“The most urgent decisions are rarely the most important ones.”
– Dwight Eisenhower
I read a great article this week around improving your efficiency through the use of the Eisenhower Matrix written by the always insightful Farnam Street Blog
The idea is a simple 2×2 matrix such as the one represented above. The simplicity and logic supporting it make it highly applicable in ones day to day life.
The stock news of the week was in the nano-cap AIM listed company Thalassa Holdings (AIM:THAL). They announced that they have “received an indication of interest from an industry participant for the potential acquisition of 100% of the business and assets of WGP Group Ltd.” The business operates in the oil E&P space and provides production enhancement and surveying services.
Obviously the stock has been struggling of late given the drop off in oil related CAPEX. However, the reported performance looks materially worse than reality due to heavy investment in a new robotics division.
The quality of the business is the less relevant part of what I found interesting. Digging through their balance sheet, one finds a treasure trove of relatively liquid assets. The assets predominantly consist of cash, PP&E and two investments in listed securities. It gets interesting because the market value of these assets (assuming a slight impairment on the PP&E) equates to around 100p per share. The stock is currently trading for 72p.
Sense checking the valuation of the business:
- WGP generated ~£3.75m in free cash last year
- Net liquid assets (ex PP&E) equates to around £3.85m
- If we assume a multiple of 5x free cash flow for WGP, the per share value of the business is ~82p
Therefore, with a pending acquisition on the table, trading at 72c on the dollar, this looks like a potentially interesting trade. However, it’s not without risks. For starters, the deal may never eventuate and the recent optimism in the share price may evaporate. Secondly, if a deal is done, there is no guarantee that the proceeds will be distributed to shareholders. The Chairman owns >15% of the company, which means incentives are aligned, but he may decide to reinvest heavily in their robotics division, which is essentially a start up. This is not an investment recommendation & I hold no position in the stock.
Other news and articles from the week
I listened to another great interview with Brent Beshore from David Perell. Brent operates in the unique fixed capital, micro private equity space – an area that has caught my attention of late after reading about the success of search funds.
Another thought provoking article from the Farnam Street Blog on why all models are wrong
Globalstockpicking.com runs us through their thesis on tokmanni
Nautilus on how multi-tasking can make you a self interrupter
Jerry Nuemann on who profits from innovation
A neat little checklist for analysing the quality of earnings
An article from one of my favourite bloggers on one of my favourite topics scuttlebutt & moats
I also added book summaries for a few that I’ve read recently in the bookshelf section of the blog.
Until next time, happy hunting out those hidden compounders!
Disclaimer – the above is for informational purposes only and does not constitute financial advice. I or my employer may hold shares in the positions discussed and may trade in and out of them without further updates.