Investment decisions

MORAM – 1Q21 Comments

The portfolio during this first quarter has followed the same strategy we decided when the vaccine announcement, last 9th  ​November 2020. Since then, the portfolio strategy has been focused on small caps and mainly value stocks. We are not a big fan of having only growth or value companies. We prefer to balance both weighting more the one we believe is in a better place to achieve higher returns based on the market situation. Same with small caps, we believe they are the best player for the early stage of the recovery stage (economic cycle).

The main protagonist in this period has been the energy sector (along with other cyclical), which is the sector with a higher weight in our active portfolio. We started the year owning Golar LNG, New Fortress, Cheniere, Greenalia and Grenergy within this sector, and during the quarter we added Repsol, Bonanza Creek and Ring Energy. The last one only for a few days. Apart from companies in this sector, the portfolio is also composed of Facebook, Gigas Hosting, Macerich and Italian Wine Brands.

The energy-related stocks

Probably the most important event for the portfolio happened on the 13th of January when New Fortress (+392%) bought Hygo (Brazil terminal and Power Plants business) and Golar Partners from Golar. NFE paid them 18.6MM shares (9% of NFE) +$131MM in return. Consequently, we decided to sell New Fortress as it was more overvalued than Golar and by owning Golar we maintained our exposition to New Fortress. Our view regarding this holding is clear, once the short-term risk has been mitigated thanks to these transactions (Now, if Golar needs money, it can sell NFE shares), we will wait for Hilli train 3 news or some hints regarding FLNG plans.

After the long run for all stock in the renewable sector, we sold Grenergy (+253%) as we thought it was highly overvalued and decided to keep Greenalia (I publish an article in Rankia – Spanish – explaining the reasons why I think Greenalia is a company to invest in). Greenalia has just released its “Resilience” plan for 2021. As expected, this is not going to be a year of huge advances for the company, they will put into operations 3 wind farms at the end of the year (27MW). Greenalia is expected to leap into the “Mercado continuo” in 2022. Currently, it is in the BME Growth (for small companies) where the visibility for the big institutional investor is very low. Greenalia is one of the main positions in the portfolio and we see it as a company to keep at least 3-5 years. Its return so far this year has been -9%.

Another significant position is Cheniere. We had maintained Cheniere over the 3 months, which has increased considerably its share price. Cheniere is a quite predictable company, it has 2 liquefaction terminals with take or pay contracts for 25 years. We bought this company on average of $47 and our target price is $85, as it is a very predictable company, to make some money waiting for this price, we have sold some covered calls.

Let’s talk a little bit about oil, which has been one of the most notorious January was a very bullish month for oil, we played the oil rise through Ring Energy. We had spent a lot of time analysing this company. It is full of debt, so it was simply perfect to play this specific game (When oil rises steady, leveraged companies perform very well). We held the company for 20 days and it went up 135%. In the same period, we also opened positions in Repsol and Bonanza Creek, which despite being up 16% and 52% since then, we hold.

The plan in relation to the oil sector is clear. We firmly believe that we are at the beginning of an inflationary period. In which oil, along with other commodities, should continue rising for a while. We are going to maintain the position in these two companies if WTI is over $50 (Brent usually is 6-10% higher) as both of them are profitable. TP €13 and $48 with current oil prices.

Companies in other sectors

Facebook has the smallest weight in the portfolio. It has performed well enough (+8%) and at some point, is a counterbalance for the portfolio itself. We have a positive view of the company in the long term and if it isn’t strictly required because the options in other companies are exercised and we would need liquidity, it will continue in the portfolio. At the beginning of the quarter, we sold Mastercard. It was the other large tech company position we held. It had had an important revalorisation and we needed to rotate into oil companies.

Gigas Hosting had a pretty intense four-quarter last year and it has started this 2021 losing around 8% of its value. It is going to take time to put together Oni and the clients’ portfolios that they acquired. Moreover, Gigas bought another company on the last day of the first quarter. It has also a small weight and we think that it is worthily to keep the company in the portfolio and simply laissez-faire its project.

Macerich would deserve an entire chapter for itself. It was the first acquisition of the year, €10.55. Then the famous GME short squeeze happened and Macerich (as it had 54% short positions) got affected. The stock reached $24. Unfortunately, at that time we were moving to Interactive Brokers, so we could not sell the shares. And currently, they are in the $12 zone again. As it is a highly volatile stock, we are playing with calls ($20) and puts ($9) to try to increase substantially the return. Macerich is a Retail REIT with very good assets, although it has considerable debt. The company is giving some steps to fix that, it did a 22.5% AK at $13.54 and sold a shopping centre last week. The path ahead is not going to be easy for them as Retail REITs recovery is not expected in some years. But we believe that it is an interesting place to obtain substantial returns in the near future.

Our last acquisition was Italian Wine Brands. It is an acquisition that probably we would have done 5 years ago as the stock had gone up 90% in a year when we bought the shares. However, the EBITDA and net profits also went up around 80%. We believe that IWB has a huge competitive advantage in term of e-commerce against the rest of the sector. The company is well managed, and it is expected to be involved in M&A activity. We bought that at €24.6 and it has risen around 20% in these 3 weeks. We believe it is still cheap.

Summary

Overall, it has been a good quarter, almost all of the holdings went up (8 out of 10 + Ring Energy rockstar performance). We changed a bit our exposition from growth to value. However, since the Hygo event, the performance of our main holding (Golar) has had >85% correlation with NFE, which is a growth company. In the short term, we are looking at some interesting opportunities (equities and options) in new sectors to take advantage of the potential inflation. Samely, we are hedging a little bit our exposition to oil.

Regarding our main holdings, it will be a decisive quarter for Golar as it has to sign the deal with NFE. Then, the decisive 90 days lock-up period will start and we hope Golar will be able to sell NFE shares in the $50 range. We are still waiting some Hilli T3 news but probably it will happen in 2H21. Greenalia is expected to have a quite year and we will continue taking advantage of price to increase our exposition. We will hold Cheniere until it arrives to the target price or situation change dramatically. Bonanza and Repsol will be up to the price of oil. Probably we increase exposition to IWB depending on the M&A deal they sign in the coming weeks.

Concerning our other assets, we have increased our positions in the Ishares developed Real Estate index fund and opened a new one with pure exposition to Pacific ex-Japan (Ishares). We also increased slightly our strong position in the Emerging markets Asia and Global Small Caps. Moreover, we maintain a minimum exposition to Crypto through Ethereum and Cardano.

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