A Totally Event-Driven Portfolio

Published in Investing on 27 June 2012

This investor doesn't have sleepless nights over the macro picture.

Today's featured investor focuses on special value situations, which he hopes will perform irrespective of the general market.

He isn't too concerned about overall market direction as he's heavily invested in five holdings only -- which make up over 80% of his portfolio.

Fools know today's investor, "DesWalker2", as a real shrewdie. Des likes to find fundamentally good value that is going unrecognised by the market and where his additional research gives him even more of an edge.

Of his own strategy, he says: "Hedge funds would call my style 'event driven'."

The macro view

But before we get into specifics, let's hear what Des has to say about the macro picture anyway:

"I'm not a bull or a bear on the global indices at current levels but think making money via index tracking or blue-chip investing will be tough for years to come due to reduced visibility of earnings. This explains my decision to focus on very specific 'special situations' which have deep value, ideally with some form of outer via either corporate action or large and fairly visible dividend streams."

So let's have a look at DesWalker2's special situations:

North Atlantic Smaller Companies Investment Trust

The North Atlantic Smaller Companies Investment Trust (LSE: NAS) accounts for a whopping 30% of his investments.

The trust mainly invests in UK and US listed and unlisted companies, with around one third of assets in the USA.

Des is a big fan of CEO Chris Mills, who owns almost a quarter of the trust and recently bought more shares. With an overall valuation of £146.6m at 1,039p per share, the boss has a lot at stake, so didn't need to add more cash unless he thinks the shares are a bargain. The latest diluted net asset value (NAV) was 1,426p.

Des says: "The portfolio is ripe for corporate action and further NAV uplifts. It also gives me added exposure to Gleeson (LSE: GLE), which accounts for over 5% of the net assets. The near 30% discount is way too large."

Gleeson

The aforementioned Gleeson accounts for 25% of Des's portfolio in its own right. It's easy to see why. The urban housing regeneration and strategic land trading specialist made a small operating profit in the last half year, and had a NTAV of over £97m, with a cash balance of £15.1m, versus its current valuation of £56.7m at 107.7p per share.

Des says: "Gleeson has the best balance sheet I can find anywhere on the market. It has a very confident management, has restructured well through the downturn with quite a few divestments and achieved a big increase in the land-bank.

"Gleeson has a history of returning cash to shareholders via special dividends, and is ripe for some form of corporate action in due course with Chris Mills controlling over 27% via NAS and his other funds. There are also large unrecognised tax losses to be utilised by the company itself or a major house-builder via an acquisition.

"It's only marginally profitable at the moment because Gleeson is working its way through land bought by the previous management at higher prices from 2006-07. But the new land will be on stream in the coming financial year, which should boost profits."

Autoclenz

Next, accounting for 10% of the DesWalker2 pot, is car cleaner and minor repair specialist, Autoclenz (LSE: ACZ).

This is a real tiddler with a market cap of less than £3m at a share price of 28.5p. Des says: "It's very cheap on an EBITDA/EV basis, is run by a very sound board and has James Leek (of Torday and Carlisle fame) as chairman who's a smart cookie.

"It pays a yield of over 3% but could afford to treble that with ease. There are no de-listing intentions according to the recent AGM, as James Leek doesn't think it's fair to shareholders."

SOCO International

SOCO International (LSE: SIA) is a very popular share with many Fools. Des likes it as an asset play with some form of corporate action being as the potential outer. He attended the company's recent AGM and left feeling more confident than previously. Soco accounts for 9% of his portfolio. The shares are currently 278p.

Work Group

Last and least accounting for 6% is Work Group (LSE: WORK) -- an advertising and consultancy business with a blue-chip client list.

Des sees Work as having strong management, an increasing global footprint, clever restructuring through the tough times and a potential private market value at a multiple of the current share price of 13.25p. This is another tiddler with a market cap of just £3.7m.

"There's a strong board with two very experienced non-execs who are independent," he says. "There's no intention of de-listing, but nor does the board have any expectation that the AIM market will ever value the business correctly. So it remains alert to various possibilities following a strategic review last year."

So there we have it. As Des says: "All attempted Alpha with no market correlation whatsoever. So when the market tanks, I'm usually either flat or up. But I underperform by a mile when the FTSE 100 (UKX) is flying and everything is going up."

And just in case you're wondering about the username, DesWalker2 is a Sheffield Wednesday fan old enough to remember the Premiership glory days!

(By the way, if you harbour ambitions to join Des among the ranks of successful private investors, this special free report -- "Ten Steps To Making A Million In The Market" -- may well help you on your way! The report is for ambitious investors only.)

He avoided techs in the dotcom bubble and banks in the credit boom. But just where is dividend expert Neil Woodford investing today? All is revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor".

Further investment opportunities:

> David owns shares in Gleeson and SOCO International. He doesn't own shares in any of the other companies mentioned.

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Comments

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LongWayHome 29 Jun 2012 , 7:21pm

Seems to me he's just buying shares he considers cheap. In what way is that event driven ?

geddinquick 01 Jul 2012 , 5:35am

LongWayHome:

"Of his own strategy, he says: "Hedge funds would call my style 'event driven'." "

Each is what this investor deems a value play which will require an "event" of some sort to realise that value.

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