Origo Partners Share Discussion Threads

[zcaprd7] 06/8/2012 10:25

Fair enough - CEO bought in at 25p recently - so did I, and again at 20p.

Will have another nibble at 15p...

[humbugg] 06/8/2012 10:19

thanks for the heads-up count. we do a bit more studying on this.

[cerrito] 06/8/2012 09:29

As a OPP and OPPP holder one thing that caught my eye was provision for performance incentives as I am not sure what performance there has been YTD at least judging from the two IMS they have issued.
With NAV of 40.9p and current share price of 16p, the discount is really big but we need to wait to see extent of write downs they will make as of 30.6.12 on their unquoted portfolio and of course dangerous to buy assets just because they trade at a discount.
Agree with other comments on the Board that this is a good macro play with seemingly good management and a good shareholder base and for those with no exposure worth a good study.

[the count of monte_cristo] 06/8/2012 08:55

Yes same here. I know and agree with your views on the power shift from west to east. My view is that, potentially, OPP could be capped at over a billion GBP in a few years time, with some of its investments paying dividends.

The other thing is, there is always the potential for very significant appreciation with some of the mining stocks they are invested in. For example, should Kincoras, Bronze Fox project turn out to be a replica of the Oyu Tolgoi copper-gold project, then there investment in Kincora is going to look a very shrewd one indeed!

[humbugg] 06/8/2012 08:49

count,
thanks for that. thats a big positive as i don't touch chinese stocks where they hold most of the stock. on the face of it this stock looks very cheap if you believe that the east will continue to dominate the world. and i do.

[the count of monte_cristo] 06/8/2012 08:40

Hi Humbugg,

No, see the below link - Identity and percentage holding of significant shareholders
Last Updated: 30 Jun 2012

[the count of monte_cristo] 06/8/2012 08:37

OPP gives you exposure to three themes;

1) China and its growth
2) Mongolia and its growth, due to its endowment of natural resources and proximity to China and also Russia.
3) Agriculture and food consumption

Now to me, all three of these themes are very interesting and over the medium to long term are places where I want my capital exposed to. Of course the other strong points on OPP, in my opinion, is the relatively strong balance sheet, and the skill, experience and involvment of management.

I do not currently own any OPP, but very much like the medium to long term growth prospects. It is one I would like to put away until 2015.

[humbugg] 06/8/2012 08:35

count,
just being a tad lazy but are the chinese the major shareholders here?
TIA

[the count of monte_cristo] 03/8/2012 12:18

Many thanks Shavian! I have emailed the company and asked them to add me to there emailing list.

[shroder] 03/8/2012 11:29

I get the update via email, drop them a line to be included.

This months update;


U shaped recovery

Whereas the Chinese economy has been slowing down to 7.6% in Q2, Origo continue to believe in a U-shaped recovery for Q3 and Q4 2012. We know that the central government is very concerned with a slowdown below 8%, and is currently putting a wide variety of measures in place to ensure they are meeting these targets.

Among all the gloom and doom in news and markets, you will find this outlook refreshingly bullish. In Origo¡¯s opinion, now is a good time to be positioning yourself for a Chinese recovery.

Economic policies to stimulate growth

The Chinese government is worried, which means they are very focused on the tasks ahead. Growth below 7.5% means growing joblessness coupled with social unrest for the central politicians; and by implication, ¡°no promotion¡± for the local politicians ¨C leaving them in rural provinces and 3rd tier cities. None of this is an option for the people in charge. Hence, 4 key policies are being rolled out ¨C and are all covered widely by Chinese news:

Easing of monetary policies. Expect further easing of monetary policies. We expect at least 2 more cuts of the bank reserve ratio and at least 1 more cut in the interest rate.
Speed approval of Fixed Asset Investments. During May of 2012, twice as many investment projects were approved as in May 2011. NDRC is now working overtime on both completing older and approving new projects.
Tax Cuts. One week ago, we saw the news that the reform process of sales tax/VAT is extended from Shanghai to 10 other key cities in China. The government used to collect tax on volume of sales, and have now decided to move to a more traditional VAT model. This will provide significant capital to Chinese businesses and economy and underpin a more positive investment sentiment.
Consumption stimulus. Large and small programs are being rolled out seeking to stimulate consumption. In particular, the so-called ¡°Green Engine¡± and ¡°Energy Efficiency¡± programs will make significant impact. We expect all Chinese electric vehicle and battery companies benefit hugely from this new wave, as consumers and businesses are going green. As anecdotal evidence of the same, Origo¡¯s portfolio company, Unipower Batteries, is seeing strong up-trend in sales revenue year to date in 2012.


GDP growth of 8.1% for 2012

As the programs above start to take shape, we believe in a U-shaped recovery in Q3 and Q4 2012. Our economic model predicts GDP growth for the whole year of 2012 at 8.1%, reaching 8.5% in Q4 2012. We also believe that China will stay at this growth level for 2013 and 2014 (band of 7.8%-8.2%) as the new political leadership continues the economic restructuring programs.

CPI continues not to be a concern for us. With price increases in food, the main driver of CPI, still relatively low, we expect CPI for 2012 to be around 2.7%. Here observers should, however, notice that there is a huge base effect that will mislead many. During spring 2011, we had food prices running out of control (especially pork) and many officials panicking. CPI numbers were indeed high, and for a year-on-year comparison, the CPI numbers this year will look very low.

What is important to point out though, is that the Chinese agricultural situation seems to be very much under control. In the main food basket of China ¨C DongBei or Manchuria ¨C food production is very solid and reported to be close to all-time highs. Origo see this with our rice processing company, China Rice Limited, which is reporting production numbers in line with and above 2011. In the pork segment, we are hearing that the stock is in very good shape and is expected to be up about 20% in 2012 compared with 2011.

The very important relevance here is that the current draught in North America is not expected to materially impact China, and that China¡¯s domestic production is likely to be solid. A difficult domestic food situation could have changed much in China, but that the supply situation is so strong is very comforting to us. All in all, China is today not very reliant on food imports, but we expect this to change ¨C possibly quite dramatically over the next decade. Why? First, there are less and less farmers. The Chinese farmers want to move to cities and take part of the new economic dream. There simply will not be enough farmers around. Second, land scarcity (urbanization) and new environmental regulations will make it more and more difficult to operate. As such, it is very predictable that Chinese food imports will go up significantly in the next years/decade. Being positioned for China¡¯s ¡°net short¡± position in food will be a major opportunity for international investors.

Economic rebalancing

Chinese export continues to be relatively weak and we expect it to be below 10% growth with the renminbi exchange rate also moving against Chinese exporters, increasing the cost of Chinese exports. Import is growing faster, thereby continuing to shrink the trade balance. This structural change is very likely to continue, as China moves away from an export oriented economy. At less than 2% of GDP, trade imbalance with China is hardly a credible topic.

Housing market

Both prices and transaction volume is showing growth and resilience in the last months in major cities and provinces. Rising prices and confidence in the property market is essential for maintaining or growing economic activity. However, Premier Wen Jia Bao has committed himself personally to making sure the housing market does not further inflate. His lieutenants are checking and re-checking that local governments are not going behind his back in allowing expansionary housing policies. Origo believes that the incoming new Chinese leadership is not as vested into these policies, - and it is therefore quite likely that they may allow the housing market to rise gently after the ¡°handover¡±.

Equity market

Origo continue to believe there is a rare opportunity to position itself well in Chinese stocks right now, both foreign listed Chinese companies as well as in A-shares and selected H-shares. PE ratios are at historic lows and the economy is on a rebound. If you talk to Chinese asset managers, they will tell you that the equity market holds huge value and now is an attractive time to get in. However, when we talk to private Chinese investors and individuals in China, they do not believe the same. Private investors need tangible signs that the economy is sound and good before investing. That tangible confidence will only come by seeing increasing property prices, and rebounding economic data and profits. As Q3 and Q4 numbers will come in stronger, showing such a rebound, we believe private investors will come back into Chinese equities with a rally to follow.

What is the risk in China then?

Origo believe that the key risk is that the government is too concerned with the housing market, further depressing companies and individuals¡¯ investment and consumption sentiment. We believe that President Hu Jin Tao and the new incoming leadership have a ¡°bigger picture view¡±. This means, as mentioned above, that they are not ¡°as married¡± to controlling the housing market. Rather, they believe that they need to keep GDP growth stable, and that while the housing market has a problem, it cannot be fixed in a couple of quarters.

Political leadership change, important implications

Whereas some of the new leaders¡¯ identities are widely expected, we cannot be absolutely sure who the new leaders will be. Maybe surprisingly, nobody knows. The Polit Bureau does not know; not even the individuals themselves know. Up until the very last days, this will be a competition.

What we do believe is that the new Chinese leadership will be a very pragmatic leadership. Most of them will have spent part of their childhood in the countryside as farmers, same as Deng Xiao Peng. Practicality often comes from simple beginnings. They will all have had political leadership challenges in provincial and local governments far away from Beijing. They will all have had to face tough local challenges. Most of their children and most of their class mates are either educated abroad or have spent long time abroad. They will all have some western experience, and will not be unfamiliar to foreign systems, leaders or international issues.

Origo believe the new leadership will be less concerned with legacy matters, -everything from one child policy to the property market. We expect them to be much more gradual in correcting the structural imbalances. For example, we think they will have more reasonable housing policies, allowing for gradual adjustments, not harsh corrections. This said, we don¡¯t think they are as committed to fixed asset investments to set GDP growth above trend. They will be satisfied with 7.8-8.2% growth for 2013 and 2014 while carrying out the economic adjustment program.

The rest of the world, viewed from China

The view we seem to pick up and share is that Europe will eventually be ok, if people in Greece, Spain (and Italy) will agree to work longer hours, retire later and the politicians gradually carry out reforms and fiscal policy improvements. It is going to take 2-3 years of restructuring and grand bargaining with Germany, but in all probability it will be ok.

There is more concern with the US. If the Congress is deadlocked post US presidential elections, then fiscal and political concerns will escalate. The view seems to be that ¡°anything is better than a deadlock¡±, but that may be because they do not fully know the extreme views of the most conservative/radical politicians in the US. Either case is not good news all around.

Summary

All in all China is doing quite well. A U-shaped recovery in Q3 and Q4 should be the tangible evidence private investors are looking for in order to enter the equity market. Being positioned for this recovery is a major value opportunity.



Best regards, Chris Rynning

CEO, Origo Partners PLC (LSE: OPP)

www.origoplc.com

[the count of monte_cristo] 03/8/2012 08:11

Shroder - please can you supply a link? I have looked on the website but can see no monthly news letter.

[shroder] 02/8/2012 21:03

This months news letter is worth a read.

[edwardt] 02/8/2012 09:13

baker steel have written down value in gobi coal very aggressively ... ipo no longer imminent!

[shroder] 01/8/2012 10:36

China prepares vast stimulus as slump threatens Asia

China has ditched its reform strategy and prepared a vast stimulus package as the country's soft-landing turns uncomfortably hard, with recession warnings flashing across East Asia.

[edwardt] 31/7/2012 16:56

from memory, gobi coal was due to float but suspect that will not happen given chinese demand for coal right now...

[shroder] 30/7/2012 09:02

Agree, China slowdown is probably the main factors given their target markets.

Chris Rynning runs a tight ship with plenty of institutional support.

Halosource was the one of their investments which floated on AIM providing a very good return for the Origo team.

I haven't looked at their portfolio recently but at a guess it would be heavily weighted towards resource companies. Worth keeping an eye on if China regains some momentum.

edit; Origo's monthly news letter is worth registering, a good way to keep tabs on events both locally and nationally.

[the count of monte_cristo] 30/7/2012 07:03

Yes, probably 4 main reasons;

1) China focused, thus getting whipped for expsoure to China which is currently a negative
2) Resource focused, resource stocks have been hammered this summer
3) No significant news for a while has come from the company
4) All stocks are pretty much down due to fear surrounding global growth and equity markets.

In regards the above I ask myself this questions...has this changed the medium to long term fundamentals of; a) the company and its prospects and b) the growth in China/Mongolia where OPPs investments are located? - The answer I come to is no.

[edwardt] 27/7/2012 16:26

this thing is getting whipped - any views why?

[zcaprd7] 26/7/2012 10:55

Had another nibble on these - I hold Ecofin and they've started building a position - good enough for them, good enough for me!

[zcaprd7] 12/6/2012 11:54

Still weak - very quiet here?

[zcaprd7] 30/5/2012 12:39

Very weak today?

[zcaprd7] 21/5/2012 11:00

At least the CEO is with me...

[zcaprd7] 17/5/2012 11:55

Entered, ohh err...