Author Archives: memyselfandi007

Some links

Damodaran tries to value Go Pro

David Merkel on the “interest rates must rise” mantra

Research Affiliates has a pretty cool new website where you can play around with expected returnas and volatilities of all major asset classes

Interesting post on the differences between Japanese and US stock valuations

A good summary of investment ideas presented from the “great investors” conference (GIBI) including Einhorn, Ackman, Price etc.

Recent ~40 minute interview with Warren Buffett

Special situation quick check: Rhoen Klinikum (ISIN DE0007042301) – “Listed transferable tender rights”

Yesterday, Rhoen Klinikum released the details how they will buy back shares following the sale of most of their business to Fresenius (Rhoen was a very successful “busted M&A” special situation, previous posts can be found here)

They way they do it looks interesting and seems to be like a “reverse rights issue”. The instrument is called “Listed transferable tender right” and seems to work as follows:

- as of tomorrow, October 16th, each shareholder gets automatically one “tender right” per share
– those “tender rights” are traded separately at the stock exchange
– you need to have 21 tender rights in order to sell 10 shares
– the tender price is 25,18 per share
– the exercise period runs until November 12th, until then, the tender rights are traded
– already tendered shares will trade under a separate ISIN until November 14th
– the cash for tendered shares will be paid out on November 19th

As of today, the shares are trading at around 23,85 EUR. Following the logic of the subscription rights, one right should be worth

Edit: in the first version, I had the wrong formula. Thanks to a friendly reader, this is the correct formula:

(25,18-23,85)/((21/10)-1)= 1,21 EUR.

So tomorrow, the Rhoen shares should open (all other things equal) -1,21 EUR lower and the rights should trade at 1,21 EUR. Let’s see if there is a chance to find a little arbitrage here and there.

One strategy could be to buy the stock at the open, hoping that the “discount” will be eliminated quickly. A second one could be an arbitrage between the rights and the stocks. Finally, it could be worthwhile to look at the tendered shares as well.

Don’t ask me why they are doing it that way. I think it most likely optimizes the tax position of the large shareholders, especially for the founder Eugen Muench, who wanted to cash in his remaining 10%.

A final comment for clarification: No, this does not mean that Rhoen shares should trade at 25,18. The price chosen by Rhoen is relatively “arbitrary”, they could have used any other price as well.

The Dutch Job: Royal Imtech (NL0006055329) Deeply discounted rights issue – The “short opportunity of the century”

I had written about Royal Imtech, the troubled Dutch service company already a couple of times. The short story: Growth star encounters fraud and too much debt.

Somehow, I lost them from my radar screen until today. Already in August, they announced that they will do another rights issue, this time aiming for 600 mn EUR, after having raised 500 mn in 2013.

The funny thing is the way they actually do this which even puts my favourite “Italian Job” companies at shame:

Following the approval granted by the General Meeting on 7 October 2014, Royal Imtech N.V. (“Royal Imtech” or the “Company”) announces a 131 for 1 fully underwritten rights offering of 60,082,154,924 new ordinary shares with a nominal value of EUR 0.01 each (the “Offer Shares”) at an issue price of EUR 0.01 per Offer Share (the “Issue Price”). For this purpose, and subject to applicable securities laws and the terms of the prospectus dated 8 October 2014 (the “Prospectus”), existing holders of ordinary shares in the share capital of Royal Imtech (“Ordinary Shares”) as at 17:40 CEST on 8 October 2014 (the “Record Date”) are being granted transferable subscription rights (“Rights”) pro rata to their existing shareholdings (the “Rights Offering”, and together with the Rump Offering (as defined below) the “Offering”). No Rights will be granted to Royal Imtech as a holder of Ordinary Shares in its own capital. The Rights will entitle the holders thereof, provided they are Eligible Persons, to subscribe for 131 Offer Shares for every Right held at the Issue Price, subject to applicable securities laws and in accordance with the terms and subject to the conditions set out in the Prospectus. The Issue Price per Offer Share represents a discount of approximately 21.7% to the theoretical ex-rights price (“TERP”) based on the share price of EUR 0.3763 at Euronext in Amsterdam (“Euronext Amsterdam”) after close of business on 7 October 2014 and 458,642,404 shares issued and outstanding at the same date (thus excluding treasury shares

So before the rights issue, the market value of the company was around 0,38*458 mn shares= 175 mn EUR. Today is the first day where Royal Imtech trades “ex rights”. Just as a little refresher the formula for calculating the value of the right (to buy 131 shares at 0,01 EUR) before trading:

(0,3763-0,01)*131/132= 0,3635

So theoretically the price of Royal Imtech should be today: 0.3763-0.3635 = 0,0128 EUR. a little more than one cent.

Let’s look what the shareprice is doing today:

Imtech is trading at 0,09 EUR, around 800% higher where it should trade !!!!! On the other hand, the rights trade only at 0,17 EUR at the time of writing, a discount of 50% to the theoretical value (as of yesterday).

This leaves the question: Why are investors paying today 9 cents for the shares which they can buy via the rights at a little over 1 cents per share in 2 weeks time ? I have no answer. MAybe people (and computers) mixed up the decimals and think the new shares come at 0,10 EUR ?

Anyway, if anyone is able to short Royal Imtech at this level, this would be the short of the century. You can short something at 0,09 EUR today and buy back at 0,01 in a few days. Nothing more to say….

Edit: Might be a good example for any student who is confronted with the “Efficienty markets hypothesis”.

Quick check: Adidas AG (ISIN DE000A1EWWW0) – will this fallen angel rise again ?

Adidas, the iconic German sportswear company, seems to be a big topic for value investors these days. A couple of my readers mentioned Adidas in the comments and also Geoff Gannon thinks it is cheap at least compared to Nike and Under Armour.

Over the past decade or so, Adidas was a great performer, riding mostly on the “Emerging Markets consumer” megatrend. This year however the share price is down ~-37% at the time of writing,:

Nevertheless, the Stock is still not really cheap on an individual basis:

P/E 19
P/B 2,2
P/S 0,9
EV/EBITDA ~10
Dividend yield 2,6%

Since a couple of weeks, there are constant rumours that some activist hedge fund will sooner or later appear and press for changes how the company is run.

Maybe in order to make it harder for activists or other potential “predators”, Adidas just announced a 1,5 bn share buy back over 3 years. According to the Reuters article this seems to be a rather quick change of mind:

Chief Executive Herbert Hainer said in August that Adidas had no plans for a share buyback.

Adidas also just launched a 1 bn EUR bond issue, most likely to fund some of the share repurchases. The bond issue however doesn’t seem to have been a smashing success.

Why did the share price go down so much ?

They had to issue a couple of profit warnings in the last few months. According to Adidas, two reasons are to blame: The issues in Russia, a core market for Adidas and the problems with the Golf business (Taylormade).

With the football World cup in Brazil, everyone thought that Adidas will have a record year, but as of 6m 2014, Profit declined by ~.27%. Adidas is the German company with the largest share of Russian sales in the DAX 30 index with around 7,5% of total sales. Doing badly in a year with a football Worldcup is not a good omen for the eventless next year.

What I don’t like at Adidas:

When I look at an expensive company like Adidas, I always look out for things I don’t like. After reading the 2012 & 2013 annual report, here are my “don’t like” point:

- management targets do not include capital profitability
– growth in recent years mostly from retail business
– Sales decreased already in 2013, 2014 just extends the negative trend
– they blame FX for most of their problems but that is part of the normal risk of doing business in Emerging Markets
– Adidas is doing Ok, but both Reebock and Taylormade are shrinking
– as with EVS, 2014 should have been a fantastic year (Brazil, Socchi). 2015, without any big events will most likely be even worse
– US as a strategic growth market does not make that much sense to me
– comprehensive income is lacking net income by a wide margin
– reporting overall is not very good, lots of “Marketing stuff”, critical figures like profitability per region are missing

What I like

- clearly iconic brand with growth potential especially in EM
– relatively conservative balance sheet
– management salaries are relatively low compared to total profit

Let’s look at some issues in more detail:

Retail business

If you look at their historical numbers, a large part of the recent growth comes from their “retail segment”. They started opening own stores some years ago and have expanded them fast. In 2013, the traditional business which they call “whole sale” already shrunk and only retail had some growth. However retail is lower margin business (Operating margins ~20% against 30+%). They expanded their stores much more aggresively than Nike, especially in Emerging Markets.

Also, retail business in my opinion is riskier than their core business. If you are in retail, you are also in Real Estate. With the threat of the internet (Zalando, Amazon), they are walking on a thin line.

Interestingly, despite paying ~600-700 mn rents p.a. they are only disclosing 1,7 bn of operating lease liabilities. I am not sure what to make of this, it looks like they are only renting short-term which might be OK if EM continue to be weak.

Currency Management:

According to the CEO’s letter in the 2013 annual report, Adidas doesn’t hedge FX risk in Emerging Markets as it is “too expensive”. Well, that’s complete nonsense in my opinion. Of course it is expensive, but for an EM based retail business, not hedging FX is almost suicide. A retailer in Russia is short the USD vs. Rubles twice: First, all the merchandise will be imported from China on a Dollar basis. Secondly, most of the rental contracts will be in USD as well. Sales will be made however in Rubles, so if the Ruble declines against the Dollar, all the nice margins just disappear.

Instead of hedging, the report “currency neutral” sales growth etc. In my opinion this is definitely a weakness especially if you compare Adidas to their major rival Nike. If you look into the annual report of Nike, you can see on page 77 & 78 that they have a pretty sophisticated hedging program in place, which creates a lot less volatility in stated net income AND comprehensive income.

Comprehensive income

As this is often the case, the Comprehensive Income of Adidas is hidden deep within the annual report, in this case it is mentioned the first time on page 189. And, as it is not surprising, Comprehensive income is a lot lower than Net income as the table shows and also much more volatile compared to competitor Nike:

Adidas     Nike    
  EPS CI in % EPS CI in%
30.12.2009 1,25 -0,4 -33,0% 1,99 1,81 90,8%
30.12.2010 2,71 4,4 161,9% 2,22 2,12 95,6%
30.12.2011 2,93 4,0 137,2% 2,48 2,48 99,7%
28.12.2012 2,52 1,5 60,9% 2,65 2,81 106,2%
30.12.2013 3,76 2,2 59,4% 3,02 2,83 93,6%
Total 13,17 11,8 89,3% 12,36 12,04 97,4%

Most analysts would ignore this, as they would call this a “non cash” accounting effect. But especially currency movements in the comprehensive income in my opinion have enormous predictive value. Although its true that the initial currency movement (i.e. the decline of the NAV of foreign subsidiaries) does not impact the cashflow, a permanently lower value of the foreign currency will clearly lower the future profits of the company, especially if they don’t hedge.

Ignoring this effect is like looking at your stock portfolio and ignoring the currency movements if you calculate performance. You can do this, but it does not reflect the underlying value.

Strategy & Capital allocation

Adidas’ strategy to focus on Emerging markets has paid of, despite set backs like currently in Russia. What I don’t understand why the want to target the US. In the US, they have no advantage against Nike, rather the opposite. Nike is much bigger in the Us and clearly has economies of scale against Adidas in advertising expenses.

In my opinion, this is mostly due to the fact, that return on capital is not part of the targets for Adidas management. They have target like sales growth, operating margins and some nonsense stuff like EUR amounts for investments, but no return on investment or return on invested capital targets. Nike, th main competitor, reports ROIC

This leads more often than not to chasing growth for growth sake and not creating value. In my opinion, Adidas clearly has a strategy & incentive issue here.

Brand & Moat

There are different opinions on this topic, but for me , a brand is not a moat. It is a competitive advantage, especially as we have seen in “new markets” like the EM, but on the other hand, brands can easily loose their power if they are not well managed. A sports brand like Adidas in my opinion is even more difficult than a “luxury brand”. Sports brands define themselves via sports stars. Signing sports stars or teams gets more and more expensive and when you are unlucky, your expensive star turns out to be a sex maniac or drug abuser and all the money is for nothing.

A real strong brand allows you to make above average margins and returns on capital, which somehow Adidas fails to deliver compared to some of its competitors.

Valuation

At a 2014 PE of 19, Adidas is clearly not in value territory, based on Comprehensive income, the stock looks even more expensive. In order to justify an investment, one would either need to assume EPS growth or multiple expansion. Yes, Nike trades at a lot higher multiple, but it is also a lot better company than Adidas with much better earnings quality. I also have doubts, that Adidas will increase stated EPS in 2015. Without a major sports event and with Russia still critical, they should rather be happy to maintain current profits.

The share repurchase will maybe add to EPS, but overall, for me Adidas is not a buy at the moment. If you are an event-driven investor wanting to bet on a short-term bump by someone like Icahn, Loeb etc. it could be interesting.

Summary:

Adidas is a company with an iconic brand, however stand-alone it is already quite expensive and the company has at best average management. Earnings quality in my opinion is clearly lower than for competitor Nike. Some activist investors might indeed shake up things a little bit and bump up the share price in the short-term, but the company is clearly facing a very difficult year in 2015. “Turning around” Adidas and bring them to Nike’s level in my opinion is not just spinning off Reebock and Taylermade, but a real change in startegy and incentives.

Adidas is clearly a bet on the Emerging Market consumer, which might work out over the long-term but is somehow maybe difficult in the short and mid-term. There are also cheaper stocks available if one wants to bet on an EM revival. On top of that, I am clearly no expert on branded sports good so for me, this would only a buy if it would look cheap from an absolute point of view, which it doesn’t.

Performance review September 2014 – Comment “Stupid German money”

Performance September

September was a pretty bad month for the portfolio, both in absolute and relative terms. The portfolio lost -2,2% against -0,2% for the Benchmark. YTD the portfolio is up +4,99% against 0,45% for the benchmark.

A significant part of this underperformance was driven by Sistema which I sold with a loss of 40%. The decision to sell quickly seemed to have been right as the share price has fallen a further 40% since then.

Other big losers were G. Perrier with -17,2%, Ashmore with -12,5%, Hornbach -7,6% and TGS with -6,0%. in contrast to Sistema, I do not see any structural issues with those companies. Clearly the fact that small caps are underperforming since a couple of months als plays a role here.

Portfolio transactions:

Additionally to Sistema, I sold my 0.9% position in Poujoulat. Overall, I am not happy with the way they allocated their capital and the result of the wood pellet segment is pretty bad so I decided to get out of this relatively small position. I sold at around 40 EUR, resulting in an overall gain of 23,5% including dividends.

Additionally I sold my Sky Deutschland shares at a small loss at 6,73 EUR. Unfortunately, they never moved up and the offer period is slowly approaching the end and I have no opinion about the value of Sky Deutschland without the “special situation” aspect.

As a result, the direct cash percentage went up to 13,2%, the economic cash position is close to 20% (including MAN and Depfa LT2 which I consider “close to” cash). Another side effect of my sell transactions is the fact that with 25 positions the portfolio is in my personal “Sweet spot” with regard to the number of positions.

The current portfolio, as always can be seen on the “Current Portfolio” page.

Comment: “Stupid German Money”

September was high time for German Corporations to announce large acquisitions in the US. In a short period of time, transactions were announced from Siemens, Merck Kgaa, SAP and privately held ZF group.

This is a quick overview of the four deals:

Target EV USD bn Buyer P/E Target P/E Buyer Buyer/seller multiple
TRW 12,4 ZF 13,0 not listed  
Dresser Rand 7,3 Siemens 32,0 15,2 211%
Sigma Aldrich 15,7 Merck Kgaa 31,1 16,0 194%
Concur 7,1 SAP 208,0 16,6 1253%

We can easily see that the multiples paid by the 3 listed entities are significantly higher than their own multiples. Large acquisitions are a big risk in any case, but in the case of German – US acquisitions the track record is particularly bad. Daimler/Chrysler is clearly the worst German-US deal ever, but there are loads of other value distracting US deals like Dresdner/Wasserstein, Siemens/Dade-Behring, RWE/American Water etc. There are a few good deals as well, but in my opinion the success rate is definitely below 50%.

Why is this the case ? In my opinion, there are 3 major reasons for this:

1. German companies are normally very risk averse. So in “difficult” times, they keep their cash and wait until times get better. At some point in time when the good times are rolling (as they are now) they feel the urgent need to catch up with their international competitors and then buy into the boom which creates a very procyclical behaviour.

2. German companies often underestimate the cultural differences between Germany/Europe and the US. Many top managers might have been on vacation in the US or even studied there, but running an US company is very different from running a German company. Financial incentives are much more important in the US and often don’t fit with the rules here in Germany. So it is often almost impossible to keep the best people of a recently acquired company and without them, the business often deteriorates quickly.

3. In general. especially large German companies are just not good capital allocators. Buying back own shares is more often than not a no go and considered to be a sign of weakness. Equity is often thought as “Management’s equity” then “Shareholder’s Equity”. The term “shareholder’s equity” actually doesn’t exist in German language, “Eigenkapital” translates into “own funds” and I think most German managers consider it as their own funds and not the shareholder’s.

As a result, the acquisition behaviour of German companies is almost always super procyclical and then looking back mostly looks pretty stupid and is value destroying for the German shareholders.

As a private shareholder, my advice would be: Watch out !!

- You don’t want to own the stock of a German company which acquires a big US company. Chances are high that they will regret it in a few years time
– You don’t want to own the sector longer term they are investing in. This sector might be at or close to a cyclical peak
– although I am not a market timer, you might be very cautious in general despite M&A induced further increasing share prices

Exotic securities: Gabriel Finance 2% 2016 Evonik Exchangeable (ISIN DE000A1HTR04)- Free options anyone ?

Background / Evonik

Evonik is a German specialty chemical company with a total market cap of ~12 bn EUR. The company went public in 2013, however the majority is still Government owned via RAG (“Ruhrkohle AG”), the German coal mining “run off” company.

Private Equity shop CVC bought a 25% stake in Evonik in 2008. At the end of 2013, CVC issued a 350 mn “exchangeable” bond which exchanges into EVONIK shares if certain thresholds are hit.

The “exchangeable”

Just for clarification: An “exchangeable” bond is a “convertible” bond which is NOT issued by the company of the underlying shares but by someone else. But let’s look at the bonds:

Volume: 350 mn EUR
Maturity: 26.11.2016
Coupon: 2% (semi-annual)
Denomination: 100 K EUR (so not for retail investors…)
Exchange ratio (Nominal/number of share): 2.821,8774 shares per 100 k
Strike price/break even: 35,437 EUR
Stock price “cap”: 130% (Gabriel can call the bond if the share price hits 130% of the exercise price)

So far the structure is fairly typical for a normal “convertible/exchangeable” bond:

- as long as the stock stays below the “strike” one will get back the nominal amount (plus coupons)
– if the stock rises above the strike, one can exchange the bond into the shares and realize the upside which equals a call option on Evonik
– however the upside is “capped” at around 130% of the strike which is similar to a “short call” option on top of the long call

Technically, the bond can now be evaluated by calculating the value of the long call option minus the value of the short call and add this to the “Pure” bond value, which is the nominal plus the coupons discounted back at the “risk adjusted” rate.

The NPV of the long option is around 2,6% of the bond nominal, the short call is worth around -0,5% under standard settings. So this would add almost 100 bps p.a. in option value to the bond. As the bond itself trades around 98%, together with the 2% coupon it looks like that the buyer gets a juicy 3% yield plus a free option on Evonik, so almost a “no brainer” trade in the current interest rate enironment (2 year swaps are at 0,25% p.a.).

The “exotic” feature: The “short put”

But not so fast. CVC has built in something which makes this bond “exotic”: The issuing entity, Gabriel Finance has no additional support from CVC. The issuing entity owns the shares and the shares are pledged to the bondholders, so far so good. But what happens if the stock of Evonik falls below the assumed exchange ratio ? For this case, they have allocated an additional amount of shares to the bond holders, in this case the same amount of shares as are actually the underlying of the bond.

However, even this additional amount of shares might be insufficient if the shares would fall further. We can easily calculate the share price at which the original shares and the additional shares are not sufficient anymore to cover the principal:

“break even” = 350 mn / (original shares + additional shares) = 17,70 EUR er Evonik share.

So what happens if the share price drops below 17,70 EUR ? Well, the bondholders will not get the principal back but whatever the pledged shares are worth at that point in time. (Remark: I did not find out is there is the risk of an insolvency procedure or not)

With a normal exchangeable, the issuing entity would have to make up the shortfall with any other asset they own but in this case, there is none. It is maybe easier to understand if we look at the final payout of the bond in relation to the then prevailing Evonik share price which I graphed using Excel:

gabriel payoff

In order to correctly value the whole “option package”, we will therefore need to

+ add the value of the long call
– subtract the value of the short call
– subtract the value of the put option.

Beware of the Skew

Valueing long dated stock options is a tricky thing. The major input clearly is the volatility of the underlying stock which has a major impact on the value of the option. The volatility to use depends on a couple of things, among others how far the option is out-of-the money.

In our case, the following effect is important: If you have both, a put and a call option for the same stock with the same “distance” to the current price, the put option is usually more expensive than a similar call which means you have to pay a higher volatility. Nobody knows really why this is so but it is a fact and is called the “Volatility skew”.

Finally, another “exotic feature” needs attention: The mechanics explained above mean, that in th positive case, you are long around 2821 shares per bond in th upside case. However, once you hit the downside trigger at 17,70, you are suddenly short 2×2821 shares.

So you need to buy twice as many puts at 17,70 EUR than you could sell calls on the upper end (that’s also the reason why in the Excel graph above, the slope in the downside case is much steeper than in the upside case).

Valueing the whole “package”

So in order to find out how attractive this bond is we need to calculate the “option adjusted” yield of the bond by adding/subtracting the option values to the purchase price and then calculate the yield with the 2% coupon (implied volatility for short call and short puts +6% vs. long call):

EUR In % of Nominal
Purchase price 98000,00 98,0%
minus long call -2624,35 -2,6%
Plus short call 1608,47 1,6%
Plus short put (2x) 5643,76 5,6%
“Option adjusted” Purchase price 102627,88 102,6%

Based on the adjusted purchase price of ~102,6%, this results in an annualized yield of ~0,78% p.a., which is ~0,5% above swap but hardly super attractive.

Summary:

Unfortunately, the Gabriel/Evonik exchangeable is not the nice 2% carry plus free option trade I was hoping for in the beginning. Depending on the assumptions with regard to volatility, the bond actually looks like fairly and efficiently priced. For a pure bond fund who can invest into the bond on a fully hedged basis, this still has some spread left, but if you want to achieve “stock like” returns, then the risk/return profile is not overly attractive.

Clearly my assumptions with regard to volatility are debatable and you could price the short options cheaper, but with options I prefer to make mistakes by being too conservative on the short side. On top of that, as I have mentioned a couple of times, I am not comfortable with German law for bonds and unfortunately this one is issued under German law which makes it relatively easy to change important features of the bond such as coupons and maturities.

Even if one is really bullish on Evonik, buying the underlying stock would be the better choice in my opinion, so for the time being the Gabriel/Evonik exchangeable is not interesting for me, especially as I don’t like the “Black Swan” exposure via the short put.

Emerging market risks, Turkey & Koc Holding

Emerging markets stocks are risky. This is not a very original insight but a pretty well-known fact. Among the obvious risks compared to most “developed” countries are:

- general legal risks (listing, disclosure, property rights)
– volatility of economy
– currency
– general political instability

Following the Sistema story, I would add another significant risk for any Emerging market based company:

- personal disputes between a controlling shareholder and the current government

That this risk is real can be seen very well in Turkey at the moment at Asya Bank. Asya Bank is supposed to be owned or influenced by the major Erdogan enemy, the Gulen movement. What is happening in Turkey, at least from my perspective is pretty unique: The Government is more or less actively trying to bankrupt a private bank because the owner of the bank is opposing the current government:

Investors have dumped stocks and bonds of Istanbul-based Bank Asya as the lender was dragged into a feud between President Recep Tayyip Erdogan and Fethullah Gulen, the Pennsylvania-based Islamic cleric who Erdogan blames for a graft probe that implicated his government in December. The president this week called for Turkey’s banking regulator to take action on Bank Asya, citing deteriorating finances.

It seems to be that Erdogan has become much bolder since he won the election a few weeks ago and seems to care less about any negative short-term impacts on the economy.

Honestly, that made me pretty nervous with regard to my largest EM based investment, Koc Holding. I am not completely sure if everything is well now between Erdogan and the Koc family. There were already several probes against Koc companies, the latest I found was against subsidiary Turpas in July 2014.

The big question is always: Am I getting paid for the risk I am taking ? In Koc’s case, especially after the nice run up in the share price, I am not so sure anymore.

Koc is now trading at around 11 times 2014 profits, which is in line with the overall Turkish stock index. Although I believe that Koc is a far above average quality Turkish company, the individual political risk is much higher than for the general Turkish market.

In my initial post, I wrote the following:

I am clearly no expert here, but the fact that the Koc family, among others, survived 3 military coups, the second world war and hyperinflation, the probability is maybe relatively high that they survive the current episode, but risks are clearly there.

Following the Asya story however, I got much more cautious and in EUR terms, Koc is almost 40% more expensive since I bought them. It could easily be that I am too cautious here, but I am not sure if I get actually paid for this Koc related “relationship” risk when I hold Koc stocks at the current level, especially with a portfolio weight of around 3,5%. If I compare this for instance with MIKO or Hornbach, I can still invest in a nice “Boring” stock at the same level without the very specific and real risks of Koc in Turkey.

As a consequence, I will reduce my stake by more than 2/3 to a 1% level which for the future will be my maximum exposure per position to any single Emerging market based company.

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