At Pie Funds we don’t always get it right and PS&C Limited is one we got wrong. PSZ, a Melbourne based IT services company listed at a $1.00 in November 2013.
The IPO involved a roll-up of five businesses and a sixth was acquired in August 2014 called Pure Hacking. At the time of listing, PSZ appeared attractive, with earnings anchored by companies operating in the high growth cyber security market, strong inside ownership and an attractive multiple.
PSZ then went on to miss prospectus forecasts and at that time we should have sold, however, wrongly believed it to be to “too cheap” to sell. Mr Market disagreed with our assessment and PSZ sold off. As Dennis Gartman says, “there is never one cockroach!” Fast forward to May 2015 and following a flattering write up by the Eureka report, PSZ was trading in the mid-high 90s. Nearly back to our purchase price! By this point, we had lost conviction in our investment, but we held on because PSZ was still “cheap” and we believed we could milk a couple more cents from our investment.
However, true to form, PSZ delivered full year guidance for FY15 which (again) missed our expectations. Like a party goer when the lights go on, we finally made the decision to completely exit our position during the month. Fortunately the loss is fairly minimal, but the opportunity cost is significant and the lessons plentiful. Investing is simple, but not easy. PSZ is not a bad business, it’s just low quality.
