Author Archives: memyselfandi007

Some links

If you’ve got 2 hours time this week, don’t miss Barry Ritholz talking to Bond legend Bill Gross (Part 1, Part 2). HIGHLY RECOMMENDED !!!

The guy who blew up AIG’s sec lending is back as a hedge fund manager

Punchcardblog likes subprime retailer Conn’s

Nate from Oddballl finally goes activist on a small net-net company

Bill Gates released his personal annual report

Greenlight’s Q4 2014 letter including a comment on Citizen’s Financial

Target is another proof that retailers often work not well across borders

Updates: Energiedienst (CH0039651184) & Vossloh (DE0007667107) voluntary tender offer

Energiedienst

My first transaction this year was to sell my shares in Energiedienst.

Looking at the Swiss Francs chart, where Energiedienst has its primary listing, this looks like genius timing:

However in Euro, it looks pretty stupid:

In Euro, the shares jumped from around 25,20 EUR to around 27 EUR at the time of writing, a upmove of around 7% against a loss in Swiss Francs of around -10%.

So what happened ? Well in case you were not on a Moon mission last week you might have heard about that Swiss Franc “thing”. The Swiss Franc increased around 17% against the Euro within a very short time frame. What we can see above is relatively easy: The stock price in Swiss Franc fell, but not enough to off set the CHF/EUR movement. This is very strange, especially in the case of Energiedienst.

Energiedienst operates (based on sales) around 85% of its business in Germany and only 15% in Switzerland. So even if we assume that the business in Switzerland is not negatively affected, the increase in EUR should have been theoretically only 0,15*17%= 2,6% in EUR and not +7%.

If we look at Swiss Power prices however, we see something interesting: With the exception of the one day, they directly adjusted in EUR terms as we can see here for instance in the Swiss 1 year forward electricity prices:

swiss power EUR

So in this case, electricity prices seem to be more efficient than stock prices, as there seems to be a very quick and liquid market to arbitrage away those currency differences quickly. Nevertheless I lost money by selling to early but in this case it was not my fault.

Vossloh

Back in September, I presented Vossloh as a potential fallen angel with activist involvement. This is what I wrote back then:

Based on today’s price of ~49 EUR this would mean a potential upside of 35-68%. However one should assume that this turn-around needs at least 3 years. For a turn around, I personally would require a higher return than for a normal “boring” value stock as there is clearly a risk that the turnaround does not work out as planned.

If I assume a target return of 20% p.a., i would need to be sure that the price of Vossloh is in 3 years at around 85 EUR. This is clearly at the very upper end of my target range. So I would either need to have more aggressive assumptions or I would need a lower entry price. As a value investor, I would not want to bet on growth or on a shorter time frame for the turn around, so the only alternative is to wait for a lower entry price.

Taking the midpoint of my range from above at 74, I would be a buyer at ~42 EUR per share but not before.

On November 7th, Vossloh actually hit the 42 EUR threshold but somehow I was not quick enough and passed to buy some shares. Since then the shares recovered nicely to around 54 EUR when yesterday, the following news hit the wires:

On 20 January 2015, KB Holding GmbH decided to make a voluntary public takeover offer to the shareholders of Vossloh Aktiengesellschaft, Vosslohstraße 4, 58791 Werdohl, Germany, for the acquisition of all ordinary bearer shares with no par value, each share representing a proportionate amount of EUR 2.84 in the share capital (the ‘Vossloh-Shares’).

KB Holding GmbH intends to offer the payment of a cash consideration per Vossloh-Share in the amount of the weighted average domestic stock exchange price during the last three months before the publication of this
announcement according to Sec. 10 para. 1 sent. 1 WpÜG pursuant to Sec. 5 para. 1 and 3 of the Regulation on the Content of the Offer Document, Consideration for Takeover Offers and Mandatory Offers and the Release from
the Obligation to Publish and Issue an Offer (WpÜG-Angebotsverordnung), as determined by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin). This consideration is expected to be in a range between EUR 48 and 49 per Vossloh-Share and will be published immediately after being notified by BaFin.

KB Holding GmbH currently holds 29.99 percent of the shares in Vossloh Aktiengesellschaft.

The stock managed to gain some more and closed at around 56 EUR per share:

So the first question is: Why does he offer 49 EUR per share if the shares are trading already at 55 EUR ?

This one is pretty easy: Thiele was already owning 29,99%. In Germany, once you cross 30%, you have to make a mandatory offer at the trailing 90 “VWAP” stock price. My guess is that Thiele clearly wants to take control, but maybe not now and not at 55 EUR. So he used the occasion to come out with this lowball offer, because this releases him from any further mandatory offers and he is not forced to take more shares than he actually wants.

After the offer has expired and Thiele has crossed 30%, he only needs to disclose purchase once he crosses 50% and even then he does not need to make a mandatory offer as the voluntary offer releases him from making any subsequent offers.

Is the stock still attractive at that level ?

Well, we know now that Thiele clearly wants to take control. But we also know that he is a very shrewed operator with little interest in minority share holders. He controls the management of the company already (he actually hired the new CEO) as he ist already the strongest shareholder.

For anyone who followed the blog and the German Corporate law discussion, the biggest issue is the following: Under current law, Thiele could decide (or his CEO) to delist from the stock exchange. This is now possible in Germany without even getting any kind of shareholder approval. This would force many funds out of the stock as normally unlisted stocks are not permitted under most fund regulations. Even for hardcore hold outs this would mean low or no transparency etc. etc.

I have seen a recent study (Solventis, “Endspiele”) that since the change in law (or the change in interpretation), on average stocks lost around -25% following the announcement of a delisting.

Overall, at the current price the risk/reward ratio is in my opinion neutral. There is some room left with regard to a fair value and mean reversion, on the other hand one should be careful with regard to any minority unfriendly actions from Thiele & Co.

As a learning experience, I should maybe watch my watchlist a little bit closer in order not to miss such opportunities as in November.

Why buy and hold is great – if you are already an investment genius

When I did my 2014 review a few days ago I observed the following:

Interesting for me is the fact that 4 of the 5 top losers were new positions whereas only 2 of the 5 best stocks (Koc, Citizens) were bought in 2014.

This leads of course to the question if any of what I have done here over the past 4 years has added any value. The good thing is: It is relatively easy to test the hypothesis. I just took the old starting portfolio and calculated roughly what the return would have been with a simple buy and hold. Let’s have a look at the numbers:

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Book review: “Private Empire: ExxonMobil and American Power” – Steve Coll

In my quest to learn more about the oil industry, I came across this book. It is a quite long book with about 700 pages and is covering basically the time between the Exxon Valdez accident in 1989 until around the time the book was written in 2012.

The chapters are to a certain extent random, jumping between how Exxon influenced politics to problems they encountered in various countries, among others Indonesia, Nigeria, French Guinea and Iraq.

The book itself has a rather critical tone, for instance they make a pretty good point that Exxon denied global warming for a long time, even when evidence and opinion even within the company pointed to the opposite. The ties from Exxon especially to the Bush administration are critically commented. The author claims that Exxon to a certain extent was (or still is) a kind of state within a state and using the US Government facilities only when it fits them.

Most interesting for me were the chapters about Exxon itself and its corporate culture, as well as the merger with Mobil and the later acquisition of fracker XTO.

Overall one gets the impression, that Exxon, especially before the Mobil merger was a true “outsider company”, doing business very differently than other oil companies.

Under the old CEO Lee Raymond for instance, Exxon abandoned any oil price forecasts for its planning starting in 2004 as the CEO judged all efforts to do so completely worthless. The book even quotes Exxon that they couldn’t figure out why oil prices went up so much in 2008 despite putting a lot of effort in to do so. This might be a very important message from the book: Do you still believe in all those incredibly sexy conspiracy theories about oil price manipulation if even the largest private oil company in the world cannot predict the oil price ?

Other examples of “outsider behaviour” are:

– military like control style with regard to safety, expenses and purchasing
– purely engineering driven culture, no “swashbuckling” oil wildcatters
– total discipline in allocating capital to projects

This was especially true under the old CEO, Lee Raymond.

But less so under the current CEO who, among other spent 41 bn on XTO and had to admit later that the deal was not a very good one.

Another interesting aspect was the continuous struggle of Exxon to be able to book new reserves. For a time they used a different reserve definition to the one allowed by the SEC, similar what frackers seem to do now.

All in all, despite the length of the book, I found it very interesting. To me, it offered new insides into an Oil giant like Exxon and the oil industry in general. Although it does not offer any “actionable investment advice”, the book is a good read for anyone interested in the Oil industry and Exxon.

FBD Holdings (ISIN IE0003290289) – A local Irish Insurance champion for sale ?

Again this turned out to be a quite long post as I am digging a little bit deeper into the balance sheet. Therefore a quick summary:

Although FBD Holdings, the Irish P&C company looks interesting, I will not invest. The company has a very impressive track record, but in my opinion the business model is not scalable as it doesn’t have any structural competitive advantages besides a loyal client base. Additionally, the company severely screwed up their asset allocation and will be faced with ultra low investment returns going forward unless they are increasing their investment risk significantly.

At current stock prices, the company is in my opinion pretty well priced, with only a relatively small upside in a good case and equally large downside in a more negative case.

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Some links

A great (long) article on Shell, drilling in the Arctic, proven oil reserves and some more.

The WertArt blog likes Italien closed end real estate funds

A few nice graphs on oil demand.Hint:It is lower than expected.

An interesting essay about the “out-of-control” art market

On the advantages of bottom up stock picking against top down market timing

Eddie Lampert (Sears) explains the trial and error nature of retail.

Nate from Oddball with a great post on he advantages of a consistent (and boring) style of investment

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