Wilson Asset Management, the listed investment company that seeks to buy stocks it sees as cheap, says it is using some of the $233.8 million in cash and fixed income to buy mining services stocks that have in some cases have been priced to go bankrupt.
“We’re finding select opportunities in mining services,” said Chris Stott, chief investment officer at Wilson Asset Management. Stott declined to name stocks the fund is buying in a Markets Spectator interview. “There is extreme value," he said.
Ernst and Young estimates that $12 billion in market value has been wiped out by the fall in share prices of mining services stocks between December 31, 2012 and June 13 this year. The total market value of the 84 publicly traded mining services companies has fallen 16% to about $64 billion in that six-month period after asset impairment charges and project deferrals, according to Ernst and Young (see Ian Verrender's Mining services hits the dust).
Shares in Ausdrill have plunged 70% in the last 12 months, according to Bloomberg data. NRW Holdings has dropped 67% and Boart Longyear is down 82%, according to Bloomberg.
Since its inception in August 1999, the 486.6 million Wilson Asset Management fund has generated annual returns 17.9%. This compares with the 7.8% yearly gain in the S&P/ASX All Ordinaries Accumulation Index.
As of June 30, 48.1% of the Wilson fund was in cash and fixed income. The rest, 51.9%, was in listed stocks. These included agribusiness Graincorp, mobile and internet company M2 Telecommunications Group and law firm Slater and Gordon who together make up 9.2% of Wilson’s portfolio and comprise three of the top four holdings of the fund.
Stott says any economic recovery from the current “tough trading conditions” will benefit retailer Harvey Norman and property developer Sunland Group.
“Given the current cash levels in our portfolio we are well positioned to take advantage of opportunities when they present themselves,” Wilson said in an ASX statement today. But “the softer economic conditions will make it difficult for companies to substantially grow earnings”, adds Wilson.