Portfolio walkthrough – short comments

It’s high time to review my holdings and if anything changed in their investment thesis. This will be a monster post, for me it’s a great way to review all my holdings and make sure I stay up to date. For you, if you hold or are interested in one of these stocks you will get a quick “what’s the latest” with some sprinkles of why this is a great company (or not anymore). As a bonus there is a short elevator pitch of my two new holdings.

I stopped posting updates for every portfolio change (instead found under Trade History tab), so I have some changes to comment on: MIX Telematics left the portfolio and Lvji entered and exited without comment from my side. MIX Telematics was a case of having too high exposure to the oil industry in the US, I don’t see that coming back at all in the same way as in the past. This was something I did not understand when I invested, properly hidden oil exposure and a mistake on my side. Lvji was a tech play on travel guides for Chinese, but soon after taking a position some twitter friends alerted me of doubtful accounting. I looked at it myself and couldn’t really feel comfortable, better safe than sorry I then sold at almost the same price I bought.

Now on to comments on all my current holdings from top to bottom in the table below.

Press “read more” and enjoy!


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Portfolio re-balancing and selling Diageo

The rationale for worries and opportunities in all my holdings are spelled out in my previous post. Today I will just briefly announce my portfolio decisions. One little obstacle in this extremely volatile market is that in the blog execute all trades on close, this might mean quite large deviations from the levels I would have been happy to enter or exit my positions on. Anyhow, that’s how its going to be, the blog NAV is just a proxy of performance.

Some quick thoughts around my investment philosophy in this market:

  • Classical defensive holdings not necessarily defensive in a Covid-19 situation. It’s somewhat of an all bets are off situation here. One would think that Diageo with liquor sales is a super defensive stable business, not so much in this situation. Philip Morris another holding is reporting that they have to close their factory in Spain. It doesn’t matter of how defensive cigarette sales are if you can’t produce cigarettes. This market is truly hard to navigate.
  • Don’t try to be a hero in this market – focus on surviving that will give you plenty of returns long term, permanent capital loss is what will really hurt returns. I will reduce/sell anything I see risk of permanent loss of capital or dilution to shareholders due to leveraged balance sheet.
  • My small cap strategy of investing in less discovered (overlooked) stocks makes sense in a normal market. In an highly distressed market, it might as well be a large cap which is wrongly priced. I will therefore consider all-cap companies going forward. When markets have normalized I plan to go back to my small/micro cap strategy.


  • I will fully sell my holding in Diageo, the debt levels the company has is scary in a scenario where sales significantly drops, which is surely in the cards if this continue. It’s unfortunate when a holding you bought for it’s defensive characteristics fall even more than the general market, but here we are. I should have reacted earlier and it’s probably very late to sell, at least I will re-allocate the cash into other cheap companies.


  • Although company proved a turned around, due to debt load and total stop in business I will reduce my holding in Modern Dental Group to a 1.5% position.
  • Reduce position in Olvi to 4%, not due to company doing poorly but just that the business will be hurt, but the stock is not trading as cheaply as many other holdings with better prospects.
  • Reduce position in Tianneng Power to 1.5%, although the company is not doing badly, this was a speculative holding now I want to focus on building positions for the long term in strong companies.


All in all this raises about 11.5% of my portfolio in cash


  • Greatview Aseptic is in my view a big winner on this, people will be buying packaged food as never before. The company is already super-defensive to begin with, being net cash and very non-cyclical business. I raise this fairly new holding to a high conviction position and take the position size from 6% up to 8%.
  • I choose to double down on my oil positions TGS is increased from 2.6% to a 4% position and Tethys Oil I will increase slightly from 2.3% to 3%. This is a real pain trade to do, since in this sentiment these stocks can probably quickly drop further. At the same time these type of extreme events is when you need to dare to go against the sentiment.
  • Dairy Farm is another company where I spelled out my thinking quite clearly for that this is way oversold and actually quite defensive. I will increase my position from 4.7% up to 7% here.

This takes some 6.4% of my cash, which leaves me with roughly net +5% cash (give or take depending on today’s close prices). These 5% + ~7% in BBI Life Science (if the takeover goes through) is left to be deployed at a later stage.


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Aligning with my strategy – portfolio changes

To align my portfolio further with my investment philosophy it’s time for another larger portfolio change with as many as four new holdings – Tethys Oil, Valneva, Tianneng Power and Union Medical Healthcare. I haven’t written as much over the past months, but I have spent a lot of time trawling for new investment ideas and yes I have quite many of them coming! But first what goes out:


As of the last day of 2019 I sold my full holding in Inditex, which holds the famous clothing retailer Zara as it’s main asset. This is another of my very large cap companies where I took the view that the market was overly scared of the retail-apocalypse and that Zara would come out strong in this. In my view today, I have a very weak edge to make such a call – although it this time turned out to be fairly true, both fundamentally and stock price wise. Therefore I today sell this holding, as I by know surely have no edge in forecasting where this stock is going to move on from here. I did my best to hold the stock in the weak positive momentum it’s been in for a while and I was rewarded nicely lately with a strong rally towards year end. My only doubt here is that I probably should ride the positive momentum a bit longer, but I’m eager to get to prioritizes right in the portfolio. Good riddance Inditex, you are truly a quality company, but you do not fit my strategy any longer.


This was a opportunistic holding which did not really turned out as planned. I had a quick gain for a while, but did not cover. More “dirt” was uncovered about Swedbank as the months passed by. I think banking stocks in Sweden in general are going to perform better now that the negative interest rate is gone. So the stock traded up not on me really being right, but just general revaluation of banking stocks. I have to say this was an opportunity which I should not have swung the bat on. Again maybe I’m a bit early to sell now, but I’m not a big believer in Swedbank has a winner in the Swedish banking sector long term. So the opportunity has pasted and this was a speculation that did not give me the quick gains I hoped, so now it’s time to close the trade. I sold my full position as of close 30th Dec.

AK Medical

As I mentioned in my performance review this quickly became my best performing stock during 2019. I have to thank twitter handle @alexeliasson for this investment idea. He was the one that first mentioned this stock and this has actually opened my eyes to look more broadly into the healthcare space on the HK exchange. Unfortunately I had only taken a “starting” position in the stock and was expecting to get to know this holding better over the years. I have been back and forth on if I should keep this holding, even though the valuation now is very stretched. First I just reduced my position with the plan to keep the rest “no matter what valuation wise”. But I come to the conclusion, that doesn’t work for me. I need to feel that the valuation is not pricing in some type of blue sky scenario that might never happen. I would not buy the stock today if I did not have it already, that is sometimes a little bit brutal way to look at it, but at the end of the day that’s how you should evaluate things in my view. So I decided to sell the full holding I had left in AK Medical. I’m very happy to buy this back if the valuation would come down somewhat again, I think the most probable scenario is that they have a long runway of growth in-front of them, but things can always go wrong in terms of competition, Chinese policy changes etc.

Dairy Farm

I have been reducing and increasing in Dairy Farm since my initial investment. I recently bought quite a lot more, punting on that we have seen the worst in Hong Kong in terms of protests. I changed me view on this and I’m afraid that the annual results that will come out of Dairy Farm is going to be terrible. On top of that the big holding in Yonghui Superstores has declined quite a lot in value lately, whereas Dairy Farm stock has been trading water sideways at very depressed levels. So I take the opportunity to reduce my holding with as much as I recently bought. I’m very close to closing out this position, but although the company is fairly big it’s still an overlooked stock in my eyes. The most important question though of course is if the company is a good enough investment. I will need a bit more information during 2019 to decide on that, but it’s not a high conviction position for me anymore.

In the below stocks I have taken a position on their last trading of 2019

Tethys Oil – 4% Long term position

I love being contrarian and right now sector wise, there is nothing more contrarian than the Energy sector. But I’m no macro investor, I need to be able to express this through a stock which seems unreasonably cheap and at the same time is a well managed company. I think Tethys Oil qualifies here on many levels. I have followed this company for a very long time and seen it’s execution. Very few oil companies has delivered such returns as Tethys Oil. Since 2004 the stock has compounded 21% annualized (incl dividends). If we instead look from the worst possible time, just before oil prices crashed from over US$100/barrel in 2014, the company has still compounded 7.5% per year.

The company has a 30% share in an oilfield in Oman with very low production cost, meaning that the company is cash flow positive even at very low oil prices. The downside of this is that you don’t get the same leverage in the share price if oil actually goes up. But my whole point of this investment is not speculate in if oil is going up or down, but buying a company that hopefully can perform well no matter what. Then as a kicker I love to get some energy exposure into my portfolio.

The company has a very high pay-out ratio, which is done both through dividends and special shares that are redeemed by the company (more tax efficient). In 2019 the company returned a total of 8 SEK and the stock is today trading at 84 SEK. Even so they still have money left over for exploration in Oman where they own quite vast areas of land. So there is a significant kicker to the upside if they strike oil.

Downside risk factors that should be mentioned is Oman itself. The country is run by a dictator (Sultan) and it seems that not all in the country are so happy with this. The country in general got rich on oil, but supplies are dwindling and it’s harder to please the people when cash is not pouring in anymore. Another risk factor is that the field which today is steadily pumping oil to Tethys would dwindle quicker than forecasts, but that is a small risk compared to the general country risk. This stock will probably always be trading at fairly low multiples due to the country risk, but I think there is a good chance for some general multiple expansion for energy stocks in 2020 and Tethys would benefit from that. Even with that not happening it’s a cash cow which just keeps pouring in money to investors. Insiders have recently also made some smaller purchases which is nice to see.

Valneva – 4% Long term position

Back in 2017 when I did my first rounds of trying to find some good exposures towards the Pharma sector I came across this company. I was very close to taking a position, but then the stock ran away from me when it quickly gained some 35%. I kept it on my radar since and now recently it traded down below where I initially were interested. And this time with in my view better fundamentals than back in 2017. Valneva is something as unusual as a vaccine producer. This is a bit of a sidestep from the investment case, but something that is good to understand looking at this type of companies:

Vaccine producers are a very strange animal in medicine since you are only selling one shot and then hopefully the patient never gets infected/sick. Whereas a normal drug is the most “successful” when you have patented something that the patient need for a long time, in the “best of worlds” to even survive. It’s pretty cruel when you think about it, but Pharma companies does not really have an incentive to cure us, but keep us needing their drugs as long as possible. So vaccine instead belongs to a total different category which is preventive care, just like exercising or eating healthier. One would think that there exists a ton of vaccine companies then since surely preventing care is more clever? Well this is were free economics kind of fail us, due to the above argument of it being more profitable that we are sick. This also means that governments understands this dilemma, especially governments which pay for public healthcare. So they actually are pretty helpful in promoting in various ways to develop vaccines. For example via grants or speed up trial processes. The trial process which has it’s Phase I/II/III like drugs is also quite different. Given that you can’t give 500 people a vaccine and then infect them with whatever the vaccine was for you end up with a bit of a dilemma, how do you test the vaccines effectiveness? Well basically you have to develop vaccines for something that is so common to be infected by that within a large enough group you know a certain number of people will be infected. This means you either need a huge test group, or a vaccine for something which is extremely common (at least within a certain region). This is why vaccines for example for the ZIKA mosquito can be developed so quickly, the outbreak is so significant, that testing if a vaccine works is a very quick process. But if you are a small company doing such large scale tests is still very burdensome. And unfortunately given the income potential of only 1 shot of vaccine is so low, very few companies finds it worthwhile developing vaccines even for things that many people suffer from around the world.

Over to the investment case. Valneva has one star vaccine on the market for a very serious infection called Japanese encephalitis, I have myself taken this vaccine when I moved to Asia. The vaccine is called Ixiaro and the largest customer for the vaccine is the US military, where this vaccine is a mandatory shot for every soldier sent abroad. The US military spends as much on this vaccine as the rest of the world combined. The second product is Dukoral, which is a Swedish developed drinking vaccine for prevention of diarrhea. Basically the product is used for tourists which are afraid that some type of Delhi Belly will destroy their vacation plans. Canada is here the largest market for this product.

A few things make the investment case interesting here:

  1. The cash flow from Ixiaro and Dukoral is now enough to fund research for new vaccines without burning cash (which has been the case in the past). The company is actually turning a profit in 2020 if nothing goes majorly wrong with the current trend.
  2. The company has a very promising vaccine in the pipeline for Lyme disease. This is a very serious unmet medical need with a huge number of cases in Europe and North America every year. Due to climate change the number of cases has increased even more over the past decade. This would be a vaccine which probably would be recommended to almost the whole population of some countries, if released. Back to governments supporting this kind of development for example FDA has fast tracked the development of this vaccine.
  3. Chikungunya is a disease that has existed in poorer countries for a long time. But not so long ago a huge outbreak happened in the Caribbean, also affecting USA. Since richer nations see as in their interest that such outbreaks should not be widespread they allocate funds to finds vaccines. In this case for Valneva some 20 million EUR was awarded (current MCAP 236m EUR): CEPI award Valneva. This vaccine has competitors developing their versions, but here comes Valneva’s deep expertise in producing vaccines in, where they are the only product which will give coverage with only a single dose/shot. Obviously this is a big plus for a government which wants to protect their population, a lot of people miss to take follow-up dosages. So also here Valneva has a strong candidate for a good future income stream.
  4. Valneva recently raised 50m EUR from mainly US Pharma funds at 3.75 EUR per share:  Valneva Raises €50 Million in Oversubscribed Placement Led by US Healthcare Investors. Today the stock trades 2.57 EUR, without anything fundamentally being worse in the company.
  5. And why this is a good investment long term? Founder led and the family has a large shunk of shares (15%) which I always see as a positive. Track record of building something good long term, building a vaccine portfolio takes much longer time, but has a very long payoff profile too. I’m also convinced that the world has to wake up over the coming years to actually promote more preventing healthcare. It’s just in the interest of every government that is going to struggle to keep paying the populations healthcare bills through taxes.

Tianneng Power – 4% Opportunistic position

So this is probably not a great company which when I have sold we can go back and look at the fantastic return it had over the coming 10 years and I wish I just held on to it. This is a swing the bat, because now is a good opportunity to do so case. Since I followed the Electric Vehicle sector for so long I know a lot of players in this supply chain. This company looked for a while like it was going to a player in the battery space for EVs. Instead they took another route. When all other battery factories scrambled to develop the latest generations of Lithium ion batteries this company instead perfected in making the more simple old technology. Basically the lead batteries you have in your petrol car to turn the ignition on. I understood early that EVs would one day be big, which is happening right as we speak, even buses. But what i did not consider as much were to two wheeled objects we have, like motorbikes, scooters and even bicycles. It’s become a huge trend worldwide to have electric versions of these. In fact in China electric scooters has totally taken over the market. And the thing is, that these batteries need to be cheap, really cheap, otherwise the economics don’t make sense. So majority of these batteries are of the older cheaper type. Which has made Tianneng selling volumes go through the roof and hugely profitable in a market where most Lithium ion battery producers are fighting a very tough pricing war battle in the EV space. So for a few years now the cash has been raining in, but the market has not really revalued Tianneng because there will come a reckoning day when Lithium batteries will be cheap enough and take over the market. But how cheap should the company be?

The company is currently trading at P/E of 4.5 this is historically below average, but due to cash build up EV/EBITDA is a better measure.

The company is then incredible cheap. So it could be stuck in value trap land for a few years and then lithium battery prices gets so low that fundamentals start to deteriorate. To counteract the value trap you often need a corporate event of some time. That just happened the other day when they filed to spin-off parts of the company on the Mainland exchange. This might unlock some of that value and this is the trigger to take a bet on the company here right now. They plan to spin-off the battery division on the mainland exchange, where it will most likely be valued much higher than the depressing valuation on the Hong Kong exchange currently. The maneuver is a bit complicated though since the shareholders in Hong Kong can not own the mainland listed shares directly. So the listing of the shares in mainland China will have to go to a new set of investors. But effectively a new set of investors are going to pile into this company at a much higher valuation. I’m not sure where that leaves the HK listed stock in terms of share price, theoretically it could stay the same of course, but most likely some convergence will happen. I see fundamentally little downside to punt on this and potentially quite a lot of upside, although somewhat unclear how much. This will be an interesting one to follow.

Union Medical Healthcare – 3% Long term position

This is another stock that I came across in my search for healthcare related investments in Hong Kong. The same twitter handle that found AK Medical I believe is invested here as well. This is a Hong Kong healthcare provider that started off in the more light services around medical beauty services and has from there expanded into dental and doctor clinics. A big part of the growth story has been mainland Chinese that come to Hong Kong for medical services. Obviously with the situation in Hong Kong that should have slowed down significantly lately and it also explains why the share is trading weaker the past six months. But what drew me into this case is the founder. He has a bit of story how he came to found the company, he is still fairly young and the way he consolidated and built this company really impressed me. I don’t think this is the perfect timing to enter this company, there might definitely be setbacks in the next annual report due to the HK situation. That’s why I start with a small position, but I do think the founder is on to something here and the fundamentals speak of it, with revenue growth of some 30% YoY and EBITDA in the same range. At the same time the stock is trading at P/E 14 trailing and P/E 12 expected for 2020. I hope I will be able to buy more even cheaper going forward, as long as the underlying business keeps going in the right direction.

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