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Portfolio matters: Harry punts on Gowings

Many of the better traded mutual funds and investment companies such as Milton Corp and Argo Investments are trading at a premium to their net asset backing. Typically, listed investment companies of this type have traded in the past at a discount to their net asset backing for much-discussed reasons.

An investment company that does trade at a substantial discount to its declared asset backing is Gowings Bros Ltd. Currently it is selling for $2-78 per share while its stated asset backing per share (inclusive of unrealised capital gains) is $3-42, a discount of about 23%. Gowings used to run a retail business in the centre of Sydney (I recall the ‘no-one asked to buy’ slogan during my youth) but the retailing business has fallen on hard times and Gowings is now almost entirely an investment company with over $138 million invested in shares and property.

The asset backing of Gowings has recently grown rapidly. The increase has again been driven by strong growth in the equity portfolio, which has increased by 28.8% on an annualised basis over the past six months. This growth was underpinned by holdings of BHP, RIO and Woodside, which benefited from increased commodity and oil prices.

Its not going to set the world on fire but Gowings does look like an undervalued stock in a generally pricey stock market.

For my amusement let me imagine I bought 10,000 Gowings Bros shares at the closing price of $2-78 today. With brokerage of $100 that would cost me $27,900.

I’ll build up a nominal portfolio over the next year of around $100,000 and see if I can beat the stock market average. The All-Ords closed today at 4817.749. I’ll think about other stocks as the year unfolds and try to focus on how I think interest rate hikes in the US economy might drive the Australian market.

Currently my portfolio stands as:

Gowings Bros $27,800.
Cash at bank $72,100.
Total value of portfolio $99,900.

Disclaimer: I am not suggesting anyone follows any stock market move I make. I may myself have holdings in a company I include in my nominal portfolio. Its for fun only and intended to focus my brain on what is happening in financial markets.

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