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David Webb - The 20%-a-Year Stock Picker Who Wishes His Edge would disappear.


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Interesting short Bloomberg article about an investor that I like and about investing in Hong Kong in general.

 

https://www.bloomberg.com/news/articles/2019-01-02/the-20-a-year-stock-picker-who-wishes-his-edge-would-disappear .

 

Here’s how Webb describes the basics of his investment strategy:

 

Owns about 35 stocks at a time, with an average holding period of “five-plus’’ years

Long only, never short

Prefers large stakes in small companies and isn’t afraid to take an activist role: “If you are going to be a minority shareholder, it’s better to be a big one’’

Doesn’t use leverage

Looks for businesses that are well-governed and undervalued

Reads the regulatory filings –- almost all of them

Avoids large caps

Refuses to manage outside money: “It’s a lot of hassle’’

 

Very impressive track record with a diversified portfolio.

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Interesting short Bloomberg article about an investor that I like and about investing in Hong Kong in general.

 

https://www.bloomberg.com/news/articles/2019-01-02/the-20-a-year-stock-picker-who-wishes-his-edge-would-disappear .

 

Here’s how Webb describes the basics of his investment strategy:

 

Owns about 35 stocks at a time, with an average holding period of “five-plus’’ years

Long only, never short

Prefers large stakes in small companies and isn’t afraid to take an activist role: “If you are going to be a minority shareholder, it’s better to be a big one’’

Doesn’t use leverage

Looks for businesses that are well-governed and undervalued

Reads the regulatory filings –- almost all of them

Avoids large caps

Refuses to manage outside money: “It’s a lot of hassle’’

 

Very impressive track record with a diversified portfolio.

 

Very interesting read. Thanks for posting!

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Good to see there are other people here who like David Webb, though not surprising I suppose.

 

For those who are interested, there are some other good features on him, especially about the history of his 'Christmas tips'.

 

I've never quite managed to understand the companies he invests in.  It often seems to be things where the founder boss in is in his 90s, and they have a bunch of land marked at cost price from 40 years ago, and you wait for them to realise the value and sell it.

 

So fairly classic deep value, but I feel that without being on the ground, I don't know how to get a sense of when the catalyst will be realised (though I know not everyone is bothered about the 'when').

 

However it's probably not a bad time to coat-tail him, given the 2018 HK performance.

 

 

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So fairly classic deep value, but I feel that without being on the ground, I don't know how to get a sense of when the catalyst will be realised (though I know not everyone is bothered about the 'when').

 

I own at least one of his picks, Ming Fai (3828). They shut down an unprofitable business line the past few years, are paying out a big dividend. Market cap ~750m, ~300m in excess cash and 100m in net income last year. Decent company & very cheap. Allan international is similar company. Webb sometimes uses his stake to push a bit for sensible capital allocation so I guess he generates his own catalysts? My guess is that he's not very busy with looking for 'catalysts' and just buys reasonable companies at unreasonable valuations.  Though I have to admit I don't understand all of his picks.

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So fairly classic deep value, but I feel that without being on the ground, I don't know how to get a sense of when the catalyst will be realised (though I know not everyone is bothered about the 'when').

 

I own at least one of his picks, Ming Fai (3828). They shut down an unprofitable business line the past few years, are paying out a big dividend. Market cap ~750m, ~300m in excess cash and 100m in net income last year. Decent company & very cheap. Allan international is similar company. Webb sometimes uses his stake to push a bit for sensible capital allocation so I guess he generates his own catalysts? My guess is that he's not very busy with looking for 'catalysts' and just buys reasonable companies at unreasonable valuations.  Though I have to admit I don't understand all of his picks.

 

How do you know what he owns? I don’t see it on his webb site.

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How do you know what he owns? I don’t see it on his webb site.

 

In the bloomberg article is a list. Looks like a Graham-Type investor that mainly buys stocks below or at NCAV and that are still profitable. 3-7% weight per position. And i think all of them pay dividends. Very interesting that this is still possible with 170 million $ in capital.

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Been reading his stuff for a number of years now. Excellent stuff.

It's nice that he's pushing for good governance in Asia. Most of those "public" companies are still run for the management or controlling families. Complete disregard for minority shareholders.

Nonetheless, despite his efforts, it seems like a futile battle (in terms of improving governance), but at least he's making great returns doing it.

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  • 1 month later...

Has anyone else gone through his list of holdings from late last year? He definitely holds some cheap stocks.

 

https://webb-site.com/dbpub/webbchips.asp

 

Sun Hing Vision @ 2.89 -- Trades ~40% above NCAV / ~6.5x EV/TTM OP / over 6% TTM dividend yield / Recently bought a property to  use as its HQ starting in 2021

 

Lung Kee @ $3.48 -- Trades ~44% above NCAV / ~5.25x EV/TTM OP / ~11.5% TTM dividend yield / Also owns some excess real estate

 

Ming Fai @ $1.09 -- Trades ~28% above NCAV / ~4.6X EV/TTM OP / ~6.4% TTM dividend yield /

 

 

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I've looked at some of them and went with Lion Rock Group which is a pretty significant position for me. While not as cheap on a NCAV basis etc. as some of the above, it's cheap AND growing value nicely. It's a high quality business in a boring and tough industry but with high quality management. Capital allocation is stellar, and management has a lot of skin in the game.

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I've looked at some of them and went with Lion Rock Group which is a pretty significant position for me. While not as cheap on a NCAV basis etc. as some of the above, it's cheap AND growing value nicely. It's a high quality business in a boring and tough industry but with high quality management. Capital allocation is stellar, and management has a lot of skin in the game.

 

Would you care to expand on this? While I only spent about 5 minutes looking at it earlier this week, my first impression was that it is a more-or-less fairly valued. What's the special sauce here? Why is it a high quality business? What make the capital allocation so good?

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Has anyone else gone through his list of holdings from late last year? He definitely holds some cheap stocks.

 

https://webb-site.com/dbpub/webbchips.asp

 

Sun Hing Vision @ 2.89 -- Trades ~40% above NCAV / ~6.5x EV/TTM OP / over 6% TTM dividend yield / Recently bought a property to  use as its HQ starting in 2021

 

Lung Kee @ $3.48 -- Trades ~44% above NCAV / ~5.25x EV/TTM OP / ~11.5% TTM dividend yield / Also owns some excess real estate

 

Ming Fai @ $1.09 -- Trades ~28% above NCAV / ~4.6X EV/TTM OP / ~6.4% TTM dividend yield /

 

Sun Hing vision 125.HK looks good to me. I haven’t bought it yet, though.

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  • 2 weeks later...

Not a David Webb holding, but looks promising.....

 

Kings Flair International @ $1.69 -- trades ~50% above NCAV / 5.15X EV/TTM OP / ~8.3% TTM dividend yield. This business has consistently generated strong cash flows. 

 

 

Forager Funds (no affiliation), an Australian asset management fund, owns shares. If you dig around their website you can find some brief commentary.

 

https://foragerfunds.com/

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I owned it early 2018. What baffles me about this name: why did they do an IPO? According to their filings it was to raise cash for 'investments' or whatever it was but they haven't done anything since and are now paying out special dividends. Also the IPO was at (what seems to me) a low price. Not something I could get 100% completely comfortable with for the long term so I sold it after the run-up.

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I owned it early 2018. What baffles me about this name: why did they do an IPO? According to their filings it was to raise cash for 'investments' or whatever it was but they haven't done anything since and are now paying out special dividends. Also the IPO was at (what seems to me) a low price. Not something I could get 100% completely comfortable with for the long term so I sold it after the run-up.

 

That's an interesting point about the IPO. It looks like they planned on using nearly 50% of the proceeds to buy a HQ property, but never followed through. This is a rare example of company in Greater China not pulling the trigger on a real estate purchase.

 

Page #217 below

 

https://www.kingsflair.com.hk/wp-content/uploads/2019/01/Prospectus-ENG.pdf

 

 

 

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I've looked at some of them and went with Lion Rock Group which is a pretty significant position for me. While not as cheap on a NCAV basis etc. as some of the above, it's cheap AND growing value nicely. It's a high quality business in a boring and tough industry but with high quality management. Capital allocation is stellar, and management has a lot of skin in the game.

 

Would you care to expand on this? While I only spent about 5 minutes looking at it earlier this week, my first impression was that it is a more-or-less fairly valued. What's the special sauce here? Why is it a high quality business? What make the capital allocation so good?

Sorry for the late reply, I missed your post.

 

I think the special sauce is management which has a major stake in the business and have proven to be opportunistic and savy doing M&A (there's an old writeup on VIC with some good info on the CEO and his past track record). High quality business might be a stretch, but the numbers do suggest that (high ROE/ROIC), throwing off cash. I like how it's a boring business in what's probably a low/no growth industry and consider it somewhat of a poor mans Cimpress (even though you could easily argue that these guys are much better operators...).

 

It doesn't look cheap on a P/E basis, but it's a different story when you look at EV/Ebitda og Ev/Ebitda and include the large cash portion on the BS. Usually you might wanna give the cash a large haircut (since in a lot of HK/Japanese/Korean companies it's not getting distributed) but Lion Rock has a sizeable dividend.

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  • 3 weeks later...

I owned it early 2018. What baffles me about this name: why did they do an IPO? According to their filings it was to raise cash for 'investments' or whatever it was but they haven't done anything since and are now paying out special dividends. Also the IPO was at (what seems to me) a low price. Not something I could get 100% completely comfortable with for the long term so I sold it after the run-up.

 

Looks like you may have been right to sell when you did, as the company has sold down by maybe ~15% over the past few trading days after an earnings report that featured

 

1) slowing revenue growth

2) weak gross margins due to higher raw materials costs and tariffs

3) A $0.06 HKD final dividend

4) more details on a plan to purchase four "nanospider" machines from a company based in the Czech Republic. These appear to be some sort of cutting-edge textile weaving machines that King's Flair thinks will provide them with a leg up (8 legs up?) on the competition. I'm skeptical of an asset light business making a large capital expenditure like this, but management seems competent, so I'm inclined to give them the benefit of the doubt.

 

I am going to hold, as my thesis isn't broken. This is still cheap and still cash generative.

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  • 2 months later...
  • 2 months later...

Quick update on Ming Fai, since they just reported 1H 2019 results and I still own it. It has not been a fun stock to own this year.

 

Overall revenue up slightly, but gross margin weakened. Operating Supplies and Equipment (OS&E) segment continues to grow strongly with revenue up ~20% Y/Y, but is still too small to really move the needle. $0.015 per share interim dividend declared. That's down from $0.02 last year.

 

Acquired, Wayoutokushin a small business in Japan founded by a Chinese immigrant. Vegans beware, Wayoutokushin makes products that contain substances from deer.  Acquisition is too small to be material, but the logic of being able to offer a unique product line to hotel customers in Greater China makes sense. I have a attached a picture (which I found hilarious) of the proud founder.

 

Company is continuing to shift production to its new-ish factory in Cambodia. Linked below is a video tour of the factory:

 

 

 

Stock remains quite cheap and I like that management is being proactive and taking steps that (at least to me) make sense.

n-deer-a-20170531.thumb.jpg.f73a6a3b40cd362b2dbb684a80211246.jpg

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  • 9 months later...

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