MMA
MMC Contrarian Limited
Original Analysis 06/06/06
Original Micro Thesis. 1
NTA Updates. 1
NTA Analysis. 2
History. 2
Investment fees. 2
Price ranges. 3
Acceptable aims to judge performance against 3
Dividends. 4
Investment Portfolio
As at 30 April 2005 MMC's portfolio was comprised of Listed Equities (37%), Hybrids (4%) and Fixed Interest and Cash (59%).
|
| May (M) |
|
| Equities | 97 | 47% |
| Hybrids | 8 | 3% |
| Fixed Interest and Cash | 133 | 56% |
| Total | 238 |
|
Intelligent investor rates as buy and thinks highly of management team.
Number of shares on issue 31/3/06, 216M with NTA of 112.1 cents (pre tax).
At 91.5cents this represents an 18% discount to NTA.
Recommend buying small starting position, compiling full analysis. If analysis returns good risk reward scenario aim will be to build eventual position of between 10-20% of the funds assets.
As MMC have such a high proportion of funds, 59%, in cash they should be buffeted from any market downturn and if such downturn occurs they will be in a strong position to profit from it.
This is an excellently run investment fund, trading at NTA discount of 17.5% and will instantly give the fund exposure to range of ASX listed companies.
30 April 2006 – 110.9, order placed at 91.5 for 17.5 discount.
Cash has decreased from 147 144 in March to 133 now. Was this 14M used to pay dividend on 23rd March 2006? 216M shares * 3 cents = 6.48M, so where has other gone. Check transaction over April and May. Perhaps they have used funds to buy back shares.
s
Check next quarterly update after end of June.
|
| 31/1203 | 30/06/2004 | 31/12/2004 | 30/06/2005 | 31/12/2005 | 31/03/2006 |
| Equities | 13 | 74 | 92 | 98 | 85 | 94 |
| Hybrids | 0 | 15 | 24 | 8 | 6 | 6 |
| Cash | 185 | 122 | 123 | 134 | 156 | 144 |
| Total Cap | 198 | 211 | 239 | 240 | 247 | 244 |
| NTA per |
|
|
|
|
|
|
| Before tax on unrealised gains | 99.1 | 105.4 | 115.2 | 109.7 | 112.4 | 112.1 |
| Dividends (cumulative) | 0 | 0 | 1 | 2.5 | 4.5 | 7.5 |
| Before tax on unrealised gains pre dividends | 99.1 | 105.4 | 116.2 | 112.2 | 116.9 | 119.6 |
| Share price | 93 | 97 | 706 | 93.5 | 94.5 | 93 |
Market Cap = 216M shares*.915 first buy price = 197.64M
Minus cash of 133 = 65M
So in effect you are getting $105M of shares of hybrids for 65M, a 38% discount.
MMC Contrarian is an investment company listed on the Australian Stock Exchanges (ASX) which primarily invests in other ASX listed securities. The Company was founded in December 2003 raising $200 million of capital from approximately 8,000 investors. The Company also issued 200 million options as part of the initial public offer, with an exercise price of $1.00 exercisable by 30 June 2005.
Management Fee
The Manager will receive a management fee equivalent to 1.25% per annum of gross assets of the Company, calculated and payable monthly in arrears by the Company.
Performance Fee
Where the Portfolio has increased in value over a 12 month performance calculation period, the Manager will also be entitled to a performance fee of 15% of:
- where the level of the All Ordinaries Accumulation Index has increased over that period, the amount by which the value of the Portfolio exceeds this increase; or
- where the All Ordinaries Accumulation Index has decreased over that period, the amount of the increase in the value of the Portfolio.
The total management expense ratio (MER) of the company including the management fee is anticipated to be approximately 1.5% per annum, excluding any performance fee.
1.5% of 238M is 3.57M a year or 300k a month. In management fees.
Argo Investments recently had a NTA of 1.30 and the lowest I can envisage MMC hitting is .80. Current shares 216M
The following price ranges are complied on spreadsheet and are based on 20% +/- equities and decreasing cash. We believe this to be a realistic conservative model and as highlighted in dividends section we will happily collect a 7.5% Net return while waiting for either or both of assets or NTA to improve.
| NTA/
Assets | 0.8 | 0.85 | 0.9 | 0.95 | 1 | 1.05 | 1.1 | 1.15 | 1.2 |
| 210 | 0.78 | 0.83 | 0.87 | 0.92 | 0.97 | 1.02 | 1.07 | 1.12 | 1.17 |
| 220 | 0.82 | 0.87 | 0.92 | 0.97 | 1.02 | 1.07 | 1.12 | 1.17 | 1.22 |
| 238 | 0.88 | 0.94 | 0.99 | 1.05 | 1.10 | 1.16 | 1.21 | 1.27 | 1.32 |
| 245 | 0.91 | 0.96 | 1.02 | 1.08 | 1.13 | 1.19 | 1.25 | 1.30 | 1.36 |
| 257 | 0.95 | 1.01 | 1.07 | 1.13 | 1.19 | 1.25 | 1.31 | 1.37 | 1.43 |
From my analysis and based on my predictions we have bought at the lower end of the NTA. There appears to be very little downside risk as it would take a 40% market decline to reduce the assets to 210M. This large market decline would cause a fall of only 15%.
Over long term on any position a 11% return is acceptable, a 15% return very good and a 20% exception. For MMC we target a 11-15% yearly increase, but will not be concerned about near term (less than 3 year) losses.
The primary reason for this table is to emphasis the long term nature of our holding and remove concerns caused by wasting time at share price watching. That is in 5 years time we hope the share price will be between 105 and 130 cents and we will have received 40.25 in dividends which will have provided a compounded net return of 46.35 cents for a total return of between 60 – 85 cents or 66 – 93%.
| Returns | 1.11 |
| 1.15 |
|
| 91.5 | Div Paid | 91.5 |
| Year 1 | 94.67 | 6.9 | 98.33 |
| Year 2 | 97.60 | 7.5 | 105.60 |
| Year 3 | 100.29 | 8.1 | 113.39 |
| Year 4 | 102.70 | 8.6 | 121.77 |
| Year 5 | 104.79 | 9.2 | 130.84 |
|
|
| 40.25 |
|
Management have predicted an end of year dividend fully franked of more than last year’s 2 cents. The last dividend was 3 cents and that is what we anticipate for the near future. A 3 cent dividend is worth 3.45 to the super fund.
At 91.5 cents this represents a Net 7.5% annual return.
| Declared | Paid | Amount |
|
| 30/06/04 |
| 1 |
|
| 31/12/04 |
| 1.5 |
|
| 30/06/05 |
| 2 |
|
| 31/12/05 | 23/03/06 | 3 |
|
|
|
|
|
|
|
|
|
|
|
Conclusion
Continue to buy MMA opportunistically over the next six months with maximum allocation set at 20% of fund or roughly 26k, about 28k shares. Any purchases in more than one month should have further NTA analysis using updated figures from June NTA.
Before committing greater than 10% of funds a further deeper analysis should be performed in to all facets of the company.
