I’ll start off with this article, where Kerry packer and his group accumulated a huge amount of shares, a 7.25% stake in 2005, despite Goldman Sachs UBS and a few others putting out a strong sell recommendation on the stock- ( I find this funny in hindsight because Goldman who has known to call its customers ‘suckers and Muppets’ might have been buying all along, many of their buy recommendations such as Woodside at 50+ have been the worst performing stocks on the ASX no doubt because when they recommend buy they short sell, and when they say sell, they buy, do this test with a number of stocks and you will understand what I mean.
The group now led by Kerry’s son subsequently sold at a loss in 2008, on the recommendation of UBS, when they were sitting on a goldmine just 1 and a half years later, would have been a better investment than Ten don’t you think James? (James bought $250 million of Channel 10 stock in 2010 and sold half it to his friend Murdoch, and they are both sitting on 60-70million losses on 125 million holdings each according to AFR)
Packer swoops on Iluka http://www.theage.com.au/news/business/packer-swoops-on-iluka/2005/06/19/1119119722540.html By Barry FitzGerald Resources Editor June 20, 2005
Mineral sands producer Iluka Resources and its adviser, Gresham Partners, spent the weekend pondering how to best deal with the revelation that a high-powered investment syndicate had swooped on its share register. Australia's wealthiest man, Kerry Packer, and the Robert Champion de Crespigny-controlled Buka Minerals stunned the market late on Friday with the news that the syndicate had accumulated a 7.25 per cent Iluka stake at a cost of $110 million. Already sporting a $13.3 million paper profit on the stake, the syndicate's immediate intentions are not known. But at the very least, the acquisition of the stake is considered to have put the $1.7 billion Iluka into takeover "play". Buka managing director John Richards made a courtesy call to Iluka on Friday just before the syndicate's substantial shareholding notice was lodged. He would not comment yesterday on Iluka's reaction. It was also a "no comment" on what the syndicate's intentions were, and specifically if it was planning to a make a takeover bid. On whether the syndicate would buy more shares, Mr Richards would only say "if the price is right". The syndicate's substantial shareholding notice showed it held 5.84 per cent of Iluka by last Wednesday. It had boosted the stake to 7.25 per cent by the time the notice was lodged on Friday. Iluka shares raced 11 ¢ higher on Friday afternoon to close at $7.31, valuing Iluka at the near-record $1.7 billion. That is a valuation that most analysts have had trouble justifying in recent weeks. However, valuations in all recent mining takeover battles have been well below the price at which control has changed hands. That was highlighted in the $9.2 billion takeover of WMC by BHP Billiton. It won with a $7.85 a share offer, despite broker valuations before the earlier Xstrata bid of $4.50 a share. Iluka should be no different, assuming a takeover bid emerges from the syndicate or one of the bigger miners - Rio Tinto, BHP Billiton and South Africa's Anglo American. Goldman Sachs JB Were last week valued Iluka at $5.11 a share, with an upside to $6.18. Iluka was trading at $7.20 at the time of the report. "The current Iluka share price . . . is relatively expensive on near term multiples," the broker said.
Fundamentally The fundamentals really speak for themselves, I think Zircon demand has been weak obviously over the past quarter due to fear caused by Macro conditions, I.e. the Euro crisis which China relies on Europe to buy its exports. I believe Iluka will trade in Multiples in years because it is tied to the Chinese, Indian and ‘tiger economies’ there is also from what I’m hearing a lot of demand coming from Iluka’s products in the US. AS China modernises and industrialises, this could result in Zircon seeing even higher prices. I like to also remind people that Iluka is not solely a Zircon stock, titanium dioxide is a high percentage of the company’s earnings yet the market has sold the stock down like it is 100% Zircon. I cannot say enough good things about the management, including David Robb, who I view as one of the best CEO’s I’ve ever had the honour of investing my hard earned cash with. Iluka is the world leader in this industry with the best deposit, another reason perhaps to hold this stock. Short interest It’s clear Iluka has since November 2011 (when they started building their positions) been a target for the hedge funds, who no doubt have insider information regarding Iluka’s zircon forecasts and revenue, as they usually do (look at all the insider trading hedge fund cases in the US). Currently they have as of the 4th of June 2012 [9.79%] of the Market cap short in outstanding positions or $518 million. It is interesting to note that they started to short at about $15-16 a share but in January the Price rose to $19.05, but I have a theory that they might have pumped it to get a higher short position entry. Now we must remember that while $500+ million is short they have will have to cover this eventually, in fact as I’m sure you know some of the ‘less informed’ punters have started to short Iluka hence it rising to 6-7th place on the ASX top short list. As a contrarian when I see clueless people trying to short this stock, it tells me that it is getting closer to the bottom, e.g. Sandune over on TopStocks who shorted the ASX from 3200 upwards to 5000 during 2009 amid the biggest rally the world has ever seen. I feel like we are getting closer to the ‘smart money’ deciding to cover their shorts, an impetus could be more China easing, which just recently occurred in the past week, for the first time in several years. At the very least for holders who want to hold below 11.80 it will cushion the downside when they cover. I’d also like to warn those who are short, that you are late to the party, and face a huge risk if the stock does not break below 11.80 and macro conditions improve resulting in a severe short squeeze as the hedge fund’s cash in their hundred million positions, as they tried to do early May after the outlook announcement, but macro conditions weakened so it looks like they reapplied their shorts.
Big boys are still Long Fidelity and I’m presuming Blackrock have been a net buyer over the past few months, as despite the massive fall in the share price we have only seen one change in substantial holding, and that is by Fidelity who increased their stake in Iluka by a factor of 15-20% or 4million shares. From studying the course of sales the other day when it approached 11.87 on my live Iress screen, and the number of huge buy orders the big boys were laying into the bid side, it tells me that they currently have the algorithms set to accumulate at that level, and thus will vigorously defend it against the short sellers, unless we have a few more 70-100 point down days, but I still think they will put up fierce resistance.
Dividend yield At these prices the dividend yield is massive 7%, which should provide a great long term return on those willing to hold through the short term turmoil provided by the shorts and current less than optimal macro market conditions.
Chart
Conclusion: I like many other posters have held this stock and traded it for some time, my original parcels were bought at $7.00 because I liked the story, I know Lost, Peppie and a few others are old timers and have held it from lower, and thus I have been listening to their comments for some years ( Peppie works in the industry), I sold most of my shares recently at 17.00+ because I noticed just from watching it for a few days the stock was trading very strangely, i.e. it only rose 1cent on an 100 point plus day, which to me indicated it was a sell at that level in hindsight it was clear the short sellers were testing it and preparing for the bad news, as they took it down 7.5% in two days randomly on two green ASX days to test the damage they could do just weeks before the announcement. Kevi at this stage I think it was foolish to go short on Friday particularly over the long weekend , futures are indicative +40 points although we are closed on Monday, it is possible the US could be up again and this could result in a massively green day on Tuesday, although our futures gains could also be lost. I suggest all who want to hold this stock on the long side heed my warning that I feel like 11.80 is a very important level, I have my stop loss set under it, so you must be careful because things could deteriorate very fast if it breaks that level which is the strongest support on a chart I have seen in a while.
Cheers!
ILU Price at posting:
$12.30 Sentiment: Buy Disclosure: Held
(20min delay)