Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 2 – Jan 2016)

Johnny HopkinsStocks1 Comment

Some of you may remember that last month I starting Month 1 of my own Real-Life Acquirer’s Multiple Portfolio, using my own savings, here at the Acquirer’s Multiple.

For those of you that don’t remember, I buy the top two stocks equally weighted each month, that I don’t already hold, from “The All Investable Stock Screener”, until I hold 24 stocks over 12 months, then I rebalance.

Stocks must be selected without fear or favour. All stocks suffer from the ‘broken leg’ problem (significant issues that make them unfavourable). I do not try to cherry pick the best stocks, I simply take the top two stocks in the screen that I don’t own and then track their performance right here.

You can read all about my Acquirer’s Multiple Portfolio investing strategy and monthly picks here:

Month 1 stock picks

Portfolio Performance to Date

One of the difficulties of having just two stocks in your portfolio is that each stock equally weighted represents 50% of your entire portfolio, which means lots of volatility.

As you can see from the charts below, in the past month my total portfolio is down just 4.79%, compared to the R3000.

Month Gross Return R3000 RUA Return Difference
Month 1 -12.96% -8.17% -4.79%

0GAkn[1]
(Source: Google Finance)

Individual Stocks/Notable changes.

Russell 3000 (INDEXRUSSELL:RUA) is down 8.17%

Pick 1, MoneyGram International Inc (NAS:MGI) is down 24.64%.

Pick 2, Apollo Education Group Inc (NASDAQ:APOL) is down 1.29%

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Stock purchase #3 January 2016.

OK, now lets take a look at this month’s (January 2016) top two stock picks that I’m adding to my Real-Life Acquirer’s Multiple Portfolio. The addition of these two new stocks equally weighted to my portfolio will mean that I now have four stocks each representing 25% of my portfolio, which should help to lower the volatility just a little.

Top of the All Investable Stock Screener this month is Nevsun Resources (USA) (NYSEMKT:NSU).

Nevsun Resources Ltd. (Nevsun) is engaged in the acquisition, exploration, development and operation of mineral property interests. The Company’s principal mining operation is the Bisha Mine and the Company’s principal mineral property is the Bisha property, which is owned by Bisha Mining Share Company (BMSC).

The Company’s wholly owned subsidiaries include Nevsun (Barbados) Holdings Ltd., Nevsun Africa (Barbados) Ltd. and Nevsun Resources (Eritrea) Ltd. The Company has 60% interest in BMSC. Bisha is a volcanogenic massive sulphide (VMS) deposit located 150 kilometers west of Asmara, Eritrea, East Africa.

The Bisha mine hosts a gold, copper and zinc deposit and the overall Bisha district includes satellite VMS deposits known as Harena, Northwest and Hambok. The Bisha Main deposit is located within the Bisha Mining License and the Harena satellite deposit lies in a separate mining license 6 kilometers south. Bisha Main and Harena form 100% of the mineral reserves for Bisha.

As you can see from the chart below, Nevsun’s share price has dropped 33.42% in the past 12 months, and it’s now trading at around $2.45.

273ZA[1]

Source: Google Finance.

Let’s take a closer look at Nevsun Resources (USA) in the All Investable Stock Screener.

Nevsun currently has a market cap of $489 Million, while its Enterprise Value (EV) is significantly lower at $55 Million.

The reason its EV is so low is because Nevsun has an excess of $434 Million of cash and cash equivalents once you subtract its total debt. As a acquirer of Nevsun we subtract this $434 Million from the current market capitalisation of  $489 Million, which leaves us with a total EV of $55 million.

Nevsun’s operating earnings, which are taken from the top of the income statement, are $141 Million.

In other words, we’re paying $489 Million for a company with an EV of just $55 million, that is returning operating earnings of $141 Million on that $55 Million.

This gives us an Acquirer’s Multiple of 0.39, when we divide the EV ($55 million) by the operating earnings ($141 Million).

Why has the share price been dropping at Nevsun Resources (USA)?

The following charts illustrate what’s been impacting the fall in the share price at Nevsun. These charts clearly show the quarterly decline in revenues, operating and net income, and operating and profit margins for the company.
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(Source: Google Finance)

Now lets take a closer look at what’s happened to the price of Copper over the last 12 months:

s6w3o[1]

(Source: Nasdaq.com)

What does all that mean?

Without getting too scientific, it means that as of Q3 2015 Nevsun’s revenues fell 53% year-on-year to $70 Million, owing to a 31% decline in the copper price to $2.05/lb in the period.

The low-cost Bisha mine recorded C1 cash costs of $1.56/lb for the quarter. This was a 46% rise year-on-year.

Nevsun said the copper feed grade fell 40% year-on-year to 3.8% copper, compounded by recoveries decreasing from 85.5% to 79.6%. Concentrate output accordingly fell 42% over the comparable quarter last year, to 32.5-million pounds of copper, with sales down 38% to 30.8-million pounds of copper in concentrate.

Nevsun still managed to post a small profit for the three months to September 30 2015, despite lower grades, recoveries and sliding copper prices and despite a 95% year-on-year contraction in net earnings. Net income attributable to shareholders shrunk from $25.5 Million in the comparable quarter of 2014, to $2.8 Million, in the three months under review.

Nevsun advised that it remained on track to achieve its yearly target of 140-million to 150-million pounds at cash costs of between $1.20/lb and $1.40/lb.

So, as with lots of these commodity type businesses, even if they’re doing most things right, their revenues are closely tied to commodity prices.

Now let’s take a look at their numbers:

Acquirer’s Multiple – 0.39

P/E – 10.13

P/B – 0.78

P/S – 1.13

Based on all of these numbers, the company certainly does look cheap.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score is a measure of the likelihood that a company will end up in bankruptcy within 2 years. Nevsun scored 2.7 – indicating it is in the Grey Zone. This means its not in the Safe Zone or the Distress Zone.

Its Piotroski F-Score is 5 – indicating the company’s financial situation is typical for a stable company.

Its Beneish M-Score is -2.77, suggesting that the company is not an accounting manipulator.

Based on all of these, the company certainly looks stable enough.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.71USD.

Therefore, I have $213USD to allocate to NSU.

NSU’s closing share price on Yahoo Finance for 25 Jan 2016 is $2.59.

I purchased 82 shares on January 25, 2016 @ Market for $2.59.

Total principal invested $212.38USD, excluding commissions/fees.

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Stock purchase #4 January 2016.

The next top stock in the All Investable Stock Screener this month is Bridgepoint Education Inc (NYSE:BPI).

Bridgepoint Education, Inc. is a provider of postsecondary education services.

The Company’s academic institutions include Ashford University and University of the Rockies are academic institutions that offer associate’s, bachelor’s, master’s and doctoral programs online, as well as at the traditional campuses located in Iowa and Colorado, respectively.

Bridgepoint’s institutions conduct ongoing faculty and student assessment processes and provide a range of student services. The Company is also focused on developing new technologies through Waypoint Outcomes and Constellation, and is in the development of its institutions mobile learning platforms.

As of December 31, 2014, the Company had 55,823 total students enrolled in its institutions. As of December 31, 2014, the Company’s institutions offered approximately 1,580 courses, 80 degree programs and 150 specializations. As of December 31, 2014, the Company had more than 150 Constellation titles available.

As you can see from the chart below, Bridgepoint’s share price has dropped 31.91% in the past 12 months, and it’s now trading at around $7.

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(Source: Google Finance)

Let’s take a closer look at Bridgepoint Education Inc in the All Investable Stock Screener.

Bridgepoint currently has a market cap of $320 Million, while its Enterprise Value (EV) is significantly lower at $31 Million.

The reason its EV is so low is because Bridgepoint has an excess of $289 Million of cash and cash equivalents once you subtract its total debt. As a acquirer of Bridgepoint we subtract this $289 Million from the current market capitalisation of $320 Million, which leaves us with a total EV of $31 million.

Bridgepoint’s operating earnings, which are taken from the top of the income statement, are $29 Million.

In other words, we’re paying $320 Million for a company with an EV of just $31 million, that is returning operating earnings of $29 Million on that $31 Million.

This gives us an Acquirer’s Multiple of 1.07, when we divide the EV ($31 million) by the operating earnings ($29 Million).

Why has the share price been dropping at Bridgepont Education?

Total student enrollment at Bridgepoint Education’s academic institutions, Ashford University and University of the Rockies, was 49,982 students at September 30, 2015, compared with 59,552 students at September 30, 2014.

That’s a drop of 16%!

For the third quarter of 2015, the twelve-month retention for all Ashford students who were active on the last day of the third quarter of 2014 was 60.1%.  For the third quarter of 2014, the twelve-month retention for all Ashford students who were active on the last day of the third quarter of 2013 was 65.8%.

That’s a drop of 8%!

In terms of its financials, as you can see from the chart below, revenue for the third quarter of 2015 was $140.8 million, compared with revenue of$162.7 million for the same period in 2014.

Operating loss for the third quarter of 2015 was $34.5 million compared with operating income of $10.6 million for the same period in 2014.

Net loss for the third quarter of 2015 was $62.7 million compared with net income of $6.3 million for the same period in 2014.

Fully diluted loss per share for the third quarter of 2015 was $1.37 compared with fully diluted earnings per share of $0.14 for the same period in 2014.

VlZAX[1]

In the for-profit industry, nothing is more important than enrolments.

Now let’s take a look at their numbers:

Acquirer’s Multiple – 1.07

P/E – negative

P/B – 1.04

P/S – 0.57

Based on all of these numbers, the company certainly does look cheap.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score is a measure of the likelihood that a company will end up in bankruptcy within 2 years. Bridgepoint scored 3.56 – indicating it is in the Safe Zone.

Its Piotroski F-Score is 6 – indicating the company’s financial situation is typical for a stable company.

Its Beneish M-Score is -3.45, suggesting that the company is not an accounting manipulator.

Based on all of these, the company certainly looks stable.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.71USD.

Therefore, I have $213USD to allocate to BPI.

BPI’s closing share price on Yahoo Finance for 25 Jan 2016 is $6.66.

I purchased 32 shares on January 25, 2016 @ Market for $6.66.

Total principal invested $213.12USD, excluding commissions/fees.

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Here are the current global market conditions:

Dow Jones 16,069.640
FTSE-100 5,931.780
Hang Seng 19,575.430
Nikkei 225 17,559.760
All Ordinaries 5,056.600
ASX SPI 200 4,965.000

Shiller P/E: 23.97
AUD/USD Exchange Rate: 0.71 (Source: Bloomberg)

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One Comment on “Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 2 – Jan 2016)”

  1. Pingback: Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 3 – Feb 2016) | The Acquirer’s Multiple®

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