Comments on: Speculating about Investors – ASW

By: Dean Morel

Dean Morel — Fri, 18 Jun 2010 11:04:32 +0000

Peter, thanks for the prompt on ASW. My entry was over 25 cents, a while after you’d suggested it at that level. Great result, I’ll be a buyer on any weakness.

By: Peter

Peter — Fri, 18 Jun 2010 02:16:20 +0000

Well, recent announcement on annual profit is way above expectations. Everyone wants to save money post GFC and corporate excess fiasco (although, as I am long, these comments may be examples of confirmatory bias).

If you enter at 25 cents, your grossed up yield is now above 20%. If you enter at anything below 40 cents, your grossed-up yield is at least 12.5%.

Better than money in the bank, I’d say. And you are starting from a very very low base.

And if they control costs as well as they have historically, even if earnings head back down due to cyclical factors, your margin of safety is still intact. As Dean said, heads I win, tails I dont lose much. (I shd attribute this to Mohnish Prabai rather than Dean!)

By: Dean Morel

Dean Morel — Thu, 13 May 2010 04:07:26 +0000

Fantastic comment Peter.
Other black swans could come from legislation or other competitive innovations aside form technology.

I want to see the ROE increasing from here to demonstrate the leverage. Margins prior to 2008 are distorted as ASW didn’t have all the incorporated costs, MD salary, nice office (assumption) rent etc to pay. Chong is certainly not a ransacking Sardar Biglari, who recently granted himself, effectively, 25% of all future book value increases in the merged SNS and WEST in the US.

Disclosure: If memory serves me well, Peter recommended ASW to me at 25 cents. Thanks Peter.

By: Peter

Peter — Thu, 13 May 2010 01:30:37 +0000

ASW fills a void in the market for affordable registry services to the smaller players. Having said that, there are a handful of competitors in the field, in an area with potential black swans due to technological changes, so the competitive moat is not quite secure.

This bet is essentially a bet on the MD, who owns a majority stake. He started from scratch in 1996 and has grown the business in a steady methodical manner. Profit margins exceed the market leaders in nearly every year. A remarkable example of corporate restraint is shown in his annual remuneration this year, although it must be said that he has already made a mint from the listing.

The bet is assisted by some favourable tail winds, one of which is the increasing trend in the number of listed companies.

To buy below 40 cents after the listing is also a favourable bet on a concept I call IPO mark 2. This means that you are buying from the weaker hands who have given up on the shares they purchased for 40 cents during the IPO.

Although, in the tradition of Giverny, I made a “mistake de jour” by not buying at 25 cents when I first did my full analysis.

Disclosure: long.