Hidden Debt and Accounting

Investors usually scan the liabilities section of the balance sheet for labels such as debt, notes payable and loans to gauge a company’s leverage. For retailers, many also consider operating lease liabilities, which appear on the balance sheet but are usually excluded from debt figures. However, there is another debt-like obligation that rarely carries any of these labels: the supplier finance program, also called reverse factoring or supply chain finance. If used aggressively, it can make a company look less leveraged and more cash-generative than it really is.

Watkin Jones (WJG)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price

- Warren Buffett (source)

I think this idea travels well to the UK homebuilding sector, which has been going through a rough stretch that's left most homebuilders trading at depressed valuations. One example is Watkin Jones (WJG). At the height of the 2022 bull market, the stock traded as high as £ 268p. It recently changed hands at £ 18.4p — well below its tangible book value of roughly £ 44.4p per share.

Investment Process: Management and Board - Part III

This post is the third in a series, following Management and Board – Part I and Management and Board – Part II. As a reminder, the objective is to highlight a few underappreciated governance features that I have found particularly useful when evaluating management teams and boards—and determining whether they are the right long-term stewards of shareholder capital. These should be interpreted as indicators rather than definitive conclusions.

The Hidden Leverage in Insurance: A Dual-Engine ROE Machine

What if the most powerful form of leverage requires no debt at all? Consider the case of an insurance company which usually has two businesses operating in parallel - an insurance operation (underwriting, reserving, and claims management) and an investment operation (deploying premiums into financial assets). While running both efficiently is widely discussed, far less attention is paid to the underlying leverage mechanics embedded in each -- leverage that, when working in concert, can dramatically boost returns on equity.

IG Design Group (IGR): A Boring Business at a Bargain Price

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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I prefer investing in great compounders bought cheaply. But that opportunity doesn't always present itself. More often, it's basic, boring businesses that offer the best value -- and patience is what separates those who capture it from those who don't. IG Design Group (IGR) seems one such situation.