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Sat 3 Jan 2015 09:19 AM

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Forecast 2015: Mishal Kanoo

Mishal Kanoo says those who can spot the hidden gems will reap the long-term rewards during this year

Forecast 2015: Mishal Kanoo
Cycle: People should not be fooled by the oil price drop, Kanoo says.

Every once in a while the sea spits out a rare pearl hidden inside of an oyster. Those in the know understand that the oyster is but the protective shell that hides the gem. For others, it is just an oyster and there will be many others like it. The difference between grasping an opportunity and wasting it is simply a case of knowledge.

I have come across enough opportunities in my investment lifetime to know on what to focus. As a small-time investor, I try to look at the bottom dollar. That is to say that I am buying a tarnished name with a long-term positive outcome. But the ones that I wish to talk about here are those that are on a governmental scale.

One day, while reading the wires, I came across a story of a gem that was too good to pass over but sadly of the scale and size that I, as an individual, couldn’t swallow. It seemed that Forbes magazine was put up for sale. The asking price was about $400m.

In terms of finance, I sincerely doubt it is worth that. But it is not the financial value that I was looking at. It was the name that could be used to influence a global audience. I immediately mentioned this to a friend who works within one of the federal authorities companies that should be interested in this to please take a look at this and try to convince his bosses that this is a gem that they should not miss. They looked at it but they passed. They did this because they were more interested in the financial side of the investment rather than the potential media window that they would command from it. In the end, a Hong Kong-based company bought 80 percent of the company for $300m. China won. We lost.

Now a potential giant in the oil service business is also up for grabs. It is a name that anyone connected to the oil industry will know, given that it is a standard bearer in the Middle East when it comes to must-have names to work with. It is McDermott International. It is a public listed company that has a market value of below $700m as I write this today. This is a very strange situation because this valuation is not reflective of a company that has a cash reserve of $700m, a backlog of over $4.9bn and an enterprise value of $1.4bn after all debt.

When you consider it compared to its peers, you can tell something is off here. However, this is not the point. I wrote all this to show what a gem it is financially. But in this case, it is also a gem in more than that. This is a company that one of the Gulf states’ official petroleum companies should own and immediately become a world player in the oilfield supplier universe.

This would be the equivalent of buying, in football terms, Messi because he is sick. You know his value when he will get better and unlike in the football scenario, the company will get better. Don’t be fooled by the oil price drop. This is but a temporary situation that will correct itself sooner than you think. I say this not because I can read the future. I say it because I can read people. And the people in the know want the price of oil to rise soon, so it will.

If no governmental body wants to benefit, it surely must be a good enough opportunity for a private equity firm to take it private. Clean it up and help it flourish. The reason it will flourish in that situation is that the owners, the private equity company, will likely give it more time to focus on long-term results rather than the short-term ones. In a business that is cyclical the way the oil business can be, having long-term minded people oversee the operation will reap gigantic results.

The point is that it is not every day these opportunities pop up. We can search for years and nothing will show up. When they do, and they will, we must be ready to take full advantage of them even if they look shabby. Remember everyone wants the Van Gogh painting today. But how many wanted his works when he was alive? Those who understand the hidden gems are the ones who will reap the benefits of their knowledge.

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Maheen Mohamed 5 years ago

Brilliantly written as usual Mr Kanoo. Love reading your so "tongue in cheek" articles and am sure that many reading the same will have something to think about (constructively) for a long time. You do come up with GEMS.

Parvaiz Ahmad Wani 5 years ago

A Gem of a piece!

Shailendra Vasant Asodekar 5 years ago

I worked for Kanoo group KSA. A well written eye opener indeed Mr. Kanoo coinciding with famous Buffet strategy- Buy when people are fearful, Sell when people are Greedy! Although I came across your article little late, but can feel your desire and intellect that can be real mentor-ship to new generation. Opportunities are unlimited. Very important is how quickly someone embarks on it. May it be wisdom, calculation, foresite that China has done. Was that impulsive? Or was the looser so defensive is a matter of time and phase which an entity is passing through. But only a sustainable leadership embracing a change, innovation with above written intellectual analytic can stand in. This can even be more beneficial to country and economy to generate FDI and employment. Money saved is money earned could be the traditional thesis. Your article has clearly raised an alarm and dictated strategies going ahead!