Portfolio as at 9/05/16

After completing the portfolio last week and writing an update yesterday, here it is:

Note I have spent closer to NZD20,000. Google finance doesn't account for currency swings very well (any better portfolio tracking websites/apps people use?)

Portfolio Complete

On Thursday 5/5/16 I put the remainder of the 20k to use. It wasn't in the way I had been planning, but an opportunity presented itself which I couldn't pass on.

Prophecy International (ASX:PRO) released updated guidance for FY16. The guidance was (on the face on it) a significant downgrade. After reading a bit further into the update however, it became clear this was just a blip on the radar.

Updated Figures:

Revenue $15-17.5m (down from $20m)

EBITDA $5-7m (down from $8.9m)

Management also gave a breakdown on the new guidance and where it differed from previous guidance. My quick analysis:

$0.7m is from a change in revenue model from upfront to subscription based. This is actually a positive as the lifetime value of the sale has increased.

$0.8m (possibly up to $1.3m for lower end of guidance) is from delayed orders that will now fall into FY17. I am first and foremost a long term investor (this one year timeframe makes things a bit tricky though), and the accounting period that revenue falls into is largely irrelevant as long as it is earnt.

The lower end of guidance allows for another $1.2m due to sales being below expectations. I see this largely as a safety net rather than actual guidance. Management have been stung by ambitious guidance once and I doubt they will do it again.

$0.4m comes from lost contracts. That is (assuming I am correct about the above point) actually the only negative part about the announcement. 

Now in a number of situations a downgrade is seen to be the first indication something is going wrong. I am always sceptical when these things happen. However, in this case I believe management. The chairman bought shares a month ago. They have overseen some seriously impressive growth and incorporated a new business into the company. The original guidance represented a forecast revenue growth of 67% but actual growth may be closer to 50%. That's still pretty impressive! If it wasn't for previous guidance the market may see this as a good result and have the SP a lot higher. I think management just got a little too ambitious after such great success, it happens. I will give them the benefit of the doubt here. 

Now let's look at the earnings:

Guidance is likely to be approximately 5-7cps once it reaches the bottom line. At the time of buying the SP was 103c. That's a PE of 20-15 for this FY (finishing in 2 months). The company is cashflow positive, paying a steady dividend and growing revenue and earnings at greater than 50%! I think next FY revenue will be >20m comfortably which will see the SP closer to $2 if not significantly higher, just a bit later than expected.

My 20k portfolio is now half PRO, which wasn't part of the original plan. However, when value presents itself as it did last week I had to take advantage. If the SP gains significantly I will reevaluate and consider taking profits. So far the SP is back at 118c so the market seems to be seeing the same value as I am.

The Portfolio as at 02/05/2016

Sorry for the lack of updates for those following. It's been an insane month or so and I've had no time to write anything. However, I've still been investing and doing the odd bit of research where I can.

I purchased Global Health Limited (ASX:GLH) on Friday 29 April at opening with a price of 37c because I liked the valuation (based on previous research I've done and then waiting). Over the past two days the SP has moved to 45c (on low volume). It was a complete fluke, nothing more scientific than that! Anyway, I wrote a bit about GLH a while back, and nothing has changed other than an earnings upgrade with guidance now at 3-4cps. There also appears to be a few irons in the fire with things looking positive for the company. 

On another front, I've tossed and turned about whether to add miners to this portfolio. In the end I have decided not to because I will be at the mercy of commodity prices. I can plan my investment around this, but with a one year timeframe it is rather risky if prices stay subdued.

I have added miners to my personal account however. I purchased Silver Lake Resources (ASX:SLR) on 08/03/2016 for 37c. SLR is a gold miner and explorer with no debt and a lot of cash on hand. They are cashflow positive at the current gold price. If the gold price doesn't appreciate they have enough cash on hand to survive in the mean time.

I also purchased Mt Gibson Iron (ASX:MGX) on 26/04/2016 for 22.5c. As they name suggests they are an iron ore miner and explorer. They also have loads of cash (approx 33cps which is more than the SP!) and no debt. They are currently about cashflow neutral with the iron ore price as it stands. They too will be able to survive a subdued market for long enough for the iron ore price to pick up.

Common theme with me and miners - wait until sentiment is rock bottom and valuations are very cheap. Ensure the company has loads of cash and no debt. Buy once there appears to be a resurgence in the underlying commodity price. If you are wrong about the commodity, then the company still has enough cash to survive. Then just wait until the commodity increases and the market starts liking miners again!

Hopefully I'll find the time to write more about these purchases because there's more detail I would like to add to justify my purchases.

Portfolio as it stands (current portfolio value 22k including 5.7k cash currently: