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Do Indochine Mining (IDC), Silverlake Resources (SLR), Iluka Resources (ILU), Horizon Oil (HZN), Boart Longyear (BLY), Newcrest Mining (NCM), BHP Billiton (BHP), Rio Tinto (RIO), Think Smart (TSM), New Hope Coal (NHC), Ludowici (LDW), Alumina (AMC), Flight Centre (FLT), Hawkley Oil & Gas (HAG), M2 Communications (MTU), Northern Star (NST), Codan (CDA) or Onesteel (OST) make Roger’s coveted A1 grade? Watch this edition of Sky Business’ Your Money Your Call broadcast 9 May 2012 to find out.  Watch here.

by Roger Montgomery Posted in Companies, Investing Education, Skaffold, TV Appearances, Value.able.

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Once upon a time JB Hi-Fi was a category killer: its returns on equity were unassisted by debt and stratospheric and it was all reflected in a strong share price. But  something has changed. I wrote previously, and commented elsewhere, that JB Hi-Fi was maturing, that returns on equity were flattening and that the sun was setting on the ability of the business to reinvest profits at the very high returns of the past.  The impact of this of course is flatlining intrinsic values.  Indeed take a look at the Skaffold valuation line chart below.  You can see that even by 2014, JBH’s intrinsic values are expected to show no appreciation from 2009/2010.  Maturity.

That of course hasn’t prevented me from buying a few shares around$15.00.  Fortunately however we were quick to change our mind and even secured a small profit.

I wonder whether the first signs of business performance beginning to mature, is often the point when it becomes worth watching what directors do with their shares for some further insights?

JB Hi-Fi’s CEO, Richard Uechtritz, had been at the company for a decade prior to his retirement in 2010 and those watching his share dealings may have drawn a different conclusion to those being lulled by a bullish share price.

At the outset let me say there is no impropriety in a director selling their shares and none is suggested here.  Directors are free to sell shares within the bounds of their staff trading policy and are required to report their dealings to the market.

And it’s through these announcements that the investor can see what directors are doing with their shares.

On August 20, 2009, JB Hi-Fi’s CEO held 2 million shares and 627,000 options

and he exercised options to buy another 180,048 shares at $7.27. A week later, JB Hi-Fi’s CEO had sold all of shares he had just purchased the week before for an average price of $17.65.

Then, between September 2 and 3, 2009, another 500,000 shares were sold at an average price of $18.22.  By now JB Hi-Fi’s CEO held 1.5 million shares (down from 2 million on AUgust 20) and 447,267 options (down from 627,000).

Skaffold’s Valuation Line Evaluate screen for JBH reveals a maturing intrinsic value – little growth and lower IV in 2014 than 2010.

To alleviate the need to read thousands of annual reports, for every listed company, going back a decade try www.skaffold.com

Now back to our regular programming…

Between August 20 and September 3, there are just 13 days – call it two weeks.

Another 174,656 options were granted on 14 October 2009, and then, in early February 2010, JB Hi-Fi announced the retirement of its CEO.. Having sold 680,048 shares in the seven months before the announcement, JB Hi-Fi’s CEO sold another 500,000 shares during the first five days of March 2010 at an average price of $19.74 leaving him with 1 million shares and 621,923 options.

In his final director’s interest notice in May 2010, the retiring CEO of JB Hi-Fi listed his direct equity interest in the company at 1 million shares and the 621,923 options. For investors who are interested in gaining a possible inside track on the prospects and potential of a business, it may be useful to watch directors’ dealings in their shares.

Of course sometimes the selling can mean nothing at all but my observation is that watching the selling offers some insights. If motivated by urgency, a desire to lock in lofty share prices or grim expectations, information about director’s selling can be more useful than watching their buying.

In April 2011 (about a year later), Richard Uechtritz returned to JB Hi-Fi as a Non-executive director. Until his return, he didn’t have director’s obligations so he was not obliged to make public any of his private share dealings. Upon his return, however, he revealed that he owned only 421,000 options. In other words, he appears to have subsequently sold the one million shares he held at the time of his retirement.

JB Hi-Fi shares do not enjoy the lofty levels they once commanded and investors who tracked the sale of shares by its CEO may have been given a prompt to look deeper into the company,  its prospects or at least the impact of those prospects on its shares.  Of course it could all be happenstance, company CEO’s have no particular insights and their selling is purely a reflection of the need to diversify.  ANy subsequent share price declines may just be coincidental.

JB Hi-Fi’s latest results were less than spectacular and, while the company will continue to win in the race against its listed peers, the reality is its margins remain under increasing pressure, it’s losing share to the internet and its remaining store rollout plan is contributing to a maturing set of metrics. Oh, and the share price now? Just above $9.30.

So do you think you should keep an eye on director’s dealings?  What have been your observations?  Can you nominate some companies in which directors dealings having given you cause to pause…

Posted by Roger Montgomery, Value.able author, SkaffoldChairman and Fund Manager, 9 May 2012.

by Roger Montgomery Posted in Consumer discretionary, Skaffold, Value.able.

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Harvey Norman today gave its third quarter results reporting LFL (Like-for-like) sales down 6.6% and profit before tax down 24.8%. We think a picture tells a thousand words and offer the following two images (above, of the Apple Store in Sydney’s George Street and below, of the Harvey Norman Store in Bell Street Preston…yes, yes I know different foot traffic etc.) as an invitation for you to comment about what it takes a for a retailer to succeed. If branding and customer experience are two to keys to success….

One wonder’s whether reinvestment is a priority at HVN because we believe thats what retailing constantly needs.

Posted by Roger Montgomery, Value.able author, SkaffoldChairman and Fund Manager, 3 May 2012.

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Roger Montgomery discuss how Sustainable Competitive Advantage is the platform for exceptional company performance in this Money Magazine article published in May 2012.  Read here.

by Roger Montgomery Posted in Insightful Insights, Investing Education, On the Internet, Value.able.

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In the May 2012 edition of the ASX Investor Update Email Newsletter, Roger Montgomery outlines his Value.able framework for successfully investing in the share market. Read here.

by Roger Montgomery Posted in Intrinsic Value, Investing Education, On the Internet, Value.able.

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Montgomery Investment Management would like to make the following important announcement.

Mr David Buckland will be joining Montgomery Investment Management as CEO shortly.  David brings a wealth of experience to Montgomery including 11 years as CEO of ethical fund manager Hunter Hall.  To view the announcement click on the image at left or click this link: Montgomery Press Release

Montgomery intends to continue to deepen and strengthen its management and investment teams to ensure that clients of the wholesale Montgomery [Private] Fund and its institutional mandates can always rely on impeccable service as we focus on continuing to achieve reliable outperformance.

To register your interest in Montgomery Investment Management or to apply to invest visit www.montinvest.com

Posted by Roger Montgomery, Value.able author, SkaffoldChairman and Fund Manager, 30 April 2012.

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For many, beating the market indices is the hold grail of share market investing.  In this Australian article published 14 April 2012 Roger Montgomery discusses how you too can beat the market using his Value.able investing strategy.  Read here.

by Roger Montgomery Posted in Companies, In the Press, Investing Education, Value.able.

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Do New Hope Corporation (NHC), Northern Star Resources (NST), Mt Gibson Iron (MGX), Navarre Minerals (NMC), Allmine Group (AZG), Credit Corp Group (CCP), Matrix composites (MCE), Coffey International (COF), Data #3 (DTL), Breville Group (BRG), UGL (UGL), QR National (QRN) and Seymour Whyte (SWL) make Roger’s coveted A1 grade?  Watch this edition of  Sky Business’ Your Money Your Call broadcast 14 April 2012 to find out, and also learn Roger’s current insights into the Mining Services sector. Watch here.

by Roger Montgomery Posted in Companies, Energy / Resources, Intrinsic Value, Investing Education, TV Appearances, Value.able.

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Do Lonrho Mining (LOM), Integrated Research (IRI), Hawkley Oil and Gas (HOG), Boart Longyear (BLY), Forge (FGE) and Environmental CleanTechnologies (ESI) achieve Roger and coveted A1 grade? Watch Part 2 of Sky Business’ Your Money Your Call 10 April 2012 program now to find out. Watch here.

by Roger Montgomery Posted in Companies, Investing Education, TV Appearances, Value.able.

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We have been prattling on about the value in mining services businesses for a long time and I am sure you are familiar with names like Forge, Decmil and Maca. What concerns me a little is that these names are now familiar not only to the few that read this blog and keep up to date on my facebook page here: https://www.facebook.com/montgomeryroger but also to just about every broker with an analyst team.  There are now analysts solely dedicated to mining services and if the widely expected M&A/IPO wave hits later in the year, I wonder whether it won’t be full of mining services contractors.

Make no mistake, on the one hand there appears to be some real value in this sector.  On the other, these businesses suffer from the ‘feast or famine’ syndrome, require a mining boom to be able to generate a sufficient rate of return to cover their cost of capital (and therefore increase there intrinsic value) and finally, their operating leverage ensures that any turn down in activity will have a significant impact on EBIT, EBITDA cash flow etc…

One to keep a close eye on…

I was interviewed on CNBC about this very subject and you can watch the video here.

What do you think?  Do you own any of the mining services companies?  Can the high rates of return on equity be maintained?  What do you think Australia’s future looks like in the event the mining boom ends?

Posted by Roger Montgomery, Value.able author, Skaffold Chairman and Fund Manager, 3 April 2012.

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