The pain
continued as the Fund fell 4.5% for the month. Our loss for
the year is now 37.4%.
Cape Verde
JK added another stamp to his collection in visiting this
remote collection of aridly beautiful islands (the Cape is
as ‘Verde’ as Greenland) a few hundred miles off the coast
of Senegal. Ruled by Portugal from the mid 1400s to 1975,
the islands are a fascinating mix of African and Lusitanian
culture which, apart from a few sun-starved European
tourists, are generally passed over by international
travellers.
Cape Verde is one of those rare countries which, like Samoa,
Lebanon, and Puerto Rico (we know the last one is not a
country but is arguably a nation), has more of its citizens
living overseas than at home. There are as many Cape
Verdians in New England as there are on the home islands,
and many more scattered over the globe. Their remittances to
the homeland, plus receipts from the impressive 200,000 odd
annual tourist arrivals, represent more or less all of Cape
Verde’s hard currency income.
North Africa
An additional jaunt to the North African markets was an
informative experience and highlighted the risks inherent in
these markets, which are closely bound to the European
economies.
The performance of the Tunisian and Egyptian stock markets
is a study in contrasts – Egypt has been mercilessly treated
and has fallen 57% this year whilst Tunisia is a rare green
star amidst a sea of red – flat for the year. Looking at the
numbers, one could be forgiven for concluding that the two
countries are on different planets, economically at least;
whereas in fact they are in very similar boats, as mentioned
above.
The selling in Egypt means that our holdings there are now
looking very cheap indeed. Sixth of October Development
Company (‘SODIC’ to friends) has been hammered, down 81%
year to date, and is now trading at an 80% discount to its
realisable net asset value. The country’s leading paints
manufacturer, Pachin, is now on 6.1x forward earnings
and paying out an amazing 13.2% yield.
Commercial International Bank, the country’s blue chip
lender and a liquid, solvent institution, is now changing
hands at just 5.3x 2008 earnings (already largely ‘in the
bag’).
It is clear that earnings will be under pressure for the
next couple of years in a challenging economic environment.
Nonetheless, cashed-up companies with strong franchises and
without problem assets are going to weather the crisis, as
they have done many times before in this turbulent corner of
the world.
Turkey Shoot
Looking past the miserable economic data and overwhelmingly
negative sentiment, we can make out some reasons to be
cheerful. Our companies are in leading market positions,
have cash in hand, and have plenty of experience with the
sort of madness we are going through.
In fact, one holding, Turk Traktor, which has been an
unpleasant stock to own in the last twelve months, recently
reported that its deliveries were up 33% following the
collapse of its poorly capitalised competitor, Uzel, earlier
this year. The strong will survive and come through the pain
with more market share and higher underlying returns on
capital. The trick, which we are focussing on, is on
identifying the companies built to last.
One such is Bim Birlesik, which is Turkey’s leading
hard discount retailer, shifting a narrow range of SKUs
through a range of over 2,000 rather unfussy shops. We owned
this in our pilot fund but sold due to valuation concerns.
The correction this year has brought it to a reasonable
level and we are now invested in a business that is cleaning
up as consumers desert the higher-end retailers. |
