Portfolio updates: Camellia in, Micro Focus out, and some stamps

Here’s an update of the few changes in the Obliquity Portfolios in the past few weeks. I’ve also documented the holdings of, but not written about, a small Japanese large cap add-on portfolio, to cover, if a bit belatedly, my lack of exposure to Japan. It’s in the list  as Obliquity Bonsai.

Obliquity London: added Camellia plc

Camellia is an idiosyncratic eccentric conglomerate, mainly in agriculture but with industrials and a small private bank attached, which seems well aligned with the portfolio’s principles — it’s almost a stand alone Obliquity company! Some of their business line have inevitably so so results, but they seem to be doing something about it. Conglomerates being out of fashion you also get a discount for that, which is unlikely to get much worse (they can hardly be less fashionable than they are now). We should be set to slowly harvest the boring and low volatility anomalies, and perhaps a narrowing of the diversification discount.

This was funded from accumulated dividends and capital action proceeds.

London Stamps: Micro Focus out

I like Micro Focus as a business, dealing with legacy IT tools is a sizeable but boring business nobody wants to do and which evolves suitably slowly. But there are two things I don’t like with this particular company: the CEO is “executive chairman” which while common in the US is not in line with UK practice where the chairman is not usually an executive, and at least notionally independent. Much harder for a board to fire a failing CEO when the chairman is the CEO, so this is poor corporate governance. Not only that but this current CEO is concentrating on financial engineering, which usually ends in tears.

The company is basically borrowing to return cash to shareholders (like special dividends though here it’s done in a “capital” form, which is the same other than in tax treatment), to the point it will soon be into negative equity for an ever shrinking capital base, which they acknowledge and are proud of! I think it was already going on last year when I got in, and I missed it (though may have been a factor in excluding it from the main portfolio via a leveraged balance sheet, I’ve not kept records of the scoring but remember it did fail the main portfolio criteria).

There are also perennial rumours of a takeover but that’s probably not worth waiting for because, while the company would probably fit well into a large group,  it’s been so long that rumours are on that it’s simply too expensive and there’s very little premium to expect. The financial engineering just makes things worse in that regard.

London Stamps: Seeing machines and Surgical Innovations in

Another “blue sky” item has been added to the stamps portfolio with Seeing Machines, doing kit based on applications of face recognition algorithms. After years of failure, new management may get something out of it through good execution. The rationale here is similar to the earlier acquisition of Photonstar.

A more classic introduction is Surgical Innovations who make surgery tools with an emphasis on keyhole surgery, with a side line in industrial application derivatives of same. This seems like a neat, innovative and stable business whose valuation seems to reflect being out of fashion. Were it not so small, it would be a main portfolio candidate.

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