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Not too long ago, I said I trimmed my position in Centurion Corp.
If you don't remember or if you missed it, see:
Reallocate as interest rate rises.
Centurion Corp. is now one of my smaller investments because I went on to trim my position further as its share price rose in recent days.
My investment in Centurion Corp. was no longer one that gave me peace of mind and, hence, the decision.
I am just being consistent as I said before that if I keep thinking about an investment and not in a good way which means I am worried, then, I am probably over invested.
I am feeling pretty good now with a smaller investment in Centurion Corp.
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| Source: AK asks 2 questions. |
My investment thesis of so many years ago is now being brutally challenged.
In a rising interest rate environment, it makes sense to me that highly leveraged entities will find it more challenging to bring home the bacon but if they could increase their income while controlling other costs, it is not too bad.
However, if they have regulatory issues which could impact their income negatively to deal with, then, the picture becomes hazy and I feel that this might be the case with Centurion Corp.
I invested in Centurion Corp. primarily for income but with interest rate going higher and, more importantly, regulatory issues regarding PBWA capacity, it is less certain that the dividends which I expect from the investment are going to be sustainable or even forthcoming.
Already, the number of beds are reduced in certain assets and we could see the same thing happening in other assets in the not too distant future which would also require additional CAPEX when Centurion Corp. is already lacking a strong balance sheet.
As an investor for income, if I could get a dividend yield of 4.5% or so by investing in the local banks which should also enjoy a strong tailwind from rising interest rate, the case for investing in Centurion Corp. for income weakens considerably.
Investing in Centurion Corp. for income now only becomes a superior strategy if it can pull off a Saizen REIT and long time readers of my blog would know what I am talking about.
Saizen REIT was trading at a big discount to NAV too but the REIT was also consistent in distributing meaningful income while Centurion suspended dividends for two years and could do so again.
Saizen REIT was also selling their buildings at a considerable premium to their valuations which confirmed that the REIT was truly undervalued.
Centurion Corp. could unlock value by selling some of their assets just at valuation and that would unlock lots of value since its common stock is trading at such a huge discount to its NAV per share.
As interest rate rises, cap rates should expand and that is when we could see asset valuations declining.
Still, with such a big discount to NAV and if the valuations are credible, value could be unlocked for shareholders through a partial sale of assets even at a slight discount to valuations.
If this were to happen, then, I would have made a mistake by significantly reducing my exposure to Centurion Corp.
This is why I retain a smaller investment in Centurion Corp. so that I would suffer a weaker form of seller's remorse in such an instance.
Well, I am only human and can only do what I feel is right for me.
Don't play play and anyhow follow.
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5 comments:
Dear AK
I had a tiny holding that I sold early in 2020 at a tiny profit and never looked back
As you rightly point out, there are other relatively more appealing options for income rather than this with similar or significantly lower risks like our banks
The banks worldwide are falling every week and offer enticing yields with prospects for capital appreciation
I would say that the fear of recession is giving cause for uncertainty and this is an opportunity for long term investors who are patient
I will add banks any day than this one
Regards
Garudadri
Hi Garudadri,
There is still a chance that we could see value unlocked in Centurion Corp.
However, we have to ask if the cost for waiting is acceptable especially when there is risk now that such cost could go up.
The low interest rate environment in the years before as well as the absence of COVID-19 pandemic measures made being paid meaningfully while we waited pretty attractive.
Things are different now.
Many investors believe that we are in a bear market rally which is bound to fizzle out at some point in the weeks ahead.
Keeping some powder dry is not a bad idea because no one knows if the stock market has really bottomed.
Hi Ak47 (71)
You are right, keeping dry powder is not just for bottoming market. If the bearish sentiment were to materialise( recession), then dry powder is essential moving forward.
Hi STI,
Hope you don't mind the short form I am using as I rather like it. ;)
As for me, just AK is fine because people always get 47 and 71 mixed up. (TmT)
I don't want to get dry powder mixed up with emergency fund which is what I think you are alluding to.
Whatever it may be, definitely important. :)
Reference:
Survivability and opportunity in times of distress.
Blogger lbs said...
Hi AK,
would you have any comments regarding the dividends recently declared by Centurion?
I find them to be disappointing for the following reasons:
a) executive director (and ceo, whom isn't a director) has increased remarkably from 2020 to 2022.
b) in terms of income and free cash flow, the company actually did better y-o-y.
I wonder if there are any blind spots in my assessment. You mention that it is underperforming in your portfolio; I could only assume that it refers to its share price. The business, as the numbers suggest, seems to be thriving.
Centurion is a substantial investment of my portfolio and I intend to question management about it.
March 27, 2023 at 9:24 PM
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Blogger AK71 said...
Hi lbs,
I was pretty disappointed with Centurion Corporation when they did not reward shareholders with a larger dividend although they emerged financially stronger from the COVID-19 pandemic.
Loyal shareholders who stuck with them without any dividends for 2 years during the pandemic did not get any appreciation. Sadness.
I was also very concerned with their high level of debt in a rapidly rising interest rate environment.
So, I aggressively reduced my exposure in the middle of last year and used the funds to increase my investment in OCBC instead.
Centurion Corp still seems like a pretty good business, to be honest, but from an investing for income perspective, it just isn't that attractive to me anymore.
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