myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Thursday 13 May 2010

BCorp to buy 70pc of Ascot for RM525m

BCorp to buy 70pc of Ascot for RM525m

2010/05/12

BERJAYA Corporation (BCorp) Bhd has announced plans to acquire a majority stake in Malaysia's first legalised sports betting operation.

In a statement, the company said its chairman and chief executive officer, Tan Sri Vincent Tan, has offered to sell 70 per cent of his company Ascot Sports Sdn Bhd to BCorp for RM525 million in cash.

Ascot Sports has a paid-up share capital of RM80 million comprising shares of RM1 each and based on the sale price, the price per share is RM9.375.

"Ascot Sports has been re-issued the sports betting license by the Ministry of Finance which was first issued in 1987. Ascot Sports has the first-right-of-refusal in the event the Government decides to allow sports betting which it has now in view of the rampant illegal book making activities being conducted," BCorp said.

Tan has agreed to guarantee that the company will make a cumulative after tax profit of at least RM375 million for the first 3 years of operations.

To back this profit guarantee, he has offered to deposit RM81.25 million worth of listed securities and BCorp will withhold RM125 million cash from the total consideration of RM525 million which will be released annually upon achievement of profits proportionate to the guarantee.

Hence, the initial consideration will be RM400 million.

BCorp has also announced its proposal to call a rights of 8.0 per cent ICULS on the basis of one RM1 nominal amount 8.0 per cent ICULS for every eight BCorp shares held on the entitlement date.

This rights issue could potentially raise more than RM0.5 billion.

The 8.0 per cent ICULS will have a tenure of 10 years and are convertible at par by surrendering one RM1 8.0 per cent ICULS for one new BJ-Corp share of RM1 each.

A portion of the funds raised will be used to pay the initial consideration of RM400 million with the remaining to be deployed for working capital of the Group.

BCorp said Tan has undertaken to subscribe to his and his private companies’ entitlements in full which would amount to at least RM400 million.

"Tan Sri Vincent Tan will not net in any cash as he will reinvest the entire initial consideration to be received to honour his rights issue obligations," the statement added.

Ascot Sports is set to become the next big money spinner for BJ-Corp.

Comparing examples in Singapore and Hong Kong where legalized sports betting has been in operation for a number of years, the market is seeing consistent double digit compound growth rates, BCorp said.

The Hong Kong Jockey club for instance had revenues of about HK$35.0 billion (about RM15.0 billion) whilst Singapore Pools revenue is estimated at a few billion Singapore Dollars.

"By some estimates, the illegal sports betting market in Malaysia is thought to be as much as RM20 billion per annum. This represents a tremendous loss of tax revenue to the Government which Ascot Sports hopes to be able to mitigate."

"Based on the RM375 million profit guarantee, the net profit averages at about RM125 million per annum. At the implied value of RM750 million for 100 per cent of Ascot Sports, the acquisition PE multiple is about 6.0x, which is an exceptionally low multiple given the enormous potential for the industry.

"The Board of BCorp expressed its gratitude to Tan Sri Vincent Tan for having offered this remarkable 'Sweetheart' deal to the Company. The Board recognizes that typically, one would probably have to pay a high double digit PE multiple with no profit guarantee if such a business is sold with an established earnings track record," the company said.

AmInvestment Bank has been appointed the Main Adviser whilst OSK Investment Bank has been appointed the Independent Adviser.

http://www.btimes.com.my/Current_News/BTIMES/articles/20100512201745/Article/index_html

The deal:

BCorp to buy 70% of Ascot from Vincent Tan for RM 525 million in CASH.
Tan has agreed to guarantee that the company will make a cumulative after tax profit of at least RM375 million for the first 3 years of operations.
BCorp will withhold RM125 million cash from the total consideration of RM525 million which will be released annually upon achievement of profits proportionate to the guarantee.
BCorp to propose rights issue to raise more than RM 614.5 million.
Rights issue will be used to pay Vincent Tan for the Ascot shares (RM 400 million) and the rest for working capital.
Tan has undertaken to subscribe to his and his private companies’ entitlements in full which would amount to at least RM400 million.
Tan will not net in any cash as he will reinvest the entire initial consideration to be received to honour his rights issue obligations.

Before the exercise

Vincent Tan owns Ascot 100%
BCorp owns 0% of Ascot

After the exercise

Vincent Tan owns

30% of Ascot and RM 525 million cash.
RM 125 million cash is held by BCorp to be released in stages.
RM 400 million cash is used to subscribe to his portion of the rights issue (ICULS).
Tan will not need to fork out cash as he will reinvest the entire initial consideration to be received from his disposal to subscribe to the rights issue.

BCorp Company

owns 70% of Ascot.
owes RM 614.5 million through rights issue in form of ICULS @ 8%.

BCorp minority shareholders

own BCorp which has debt (ICULS) of RM 614.5 million and asset of 70% of Ascot
give out of their pocket RM 214.5+ million to subscribe to their portion of the rights issue (ICULS) which is effectively a loan to be repaid at a later date.

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Thursday 13 May 2010

BCorp to buy 70pc of Ascot for RM525m

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

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