My First Stock: Ezra

The first stock that I ever bought was Ezra Holdings Ltd. I have fond memory of it because it marked the beginning of my stock investing and my first rights issue subscription, I speculated the stock several times, had a roller coaster ride and learned valuable lessons.

Ezra provides offshore services to Oil and Gas industry. Some of the services include chartering of offshore support vessels to those oil drilling operations in the sea, engineering and fabrication works on oil drilling platform, and many others related to oil and gas industry. If after reading the services they provide and you still don’t understand what they do, it’s ok. Just think that as long as other companies are drilling oil, they will engage Ezra for its support services. Therefore, the higher the oil price, the better for Ezra.

I bought the stocks at 0.55 per share on 22 October 2008. The share price was above $1.0 just 1 month before my purchase, and was above $3.0 1 year before that. So, basically, the price had crashed by more than 80% during GFC 2007-2008. The price chart below is for Aug 2003 to Oct 2008.

Ezra - price chart - 2008-10-24

The reason I bought it in late 2008:

  • I thought oil price at that time was still above $50/bbl, way higher than the average from 2000 to 2006. Oil drillers should remain profitable at that price level and would continue drilling. Ezra would continue to have good business and high margin.
  • Oil price fell sharply from the high of 130s. I didn’t know how low it would reach, but I thought, when it reached a new normal, it should be higher than the average of 2000 – 2005.
  • Ezra reported record high revenue and earnings with strong growth for 2007 – 2008. Margins and ROE were very high too. It should be able to continue to earn good profits from some of its existing contracts in short term.
  • Market value of Ezra fell below book value. I thought Ezra’s fixed assets should be worth something. So, P/B < 1.0 looked attractive to me.
  • After learning those value investing concepts from books in 2007, I didn’t dare to buy because all the share prices were at historical highs. So, I waited and waited while seeing my colleague showing me the profits he made from the stock markets. It’s hard to not join the bandwagon, but I held on to the principle that I just learned. When the whole markets crashed in 2008, I took the courage to buy when everyone was in fear.

Crude Oil Price Chart 20Y - 2016-06-30

The chart above is oil price over the past 20 years.

One week after I bought it, the price was down 40%. Coincidentally, my brother had a road accident and was hospitalized for a week. I was concerned more about his injury that my stock loss. The week after that, miraculously, Ezra’s share price rose to 40% above my entry price. My brother was also discharged from the hospital. I felt double lucky and wanted to sell some of the shares to take profit. But, after some thought, I held on.

Stock market recovered from March 2009 onwards. Ezra rose to nearly 2.50 in early 2010. Since everything was right, market was bullish and oil price was rising, I didn’t sell it. The price steadily fell from that point onwards.

Ezra - price chart - 2016-06-30

In late 2010, Ezra had rights issue at the price of 1.18 per share. I was pissed because it was way below the share price of 1.60 – 1.80 at that point. The rights issue price was telling me that the current share price was overvalued. Nevertheless, I subscribed to the rights issue, but the rights issue price was always in my mind.

I speculated in this stock twice. On 10 February 2010, I bought more shares at 2.23 and sold them at 2.27 two days later. I kept my original lot that I bought in October 2008. Mentally, I was treating the two purchases as different trades. The original trade for long term investing and the quick trade for speculation.  In November 2010, I bought more shares at 1.67, and, luckily sold them at 1.74 one month later.

In August 2011 stock market selloff, I bought more shares at 1.02. Again, I thought when the market was fearful, I should buy and I did just that. The selloff lasted for only a few months, and oil price rose to $100/bbl afterwards. But since then, Ezra’s business deteriorated. While revenue continued to rise, the costs and debts rose quicker. Margins dropped substantially and ROE fell to single digit. Ezra’s share price fluctuated between 0.8 and 1.2 throughout that period. Finally, when it touched 1.22 on 20 September 2012, I decided to sell all my positions. I was waiting for it to reach above 1.20 to sell since mid 2012.

My first purchase at 0.55 generated 121% return in 4 years. That’s around 22% return per year. I didn’t expect to hold my first stock investment for 4 years. My second purchase at 1.02 generated 19% return in 1 year. My two speculations also generated small positive returns. I was very satisfied with the overall result. I missed out the peak at 2.50 in early 2010, but I could never have timed it. It’s pure luck I bought it near its bottom in late 2008. Overall, my investment return in Ezra was more attributable to luck than analytical skills.

The shares continued to fluctuate between 0.8 and 1.3 in 2013 and early 2014. But since the mid of 2014, it had only one direction: DOWN.  This is due to the crash of oil price from ~100/bbl to the low of 29/bbl before rebounding to the current level of 49/bbl.  Then, you read the story about them selling their office building and the founder selling the bungalows (note the plural: 2 bungalows!). Revenue fell from the high of nearly USD 1.5bn in FY14 to around 544m in FY15. It also reported losses in the latest reporting period.

Ezra - Financials 10Y - FY15 Ezra - Profitability 10Y - FY15

Source: Morningstar.com

The share price has fallen to the sorry level of 0.073. That’s 86% below my first purchase price! I certainly didn’t foresee the crashing oil market and sharp depreciation of Ezra.

Here’s the lessons I learned:

  1. When the market is fearful, have the courage to buy.
  2. You can’t pick the bottom when the market is crashing. Have a list of good companies and buy their shares as the overall market is falling. You may not want to buy in one lump sum. In a crashing market, I averaged down my purchases.
  3. Understand that market is cyclical and so are many companies. For cyclical companies, their earnings will rise and fall with the market.
  4. Commodities like oil and gas are cyclical. They don’t rise to a high level and stay there forever. But we never know when it will turns opposite direction as there are too many variables affecting it at all the time. That’s why if you want to invest in commodity related sectors, you have to spend a lot of time monitoring the market and many other variables. If that’s not what you want to do, it’s fine. Get out of commodity market. There are many other sectors to invest and find more consistent profit.
  5. When revenue continues to rise, like what Ezra experienced from 2000s until 2014, you have to understand if the costs are rising faster, slower or inline. If costs rise even faster than revenue, margins will compress and earnings may fall. Business is getting tougher in that case.
  6. If the Company issues new shares at much lower price than current price level, it’s telling you that the management views current share price as overpriced. Management knows more about the Company than you do. Hear what they say and see what they do. If there is a conflict between what they say and what they do, it’s always the action that speaks louder than words.
  7. Do not speculate like what I did. I mentioned repeatedly that I was lucky to make profit in those two speculative trades. Looking back, I felt I was silly doing what I did.
  8. If the Company is selling its building and the owner of the Company starts selling his/her bungalows, take note. They need cash to tide through difficult times.

 

 

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