KFL - discount to diluted NAV

[Rif-Raf]

I've mentioned before, but it still bemuses me how KFL just continues to march on delivering great incremental results (latest NAV 2.12 undiluted,1.58 diluted) yet their SP trails behind at a discount or around 4% diluted and 30% undiluted, yet BRM its unproven sister company which currently hasn't done anything yet trades at a premium of 11-12% diluted/undiluted.

By buying into KFL you will receive a 4% discount to the underlying value, yet receive 30% more value in dividends than if you had held the shares direct. A small sacrifice is paid by way of performance fees from the manager however probably a small price to pay if they if they are able to time acquisition/exits than the average investor which probably more than makes up for it.

Contrast to BRM, the contrast is incredible considering they are the same people.

Only logical explanation is some peceive Aussie has greener pastures.

It's good to have a few of these in your portfolio as they dont require much effort to manage.

[gisborne_gold]

100% with you on your points Rif-Raf. I can't see any sense in it. Either there's something we don't know about behind the discrepancy, or it's a market anomaly and represents a trading opportunity.

[zyreon]

I think there's still an intense skepticism about fisher funds, the whole tall poppy thing.
I know a few people who hold very strong, if misguided opinions about KFL.

[Rif-Raf]

quote:Originally posted by zyreon

I think there's still an intense skepticism about fisher funds, the whole tall poppy thing.
I know a few people who hold very strong, if misguided opinions about KFL.

But if that was the reason, then makes no sense why BRM would be valued as it is.
GG, I dont think there can ever really be much behind the scenes as ultimately they are holding a portfolio of listed companies and the share prices of each investment will be priced accordingly. In fact that's one of the things that I like about KFL, you get exposure to a few good second tier stocks without havng to put too much effort into understanding on in as much depth as you may otherwise desire. As to timing of entry/exit, they seem to be pretty good at making the right calls i.e WAM, DGL,RAK

[ratkin]

The sceptisism is due to the fund only operating in bull market conditions. They have chosen reasonable stocks as you would expect and have done well due to benign market conditions.
The test will be how they perform once the bear arrives

[winner69]

quote:Originally posted by ratkin

The sceptisism is due to the fund only operating in bull market conditions. They have chosen reasonable stocks as you would expect and have done well due to benign market conditions.
The test will be how they perform once the bear arrives

Footsie also has the same sentiments, like what he said on the Ryman thread (quote) my advice........ If you like RYM wait......... guarantee that within the next 12 months you will be able to buy it 20-30% cheaper that where it is now... (end quote)

When looking at the KFL portfolio 80% of their holding is in 6 stocks .... all except MFT with a PE well in excess of 20 (quick scan of DB figures).

Even in a bear market all these companies might still perform very well ........ but PEs will fall to more reasonable levels with the subsequent fall in shareprices .... anf fall in KFL value

Additionally if the economy goes (and/or property prices fall) through tough times one needs to bear in mind that they are heavily exposed fo freight companies, aged care and retail.

Carmel and her team have done a good job over the last few years but Mick100 sentiments have some merit.

Can't criticise her stock selection ... her team have invested in 3 of my current holdings

[winner69]

If you take into account performance fees KFL trading at a 15% premium to true worth

Assuming the intent of the fund is to continue for some time KFL is actually worth 131 .... NAV at 161 less NPV of future management fees of say 30 cents

And that is not taking account the dilution that occurs when they take part of their performance fees in new shares

[kura]

Winner, how do you roughly justify your 30 cents ?
In the past I've felt a 10% discount for NPV of future management fees was "about right" for other funds I've looked at.

Though theoretically speaking, if you had an extremely capable manager (say Warren Buffet or similar) one could argue that there should be no discounting for future management fees, as the higher expected future returns would outweigh the future fees.

Also, don't KFL have options ? wouldn't you need to take these into account when setting a fair value for KFL ? (ie assuming all options will be excercised, adding excercise price to pot, then dividing by increased number of shares)

[winner69]

Kura ... from KFL's last announcement performance fees etc are 5.0 cents per share (their numbers were $2.1722 NAV and after fees $2.1222) .... after allowing for the options reduces to 2.6 cents.

Discounting these fees into the future gives me about 30 cents (diluted)

Might be the wrong way of looking at it but that is how I see it anyway

You say 'I've felt a 10% discount for NPV of future management fees' .... maybe KFL fees are on the high side .... after all the benchmark they use to calculate the outperformance component is pretty low

[kura]

Fair enough !