.able). As for the stocks he would put in his SMSF … Roger revealed his top 10 to Peter Switzer on 26 August. Do they still fit the bill? Watch the interview.
