Previous article here.
I previously had a position in AWI some months ago and managed to lose some money on the trade, despite having identified a good opportunity before most others in the market. In my last post, I noted how AWI (which was previously an LIC called MEF) was transformed into a financial services business. The initial story was InvestSmart was bought (for a song) as a managed fund distribution platform and a stake in van Eyk Research was also purchased. Coupling the two together would be the seedling of an Australian business to one day rival businesses such as the UK Best Invest and Hargreaves Lansdown. And after meeting with management a few times, I concluded I really liked the idea, management and the (then) cheap valuation.
Amazing how things can change.
Subsequently, a new CEO was inserted on a monster salary and the company also went on an acquisition frenzy. This not only added unnecessary cost, but very quickly, the initial strategy seemed to be blurred as new acquisitions were made on bigger multiples. It's really hard to buy businesses quickly and try and glue them together, and the businesses they bought appeared disparate to the initial vision for the business. Without going into it, van Eyk clearly has lots of problems. Buying Intelligent Investor for over 6 times earnings was probably paying twice what it is worth, especially in the context they had already launched a managed funds business and therefore people in their database that were agreeable to a managed fund product had probably already invested with them (now Forager).
After pondering this trade, I conclude my reasons for buying were pretty solid and pretty much within my investment style. The mistake made was to hold as the leopard begun to change its spots and holding on for the 'concept', not value. That style of investing is for others, and not me.
For me, it has become increasingly easy to decide whether to make stock decisions based not on how cool the story sounds, but simply whether it fits my value investing style. This approach saves a lot of work, imposes a good discipline, and oh - makes more money.
Kristian
Disclosure: no position in AWI
Hey Kristian, have you met with Ben Heap, the new CEO or with Andrew to discuss your concerns? I agree with most of what you've said and also question how they've chosen to disclose their 'investments' in their financial statements. Seems incongruous to their aim of building an integrated operating business.
ReplyDeleteHi Danny,
DeleteNo I have not met with management recently. Haven't got immediate plans to at this stage. Apologies for not being much help.
I struggled, and still do struggle, with what this company will look like in 5 years' time. Having met management a few times the facts kept on changing and they weren't exactly forthcoming with data required to make an informed decision - it was very much their word or nothing.
ReplyDeleteIn hindsight (that wonderful lens) not getting into it has worked out reasonably well. Van Eyk is a disaster and I'm surprised there hasn't been much more released to the market given a quick search will pull up some hair raising headlines/articles.
Hi Kristian,
ReplyDeleteI've been very interested in AWI because I was a FAT holder and MEF holder before selling out - hold a couple of shares to get the AGM invites.
So AWI looks like a similar beast to MEF with different stripes. The $13m in Van Eyk is completely lost. I can't understand when they bought their 49% stake they didn't seek board representation then. Apparently they tried much later.
Looking at their AWI Ventures business, I really don't see anything revolutionary that will take off.
I intend to go to the AGM and see how they try and sugar coat massive destruction on shareholder funds.
Shares are only worth 10c in my view. A far cry from the $1.10 FAT when Andrew Brown came in and destroyed everything.
Geeves
Hard to argue with that.
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