Scuttlebutt – August 2017 edition

I’m a big believer in the usefulness of scuttlebutt for investing. I think you typically can’t rely on it as it is all anecdotal, but you can use it to check that progress is happening, or to check that you’re thinking about your investment in the right way. Here are a few tidbits I’ve noted recently:

(These mostly refer to companies in the 10foot portfolio)

 Competition for Thorn Group (ASX: TGA)

I’m getting a bit concerned about one of Thorn’s competitors, Rent the Roo. They’ve got scale, they’re slick, they’re compliant with the incoming price caps that will be imposed on finance leases (max of 1.5x [?] item RRP per annum), and, they’re expanding. It looks as though they have specifically taken aim at Thorn’s business. I quote:

“…And, if you can’t find what you want to rent on our site, then simply contact us and we’ll find it for you.

Rent The Roo offer a range of easy rental payment plans with ongoing support and service from our dedicated team of franchisees for the life of your rental plan. And let’s not forget free delivery on every order!

We also like to reward our loyal customers as an expression of sincere thanks for placing your trust in us. At the end of your rental agreement we don’t replace your item with an inferior or used product. Our customers can take advantage of our give-a-way offer where we can gift the item(s). No more to pay! No worries!”

Free delivery, no ‘rent, try, $1 buy’ (a Thorn arrangement that has caused problems), and they’ll get your specific item for you if they haven’t got it. Not looking real good for Thorn, to be honest. I don’t believe in being faked out of investments by scuttlebutt so this is not the kind of news that would make me sell, but Thorn could be getting its lunch eaten. Something to think about.

On a separate note, unrelated to the above, I have been wondering if Thorn is the right fit for the 10foot portfolio. It looks a bit out of place when I compare it to Crowd Mobile or Eureka Group, for example. It’s not that my investment thesis has changed (yet; see above), its just that in hindsight it is very different to my other holdings. My early thinking when I started the blog – Thorn was my first purchase – may have been less clear than it is now. If you compare recent posts with earlier ones on the same topic, my thought process has become much more clear, or at least I am learning to express it better on paper.

Does a cloudy thought process mean that Thorn is a sell? That’s something I’ll have to think about in the coming months.

Better stocking for Probiotec Limited? (ASX: PBP)

I’ve been looking for Probiotec’s products when I visit the supermarket and pharmacy. The company’s Celebrity Slim brand has seen a huge increase in its shelf space at 2 Woolworths and a Coles that I visit regularly. I didn’t exactly measure it but shelf space looks to have quadrupled (!) since May (?), which is encouraging. On the downside, it’s always fully stocked on the occasions I’ve been there. I’m yet to spot Impromy at either of the two pharmacies I’ve been to, however (Chemists Warehouse and Priceline, I think).

Edit: I’ve subsequently had a reader point me to this post on a popular online forum from a guy who says he’s a stock analyst by trade. He also has some useful scuttlebutt comments about a second shift being added at the plant and the hiring of some new managers for Impromy.

According to his rough numbers, he reckons Probiotec could be in for around $3 million in NPAT (excluding benefit from tax losses carried forwards). That would price it at about 8x earnings. My own estimate at the time I bought was that it was priced at about 10x this year’s profit, mainly due to higher cost assumptions than he used and no margin uplift on the branded pharmaceuticals. 

Crowd Mobile and DJT

Crowd Mobile should pitch their influencer tech to Donald Trump. Sync it up with his twitter feed and let people text him for $3 and get a response. Can you imagine the popularity of that service? Not to mention the man is self-interested enough that he’d love to earn some coin from his social media and conflicts of interest.

Gold mines

I’m looking at a gold miner, I must have rocks in my head. Commodities, capital intensive, and interest rates are going up reducing the relative attractiveness of holding gold. Doesn’t sound good at all – but it’s an interesting situation. It may not go anywhere (if it does you’ll read about it), but if you have a firm view on the price/value of gold over the next 3 years, I’d love to hear your insights – comments down below. Of course, in the short term all this North Korea guff could see the investment evaporate if everyone starts running for safe (‘safe’) assets.

As a side note, hedgie David Einhorn actually had about ~10% of his fund in gold in 2012 (?), I saw an interview with him on the topic the other day.  He’s a super smart dude, and endearingly shy in public (watch his hands when he speaks). I’m not familiar with him really but my first impression is that he’s someone who’s potentially dangerous if ignored – very easily underestimated.

9 foot disrupter

One of my readers sent me a link to a thread on HotCopper.  I’m not a member of that august forum, but in this link I saw that some wag has called me the ‘1-foot investor, 9-foot disrupter’. I don’t think it was meant in a kind way, but I quite like it and might adopt it. They’re giving me way too much credit on the disruption front though.

RNY Property Trust

I sold RNY at a hefty loss. Yet I saw in activist fund Sandon Capital’s monthly update for July that they also blew some coin on RNY. They said it was their worst investment ever, which is a pretty big distinction given they have a long (and solid) track record. It was only 0.1% of their fund, although I’m assuming this is post-crash so maybe a 0.4% position. Still, it was slightly encouraging to know that even the pros lost out on this one. Shit happens, I’m here to tell ya.

Google sucks

A final note, and absolutely nothing to do with the Googlegate battle of the sexes that has erupted over the past week. Investment research gives me the absolute shits because it is a 100% guarantee that my Google searches for research will show up in Twitter and Google ads targeted at me about 3 minutes later. This has become noticeably more aggressive in the past 12 months or so, even with me using an adblock program.

Edit: Seriously, I have never Google-searched Chemist’s Warehouse in my life. 1 minute after I published this post, I’m getting Chemists Warehouse ads on my Youtube videos. I use Chrome which could have something to do with it.

And that’s all this week from 10foot scuttlebutt.

I’m undecided on whether this is a post that really adds any value for readers or just a random (and functionally useless) thought-dump. If you have a view either way on the value of this post, please let me know via email or the comments. I’m still learning to ‘blog’ (verb) so feedback on strategy is really useful.

I own shares in Probiotec, Thorn Group, and Crowd Mobile, and have no financial interest in any of the other mentioned companies, public or private. I recently held RNY shares, but sold them all. This is a disclosure and not a recommendation.

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