Tuesday 4th November 2008
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The investment company benchmarks itself against the NZSX SmallCap Capital Index and said the decline in its NAV exceeded the 5.2% slide in the index, reflecting a drop in the value of holdings including New Zealand Oil & Gas and Energy World Corp.
While the company has increased its holdings of cash to 16% of its total portfolio, many stocks that meet its criteria are "currently trading at deeply discounted valuations that do not reflect their underlying fundamentals," it said in a statement.
"We have been positioning the fund to acquire selective assets with good long-term capital growth opportunities and attractive dividend yields at what we believe to be bargain basement prices," the company said.
New Zealand Oil & Gas is Salvus's biggest investment, amounting to 17.6% of its portfolio. The oil company's shares have declined 20% in the past three months, lagging behind the SmallCap index's 14% drop. Tap-maker Methven, its second-biggest holding at 17.4%, has shed about 10%.
The decline in NZOG's stock price "is discounting very bearish long-term oil price assumptions" and ascribes little value to the company's Tui and Kupe projects, it said. NZOG's stake in Pike River Coal and cash holdings of some $245 million account for about 85% its current stock price.
Energy World Corp., which makes up 8.9% of the portfolio, has tumbled 40% in the past three months. The slump reflects global financial turmoil rather than any change in the company, Salvus said.
Its LNG assets are likely to benefit from longer term demand from China and EWC is well placed to benefit from its gas reserves in Indonesia and Australia.
Shares of Salvus were unchanged at 78 cents and have fallen 11% in the past three months, outperforming the SmallCap index. NZOG stock fell 1.5% to $1.30 today and EWC was unchanged at $1.45.
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