Portfolios updates: Reckitt out, PPHE Hotels in; and some blue sky stamps

Obliquity London: Reckitt out, Park Plaza Europe in

In the main Obliquity London portfolio, I’ve finally got rid of Reckitt Benckiser, who have some more dubious practices in their pharmaceutical arm, and have provisioned for fines. The timing was not very good as it was after a rejection by US regulators of their attempt to ban generic suboxone was announced — although the authorities were totally right, the company’s argument about “child protection” was ludicrous.

I’ve replaced it with PPHE Hotels, a middling “affordable luxury” hotel group operating in Europe, that trades at a discount to NAV and seems well run. In addition to give a bit of a value tilt, it passes all the regular portfolio criteria, except for being closely held by the founder and his associates. It’s also listed offshore, hence I guess a greater risk of delisting or mismanagement. The discount seems more than compensating for that,  and even a modest re-rating would make it perform handsomely. During selection I looked at Intercontinental Hotel Group, which seemed so many multiples off, on a thin equity layer, that I ran away at once — maybe I missed something.

Mondi reduced

Mondi, the cardboard packaging manufacturer, which has been plodding along very nicely, was trimmed on hitting weight limits (+50% above reference weight).

Obliquity Stamp Collection: LEDs and Crete

The stamp collection sees a couple of new more racy than usual additions.

Photonstar LED is a (very) small cap with a nice product set: both finished LED lighting products, and core modules for inclusion in others’ products, that seems ripe to grow after years of disappointment. As an investment it has been a disaster for existing shareholders (IPO in 2007…), and the principals are generous with awarding themselves shares and options and diluting shareholders, but by now the exercise price of most of the stock of unexercised options is mostly (well) above the current price, and they seem like people who will want to realise and will need a solid share price once (if) the product takes off.

Besides by now the company is priced for plodding along at the current level of turnover, while I think there’s a fair chance the products catch on, on a larger scale, either alone or perhaps they could be bought out as part of a larger group without capability in this segment. This thus has the potential for a multiple time increase if it does take off. It’s also a story stock which could always see a new wave of speculative buying (from new investors not previously burned, presumably) even if it doesn’t. Or we could get both at the same time (speculative spike on top of real success). Seems worth the risk they may fail trying — breaking the “survival” criteria for a big discount.

Another blue sky punt is Minoan, who have perennially tried to develop a large holiday resort in Crete. As a consequence of the Greek crisis, it seems it could eventually work out as the local authorities are keen to lighten up the bureaucracy and getting things to move. The management seem optimistic, but they probably been ever since and they could always cock it up even in an auspicious environment. But it’s a nice way to have a small exposure to Greek recovery — which is hard to get in listed markets — despite the many chances it goes nowhere. Like Photonstar, it’s priced not much above the value of existing operations (an attached travel agency business which is small compared to the Crete project should it work out) so there’s some padding on the way down.

Both of these positions are small enough that they can go to zero without causing much damage, and I’m happy to give them time to go somewhere, or nowhere, and hopefully they are discounted enough to compensate from the usual blue sky lottery ticket curse.

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