Thursday, 5 January 2017

Spackman Finally Moves To Fair Value; PKK To Follow?

For those who followed my blog for a while, you'll probably remember when I recommended Spackman Equities Group (SQG) about a year ago. It was highly undervalued, about a 50% to 75% discount to NAV on any given day so I thought it was a good buy despite being part of a complicated web of Spackman companies which ensured the management team was handsomely compensated.

I sold Spackman a while ago to buy KEK. I didn't want to sell but when having limited funds I need to make tough decisions like that, and it ended up working out well for me so I have no complaints even as I see SQG spike to 12 cents today.

For those new to SQG, I don't think it is such a strong buy anymore. 40E (the underlying - look at my old post if you're clueless as to what that is) is 19 cents. So at 12 cents, SQG is still trading at around a 33% discount to its NAV. But historically it's always traded at around a 50% discount or more. Given the management compensation plan, I think it is at a fair discount now.

I was wrong in my estimate of how well Black Priests (Spackman's box office hit from last year) would do for 40E's bottom line. So investors need to be prepared that the latest blockbuster movie might not result in big profits. If 40E moves above 25 cents I think SQG can hold at 12 cents or higher. But right now the risk-reward wouldn't make sense to me, and if I had any shares left I would have sold them today.

What I can say is that after many months, my call of SQG being undervalued was finally vindicated, even if I didn't participate in those gains. So I'll twist this into a story that will hopefully benefit me. If one of my previous highly undervalued Asian-focused stock picks finally moved, perhaps its time for Peak Positioning Technologies (PKK) to move next. Have a look through my blogs here and on Seeking Alpha to get an idea of what that story is all about. PKK is forecasting $16.5 million to $27.5 million in EBITDA in 2017. With 700 fully diluted shares, that's a EBITDA multiple of around 2 at a 6 cent stock price. I missed out on Spackman's run. I won't be missing out on PKK's run.

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