Quick Aimia Thesis Update + Macro View
After posting our Aimia ($AIM.TO) thesis in December 2021, we wanted to keep readers up-to-date.
Aimia Thesis Update
$AIM.TO has appreciated to just under our target of $5.80 to $7.00 and has generated a c. 20% return over 2 months. Given the macro situation, detailed below, and the uncertainty on how the cash generated from the PLM sale will be used; we have now exited this position.
Few closing points on $AIM.TO:
PLM sale is all but publicly confirmed. Just waiting on the press release.
We are now more anxious about how the cash from the PLM sale will be used given the recent, but small, $10m added to $AIM.TO’s Kognitiv holding. Link
Some of $AIM.TO’s growth investments look less attractive now than in December, which puts more strain on the Sum of The Parts valuation.
Thus leading to our decision to exit the position, which was only ever intended as a very short term specials situations play
Macro
We don’t claim to be Macro experts, but… we thought it might be helpful to share our views at this stage to set the scene for our future investment research posts.
Clearly everyone is talking about inflation, interest rate hikes and Quantitative Tightening (QT). While no one knows what is going to happen, there’s clearly been some large shifts on what has happened in the last few weeks / months.
Our conclusion is that our strategy is well suited for this environment as long as we carefully chose Special Situations and defensive stocks that are relatively uncorrelated with the market. And we will aim to avoid those that are reliant on the economy continuing to boom.
Instead of giving our thoughts on this topic, it’s best to redirect you to a couple of fantastic Macro articles we have found very useful, written by true experts in the field.
The Macro Compass article on yield curve inversion ( Link ), is well worth a read.
Quick summary on the article, mostly for our own benefit:
Why yeild curve inversion is about to happen and what that implies:
Given FED hawkish messaging and potential for multiple future rate hikes within the year, it has lead to the market assigning higher probabilities to higher short term rate hikes, which is being captured by the forward looking OIS (Overnight Index Swaps) index. This forward looking index has narrowed the yield curve spread between shorter and longer dated debt (5y to 30y) to just 16bps. So we are on the verge of an market implied yield curve inversion. With the inversion meaning, the yield on shorter dated debt is higher than longer dated.
When a yield curve inversion happens, it correlates very highly with a sharp economic downturn. There are two impacts of a yield curve inversion:
1 - It makes the marginal cost of refinancing short term credit go up.
2 - This causes a slow down in growth prospects, and may cause some deleveraging in the private sector.
These two factors cause a vicious cycle. "So an inverted curve doesn't just predict slowdowns, but often contributes to them" - Alf.
And another great podcast on QT, which is well worth listening to is:
We are working on couple of new ideas, and will them share with you all soon!
Disclaimer:
Nothing here is investment advice. Do your own due diligence. We will never give any investment advice on this website. We may choose not to update this idea in the future, so don’t count on us to provide updates. We welcome feedback good and bad. Thanks for reading!
Special Situations Global Equities has a small position in $NTP common stock.
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