Azvalor Blue Chips FI (Trades, Portfolio), a new fund under Azvalor Asset Management, has now been added to GuruFocus. The fund’s top trades in the first quarter included new buys into Endeavour Mining Corp. (TSX:EDV, Financial), Kinross Gold Corp. (KGC, Financial) and Borr Drilling Ltd. (BORR, Financial) alongside an addition to its Cabot Oil & Gas Corp. (COG, Financial) holding and a reduction in its OCI NV (XAMS:OCI, Financial) position.
Azvalor Blue Chips FI is a fund that invests mainly in international companies, with at least 75% of this exposure in companies with high market capitalizations, with prospective appreciation over the long and medium term and without preference for a particular sector or country. It is principally invested in OECD issuers/markets with the possibility to invest up to 35% of the total exposure in issuers/markets in emerging countries.
This fund follows the value investment philosophy, which means buying, with a long-term vision, companies at a price below their intrinsic value. The objective is to obtain a satisfactory return, sustained over time. This is a fund that is closely connected to its managers, Álvaro Guzmán de Lázaro and Fernando Bernad, whose substitution would imply a change in the investment policy. The fund’s management objective is to achieve a sustained and satisfactory profit over time, making this fund suitable for investors that have no short-term liquidity needs and with a long-term investment horizon.
Portfolio overview
The fund’s portfolio contains 38 stocks, with three new holdings established during the first quarter. It is valued at $31 million and has seen a turnover rate of 24%. Top holdings include Tullow Oil PLC (LSE:TLW, Financial), NOV Inc. (NOV, Financial), PrairieSky Royalty Ltd. (TSX:PSK, Financial), Newmont Corp. (NEM) and Barrick Gold Corp. (GOLD).
By weight, the top three sectors represented are energy (51.77%), basic materials (37.44%) and consumer defensive (7%).
Endeavour Mining
The fund established a new position in Endeavour Mining (TSX:EDV, Financial) during the first quarter with the purchase of 69,783 shares. Throughout the quarter, the shares traded at an average price of 26.57 Candian dollars ($21.84). Overall, the new buy had a 3.93% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 13.59%.
Endeavour Mining engages in gold mining, operating four mines in West Africa in addition to having project development and exploration assets. It focuses on effectively managing its existing assets to maximize cash flows as well as pursuing organic and strategic growth opportunities that benefit from its management and operational expertise. Its operations are held in Burkina Faso (Karma, Hounde, Mana and Boungou mines), Cote d'Ivoire (Ity mines) and Mali (Kalana Project). The company generates maximum revenue from Burkina Faso.
On June 11, the stock was trading at CA$30.18 per share with a market cap of CA$7.62 billion. According to the GF Value Line, the stock is trading at a modestly undervalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rank of 5 out of 10. There are currently three severe warning signs issued for a Beneish M-Score indicating the company may manipulate its financials, declining revenue per share and an Altman Z-Score placing the company in the distress column. A medium warning sign for operating income loss is also present and the company has struggled to maintain a return on invested capital that supports its weighted average cost of capital in past years.
Cabot Oil & Gas
The fund’s Cabot Oil & Gas (COG, Financial) position saw a boost with the addition of 61,139 shares that traded at an average price of $18.41 throughout the quarter. The position grew by 182.08% with the addition and GuruFocus estimates the fund has lost 1.87% on the holding. The portfolio saw a 3.09% impact overall from the addition.
Houston-based Cabot Oil & Gas is an independent exploration and production company with operations in Appalachia. At year-end 2020, Cabot's proved reserves were 13.7 trillion cubic feet equivalent, with net production that year of approximately 2,344 million cubic feet of natural gas per day. All of Cabot's production is Marcellus dry natural gas.
As of June 11, the stock was trading at $17.31 per share with a market cap of $6.94 billion. The shares are trading at a modestly undervalued rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 8 out of 10. There is currently one severe warning sign issued for declining revenue per share. The company’s cash-to-debt ratio of 0.16 ranks it lower than 68.69% of the oil and gas industry as cash levels have decreased in recent years.
OCI
The fund slashed its position in OCI (XAMS:OCI, Financial) by 91.1% with the sale of 49,433 shares. During the quarter, the shares traded at an average price of 18 euros ($21.79). GuruFocus estimates the total gain of the holding at 64% and the sale had an overall impact of -2.92% on the portfolio.
OCI manufactures and sells a variety of fertilizers and natural gas-based chemicals. The firm organizes itself into five reportable segments based on product type and location. The methanol U.S. segment distributes methanol and ammonia primarily to industrial customers around the U.S. Gulf Coast. Methanol Europe produces and distributes regular and bio-methanol. Other segments include nitrogen U.S., nitrogen Europe and fertiglobe, which is a nitrogen fertilizer platform serving the Middle East and North Africa. The company generates most of its revenue from Europe and the Americas.
The stock was trading at 22.20 euros per share with a market cap of 4.66 billion euros. The GF Value Line gives the shares a fair value rating.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 5 out of 10. There are currently three severe warning signs issued for a declining gross margin percentage, poor financial strength and an Altman Z-Score of 0.43 placing the company in the distress column. The company has maintained relatively stable revenue over the last decade, but has seen net income fall into negative values as their profitability has struggled.
Kinross Gold
The fund established a new position in Kinross Gold (KGC, Financial) with the purchase of 150,959 shares. The first quarter saw the shares trade at an average price of $6.96 and the purchase had an overall impact of 2.71%. GuruFocus estimates the fund has already gained 12.36% on the position.
Kinross Gold is a Canada-based senior gold producer, producing roughly 2.4 million gold equivalent ounces in 2020. The company had 30 million ounces of proven and probable gold reserves and 59 million ounces of silver reserves at the end of 2020. It operates mines and focuses its greenfield and brownfield exploration in the Americas, West Africa and Russia. The company has historically used acquisitions to fuel expansion into new regions and production growth.
On June 11, the stock was trading at $7.84 per share with a market cap of $9.87 billion. According to the GF Value Line, the stock is trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 3 out of 10 and a valuation rank of 7 out of 10. There are currently three severe warning signs issued for days inventory building up, a Beneish M-Score indicating the company may manipulate its financials and an Altman Z-Score of 1.52 placing it just inside the distress column. Despite the poor profitability rank, the company’s operating and net margins exceed the majority of the metals and mining industry and set the company apart from its competitors.
Borr Drilling
The third and final new addition to the portfolio for the first quarter came from Borr Drilling (BORR, Financial). The fund opened the position with 979,883 shares that traded at an average price of $1.10 during the quarter. The fund has taken a loss of 14.69% on the holding so far and the equity portfolio saw an overall impact of 2.54% from the addition of the new holding.
Borr Drilling is a drilling contractor that owns and operates jack-up rigs of modern and high-specification designs, providing drilling services to the oil and gas exploration and production industry. The company operates a fleet of 16 jack-up drilling rigs. Geographically the activities are carried out through Norway.
As of June 11, the stock was trading at 94 cents per share with a market cap of $255 million. The GF Value Line shows the company is a potential value trap, so investors should think twice before purchasing shares.
GuruFocus gives the company a financial strength rating of 2 out of 10 and a profitability rank of 1 out of 10. There are currently three severe warning signs issued for new long-term debt, poor financial strength and an Altman Z-Score of -0.45 placing the company deep into the distress column. At this point in time, the company has failed to report positive net income and cash flows.
