compounding

16k stock purchase (worth SEK 623k at just under SEK 39/share) by William Lundin the other day. Obviously not significant in terms of his net worth, but it strikes me as something with signal value when family members (maybe especially when they are operational) start buying in their PA's when the family is already massively exposed.

I mean, I agree with you. My entire post pointed out why IPCO is not an operator among many and mitigants to the oil price risk and the capital allocation risk. But comparing a low cost oil E&P-company to Progressive and Costco is brave, I'll give you that. It's great that you have conviction about the commodity price. I'm just pointing out that as a generalist, I think that the supply/demand-dynamics is one thing which will strongly influence the outcome that I could see myself being wrong about. I also agree with you that, given a stable oil price, IPCO will be able to create value. For reasons that you point out in your post and have highlighted throughout the thread. There is also optionality from the contingent resources or pipeline extensions reducing the WCS spread.

One thing that de-risks this investment is that one of the major points of the previous bear thesis for companies like this (chasing growth at bad prices) not only disappears, but actually turns into a part of the bull thesis when and if supply gets restricted. Given that supply becomes constrained, owning that supply becomes a valuable advantage. Another way to conceptualize why this opportunity exists for someone like IPCO is that they are in the sweet spot for avoiding the institutional imperative currently affecting the industry. The international majors are pressured by activists into changing their business models, and few are resisting that pressure. IPCO is small enough to fly under the radar, but large enough, and skilled enough, to be able to capitalize in a major way. I think the largest risk owning something like this is misjudging the supply/demand-dynamics of the commodity. That risk is strongly mitigated at the moment by the valuation in relation to the cash flows they currently produce and the ability to secure hedges as long as that divergence exists and the oil price stays stable.

Btw, I think the above article is wrong. They have probably confused the ownership of the Hyundai Engineering stake - Glovis owns 11.67% of Hyundai Engineering which according to one report I read was valued at KRW 1.2 tn. Not inconsequential in relation to the market cap of KRW 6.9 tn.

Business Korea reporting that the IPO of Hyundai Engineering will be the first step of a "full-fledged restructuring": http://www.businesskorea.co.kr/news/articleView.html?idxno=64704 There was an article a week ago or so that suggested that Euisun might sell his Glovis shares to buy Mobis. This option sounds pretty stupid to me, but perhaps worth mentioning.

Did anyone attend the AGM?

There's also this: Further segmented, auto exports were +15.7% vs January 2020.

That's very fair—was just interested in poking around at your reasoning since you seemed to be hesitant around the valuation. On 1) I would personally argue that there is upside that is not priced in (the argument being the fundamentals/future of the business in relation to below 10x multiple, with the ability to take on more leverage plus the anticipated restructuring ... is cheap), which was kind of my argument in the last post so maybe we'll get stuck on this point. I agree that borrowing money is the rational thing to do in that case, but on the other hand they haven't borrowed a dime (e.g. for buybacks) in the last couple of years when the underlying at times was trading at 5x and the holding company was at a 50% discount so it wouldn't be inconsistent with past irrationalities, so to speak. Longer term, I think the bear case for Glovis stock at this price is that the restructuring of Hyundai ends up minimally different from today, and that you are long a pretty decent company in South Korea that will prioritize it's employees, and things like government relationships above shareholder returns. Cheap companies in non-sexy where insiders aren't acting to capitalize on the opportunity in their stock usually have the tendency to stay cheap. Now, in the short term we have the Chungs motivated to capitalize on the cheapness so that's mainly a problem longer term if the restructuring doesn't change the corporate structures. The press release would say that though, wouldn't it? Since the take-private would be to WWI, Treasure could have the stated plan of special dividend/buyback, and before they are able to execute on that plan WWI makes an offer. On this topic, why hasn't Treasure announced more specific plans? Why would they need to wait until the annual meeting to announce that they intend to make a special dividend with the proceeds? Or if the plan is buybacks, why handcuff yourself for three months? 3) Yes, this is complicated. There could be pressure from the Chungs to keep the stake until they have resolved their restructuring problem. On the Wilhelmsen side, they would need to monetize Glovis, make a dividend from Treasure to WWI, and then pass on that dividend to shareholders of WWI to be able to use that money to restructure Tallyman. From the reporting in the Norwegian press they don't seem to be close to coming to an agreement; Thomas is lowballing the others, and it just seems unlikely to me that Thomas will be bought out and leave his public role as the leader of the complex. The spinoff of Treasure was from the shipping company (now Wallenius-Wilhelmsen), prior to their merger with the Wallenius shipping company. At the time I thought Thomas was acting to highlight values in the complex (they did a few other things at the holding company around the same time), but over time I downgraded my views of his capital allocation skills and think it more likely that they just wanted to simplify the structure ahead of the merger (which was executed as a merger of equals), as alwaysinvert mentioned earlier in this thread. I agree with your conclusions though—a buyout would still produce a premium for exiting shareholders while preserving a discount for WWI. To further elaborate the earlier argument on Glovis, and add to your comments on the biggest risk; if management teams of both companies simply do nothing to capitalize on the cheapness, who knows how the market will value that? The discount could go wider and Glovis could rerate lower at a faster pace than they grow earnings. It seems like we agree on what this means for the Treasure equity, but perhaps differ on some of the particulars regarding the likely paths and/or the valuation of Glovis. Thanks anyway for putting forth your thoughts in response to my post, this back-and-forth helped clarify my thoughts.

A going-private transaction would explain why they didn't wait for the restructuring at Hyundai to take place; in order to capture the upside from that event in the holding company. It would make some amount of sense to hold the stake in WWI since they have some strategic partnerships. This is probably what I would do if I were him, if there aren't other considerations related to the family feud. A few contrary points on Glovis, would be interesting to hear your response if you still disagree: Glovis traded above 300k/share in 2014 (as a much smaller company), so I guess I don't really understand the argument about all time highs. I think there is a reasonable case to be made that this company has both cyclical and structural upside in the future—why is it a bad bet at below 10x EV/EBIT? This is historically a pretty decent business with ROEs solidly above 10% (above 20% at peaks) without being especially leveraged. Just referencing the stock price seems like anchoring to me, and if the Chungs have "pumped the stock" of a solidly profitable and growing business from 7x to 9x during the time of fundamental improvement of the business, they must truly be the world's least successful stock pumpers.

Two new articles of interest today: https://www.koreatimes.co.kr/www/tech/2020/11/419_298620.html http://www.koreaherald.com/view.php?ud=20201103000833 Of particular interest, the government is proposing a new cap on shareholdings in companies benefitting from inter-affiliate trading, which could force Chung's hand: "The government has proposed for the National Assembly to approve a revision on the Fair Trade Act, placing a 20 percent cap on owner families' stakes in a company benefiting from inter-affiliate trading. Currently, the cap is 30 percent for listed company, but the revision will tighten it to 20 percent. So far, Chung and his father, former Chairman Chung Mong-koo, are holding a combined 29.9 percent stake in Hyundai Glovis in order to meet the current regulation level. If the revision passes the Assembly, they will have to sell nearly a 10 percent stake in Glovis within two years, thus the stake will likely be used to foot costs of the group's shareholding structure overhaul. "We believe the appropriateness of a shareholding structure overhaul has heightened, given the changes in circumstances surrounding the group," Kim said."

Q3 earnings out today. The cyclical recovery continues with sales -23% yoy and +12% qoq, with profitability decreasing/increasing at a higher rate due to operating leverage. The logistics segment has rebounded nicely as auto manufacturing has restarted. Although the shipping/distribution segments are recovering, they still have a long way to go before they recover to pre-covid levels. In other news they have signed loads of MOU's for different projects related to mobility and hydrogen mainly, notably one with the Wilhelmsen group. Presumably all this stuff will lead to some revenue generation at some point, but I have no idea of how to evaluate it, except that is seems to further the duration of the business. My base case is probably that it will be decent business without being spectacular, and with the characteristically low earnings volatility the company normally maintains. The stock is still, even after the run-up, trading at around 10x these trough earnings, which with the discount in the high 40s of course becomes very cheap. It's really too bad Thomas hasn't been more aggressive with the repurchases, which I'm afraid likely will continue. The thesis is still the same here in my view: 1) Glovis could rerate to historical multiples (remember they have traded at 20x earnings for extended periods in the past, and now covid has shown the earnings resilience of the business) 2) reorganization of Hyundai that favors Glovis 3) Glovis continues to improve the fundamentals of the business, or 4) value creation at Treasure via buybacks or NAV realisation As you point out writser, if all of them occur at the same time the upside is in triple digits. We'll see what happens but the odds look good from here in my view.

Some attention drawn to the situation in the Korean business press today: Hyundai Glovis shares surge on expectations for reorganization https://pulsenews.co.kr/view.php?sc=30800021&year=2020&no=1069304 Hyundai mulling over governance overhaul http://www.koreatimes.co.kr/www/tech/2020/10/419_297762.html

In talks to acquire a couple of BMW dealerships: https://cardealermagazine.co.uk/publish/inchcape-is-believed-to-be-selling-all-its-bmw-dealers-as-vertu-and-jardine-look-to-carve-up-portfolio/206043 The company confirmed they are in negotiations and that payment will be in cash.

Thanks for the feedback guys, we'll see what the future holds.

I don't really want to make this into a Vertu vs Cambria-discussion, as I think Cambria will likely do well too. But here's why I like Vertu better than Cambria: 1. Scale. Over time I think scale benefits will accrue to the larger players in this industry via 1) better margins 2) lower financing costs 3) larger balance sheets that will enable more inorganic growth and technology investment. Vertu is almost 5x larger than Cambria. 2. ROE improvement opportunity. There seems to be to be an opportunity to 1) increase margins 2) increase inventory turns 3) increase leverage which could all lead to higher ROEs in the future. They have historically acquired turnaround cases with improvement plans. You could argue the delta in financial performance is because Vertu are inferior operators, but I haven't seen any evidence to support that case. On the contrary, they improved ROICs/ROEs according to plan up until Brexit/Corona hit. 3. Better capital allocation and more opportunity to create value via capital allocation going forward. Post 2016 Vertu has engaged in multiple value enhancing activities like buying back stock cheaply, freeing up capital via sale/leaseback transactions, and making selective acquisitions. Cambria has bought back zero shares, made zero acquisitions, spent a lot on capex and paid a small dividend. Cambria has £78.4m in freehold properties that they are increasing their investments in -- Vertu has £212m. 4. FCF generation and balance sheet. Cambria generated negative FCF between 2017-20. Vertu generated £75m in FCF in the same period and have guided to declining capex going forward. Cambria has a slight net debt position -- Vertu has a net cash position and an overfunded pension. As for dilution or expensive acquisitions, the last 3-4 years they have bought back stock and refrained from buying as many companies as they preferred because prices have been too high. I.e. they correctly identified that their own stock was the better buy. Do you expect the CEO to buy in the open market if they are planning a highly dilutive equity issuance, after the worst storm has passed? I guess everything could potentially happen but it just seems unlikely to me. Similarly for acquisitions, why would they suddenly change their attitude after being disciplined for years executing a stock buyback instead? I would expect there to be more acquisition opportunities post-covid, but in many other markets transaction volumes have gone down because of the large bid/ask spread between buyers wanting an uncertainty discount and sellers being willing to hold the risk and wait for a fair price. It wouldn't surprise me if the same were true in automotive dealerships. In summation I think this is a cheap stock where the management/board are making good capital allocation decisions and where there is plenty of potential for value creation. There's plenty I'm not super excited about with this company too, which is why it's a small position for me, but at this price I think it's worth holding. Happy to hear any contrary thoughts.