I wrote about Mondi (MNDI), the global packaging group back in April 2014 here and here, which looked cheap at the time and has done well for me since then. More recently, in July this year, the Compound Income Scores (CIS) portfolio had picked up a holding in another smaller packaging company called Powerflute Oyj (POWR) at 70p thanks to its high score in the Compound Income Scores & the fact that it looked cheap in comparison to its bigger rivals like Mondi. This stock was in the news yesterday as the founding Chairman Mr Smurfit, who has a long history in the packaging industry, has decided to sell out his large holding and thereby facilitate a takeover bid for the whole company at the 90p level. Now while this still seems to be a bit cheap and not that great a premium to the recent price, it probably reflects Mr. Smurfits desire to sell his large stake and get the deal done. Thus being recommended and with over 50% of the shares either bought or where they have received irrevocable undertakings to accept it looks like a done deal.
This is the first holding in the CIS Portfolio to attract a bid, so what lessons can we learn from it? Well as ever value investing can be rewarding if you are prepared to look in out of the way places or be a bit contrarian. Now the Compound Income Scores are not necessarily contrarian as they do include estimate revisions, but they do otherwise tend to highlight stocks which offer good value, quality, financial security and which offer growing dividends. They also highlight stocks, like Powerflute, which may not be that palatable at first glance. At least in this case they prompted me to take a closer look and benefit from the recent move in this one.
More broadly given this looks like a done deal as Mr. Smurfit seems keen to exit this does give me pause for thought, given his experience of this cyclical industry. I also note that quite a few VC led IPO's (new issues) are opportunistically coming back out of the wood work again now which suggests to me that the market is getting quite fully valued and may be getting a bit toppy. Added to that are the concerns about the US Fed raising rates again, perhaps this month, or more likely by the end of the year at a time when US economic data has been a bit mixed. I continue to watch the US unemployment data closely to see if it breaks upwards through its moving average, but so far it has remained below, as this has in the past been a good lead indicator of a forthcoming recession. Thus I am also getting a bit more wary of more cyclical stocks and in light of that I reduced my Mondi holding recently when it was over 1600p.
As for the Powerflute holding in the CIS Portfolio, this will be reviewed at the next monthly re-screening at the end of this month and as it looks like a done deal I'll probably use it as a chance to lock in a decent 25% profit and move onto the next opportunity. So if you would be interested in finding out what that turns out to be or in getting access to the Scores yourself then you can read more about them and how to subscribe to the Scores here and the CIS Portfolio here.