Kennox’s 2Q 2017 Report

Posted on By offpisteblog

Kennox is an Edinburgh-based wholly independent asset manager. They run the Kennox Strategic Value Fund, a long only global equities portfolio. We have previously covered them on this website, primarily in relation to their thesis on Texwinca Holdings (you can find that post here).

Their recently published 2Q 2017 report features commentary on a number of their top 10 portfolio holdings, including M1 Limited, Fukuda Denshi and Texwinca Holdings. You can download and read the full report here.

Some highlights below (paraphrased):

M1 Limited:

  • There are currently only three players in the Singapore telco market (M1, Singtel and Starhub). A fourth player (Australia’s TPG Telecom) was recently granted a license to enter the market and will commence operations in 2018. 
  • This news has been the cause of recent share price weakness and M1 now trades at 6% covered dividend yield (~13x Kennox’s view of sustainable earnings). 
  • TPG Telecom is likely to make some inroads into the Singapore market, but M1 is an intelligent operator and has been bolstering its product offerings. They remain popular with the under 30s demographic and are also growing fixed lines services quickly.
  • M1 is a cash generative business and has returned money to shareholders (paid out its IPO price in dividends over the last 6 years).

Fukuda Denshi:

  • Japanese med-tech company that specialises in patient monitoring and diagnostic equipment.
  • Company posted strong Q1 results and the share price has risen over 25% in yen to reflect the stronger operating results. Shares still only trade at ~13x their view of sustainable earnings.
  • The company also has a strong balance sheet, with nearly 20% of the current market capitalisation in cash & cash equivalents.

Texwinca Holdings:

  • Company had a tough quarter and announced a profit warning in May (see here). The reduction in earnings was due to both exceptional items and a softer operating results in the current period.
  • Share price fell by ~15% but their assessment of the business has not changed. Texwinca remains the leading provider of textiles to high end clothing manufacturers and retailers.
  • The company’s capabilities also become more attractive as retailers bolster their ESG profiles and reduce supply chain timelines.