CONTROLLED GREED.com

First Quarter Ends

I'll try to post results for the blog's stock picks by Monday morning. As regular readers know, I track performance for the picks for the "Life of the Blog" and also for the year to date.

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3i Group Plans on Returning $1.6 Billion to Shareholders

For the third year in a row, 3i Group (III/LN) will be returning substantial cash to shareholders. The amount is 800 million pounds, or approximately US$1.6 billion -- an amount greater than in 2005 or 2006:

"This is larger than previous returns of capital and must be taken as a sign of both a strong full-year 2007 and of optimism for 2008,'' Philip Middleton, an analyst at Merrill Lynch & Co. in London, wrote in a note to investors. He has a "buy'' rating on the shares.

Further down the linked Bloomberg report you'll read a quote from 3i Finance Director Simon Ball:

"Last year was a strong year for realizations and we've seen that continue into this year,'' Ball said. Even after "the return of capital we've made previously, we've still had the opportunity and capacity to extend investment levels by 35 percent.''

And this:

The firm invested 1.6 billion pounds in the first 11 months, up from 1.2 billion pounds a year earlier. It also raised 700 million pounds this month in an initial public offering of a fund that will invest in utilities, schools and toll roads.

3i agreed to buy Enterprise Plc, a U.K. company that lays pipes for utilities, for about 486 million pounds this week. In December, it agreed to buy maritime shipping company Dockwise Transport for about 357 million euros. It was also part of a group of investors that agreed to buy AWG Plc, owner of Anglian Water in the U.K., got about 2.2 billion pounds.

BCE Takeover Speculation

I can't say I viewed BCE Inc. (BCE/NYSE) a takeover target when recommending its shares last August. Then again, any stock we buy could wind up being "in play" if we're correct in thinking it is undervalued.

So while the news that BCE has had talks with buyout firm Kohlberg Kravis Roberts was a surprise -- and a welcome one at that -- we shouldn't say we're shocked.

From the linked Bloomberg report:

Kohlberg executives have met with BCE Chief Executive Officer Michael Sabia within the past two weeks, to discuss terms of a friendly takeover bid, the Globe and Mail said, citing people it didn't name. The New York-based buyout firm has also approached Ontario Teachers' Pension Plan, BCE's biggest shareholder, to be a partner in the deal, the newspaper said. Kohlberg and Teachers teamed up on bids for Shoppers Drug Mart Corp. and Yellow Pages Group LP.

BCE issued a statement that talks are not ongoing with KKR and has no plans to pursue them. Some analysts speculate that BCE management hasn't been thinking in terms of selling the company -- believing their strategy of selling off non-core assets, focusing on strategic businesses and boosting shareholder payouts would eventually lift the stock price.

I agree and that's why I'm a shareholder.

Moreover, KKR's interest is yet more evidence that loads of money is sloshing around out there looking for deals. And that BCE -- one of those boring, old, legacy phone companies -- is a valuable asset after all.

Subprime Lenders

I remember in the early 1990s when the savings and loan crisis was raging. It turned out to be a classic case of investors "throwing the baby out with the bathwater" and dumping S&Ls indiscriminately. Alert value players sifted through the wreckage, scooped up some bargains, and made nice gains.

I wish I could say I was one of them -- but wasn't (sigh).

Reading Gregory Zuckerman's fine piece on New Century in The Wall Street Journal has me wondering how many bargains will eventually emerge among subprime lenders. Or could it get so bad that the stock prices of all lenders get slapped down -- and the key ends up being separating quality lenders from the rest?

No predictions here. Or at least not yet. Just something to keep our eye on.

Motley Fool: ArmorGroup International Profiting From An Insecure World

The UK version of The Motley Fool has an article touting ArmorGroup International (ARG/LN or AMGPF/OTC). The writer is John Walter, who, in addition to having a smart first name, is also a shareholder. ;-)

After discussing company prospects in Iraq, he broadens the scope:

The outlook in the rest of the world is also good. The reconstruction effort in Afghanistan will need high levels of security. ARG has a countrywide presence with a large base in Kabul and will profit as contracts get awarded to rebuild the country's infrastructure.

Elsewhere, attacks on foreign oil companies have increased in the last year in Nigeria and Algeria. And the recent kidnapping of British Embassy officials in Ethiopia underlines the security problems facing companies operating in unstable parts of the world.

I think I read a report last week that Nigeria has seen as many kidnappings (or perhaps it was attempted kidnappings) in the past 15 months as it had in the previous 15 years.

There's a growing need for private security services. There's no guarantee ArmorGroup will get its share of the business. But the group is slightly ahead of last years pace in winning contracts.

Eveillard Re-Enters

Those of us who appreciate value investors with top-notch long-term track records are cheering the news that Jean-Marie Eveillard is coming out of retirement. Eveillard is taking back the helm of the First Eagle funds after the sudden -- and unexplained -- departure of Charles de Vaulx.

As Murray Coleman of MarketWatch reports:

Eveillard, 67, was named Morningstar Inc.'s International Stock Fund Manager of the Year in 2001. In 2003, he received a Lifetime Achievement Award from Morningstar for building one of the most successful long-term records in the mutual-funds industry.

"I came back because [Arnhold and S. Bleichroeder Chairman] John Arnhold asked me for help," Eveillard said in a telephone interview from his New York headquarters. "I was in Europe and got a call out of the blue. I was very content and happy in retirement."

He added: "This is my baby, so to speak. I had been running the old fund that goes by the name of First Eagle Global for 26 years. So I felt responsible since there appears to be a need for me to help."

In the late 1990s Eveillard had some investors leave his funds because he refused to buy overvalued internet stocks. He got the last laugh and the hipsters leaving went on to lose most of what they had. Or they did assuming they put their money where their mouths were.

Remember, whenever you hear people saying things like, "you have to be in these stocks," you don't. And nearly always shouldn't.

ArmorGroup Making Gains

As you may know, ArmorGroup International (ARG/LN or AMGPF/OTC) reported unaudited preliminary results for 2006 last week. The company achieved strong revenue growth driven by successes in diversifying its business.

The overall positive performance was offset by the lack of US and Iraqi funding for training, which led to the underutilization of ArmorGroup's Iraq training facility -- which lowered the year's profit.

Still, ArmorGroup's business in Iraq grew. And the really good news is that growth in Afghanistan, Africa and South America increased by 107%.

Moreover, Iraq accounted for 49% of revenues in 2006, down from 59% in 2005. Progress in diversifying away from Iraq -- while growing the business there -- is being made.

Company management believes the private security business is coming of age. They have reason for optimism. Research company AMR International estimates the private security business grew 8% last year to become a $2.6 billion industry -- with the majority of growth outside of Iraq.

ArmorGoup was recommended on Controlled Greed.com last September at US1.03. The stock ended Friday at US1.88 -- a gain of more than 82%. It also currently yields about 3%.

Anyone buying or selling this stock needs to be careful. One day last week it traded more than a million shares in London. Then another day it traded just over 5,000 shares.

Interview with Templeton's Everett

Jeff Everett of Templeton was interviewed by Paul Kangas on Friday's edition of the Nightly Business Report on PBS. I'm surprised that Everett thinks the US market is undervalued:

KANGAS: But have U.S. stocks since this rally occurred become fully valued now?

EVERETT: They have not. U.S. valuations are at 10-year lows and I think it's important to put that gain in perspective. The U.S., over the past three years, is actually one of the three worst-performing markets in the world Paul.

The other two markets are Thailand and Taiwan.

Reviewing the stock picks Everett made in a previous visit to the show -- which did well -- Everett said he'd still buy Merrill Lynch and News Corp. He then named three new stock picks -- Microsoft, Oracle and a Taiwan-based company called Lite-On Technology.

With all the billions of dollars Templeton manages, I can't say I get a lot of specific investment ideas reading Everett or Mark Mobius. Yet the Templeton people operate globally, with people on the ground around the world, and their views are always worth considering.

3i Group Boosting Asian Investments as much as 78% in 2007

Bloomberg reports that 3i Group (III/LN), Europe's biggest publicly traded buyout and venture capital firm, plans on boosting investment in Asia by as much as 78% this year. As posted here previously, 3i will also be seeking controlling stakes in companies it invests in:

London-based 3i's total spending in the region will rise to between $700 million to $800 million a year as it focuses on buyouts and infrastructure projects, shifting from a strategy of acquiring minority stakes in companies it expects will grow, Chris Rowlands, managing partner for Asia, said in an interview.

"To date our strategy has been growth capital, where we're investing minority shareholdings in fast-growing businesses,'' said Rowlands, who moved to Singapore from London in January to become 3i's first managing partner based in Asia. "We will more formally develop our buyout business in the near future.''

This further down the article:

"Southeast Asia is where we're hunting feverishly at the moment,'' Rowlands said. "I would expect over the next six-to-12 months to have some success with that.''

Regular readers of Controlled Greed.com know I respect 3i CEO Phil Yea and his management team immensely. They're a shareholder-friendly bunch. I bought the stock in 2005 partly because of its competitive advantage doing small-to-medium sized deals in the UK and Continental Europe. Finding out that 3i has since also become a smart way to play growth in places like Mainland China and India is icing on the cake.

Southeastern Says Citi Bid Too Low

Count Southeastern Asset Management among those saying Citigroup's increased takeover bid for Nikko Cordial (NIKOY/OTC) is still too low. According to Bloomberg, Southeastern owns 6.6% of Nikko:

"We have increased our appraisal of Nikko Cordial above our initial assessment of 2,000 yen per share,'' said Mason Hawkins, chief executive officer of Memphis, Tennessee-based Southeastern Asset in an e-mailed statement.

Things have been, and remain, interesting with this story.