The below is an exert from the Alpha Prime Small & Mid Cap Fund’s March 2020 investor letter: here. Solvency & Liquidity Across Underlying Portfolio Descending Order of Weighting in Portfolio Net Debt:Equity (%) Net Debt:EBITDA (x) Interest Cover (x) Current Ratio (x) Metrofile Holdings Ltd 95% 1.9x 3.0x 1.3x Grindrod Ltd (preference shares) Net cash Net cash Net cash 0.8x Adcock Ingram Holdings Ltd Net cash Net cash Net cash 2.0x Stor-Age Property REIT Ltd* 36% 3.9x 11.6x 0.3x Datatec Ltd 29% 1.4x 4.3x 1.2x Coronation Fund Managers Ltd Net cash Net cash Net cash 0.9x Sabvest Ltd ..read more

I’ve been invested directly in a growing, junior coal miner for going half a decade, amongst a number of other mining-related investments. Likewise, I’ve followed a wide range of mining companies closely for even longer and previously was invested in a mining exploration company and poked around a whole bunch of these too. While I am no miner nor commodities specialist, I feel confident enough in the sector to say that I broadly understand it, the eccentricities of various resources, minerals & sub-markets, & the risks and valuation-metrics that matter. And, after going a decade ..read more

As a well-run, ungeared domestic poultry stock, Astral Foods (code: ARL) has two major variables that largely dictate its fortunes: What cost must it pay to raise its chickens? What price can it sell its chicken products at? Firstly, Astral’s long-term track record is superb, proving the underpin of quality in the business. Over the last two decades, the Group has earned an average Return on Capital (c.25%) or nearly double its Cost of Capital (c.12~13%). Secondly, South Africa’s receding drought pressures and the anticipation of a healthy 2019/2020 maize harvest should see prices remai ..read more

The below is extracted from the December 2019 Alpha Prime Small & Mid Cap Fund investor letter where I briefly unpack our argument for quality in the small cap space: Quality: Above all else, we try to find good-quality, fast-growing, listed small cap businesses. Value: We invest in the cheapest of these options, constrained by our concentration & diversification parameters. Concentration & Diversification: Finally, we limit the number of stocks we hold to only the very best fifteen to twenty positions & limit our investments to different industries &/or geographies to ..read more

More than any other directive, human beings act in line with their individual incentives. In the natural world and bleeding into modern-day addictions to drugs, social media and pornography, human beings are predominantly incentivized by dopamines. In business, though, human beings are typically incentivized with money. The ability to earn it as salaries, bonuses and–more importantly for owners of stocks–via dividends and capital growth. The Agency Dilemma of investing, though, is that investors typically do not run (or even materially influence) the companies in which they are invest ..read more

As a fund manager of a small cap fund, I am keenly aware of liquidity in the stock market. It is not just a constraint but a risk that needs to be managed on both a granular and an aggregate basis. And, sometimes, it can also offer some opportunities… What is “liquidity”? It is a simple question, but nuanced in terms of how you view, measure, report and track it. I view liquidity as the ease, speed and frictional cost with which an investment can be bought or sold. “Ease” refers to the type of investment. For example, listed stocks are easier to sell than unlisted stocks and, hence, a ..read more

Per Wikipedia’s definition, “…illusory superiority is a condition of cognitive bias wherein a person overestimates their own qualities and abilities, in relation to the same qualities and abilities of other people.“ People tend to think that they are of above-average intelligence while, statistically, at least half are not. This is an all-too-human cognitive bias that is exhibited in listed companies by management teams that think that they are better, smarter and more valuable than they actually are. Once again, by definition, half of all listed management teams are below average. Le ..read more

The last couple of years have been very hard on those that invest in South African small cap stocks. Unfortunately, me, the Alpha Prime Small & Mid Cap Fund and my (incredibly resilient) investors have been no exception to this. Since the FTSE/JSE Small Cap Index’s high in 2017, the index has dropped by a third (-30%!) to the current intra-day spot price on the date of my writing this. From a valuation perspective, this index’s relative valuation peaked in around 2014 and it has been steadily de-rating since then (only hidden by profit growth for the first couple years that eventually d ..read more

Santova Logistics (SNV) has been a core holding in the ASM Fund since its inception due to its unique, capital-lite business model with global reach and the potential for a compounding network effect across its operations. In brief, Santova offers a fourth-party logistics (“4PL”) solution for clients. The Group’s system—TradeNAV—embeds itself into client operations and allows it to aggregate logistical requirements, bulk-buy from existing logistics players, manage and track &, ultimately, report on the flow of inbound and outbound goods globally. Around this core, the Group is steadily ..read more

Below is an extract from the Alpha Prime Small & Mid Cap Fund’s investor letter, published 4 November 2019: “In September Metrofile issued a cautionary over itself as it was engaging in discussions with a third-party for the potential acquisition and delisting of the entire share capital of the Group. This cautionary is still in effect at the date of writing this. Despite a wobble and an own-goal in recent years, Metrofile is a high-quality, document storage business with strong cash flows and offers a dominant position in the South African market to any acquiror. Assuming this ta ..read more