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ILU - Iluka Resources Limited

Iluka Resources Limited (ASX:ILU) is involved in the exploration, mining, processing and sale of mineral sands such as zircon and titanium dioxide (rutile and synthetic rutile). Zircon and Titanium Dioxide are used in a growing number of applications such as paints, paper, plastics, ceramics (tiles), fiber optics, automotive parts and medical applications. Iluka has mining and processing operations in the Eucla Basin, South Australia; Perth Basin, Western Australia; Murray Basin, Victoria; and also in the state of Virginia in the United States.

Iluka promotes that it acts with a commitment to the delivery of customer value, through:

· quality products that meet customer expectations;

· investment in high grade, long life reserves; and

· ensure the customer offer reflects relative value in use.

In 2012, Iluka had about 1,100 direct employees and a further 1,500 contractors.

Does this business have a sustainable competitive advantage?

The company is the major producer of zircon globally and the largest producer of the high-grade titanium dioxide products of rutile and synthetic rutile. This dominant production position gives Iluka a degree of flexibility (price inelasticity) to control both their production volume and product sold to meet the market demand.

The company also generates income from a royalty associated with tenements from one of BHP Billiton's operations known as Mining Area C province in Western Australia.

Iluka is in a good space for many years to come if you believe that:

1. The urbanization of the global population will continue; and

2. The collective aspirational behavior of human beings around the globe to continually want better for themselves and their children leading to increased consumption in the long run.

Urbanization and this aspirational behavior will see more people around the world building homes, buying appliances, traveling overseas, driving cars and buying consumer electronics for decades to come. All products manufactured with the input of Iluka's raw materials.

What are the risks facing this business?

The main risk being a cyclical business is the interim outlook for global growth slowing meaning the possibility of a reduction in production and sale of Iluka's mineral sands. This risk was endured by the company during the majority of 2012 calendar year.

Another risk is the entrance of new mineral sand miners and competition adding to global supply. However, with sentiment toward mining globally fairly negative at present, it will take some bravado for this to happen any time soon.

Is it run by able and trustworthy management?

The CEO, David Robb in my view looking from the outside in is as trustworthy as they come. At least twice in 2012, he came out and presented to the market the difficulties being faced by the business. He highlighted steps taken to scale back production to preserve prices for Iluka's products. The share price was unceremoniously smashed both times and investors new exactly where they stood (in quick sand, not mineral sand for a while).

As at Iluka's year end in December 2012, the company had a relatively strong balance sheet with a net debt-to-equity level of 6% and the company managed to produce positive cash flow not quite to the levels of reported net profit.

Is it trading at a bargain price?

On a Buffett-style return-on-equity model, the company is not very good value as seen here.

Rank	2012 Actual Valuation	Today's Share Price	Margin of Safety	2013 Forecast Valuation	2014 Forecast Valuation
Gold 2	$7.45	$11.40	-128%	$4.99	$6.98

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

However, rather than bury my head in the mineral sand and watch this train leave the station without me. I looked at my hybrid valuation incorporating techniques learnt from reading Sir John Templeton methods. My Templeton-style valuation paints a much rosier picture for FY13 and FY14 as seen in this table.

Rank	2012 Actual Valuation	Today's Share Price	Margin of Safety	2013 Forecast Valuation	2014 Forecast Valuation
Gold 2	$7.56	$11.40	-11%	$10.30	$18.17

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

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For the Trendy types….I noticed recently that the share price is presently higher than its 20, 50 and 200 day moving averages which is good news for those trend followers out there.

Summary

In summary, Iluka is a strong business in a cyclical market. It is the major global producer of its mineral sand materials which allow it to maintain a degree of price inelasticity in its market place. The company has capable and trustworthy management and it has a well placed balance sheet. The company has faced a tough year and appears to be on a path to growing from a low base.

Disclosure: I am long ILKAF.PK.

IRE - Iress Limited

Iress Limited (ASX:IRE) is a leading supplier of share market and wealth management systems in Australia, Asia, New Zealand, Canada, South Africa and the United Kingdom.

Iress operate two core products being IRESS and XPLAN which comprise an equity information and trading platform and an extensive suite of financial planning and associated tools.

Iress products manage and monitor industry information which meets the needs of a large range of clients from big corporations through to independent operators.

Iress employs over 600 personnel in 14 offices. Their offices are located in the centre of major financial districts in each of their domiciled countries worldwide.

Does this business have a sustainable competitive advantage?

Iress's competitive advantage comes from the strong relationships it has developed with its clients. Iress provides 'global coverage, local support' which keeps their clients up to date with local developments while maintaining global information flows.

Not so much a competitive advantage but a sustainable business model is in place with Iress enjoying recurring revenue via its supply of information and trading platforms.

Iress has a history of growing in scale by acquiring similar businesses across various parts of the world. I suspect this pattern looks set to continue.

What are the risks facing this business?

The obvious risk is volatility in share markets around the world. Volatility and negative sentiment would reduce the level of recurring revenue from some clients reducing head count and therefore reducing the need for Iress' information subscriptions.

A second risk comes from the possibility of a new entrant competing with Iress. While it wouldn't be an easy task, it is not impossible for a new player to enter their market and try to compete with some new technology or initiatives for instance.

Is it run by able and trustworthy management?

Management has done a wonderful job in growing this business to hold a significant presence in many leading financial districts around the world. With $55 million of cash on the balance sheet, the company appears in a great position to continue this acquisition process in order to grow future earnings. The company also reports cash flow similar to that of net profit levels.

Is it trading at a bargain price?

On an intrinsic value basis, the company is rarely good value which is the case at the moment. Other valuation models suggest it is slightly over-priced. However, the technical case is good with a third cup and handle pattern in the past 12 months making this stock a good 'value trade' or 'quality trade'. I usually don't look for price targets preferring to let the market tell me what to do. However, the pattern suggests a target around the $9.60 mark.

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Rank	2012 Actual Valuation	Today's Share Price	Margin of Safety	2013 Forecast Valuation	2014 Forecast Valuation
Gold 1	$3.35	$8.62	-76%	$4.89	$6.04

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Summary

In summary, Iress is a wonderful business that has grown into a leading provider of share market and financial information in the countries it operates within. The company is leveraged to the performance of share markets around the world. The company has great management who have grown the business by acquisition while maintaining an extremely strong balance sheet. The company has scope for more acquisition and earnings growth as a result. The company is rarely cheap on a valuation basis which reflects the quality of the company.

Disclosure: I am long IRSMF.OB.

TAH - Tabcorp Limited

Tabcorp Limited (ASX:TAH) is Australia's leading wagering, racing media and Keno operator.

Tabcorp manages leading customer brands in Australia, including TAB.com.au, Keno, Luxbet, Tabcorp Gaming Solutions, Sky Racing and Sky Sports Radio. These brands serve millions of customers every year.

Tabcorp's four businesses are:

1. Wagering - totalisator and fixed odd betting

2. Media and International - broadcasting of sporting and horse racing events

3. Gaming - electronic gaming machine operations

4. Keno - operating Keno in clubs and hotels within Victoria, New South Wales and Queensland

In June 2011, Tabcorp completed the demerger of its Casinos Business to form the newly listed Echo Entertainment Group Limited.

Does this business have a sustainable competitive advantage?

Tabcorp has a sustainable competitive advantage across part of their business with a 10 year licence to provide Keno operations in Victoria which began in April 2012. And, they possess a 12-year Victoria Wagering and Betting License which started in commenced in August 2012.

These licenses should ensure that Tabcorp will generate continuing streams of income over the next 12 years from two of its four business divisions.

Tabcorp's other easy-to-see advantage comes from the broad range of distribution channels and brands that it promotes. Their betting products being their brands are distributed at TAB outlets, clubs, pubs, hotels, race tracks and online across your internet connected device of choice.

What are the risks facing this business?

The biggest risk is the growing competition particularly in the digital/online space for their wagering business. With seemingly little barrier to entry to set up an online betting/bookmaking service, providing a profitable point-of-difference in this space will continue to be difficult.

A second risk comes from the debt levels the business carries. The licence wins in Victoria have come at a cost and the company holds 80% of their equity as debt as of December 2012.

Is it run by able and trustworthy management?

Management has done a great job to secure licenses in Victoria in recent years. This bodes well for the longevity of the business.

Is it trading at a bargain price?

On a fundamental balance sheet view of the business and considering the current debt levels, it is expensive. However, I wonder if the share price improvement since November is merely:

1. 1. A function of a rising tide lifting most boats including Tabcorp, or

2. 2. The market pricing in a restructure of online gambling given the negative media coverage afforded this year to arguably Australia's highest profile online gambling provider

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Rank	2012 Actual Valuation	Today's Share Price	Margin of Safety	2013 Forecast Valuation	2014 Forecast Valuation	2015 Forecast Valuation
Bronze 3	$3.21	$3.34	-161%	$1.28	$1.31	$1.73

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Summary

In summary, Tabcorp is a business that will be operating for at least the next 12 years given the licenses it holds. The company has taken on more debt in recent years and while profitable, has not produced cash flow that reflects that profitability. The company will face continuing changes due to the impact of online gambling and I will watch this space with interest.