Gonna be away next week and I figured that if I do not put anything in writing this week, nothing will come out for at least a month. Blogging consistently this year is really going the direction of my dieting plans. Inconsistent is the word.
Correction or not? That is the question. The market momentum has slowed down significant compared to the past two months. March has been a range bound month so far and there are times which you just wonder why the market was even open for trading. We have reached some psychological resistance levels and there have not been any catalysts to push the market higher. The comfort which take from all this is the fact that the market remains resilient and the volatility has been low. Plenty of predictions on a weak April as market participants start to price in a possible "Sell in May and go away" scenario. All I know is, corrections at this point in time is healthy and I do hope it comes. Liquidity driven rallies can get out of hand and as long as there are pullbacks, it still signals some legs to run. Really have no idea when the liquidity will be drained so I am still going to continue to maintain my stance from the start of the year...keep an open mind.
Two large houses came out to call for a "sell" on bonds this week. Now that is some gutsy call because this is afterall an asset class that has thrashed the performance of equities over the past 20 years. This is what I call a generational call and it is something I believe very strongly in. In my investment life, I have never bought a single bond or even bond funds. Even though the returns have been good but I believe that bonds are a negatively skewed asset class where you do not have upside and just be happy with a fixed yield. So if nothing happens you get a coupon payment, if something happens you lose everything. Does not sound like a fair trade to me. Especially when the supply of bonds have increased exponentially this year to date, I am getting really concerned. How much did Genting Singapore raised through its perpetuals two weeks ago? S$1.8 billion. Why would a company that is net cash by more than S$1 billion be raising money with a 5.1% yield? That is because they believe that money is cheap at this moment and going forward, their 5.1% will look like a bargain. Anyway, we shall see whether this generational call will pan out or not. I am in the same camp as those guys, so lets just see.
Since my last post two weeks ago, more has been said about oil prices hurting the economy. We have even seen China raise prices at the pump for the second time in 6 weeks. President Obama has been criticized for not handling the the rise in oil prices, now he is pressurized into speeding up the Keystone pipeline approval. The funniest part of the news flow was the rumor that the US and UK had released supplies from their special oil reserves. Now the question on everyone's head is whether higher oil prices are going to hurt the fragile economic recovery we are currently in. It is really funny when you hear about how one single commodity price can hurt the global economy. Any truth to that? I am sure there are two sides to that story.
From my experience, I would like to say that rising oil prices have not hurt the global economic growth in the past 10 years. Bear in mind we saw 150 dollar oil price in 2007-08 but it was not oil that hurt us, it was the man made subprime problem that hurt us. The last time oik prices hurt the general economy was the oil embargo in the 1970s. Since then, there have not been any oil price related significant slowdown to growth. Important thing to note is the speed of the rise rather than the price it reaches. If there is a nice gradual rise over time, expectations can adjust accordingly but if there is a sharp spike, it will be detrimental consumption.
Did any of you read about the rumor of a coup in China? That was pretty funny I have to say. It did however bring some jitters in the market as netizens on Weibo (China's micro-blogging website) claim to see large numbers of military police in Beijing and the whisper was that the military had moved in to "protect" the much loved Bo Xilai. In the end, there was no truth in the rumors of such a coup. But I would advise not to take this Bo Xilai debacle lightly. What this situation has brought to light is the possibility of China's political party being split into factions. The world has attributed China's rise over the past decade and a half to political stability and the party to stay in power long enough to make long term plans and execute them. The Chinese now have to prove to the world that the stability remains and this issue with Bo Xilai is a one off and there is no deep wedge driven in between the different factions. For me, this is a very important issue to continue to watch because we should not underestimate the possible repercussions that may stem from it.
So the last few picks have started to do well. Centurion is showing some movement, Genting Hong Kong has delivered more than 25% returns (translating into 25 years of interest). Of course, my favourite Sarin and Wheelock have been doing well too. Sarin is really one that I am very proud of, considering it is the only stock I have ever written twice on. I would write a third post on it but I am worried that you guys will just stop reading the blog due to its repetitiveness. Repetitiveness is not a bad thing, especially if it has worked. You will realise that my selection of stocks has always been about valuation and the sustainability of the business. There are still more picks to come but I would advise on adding to more positions in LMA, Genting HK, Genting Singapore and Centurion. For those who love Sarin as much as I do, they can consider adding more of it. I have absolute faith in that company, so I would continue to add to it as long as they continue to lead in the cutting edge of diamond grading technology.
Genting HK's results were sterling and what impressed me most is how they are trying to reduce the share premium to prepare itself for possible distributions going forward. The cashflow generation of the company is now at a different level and I believe this is sustainable due to the turnaround in the Star Cruise ops and their revenue generator in the form of Resorts World Manila. I am looking forward to another 2 quarters of solid earnings over the next 6 months and the stock will clearly be re-rated.
Genting Singapore had a great Friday after the first two licences for junket operations were approved. I do not really care for the junkets because I felt that the stock was undervalued and underappreciated in the first place. What this is proving to be is how analysts love to go where the wind blows. Downgrading a company that generates such cashflows from operations so consistently is just being myopic. I am hoping the stock performance will prove all of them wrong. Continue to like the stock, in fact I am considering selling one of my properties to go "all in" with it. Hahaha. Now that would be radical wouldn't it. I continue to like this company and believe in its long term story.
Currently, I am thinking of a certain company that will be listing in Singapore in the near future and no it is not Cordlife. Will share more as I do more research on that company.
Till then have a great fortnight ahead.
Best,
SVI
Saturday, March 24, 2012
Sunday, March 11, 2012
The year of the Dragon. Could it be the year for Dragon Oil? Buy 6.39 Sterling Pounds.
Have posted for more than two years and this is the first time I am going to be posting while carrying a dog in my arms. A real challenge especially for a person who does not type fast in the first place. So if there are plenty of typos, do not blame me.
First of all, I would like to congratulate my favourite feng shui master whom I know is a great follower of this blog. Your Fragrance holdings is making you richer than ever. Next meal is on you. Please do not tell me that you are a poor man. After two stock splits and now a spin off....you are really rolling in the dough, considering the large quantity you bought from the beginning. You have my respect. Doing all your own field research and on the ground work and finding a gem like this. Impressive. The stock has probably delivered 300% over the past few years for you. That is almost equivalent to Apple's stock. Do let us know your next pick when you get one.
Over the past few weeks, I have been really busy researching on oil companies for my own portfolio. Learnt a lot about the industry and it has been a rather enriching experience so far. As you should all know by now, I have been a big fan of oil and I have never been more bullish about the black liquid than right now. Why? Because technically from the charts, oil looks like it has plenty of momentum to move up. Some may argue that China's slow down will affect the demand for oil. I would like to say that I disagree with that notion because the Chinese will take every chance to stockpile on oil inventories as and when they have the opportunity too. A lot has been said about the tensions in the Middle East affecting the price of oil. Throw in the sanctions the Europeans are looking to impose on Iranian oil exports, looks like oil is going to be the center of attention over the next few months.
I have gone around to all my analyst friends for some ideas on which oil companies to look out for. They came back with Keppel and Sembmarine. Talk about original ideas. I do not understand how simplistic some people can be when it comes to investing. Resting on their laurels on finding a stock that will meet the actual criteria set out. So as usual went to the good ole Bloomberg to screen for oil stocks that look interesting to me. Finally, I found one that is really a dream come true for people looking for upstream oil exposure. Whats more, the name of the company is really a clear sign of things to come for this year. The name of the company? Dragon Oil.
Dragon Oil plc is an independent international oil and gas exploration, development and production company. Their principal producing asset is the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan. Turkmenistan formerly also known as Turkmenia, is one of the Turkic states in Central Asia. Until 1991, it was a constituent republic of the Soviet Union, the Turkmen Soviet Socialist Republic (Turkmen SSR). Turkmenistan is one of the six independent Turkic states. It is bordered by Afghanistan to the southeast, Iran to the south and southwest, Uzbekistan to the east and northeast, Kazakhstan to the north and northwest and the Caspian Sea to the west.
Turkmenistan's GDP growth rate of 11% in 2010 ranks 4th in the world. It possesses the world's fourth largest reserves of natural gas resources. Although it is wealthy in natural resources in certain areas, most of the country is covered by the Karakum (Black Sand) Desert.
The Group’s headquarters are located in Dubai, United Arab Emirates. Emirates National Oil Company Limited (ENOC) L.L.C., a company ultimately owned by the Government of Dubai, owns approximately 51% of the Company’s ordinary share capital.
The Group develops the oil reserves in the Cheleken Contract Area in accordance with the terms of the Production Sharing Agreement (PSA). Under the PSA, Dragon Oil Turkmenistan, as operator, was granted a production licence for the exploration and development of oil and gas resources in the Cheleken Contract Area for a term of 25 years from 1 May 2000 and an exclusive right to negotiate an extension of not less than 10 years.
Dragon Oil has had the privilege of working with Turkmenistan for 12 years now, having invested more than US$2 billion in expanding the oil production in the Cheleken Contract Area, and as such, is one of the largest foreign investors in Turkmenistan. The Group is producing from a significant number of new and old wells and has an aggressive development programme comprising drilling of new wells and an ongoing workover programme. The average daily gross field production has increased from approximately 7,000 bopd in 2000 to over 61,500 bopd of average daily gross production in 2011 with the exit rate of 71,751 bopd at the end of 2011.
The Group has over 1,100 employees of which approx. 1,000 are working in Turkmenistan and a majority of whom are Turkmen nationals with over 100 employees based in Dubai.
Dragon Oil had as at 31 December 2011 proved and probable oil and condensate reserves of 658 million barrels and 88 million of oil and condensate contingent resources, 1.5 trillion cubic feet of gas reserves (corresponding to 250 million barrels of oil equivalent) and 1.4 trillion cubic feet of gas resources.
The group trades at a forward p/e of less than 7 times and has more than US1.8 billion cash on their balance sheet. This is an oil company that still has plenty of growth, but trades at a valuation that is only appropriate for an oil major like Shell, Exxon or Total. I like the fact that this is a company that is run by the UAE government (trust me, they know their oil business) and operating in an area that is still rich in oil. The reserve replacement for the company has also been very impressive over the years. Replacing their reserves at a fast rate while still generating so much cash through their increase in production over the years.
Dragon made its first steps down the M&A route last month as it made an early stage approach to buy Cameroon focused explorer Bowleven before dropping its interest shortly after, without making a bid. The company has indicated that they want to invest their cash hoard with more acquisitions going forward.
With US$1.8 billion cash on their books, Dragon Oil presents a healthy debt free balance sheet. Management continues to evaluate M&A opportunities with a target price of US$200-500 million and a minimum size of 50 million barrels of 2P reserves (probable and proven reserves added together).
Underpinned by strong drilling results in 2011, the company produced 61.500 barrels per day, up 30 per cent year-on-year. At this rate, the company will probably achieve its production target of 100,000k barrels per day within the next 3 years. Bear in mind, this is one of the up and coming oil companies out there and I prefer it to Tullow Oil which is now a favourite of many analysts for its exposure to African assets and their high success drilling rates. The valuation however leaves much to be desired. Oh did I mention that Dragon oil pays a nice dividend too? Close to 3% yield at the moment.
For their growth and the quality of their asset, I believe Dragon oil deserves a higher valuation. If you are a big believer of oil like I am, then this is a company for you. If you are bullish on oil, why won't you want exposure to the direct oil producer? For those who are looking at the oil service providers, I do not consider them as direct beneficiaries of higher oil prices. For me, its time to move to upstream players rather than downstream or even integrated oil companies.
Ok thats all I have for this week. Till the next.
Have a great week ahead.
Best,
SVI
First of all, I would like to congratulate my favourite feng shui master whom I know is a great follower of this blog. Your Fragrance holdings is making you richer than ever. Next meal is on you. Please do not tell me that you are a poor man. After two stock splits and now a spin off....you are really rolling in the dough, considering the large quantity you bought from the beginning. You have my respect. Doing all your own field research and on the ground work and finding a gem like this. Impressive. The stock has probably delivered 300% over the past few years for you. That is almost equivalent to Apple's stock. Do let us know your next pick when you get one.
Over the past few weeks, I have been really busy researching on oil companies for my own portfolio. Learnt a lot about the industry and it has been a rather enriching experience so far. As you should all know by now, I have been a big fan of oil and I have never been more bullish about the black liquid than right now. Why? Because technically from the charts, oil looks like it has plenty of momentum to move up. Some may argue that China's slow down will affect the demand for oil. I would like to say that I disagree with that notion because the Chinese will take every chance to stockpile on oil inventories as and when they have the opportunity too. A lot has been said about the tensions in the Middle East affecting the price of oil. Throw in the sanctions the Europeans are looking to impose on Iranian oil exports, looks like oil is going to be the center of attention over the next few months.
I have gone around to all my analyst friends for some ideas on which oil companies to look out for. They came back with Keppel and Sembmarine. Talk about original ideas. I do not understand how simplistic some people can be when it comes to investing. Resting on their laurels on finding a stock that will meet the actual criteria set out. So as usual went to the good ole Bloomberg to screen for oil stocks that look interesting to me. Finally, I found one that is really a dream come true for people looking for upstream oil exposure. Whats more, the name of the company is really a clear sign of things to come for this year. The name of the company? Dragon Oil.
Dragon Oil plc is an independent international oil and gas exploration, development and production company. Their principal producing asset is the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan. Turkmenistan formerly also known as Turkmenia, is one of the Turkic states in Central Asia. Until 1991, it was a constituent republic of the Soviet Union, the Turkmen Soviet Socialist Republic (Turkmen SSR). Turkmenistan is one of the six independent Turkic states. It is bordered by Afghanistan to the southeast, Iran to the south and southwest, Uzbekistan to the east and northeast, Kazakhstan to the north and northwest and the Caspian Sea to the west.
Turkmenistan's GDP growth rate of 11% in 2010 ranks 4th in the world. It possesses the world's fourth largest reserves of natural gas resources. Although it is wealthy in natural resources in certain areas, most of the country is covered by the Karakum (Black Sand) Desert.
The Group’s headquarters are located in Dubai, United Arab Emirates. Emirates National Oil Company Limited (ENOC) L.L.C., a company ultimately owned by the Government of Dubai, owns approximately 51% of the Company’s ordinary share capital.
The Group develops the oil reserves in the Cheleken Contract Area in accordance with the terms of the Production Sharing Agreement (PSA). Under the PSA, Dragon Oil Turkmenistan, as operator, was granted a production licence for the exploration and development of oil and gas resources in the Cheleken Contract Area for a term of 25 years from 1 May 2000 and an exclusive right to negotiate an extension of not less than 10 years.
Dragon Oil has had the privilege of working with Turkmenistan for 12 years now, having invested more than US$2 billion in expanding the oil production in the Cheleken Contract Area, and as such, is one of the largest foreign investors in Turkmenistan. The Group is producing from a significant number of new and old wells and has an aggressive development programme comprising drilling of new wells and an ongoing workover programme. The average daily gross field production has increased from approximately 7,000 bopd in 2000 to over 61,500 bopd of average daily gross production in 2011 with the exit rate of 71,751 bopd at the end of 2011.
The Group has over 1,100 employees of which approx. 1,000 are working in Turkmenistan and a majority of whom are Turkmen nationals with over 100 employees based in Dubai.
Dragon Oil had as at 31 December 2011 proved and probable oil and condensate reserves of 658 million barrels and 88 million of oil and condensate contingent resources, 1.5 trillion cubic feet of gas reserves (corresponding to 250 million barrels of oil equivalent) and 1.4 trillion cubic feet of gas resources.
The group trades at a forward p/e of less than 7 times and has more than US1.8 billion cash on their balance sheet. This is an oil company that still has plenty of growth, but trades at a valuation that is only appropriate for an oil major like Shell, Exxon or Total. I like the fact that this is a company that is run by the UAE government (trust me, they know their oil business) and operating in an area that is still rich in oil. The reserve replacement for the company has also been very impressive over the years. Replacing their reserves at a fast rate while still generating so much cash through their increase in production over the years.
Dragon made its first steps down the M&A route last month as it made an early stage approach to buy Cameroon focused explorer Bowleven before dropping its interest shortly after, without making a bid. The company has indicated that they want to invest their cash hoard with more acquisitions going forward.
With US$1.8 billion cash on their books, Dragon Oil presents a healthy debt free balance sheet. Management continues to evaluate M&A opportunities with a target price of US$200-500 million and a minimum size of 50 million barrels of 2P reserves (probable and proven reserves added together).
Underpinned by strong drilling results in 2011, the company produced 61.500 barrels per day, up 30 per cent year-on-year. At this rate, the company will probably achieve its production target of 100,000k barrels per day within the next 3 years. Bear in mind, this is one of the up and coming oil companies out there and I prefer it to Tullow Oil which is now a favourite of many analysts for its exposure to African assets and their high success drilling rates. The valuation however leaves much to be desired. Oh did I mention that Dragon oil pays a nice dividend too? Close to 3% yield at the moment.
For their growth and the quality of their asset, I believe Dragon oil deserves a higher valuation. If you are a big believer of oil like I am, then this is a company for you. If you are bullish on oil, why won't you want exposure to the direct oil producer? For those who are looking at the oil service providers, I do not consider them as direct beneficiaries of higher oil prices. For me, its time to move to upstream players rather than downstream or even integrated oil companies.
Ok thats all I have for this week. Till the next.
Have a great week ahead.
Best,
SVI
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