End of the 2k Project

Hi All,

I’ve decided to close down my 2k project blog, I simply can’t dedicate the time in writing up my analysis for each month (as opposed to my short hand).  A number of great opportunities have arisen including:

• I am still be investing / trading but now with greater amount of capital.
• I am heavily involved in Enunc8 a company helping business owners and managers achieve their full potential.
• I will still be occasionally maintaining my Blog.

Thank you for taking an interest in my work.

Regards,

Travis

November / December – ending the year with a fizzle, Babcock and Brown Infrastructure hits prime time.

Disclaimer:

This valuation is NOT advice and provided as educational only (usually mine), it does not take into account your specific investment objectives, financial situation or financial needs. Before acting on the information you should consider if the analysis is accurate (it probably isn’t) and if the investment is appropriate for your investment needs.  You need to also consider your financial situation and <strong>you should seek advice from a financial adviser and/or stockbroker.

I can give no guarantee of the accuracy of the information used, omitted, provided or considered in this analysis.

Or to put the information simply:

You should expect my analysis to contain mistakes and omissions, I’m not a professional stock picker nor do I hold an Australian Financial Services License.  My work is merely for self education and should not be acted on by any persons (sane or insane) in any location so please don’t sue me.

BEPPA

On the 6 /11/09 I purchased 10400 shares in BEPPA @ .41 (almost the top of the market for BEPPA). Now what is BEPPA I hear you ask? BEPPA was the preference share for Babcock and Brown Infrastructure (BBI). BBI was one of those highly geared investment funds so popular before the credit crunch, while the assets held by the fund could be quite valuable in the right circumstances with so much debt the fund basically was on the brink of collapse. This highlights the differences between preference shares and ordinary shares. The ordinary shareholders received only 4 cents. Preference shareholders on the other hand had different rights. Essentially preference shares were paid an interest payment and in the future their shares converted into BBI shares at $1. For example if BBI shares were trading at 10 cents then a BBI would convert to ten shares (at 10 cents each).

The deal gets murky however when a company is on the brink of bankruptcy, preference shareholders get paid well before standard equity shareholders and so they have more equity protection (not to mention the dilution effect if converted).

In the end though BBI needed to raise capital, to get this done they needed a willing party to contribute extra capital and both equity shareholders and preference shareholders to approve the recapitalisation. No small feat in the current credit crisis, luckily for BBI though they had some very good assets abet with very high debt levels.

At the end of the day here is what occurred:

1. Investors voted to approve the recapitalisation.
2. BBI becomes Prime Infrastructure
3. Brookfield Asset Management supplied $1.5 Billion of new capital to take 84% of the new assets (leaving BEPPA shareholders with 16%).
4. BEPPA Shareholders received 6.2 cents per BEPPA, BEPPA also converted at a price of $1.
5. 49.9% of the Dalrymple Bay Coal Terminal was sold for $295 Million and the new capital will be used to pay down the debt and fund all the cash distributions.

Once all the numbers are all totalled up a BEPPA should be worth around 43 cents. Not a super return given my original purchase of 42 cents (plus brokerage). At the end of the day Prime will own the remaining 50.1% in Dalrymple Bay; WestNet Rail; 26% of Natural gas Pipeline Company of America and 42% of Powerco.

The added sweetener….

However BEPPA shareholders also get a share in any proceeds for the sale of the Australian Energy Transmission and distribution assets valued at between 6 cents to 19 cents per BEPPA. Granted this option may never deliver the price in full and it may take two – three years to sell these assets, but it’s a nice little sweetener at the end of the day.

End of December results for the 2k project.

End of October cash $4,317.62

November

Purchased 10400 BEPPA shares at 42 cents plus brokerage for the cost of $4283.95

Leaving $33.67 in cash

December

After conversion I have 749 shares in PIH (Prime Infrastructure) @ $4.10 and received $645.98 as the special dividend.

So the end of December I have the following balance:

Cash $33.67 + $645.98 = $679.65

749 PIH shares at $4.10 = $3070.90

Total of $3750.55

Which is $567.07 less than October but Prime looks undervalued to me (and I’m not including the option which could be worth $624 – $1,976).

AT THE END OF THE YEAR.

This is the only figures that really matter.

Starting with $2000 I now have around $3730.55 ($3750.55 – less $20 brokerage). Which is a return of $1730.55 or 186.52% which is pretty good in a very good year. Now there are some shares that have delivered these types of returns over this period, however I believe the methods I have used involved less risk.

Have a great new year and I’ll see you in January.

Regards,

Travis

2k project September / October current return is 115%

Disclaimer:

This valuation is NOT advice and provided as educational only (usually mine), it does not take into account your specific investment objectives, financial situation or financial needs. Before acting on the information you should consider if the analysis is accurate (it probably isn’t) and if the investment is appropriate for your investment needs.  You need to also consider your financial situation and <strong>you should seek advice from a financial adviser and/or stockbroker.

I can give no guarantee of the accuracy of the information used, omitted, provided or considered in this analysis.

Or to put the information simply:

You should expect my analysis to contain mistakes and omissions, I’m not a professional stock picker nor do I hold an Australian Financial Services License.  My work is merely for self education and should not be acted on by any persons (sane or insane) in any location so please don’t sue me.

September / October

People have begun asking why I’m publishing my actions a month behind, well it really has to do with the market moving and not wanting to disclose my trading.  September / October leads up to reporting season and is always a busy time for analysts, opinions and newspaper headlines.  In August the Bendigo & Adelaide Bank (BEN) decided it needed to raise some capital for reasons similar to the other big 4 banks (now Big 2 + 2) had previously done.  The capital raised “strengthens Bendigo and Adelaide Bank’s capital base, enhances our financial flexibility and enables us to take advantage of growth opportunities as markets continue to improve.”, much the same rational given by all the other banks.  What the banks don’t mention is that these capital raising dilute existing shareholders.  Granted BEN’s retail offering was more ’shareholder friendly’ than other bank offers (1 share for every 12 offering), but in the fine print you could subscribe for shares than you were allotted (hoping other retail investors didn’t take up the deal).  Based on past bank offerings and subsequent share price performance I thought it was prudent to apply for as much as humanly available, however based on the likelihood of future banking problems (increasing bad debts for example) it would be best not to hold them to long.

At the start of September my balance was:

$3,101.27 which I converted into 459 ben shares (I actually purchased more) and $3.02 in cash.

On the 7/10/2009 I sold these shares for $9.40. Thus my return is:

459 @ 9.40 = $4314.60 + $3.02

Total value for end of October is $4317.62 in Cash.

At present I have a return of 115.88% based on my original investment of $2000.

2k project July / August – Arbitrage is a wonderful thing 7.5% return in 19 days

Disclaimer:

This valuation is NOT advice and provided as educational only (usually mine), it does not take into account your specific investment objectives, financial situation or financial needs. Before acting on the information you should consider if the analysis is accurate (it probably isn’t) and if the investment is appropriate for your investment needs.  You need to also consider your financial situation and <strong>you should seek advice from a financial adviser and/or stockbroker.

I can give no guarantee of the accuracy of the information used, omitted, provided or considered in this analysis.

Or to put the information simply:

You should expect my analysis to contain mistakes and omissions, I’m not a professional stock picker nor do I hold an Australian Financial Services License.  My work is merely for self education and should not be acted on by any persons (sane or insane) in any location so please don’t sue me.

So here we are into July / August and I have a confession to make.  A long time ago back in the mists of time prior to reading “Security Analysis” by Ben Graham and David Dodd.  I was a sucker and wasted a significant amount of economic opportunities ‘going with the flow’, quite often these flavour of the month ideas / products simply fail to deliver as expected.  Mostly your return on investment is only marginal and occasionally it’s worse.

This leads me into the territory of Listed Investment Companies (LICs).  LICs aren’t a newish phonomenon with the likes of Milton Corp and Argo Investments existing for quite sometime; however around the late 90’s early 2000’s there  was a boooom in LIC’s, most listed with a FREE OPTION.  What wasn’t as highly disclosed was the management fee often paid to the manager regardless of performance (and if they achieved a certain benchmark they got a bonus).  Of course they needed a way to maintain this management the method of choice was simply to have a management contract or failing this simply own enough shares to maintain a majority control.

Which brings me to PRV while I can’t make a comment as to the investment performance over the long term.  The stock offered an opportunity to good to pass by.  For those that don’t know a shareholder activist purchased around 1% of shares in PRV (which was trading at a significant discount to NTA – around 40%), they then proposed a shareholder meeting with the view to replace the current management with themselves and return funds to shareholders. While attempts by management were made to bring the share price in-line with NTA (with success), the price was still below the final reported NTA.

Management are putting forward a proposal to purchase 65% of outstanding shares off market with a discount to NTA of 1.75%.  Additionally an 15% will be purchased on market.  Shareholders who continue to hold shares will be able to vote on winding up the company subject to a NTA / share price performance hurdle.

Given the last NTA was 86.5 cents and the share price was 78 cents and investor would be able to purchase 100 shares for .78 cents and at minimum sell 65 shares for 84.99 cents plus the remainer on the market.  The major risk with this is that the shareprice slumps after 65% of shares are purchased back, however this is where the 15% on market buy back comes in, which should stop a significant decline (in actual fact due to the 1.75% discount the remaining value of the shares should be worth more – however they might become illiquid and waiting for windup).

So how did I go (example)?

Start balance $2,889.17

I purchased 3600 shares ($19.95 brokerage) at 78 cents on the 20/07/09 (total cost $2827.95 leaving $61.22 in cash)

Due to a significant increase in share price movement I sold for 85 cents on the 7/08/09 (less $19.95 brokerage) total profit of 3600 * .85 less 19.95 approx $3040.05

leaving me with a profit of $212.10 or 7.5% return on investment for 19 days.

So my final balance is currently

$61.22 cash + $3,040.05 = $3,101.27

In this instance the deal makes more of a return if you purchase more shares and so I actually purchased 6300

Here is my analysis of the arbitrage and break even point (printing and sticky tape required)

premium-investors

2k Project – June Update!!! 44% return on investment…so far.

Wow it’s July and hasn’t the year flown!  The green shoots have started to appear (perhaps it’s just wishful thinking) in the US and Credit markets are starting to open up….  the Australian Stockmarket appears to have shrugged off all the bad news and started to surge yet again.  Meanwhile in the real world the new mantra is cutting costs (replacing the ‘efficient balance sheet’ mantra – sooo 2007) and Capital Raising.  Personally I don’t understand the logic of applauding companies raising capital (issuing more shares) with higher shares prices.  For Example:

A company has $100 in Cash and 4 shares on issue.  i.e. The intrinsic value per share is $25.

The company decides to raise additional capital of $100 (5 shares) at $20 per share (a 20% discount to the $25 share price).  The offer is fully subscribed.

The company now has a capital of $200 and 9 shares issued i.e the intrinsic value per share is now $22.22.

At present the market is ignoring this dilution and rewarding companies with higher market share prices, the issue only comes to light when you report your earnings or pay dividends on a per share basis.
<h1><strong>2k Update</strong></h1>
So what’s news in the 2k project.  This project is on looking at how much can be made in shares on the Australian Share Market without putting our capital at significant risk.

<strong>March </strong>

Ending balance $2,022.09 (in the bank)

<strong>April</strong>

In a high interest broker account earning 3.75% p.a.

Interest earned is $6.31

Ending Balance is $2,028.40

<strong>May</strong>

MQG announces a capital raising of $26.60 closing on the 29th of May 2009.

As I hold a small MQG holding I can apply for up to 15k of shares at $26.60, MQG trades on the market around $30

27th of May I apply for shares (so I haven’t added interest for this month)

Apply for 76 shares worth $2,021.6 (figuring at the vary least I should be able to sell them for a small profit)

Leaving $6.80 in cash in my interest account.

<strong>June</strong>

The 76 shares are issued around the 10th of June (MQG doesn’t scale back its capital offering).  I sell them on the 10/06 for $38.32 (paying 29.95 brokerage).  I believe MQG while an excellent institution are overpriced at this price;  to prove me wrong the market pushes MQG all the way to $40 during the next day .

At the end of June I have:

$6.80 + $2,882.37 = $2889.17 which is a return of around44% on my original $2,000 investment.

2k Project – March Update

So folks it’s back to the turmoil of the financial markets .  So I finally (and I do mean finally Manhattan Software) received my cheque from the arbitrage I performed  on the stock MYO (thats MYOB Australia kids) which returned around 1.1% on my initial investment.

So here we are its almost april and not much has happened (but at least I haven’t lost money) .

January 2k

Feb  MYOB Div payment of $149.49

March =  Interest $.60 + $1,872 + Div Payment = $2,022.09 (taking into account share trading costs but excluding tax implications – technically I have a capital loss on this transaction

So there we have it certainly not a large return but a return none-the-less.  With the current volatility lets see what April brings .

Cheers,

Travis

twitter: travislepp