Green & Smart Share Discussion Threads

[simon gordon] 27/8/2007 13:39

Hi Courant,

This is My Way:

'The greatest safety lies in putting all your eggs in one basket and watching the basket. You simply cannot afford to be careless or wrong. Hence you act with much more deliberation.'

'The way to attain truly superior long-term returns is to grind it out until you're up 30 to 40 percent, and then if you have the conviction, go for a 100 percent year. If you can put a few near-100 percent years and avoid down years, then you can achieve really outstanding long-term returns.'

'To me identifying great companies and participating in their success over a long period of time is what investing is all about. If you go back hundreds of years it's what merchant banks did. They went around and found really clever entrepreneurs, gave them some capital, and participated in their success. That's all the stock market allows us to do. The beauty of it is we don't have to run the business or manage the minutia and the detail. We just have to identify which people are going to be successful.'

'As a focus investor, your goal is to reach a level of understanding about your business that is unmatched on Wall Street.'



The above quotes are from the Stock Market Wisdom thread which is the construct for my investing philosophy. I hope you enjoy it.

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You might have to wait many years for GSH to become a darling - especially with the Nipper joining the Board. SPI is a fully fledged PLC and always signalled this. The recent signals from GSH are not encouraging in this regard.

In at £3.20 is excellent, but paying £5.00 now is too rich - IMHO.

Good fortune!!

[simon gordon] 23/8/2007 17:51

Hi Courant,

I enjoyed your post.

It is by sharing our thoughts that we deepen our knowledge.

I think in the long term you will make money in GSH, though if the liquidity does not improve I think its rating will be held back. 16x for 2008 is a little rich relative to peers. I think MER is now cheaper. SPI is highly rated but is a Fundies darling. WNG has gone down the pan. CNT is also a Fundie darling and thus commands a premium rating.

You are right in a few years it should double - or will growth slow and a rating of 14x be given? EPS 50 in 2011 = £7.00

[wjccghcc] 23/8/2007 16:08

Well, if I held 82% of a company, in fact even if I held 10%, I'd want someone from the family as a nonexec. Now if he was an exec, then I'd be more worried.

[simon gordon] 23/8/2007 15:33

Courant,

My reading of the Annual Report and ISH stepping down was that GSH was to increase liquidity and become less of a family company. So far in 2007 this has been a damp squib.

I am researching for multi baggers and I thought GSH had that type of potential - but the elevation of the son has made me reconsider this opinion.

I don't want plodders. I could find a plodder with a higher dividend and similar capital growth and probably receive a higher return. PFD is an example of company that could return more than GSH in one years time. If the markets don't crack.

I wish you well with your strategy.

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Avner Mandleman has five keys to investing and they are the smartest points I've come across in a while:

1. Look only for extraordinary opportunities. Don't waste your money on anything else. Let those who must place billions do so. They have to. You don't. You can stay in cash.

2. There aren't many extraordinary opportunities. If you can't find any, stay in cash.

3. Be extraordinarily selective in buying and selling -- even in choosing stocks to research. The great majority aren't even worth thinking about.

4. Focus only on stocks in which you have special exclusive knowledge. If you don't, those who do will take your money. Stay in cash until you find your exclusive niche.

5. Last but not least, focus ruthlessly on price. Even if everything else fits but the price is not cheap enough, pass on the investment and keep your cash.


---

I think, I now think that GSH is not turning into an extraoridnary opportunity. Not whilst ISH has his nipper on the Board and owns 82%.

I am off to meditate in cash and fish for my next Blue Marlin stock.

Good fortune!!

[courant] 23/8/2007 15:18

Simon,

I agree with your points about the non-exec, however I think you have to accept that if you buy GSH, you're effectively buying into a family business, warts and all. On the one hand corporate governance might be a little below par, but you do get stability and lack of institutional meddling in with the bargain.

Will it double or triple over the next couple of years? I don't know and that's way too high an expectation for me. I'm in for steady growth - if GSH returns 20%pa consistently, that's good enough for me. I have plenty of other shares to provide fireworks! Give me 550-600p next year!!

(Put another way, if you're overally portfolio makes 20%pa, you're doing very well indeed. That's why I wouldn't sell out of shares like GSH at the minute and go into cash - these kind of companies are steady earners in my book. You just need diversity in your portfolio to avoid being overexposed to random events which occasionally come along and could hit any company).

Courant

[simon gordon] 23/8/2007 15:07

Courant - excellent synopsis.

Couple of takes:

- p/e 15.8x
- when will the extra liquidity happen? Putting an under-qualified non-exec on the Board is a retrograde step in my eyes. He has been put in this position to keep an eye on the business for his Dad, who owns 82% of the stock. He has no main board experience and brings no real business clout to GSH, save he reports back to papa. I just think this is negative and it ties in with the abject placing which has not improved liquidity. My Bullishness had been dented by the placing but the elevation of the son has me wondering if I should just forget GSH and find a situation that has more decisive drivers. I could return to GSH in two years time and find the liquidity issue is still a problem and the share might have done well but will it have doubled or trebled? I doubt it, as it stands right now.

The main driver, for me, in GSH was the increase in liquidity and ISH letting GSH become a fully fledged PLC. Well, to me, it remains a family company with a tiny amount of shares traded.

GSH is a top quality company on AIM but I now think as a PLC it is being held back by ISH.

Regards

SIMON

[courant] 22/8/2007 23:52

For me, this is a high-quality GARP share - trading on 15x forward earnings with steady profit growth of 15-20%, with excellent prospects for the industry, defensive characteristics (people always have to have their buildings maintained & the energy business will see extra work should the economy get tighter and/or energy costs increase), cash in the bank & cash generative, boring name & boring industry (a Lynch favourite indicator!). The liquidity doesn't put me off - at some point over the next few years, ISH will sell more shares and, in the meantime, you can virtually bank on profits being materially higher. Given this is the kind of share to hold onto, the extra liquidity (when it comes) will give things a boost - the danger being out of it is that you don't know when this will be. So, maybe not 700p by december (or maybe so!), but I'm not going to call anything! In the meantime, I'm happy my money in GSH is earning a decent return and should do so in the future.

One happy holder,

Courant

[charterhouse3] 22/8/2007 21:44

Simon

No problems !!!!!

You have been one of the significant contributors on this board and your input has been greatly appreciated (certainly by me !!)

We'll have to agree to disagree at this moment in time with regards to the potential of the share price.

I suspect that even the Scarr-Hall clan will realise that increasing liquidity (by offloading more of their shares) will result in a higher share price with the result being that their decreased stake ends up being worth more than their original stake would have been at a lower share price (if you see what I mean !!).

Anyway enough for now.

Going to try to watch the disaster that is the England football team try and claw their way back against Germany.

CH3

[simon gordon] 22/8/2007 17:00

Guys,

I just say it as I see it.

I was very disappointed with the placing and posted so.

I basically sold because of my fears for the Capital Markets.

The elevation of ISH's son, I see as a long term negative for share liquidity.

I just don't see 700p with the liquidity issue. PI's are put off by the spread and Fundies by the almost total lack of liquidity. Why should it trade on 23x - what is the driver?

I hope it happens for you.

[charterhouse3] 22/8/2007 16:33

Indeed I would have thought the strength of the share price during the recent market madness (when many other similarly 'obscure' but equally high quality shares got slaughtered) suggests GSH is primed for a significant upward correction.

Recent sales at 485p (covering the general lunacy period of last week as well) has had no effect on the share price at all. You would have thought that even a small sale of an illiquid stock in current market conditions would have a damaging effect to the share price. However even two sales of 20,000 shares each a few days ago had no downward effect on the share price - tremendously bullish sign in my opinion.

This means the stock is being hoovered up by at least one institution.

Two directors bought 50,000 shares between them just before the close period began.

Business is buoyant and this is a very high quality operation in a very highly rated sector.

I still think it is a steal compared to it's peers.

I'll stick my neck out and go for 700p by the end of December.

CH3

[cisk] 22/8/2007 15:56

CH, agree - why is Simon being so bearish when fundamentals haven't changed on this stock - indeed things are moving in the right direction...

Seems a bit strange that negativity creeps in as soon as you've sold your holding?

Cisk

[charterhouse3] 22/8/2007 15:01

Simon

Having stated that you sold out reently you seem determined to drive the stock down !!!

Is this a ploy to pick up your holding again at a bargain price ??

;o)

[simon gordon] 22/8/2007 13:20

The new non-exec is none to inspiring.

ISH does not look like he is going to relinquish more shares to improve liquidity in a hurry.

Forward p/e is a bit rich if the liquidity issue is to stagnate.

13x would be fair = c.£4.00

Such a shame, GSH will remain obscure for now!

[simon gordon] 21/8/2007 15:01

HB have a new note on GSH:

[simon gordon] 20/8/2007 09:11

Morning All,

I recently sold my GSH shares.

I was loath to sell GSH but after further research I now think we could be heading into a really nasty period for the markets and economy.

I am hoping to buy back into GSH at a much lower price but my reading of the current situation may be wrong and the share could rise to £6.00+.

My bedrock philosophy can be summed up in this little line:

"Trading samurai - one who serves and protects his capital."

I think that the capital markets are under threat due to very lax lending and very high leverage.

This is from Wikipedia:

'A Cyclical Theory of Financial Crises

Hyman Minsky has proposed a simplified explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any capitalist economy. High fragility leads to a higher risk of a financial crisis. To facilitate his analysis Minsky defines three types of financing firms choose according to their tolerance of risk. They are hedge finance, speculative finance and Ponzi finance. Ponzi finance leads to the most fragility.

Financial fragility levels move together with the business cycle. After a recession firms have lost much financing and choose only hedge, the safest. As the economy grows, and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore they are ready to lend to firms without full guarantees of success. Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession firms start to hedge again and the cycle is closed.'

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The best analysis I have read so far is by Ken Murray a top performing Fundie in Financials:

On the 3rd April 2007 Blue Planet Investment Management, the manager of some of the most successful financial funds in the world, issued a press release (copy attached) predicting that the bear market had started, the credit cycle had turned and that stock markets would fall sharply.

Ken Murray, who manages Blue Planet's Worldwide Financials Investment Trust, the 2nd best performing financials funds in the world over 3 years and the best performing investment trust in the UK in 2006, has the following sobering prediction "Just as that was predictable what will happen next is also predictable. We are entering one of the greatest banking crises in decades. The credit cycle has turned, bad debts are soaring, banks will go bust and stock markets will fall much further. People need to be told the truth as opposed to being spoon fed palliative words."

The Problem:

Stock markets have fallen as investors have begun to appreciate that banks are facing "liquidity problems". These liquidity problems relate to the short end of the money market. However, this is only a symptom of much deeper problems - mounting bad debts and the inability of banks to sell on loans that they have originated in the expectation that they would be able to re-sell them. The instruments most affected are securitised mortgages and loans to fund private equity transactions. The market in mortgage backed securities has now all but ceased to exist as investors, hurt by huge potential losses, spurn them. Indeed, early indications are that losses on mortgage-backed bonds will be huge. Merrill Lynch recently tried to sell mortgage-backed bonds it seized from the failed Bear Stearns hedge funds and failed to find any buyers after allegedly offering them out for as little as 11 cents in the dollar. The true extent of these losses will become apparent when banks and funds next have their accounts audited.

Investors are now very fearful of those markets and it is unlikely that any meaningful liquidity will return to them for a long time. It is the lack of liquidity in asset backed securities markets and the unwillingness of sound banks to lend to troubled banks that is generating the liquidity problems in the money markets. Ken Murray adds "Banks understand the situation that is developing and they are increasingly unwilling to lend to other banks that they perceive to be risky. Investors should take heed of this warning."

The inability of banks to sell on loans that they have written for re-sale causes them serious liquidity and capital adequacy problems. Often when banks commit to provide loan facilities they do so without knowing whether they will be able to sell on the resultant assets. Some banks have become complacent about this risk following a period of good demand for such securities and saw these facilities as no more than bridging finance. A collapse in demand for these securities means banks can no longer sell them on and what they grew to see as bridging finance is now fast becoming long term finance.

Furthermore, the banks that are experiencing liquidity problems will see those problems worsen. This is because they have already undertaken to lend an estimated $330 to $420 billion of loans much of which they will be unable to sell on with the consequence that those loans will have to be retained on their own balance sheets: balance sheets which are simply unable to sustain them. Every time a loan is drawn down cash goes out to be replaced by highly illiquid, poor quality assets that no one wants to buy. Ken Murray says "this conveyor belt of death will suck the liquidity out of investment banks and fill their balance sheets with bad debts. I would not be surprised to see one or more of them become insolvent in the near future."

We have no doubt that central banks will act to try and avert the rapidly developing crisis but there are limits to what they can do. Supplying liquidity through the money markets will mask the problem and hide it from investors for a while but it will not resolve it.

The Worst Has Yet to Come:

Not only do the affected banks face a growing liquidity crisis (one of the major causes of bankruptcy in the banking sector) but they also face a more serious problem, albeit one that will take longer to develop. That is the problem of a rising tsunami of bad debts which will go on to overwhelm many of them. Years of excesses in the investment banking markets and the $8 trillion US mortgage market are coming home to roost. Bad debts in the US mortgage market are already at record levels, with worse to come. $275bn dollars worth of mortgages are due to reset to higher interest rates between now and the end of December. In 2008, a further $684bn will reset. Many borrowers will not be able to meet these higher borrowing costs and will go into default. By then unemployment is likely to be rising as the credit cycle bites and economies slow. This combination of rising unemployment and interest rates is the "worst case scenario" so far as lenders are concerned. Bad debts are set to soar.

How to Make Money from the Crisis:

These problems do not affect all banks. Retail banks in strong, soundly run, emerging economies such as Russia continue to grow rapidly and should be largely immune from these problems although they may suffer short term price weakness. The problems are, for the time being at least, restricted to investment banks, other banks that have been active in the capital markets and US mortgage lenders. In addition to the originators of these loans, the other main losers will be investors in securities derived from them.

Ken Murray says "It will take about 12 to 18 months for the banking market to absorb these losses and to stabilise at which point there will be good investment opportunities to be had. Blue Planet has liquidated investments, stripped our portfolio down to a small group of retail banks with good growth prospects and that are not exposed to these problems, eliminated gearing, hedged our remaining investments and raised cash in anticipation of much steeper falls to come in shares. We have locked in some of the very large profits we have made in recent years and armed ourselves with cash so that we can re-enter the market when it has stabilised."



So, I wish you all Good Fortune and I aim to return to GSH when this financial dislocation is in repair mode.

Regards

SIMON

[alter ego] 18/8/2007 12:55

Halve in value? Just what I need to pick up a real bargain. Seriously, it would take recession rather than a stock market crash to affect the business. Of course we might get one if we get a really big crash but for now, I am buying where I see value rather than selling. Just wish GSH would show some weakness like all the other stocks. Guess that while the free float is so small there's not much chance of that.

[simon gordon] 16/8/2007 20:06

If this turns into a crash GSH could half in value!!!!

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Excellent article from The Business:

'For the record there are two sorts of financial shakeouts: corrections that typically retrace 10%-15% of the preceding rise in stock market values; and crashes that tear into the heart of the financial system. Crashes provoke a downturn right across the economy, or, in the case of 1929-31, an outright global depression. Nor do the consequences stop there, as Germany found out. (Really good crash that one, wasn't it?)

The point, surely, about financial markets is that they are markets: their movements reflect the sum total of knowledge, gut feeling and emotion prevailing at any one time. Corrections cleanse the excesses of exuberance and over-optimism.

Corrections curb greed and put right the mispricing of assets, providing opportunity for new value to emerge; the mechanism is by no means perfect and often overshoots. But it works, more effectively and decisively than regulation, to provide a sanction on imprudence. The underlying system endures.

But there is nothing that endures a perfect crash. Crashes destroy the confidence of households and businesses and destroy the ability of banks and financial companies to lend to businesses and households. Corrections punish those who have behaved imprudently. Crashes wipe all of us out.'



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I think it is a correction - WTFDIK - and that within the Mega Caps there are now some serious bargains emerging, relative to bonds and cash.

[charterhouse3] 16/8/2007 15:12

The share price has been impressively strong in the general turmoil.

CH3

[simon gordon] 05/8/2007 11:19

"As Graduate Manager at GSH initially I started on a six month fast track management scheme, to gain experience in every department within a plc company, from HR, finance, IT, Health and Safety, Commercial department to the Fleet department; making full use of the knowledge and skills I learnt at university and whilst on my placement year.

However, I have now been promoted to Contracts Manager, responsible for a million pound contract, overseeing 10 engineers and administrative staff. Within my new post I will be managing the contract on a daily basis, ensuring maintenance for each site is completed on schedule.

In due course I would like to go to the USA with the group to obtain even more experience and ultimately I would like to become a director of GSH."

[charterhouse3] 01/8/2007 17:49

Simon

Yes indeed - a very promising sign. It was also their last chance to pick up shares before the close period ahead of interim results in early October.

All in all it suggests the share price will be far north of current levels by the time of the interims.

;o)

[simon gordon] 01/8/2007 10:23

Colin Tennent earned 300K before tax last year.

David Simons earned 240K before tax last year.

They each spent 234K on shares yesterday - more than they netted last year.

[wjccghcc] 31/7/2007 10:38

They talk about trading being buoyant and the order book continuing to be very strong so I'd guess somewhere between B and C.

[simon gordon] 31/7/2007 09:46

Does the trading update mean that EPS are:

A. Below expectations.
B. In line with expectations.
C. Ahead of expectations.

I am guessing it is B - it would have been better to have made this totally clear!