Category Archives: Short

Greenlight Re (sell), Handelsbanken (buy) & Bill Ackman

Greenlight Re

Following the E.On discussion, I really asked myself if it was such a good idea to invest into Greenlight Re.

My argument was as follows:

  • the stock looks historically cheap
  • Einhorn had a few very bad years
  • based on its track record hw might do much better in the future

After the E.On discussion however, I recognized the follwoing: Whenever I looked at a stock that Einhorn bought (Delta Lloyd, AerCap, SunEdison, Consol, E.on), I never understood why he did it or I thought it was not a good idea. Even if I look at his 20 bigest disclosed positions, I don’t find any stock that I would buy on my own:


That in effect lead me to the conclusion that I am most likely the wrong kind of shareholder for Greenlight Re. If things go really  bad, I am not sure if I would have enough trust to keep the position or if I would get really nervous because I could not identify with the manager.

Secondly, I honestly don’t have much insight, how Einhorn generated his fantastic past track record.

Together with not liking his long position, I think it was a mistake to invest in Greenlight and I sold my stocks as mentioned in the comments at around 18,45 USD per share with a tiny profit of around +2,5%.

It could well be that Greenlight maybe has a spectacular 2016 but as I have mentioned above, one should not allocate money to someone where you don’t understand what that manager is doing. Conviction is important to withstand all kind of behavioural traps in investing.

Finally, I am not sure if there could be some isues on the Reinsurance side. AIG surpisingly disclosed a pretty massive reserve strengtening for Q4 and it looks like that this is mostly “long tail” exposure from long ago which is also the “bread and butter” business of Greenlight Re.


Following the market turmoil, I began to establish a first (2%) position in Handelsbanken. Purchase price was on average ~98 SEK per share. Valuation wise they are now at a level where I would expect to earn around 16-17% p.a. long term which looks atractive to me despite potential short term head winds.

I plan to increase this to a full position over the next months. I funded this position by selling some of the HT1 bonds, as I want to keep some cash (~10%) in order to be flexible if some of my watch list shares become really cheap.

Bill Ackman

Bill Ackman came out with his Q4 letter to investors just a few days ago. His results were similarily bad than Einhorn’s with -20,5% after fees for 2015.

There was already good coverage on his letter for instance from Matt Levine.

My 2 cents on this:

  • compared to Einhorn, he mostly blames others for his losses (index funds, copycats, the market)
  • he doesn’t seem to fully understand how index funds work
  • funnily enough, he accuses index funds that their only goal is to “attract more funds” at low costs. Why did Ackman then create the public vehicle Pershing Square Holdings ? Well, he also wants to attract more fund but a high costs.
  • he thinks that there are not enough activists. Understandable from an activist perspective. Subjectively I have the feeling that Carl Icahn alone is activist at every single stock in the US.
  • at least he admits that “platform” companies like Valeant are not such fantastic cases per se.

On a personal level, I do think there might be already TOO MANY activists. Many of them only care for short term payouts which, in many cases, might not be benefitial for long term share holders.

All in all, if I would have money invested with Ackman, I would really ask myself if I would trust a guy who only blames others for his misfortunes.






Short cuts: Greenlight Re, Hornbach & TGS Nopec

Greenlight Re:

One reader Emailed me that I had made a mistake in my initial post with regard to the book value and P/B ratio. This is what I wrote in December:


2007 2008 2009 2010 2011 2012 2013 2014 2015
P/B Ratio 1,24 0,96 1,23 1,23 1,08 1,03 1,19 1,05 0,78
P/B Ratio adj. B Shares 1,48 1,15 1,46 1,47 1,29 1,23 1,42 1,25 0,93

For some reason, the official Bloomberg ratios do not include the class B shares held by David Einhorn, so I adjusted them accordingly.

Actually, the B shares are included in the stated Bloomberg Ratios despite showing the wrong number of shares, so the “true” P/B ratio is around ~0,79 which then of course makes the “mean reversion” story even more compelling.

Additionally, Greenlight already released the monthly investment return for December which was -0,1% against -1,6% for the S&P 500. So at least its going into the right direction.

Maybe one quick point on comparisons of Greenlight Re to Berkshire, Markel or Fairfax: Although it is true that the other companies have better track records, I do think that Greenlight has one big advantage: The company is transparent and relatively easy to value as the whole investment portfolio is marked-to-market. And as I pointed out, Greenlight for me is not a long-term compounding story but a mid-term special situation betting on a David Einhorn outperformance.


After Hornbach’s profit warning in December, a lot of people asked me: What are you going to do ? Are you selling now ? Why do you own Hornbach at all ?

First thing: I wil do nothing and watch. For me , the profit warning was very surprising as I thought that they are on a good track and have the right strategy, although the business they are in is very tough.

For me, Hornbach is a pretty low risk position. My expectation was that I can make around 10-12% p.a. with very little risk. Until Q3 2015, that was on track but now of course it looks like a clear underperformer.

One of the reasons for this is clearly the fact that in contrast to almost any other stock in Germany, Hornbach did not enjoy any multiple expansion over the last 5 years. For a capital intensive, real estate dominated business like Hornbach, book value is one of the relevant measures. If we look at this we can clearly see that Hornbach now is valued at the low end of the historical range of P/B which ranged from ~0,8 – 1,8 in the past 15 years:

P/B BV/Share
30.12.1999 1,86 8,335
29.12.2000 1,46 8,679
28.12.2001 1,07 11,654
30.12.2002 0,99 11,642
30.12.2003 1,09 12,103
30.12.2004 1,10 13,201
30.12.2005 1,17 13,661
29.12.2006 1,33 15,182
28.12.2007 1,31 16,441
30.12.2008 0,81 18,784
30.12.2009 0,89 20,584
30.12.2010 1,09 22,947
30.12.2011 0,93 24,900
28.12.2012 0,99 25,881
30.12.2013 1,03 27,101
30.12.2014 1,04 29,023
Jan 16 0,84 31,230

Obviously, Hornbach does have some issues. Personally I think one needs to watch the E-Commerce issue most closely. So far I thought that DIY does not have big issues with Amazon & CO but this now needs to be tested.

TGS Nopec

Tgs Nopec released preliminary 2015 figures and a first outlook for 2016. Naturally, the outlook is rather subdued. Combined with the drop in oil prices, the stock got hammered. For shareholders, the only positive aspect is that TGS still is doing a lot better than its capital-intensive competitors, for instance PGS or CGG:

For the moment I will not do anything. Clearly the oil price went lower than I ever thought but TGS has net cash and will manage the cycle conservatively. So I don’t think one has to panic now.

Overall I think the best advice in such a situation is: Either you panic early or you don’t panic at all. For the early panic it is already too late for oil related stocks in my opinion, so the only alternative is to sit it out.

FBD Insurance Update – Prem Watsa to the rescue….

FBD, the troubled Irish insurer issued an interesting press release last week. In one of my last posts on FBD, I mentioned that their plan for capital raising was still unclear.

This clearly shows that FBD is extremely strained from a capital perspective. The biggest unknown in my opinion is how the proceeds of the sold JV will be reinvested into FBD. They don’t comment on that 45 mn EUR at current prices (5,8 EUR per share) would be more than 20% of the company. I don’t know about Irish company laws, but this normally needs to be done on a subscription rights basis. Or the Farmers provide the subordinated capital ?

A few weeks ago, they were out in the market to raise a subordinated bond. Last week however, FBD came out with a quite surprising announcement:
Read more

Short cuts: Bilfinger, FBD Insurance, ABN Amro IPO


It’s “bloodbath time” at least when it comes to accounting. Bilfinger released 6M 2015 figures a few days ago. As often the case with new CEOs, the new one tried to write down as much as possible, in this case ~423 mn EUR or roughly -9 EUR/share:

Charges of 430 million euros ($476 million), including a 330 million write-down of the Power division and 30 million in restructuring costs for Industrial, pushed Bilfinger to a 423 million euro net loss from a profit of 47 million a year ago.

The CEO has sent a letter to all employees, similar to the “burning platform” letter at Nokia some time ago. In Nokia’s case back then it was already too late, let’s see how it works out for Bilfinger. I do think there is some good substance in the company but the transition will be very difficult. For me personally, Bilfinger is still on the “too hard” pile as I cannot judge the viability of the remaining business.

Overall my impression is that the “accounting blood bath” is less aggressive as for instance at Vossloh. I think this has to do with the motivation of the shareholders. At Vossloh, the biggest shareholder Thiele clearly wants to buy more shares at a price as cheaply as possible. At Bilfinger, Cevian clearly does not want to take over the company but rather exit sooner than later.


I looked at FBD, the Irish Insurance company in January and decided to not invest as a didn’t like a couple of things (non-alignment of incentives, aggressive reserving, stupid investment strategy).

In the meantime, quite a lot happened:

The CEO left, the CFO took over and the stock lost around -50% since then. On monday, FBD issued its 6M report and things look even worse than back then, as at Bilfinger, they created a nice “blood bath”. The Farmer’s journal interestingly has the best coverage for FBD. Here are the highlights from the 6M report:

– the had to increase past reserves by 88 mn EUR (!!!)
– they will sell their hotel JV at book value, the proceeds at Farmer’s side will be reinvested into FBD
– they will go for a subordinated bond issue (50-100 mn)

Overall, the lost over 1/3 of their equity in the first 6 months (from 275 mn to 180 mn). The current equity position includes a retroactively implemented restatement which boosted equity by 30 mn EUR. I honestly didn’t fully understand the reason for this restatement.

Within the 6M presentation, they give the following interesting statement with regard to Solvency II:

JV sales and pension scheme actions take FBD solvency capital levels to the regulatory minimum (~100%)

Debt raise will bolster the firm’s capital buffer, taking Solvency II capital to within the firms target range of 110-130% by December 2015

This clearly shows that FBD is extremely strained from a capital perspective. The biggest unknown in my opinion is how the proceeds of the sold JV will be reinvested into FBD. They don’t comment on that 45 mn EUR at current prices (5,8 EUR per share) would be more than 20% of the company. I don’t know about Irish company laws, but this normally needs to be done on a subscription rights basis. Or the Farmers provide the subordinated capital ?

Anyway for now I still don’t think that FBD is investible, one really needs to understand how the capital increase will be executed. From a positive side, my analysis in January was actually quite good and saved me a lot of trouble. Still, FBD will go on my “focused watch list” as it could develop into an interesting “turn around” case as the underlying business, if run well, is still attractive. I ususally don’t invest into turn arounds but in this case I would make an exception as I consider this inside my circle of competence.

Funnily enough the price adjusted almost directly to the new “book value”. It seems as this is kind of the “anker” for investors.


The upcoming ABN Amro IPO could be another chance to invest in a “forced IPO” kind of special situation. However, for the time being it doesn’t seem to be a real bargain according to this Reuters article:

The government has said the bank is currently worth about 15 billion euros, just under its just-reported book value, suggesting a paper loss of about a third on the initial share sale. To break even, the bank would need to fetch a valuation of 1.4 times forward book value – higher than rival ING, which trades at 1.2 times.

For a wholesale/corporate/investment bank like ABN I would not be prepared to pay book value, so for the time being I will watch this from the sidelines, unless they come up with a clear discount to book value.

Update Gronlandsbanken – result and annual report 2014 & Danish interest rates


Gronlandsbanken has just released 2014 numbers and its 2014 annual report. 2014 results look solid: ~50 DKK profit per share, roughly 6% more than in 2013. The dividend remains at DKK 55 (dividend is paid out of pretax income). ROE has remained high at 16,3%. The result would have been even better if Gronlandsbanken would have not increased reserves. This is the quote from the annual report:

The result before value adjustments and write downs of DKK 148,6 million is the Bank’s best basis result so far. This is of course satisfactory. It is at the same time above the last announced results expectation of a result before value adjustments and write downs in the upper end of the range DKK 125 – 145 million. The result before tax returns 16.3% on year start equity after dividend.

This was achieved against a slight drop in Greenland’s GDP which I find quite remarkable. The stock market seemed to have “anticipated” those results to a certain extend as the stock price shows:

The balance sheet is still super rock solid with an equity ratio of 19% (of total balance sheet, not risk weighted assets or some similar shenanigans).

My initial investment thesis 2 years ago was the following:

– as it is the only bank in Greenland, its margins are around twice as high as the best global banks and the balance sheet is rock solid. One could call this a natural moat
– even based on the current state, current valuation implies significant upside to fair value
– the Greenland resource story could add significant growth going forward, even with maybe other banks entering Greenland
– finally, Management has started to buy shares after surprisingly good Q3 numbers
– although there is no direct catalyst, an indirect catalyst could be if some of the projects proceed well and Greenland will move into the spotlight. Gronlandsbanken is the easiest (and only) way to invest into Greenland without project specific risk

One of the issues of course is that most of the natural resources projects look a lot less likely to happen than 2,5 years ago.The annual report is as always a great resource to see what is going on in Greenland. Most projects seem to be on hold or cancelled, the only remaining interest is from China:

Among the larger projects, it has become obvious that virtually only Chinese investors continue to show a certain interest. The BANK of Greenland considers it likely and quite naturally, that the funding can come from China. Chinese enterprises are often the leaders in processing for further use in either Chinese, American, or European industry.

Especially the oil sector has been hit hard:

The prospects of the oil area are more dismal than of the mineral area. After Cairns test drilling in 2010 and 2011, oil exploration in Greenland is now greatly reduced, see Figure 8. The stagnation of the exploration in both the oil and the mineral area is expected to continue over the next few years, even though new licenses have been issued and the preparatory work is continuing in 2014 as well.
The declining interest in oil exploration is a.o. due to large oil and gas discoveries in other places, and the fall in the oil price . Of importance can possibly also be the administration and regulation of the area so far have not been regarded as sufficient by several persons in the industry.

So the bad news is that within my initial time frame of 3-5 years, I will not see any large mining or oil projects in Greenland. The upside might be that the incentive for other banks to enter Greenland will be most likely quite low.

Interest rates

However, another thing happened which was not on my radar screen: Denmark went from having low-interest rates to negative interest rates. This is how 3 month local swap rates developed:

dkk ir

Just as a reminder: Swap rates are “unfunded”, that means based on contracts where no principal changes hands. If we look at “funded” rates, so how much money Danish banks pay for actual deposits, the situation is much more dramatic:

dkk fund

So just to put this in context: If you want to deposit money for 3 months at a Danish bank for 3 months in DKK, they charge you -1,6% p.a. for this “service” !!!!

Impact on Gronlandsbanken:

One thing about Gronlandsbanken which I liked initially but what could be a problem going forward is the following: Gronlandsbanken has a significantly higher deposit base than loans outstanding. While this is good from a liquidity and risk point of view, it is bad because those excess funds have to be invested somewhere and in local currency.

I am not sure if Gronlandsbanken could actually charge for deposits locally, so the risk is there that they get squeezed on the amounts not loaned out to customers. They seem to have anticipated this and increased their bond holdings, but still, at year end 2014, roughly 20% of the balance sheet is potentially exposed to this potential “Negative carry” problem.

On the other hand, as a EUR investor being invested into a DKK security exposes me to a “positive Black Swan” similar to the CHF/EUR move in January. If something goes horribly wrong in the EUR zone, there might be some upside in holding DKK denominated securities.

Addtitionally, any Danish pension fund and Insurance company will struggle to find income producing assets in DKK. With a dividend yield of (gross) of around 8%, Grondlandsbanken should be not unattractive and therefore support the share price in the short term.


The underlying business of Gronlandsbanken has done surprisingly well in 2014 despite a lackluster economy. Due to the carnage in natural resource prices, the implied “resource option” has been postponed some years into the future, making the investment case less attractive compared to 2,5 years ago.

Ultra low and negative interest rates could make it more difficult for deposit-rich banks like Gronlandsbanken to maintain their interest margins. As there are not that many alternatives at the moment I will continue to hold the stock for the time being, as it also functions as a kind of “Euro Black Swan” hedge. If I find other interesting finaincial service stocks, Gronlandsbanken would be the first one to be replaced as I think that my other financial holdings (Kasbank, Van Lanschot, NN, Admiral) have a better risk/return ratio.

I will also monitor closely if and how the negative rates will feed through Grondlandsbanken’s Q1 results.

Short Cuts: Flughafen Wien, Alstom, Trilogiq, Sberbank

Flughafen Wien

A quick update on my “Christmas-special situation” investment Flughafen Wien:

82,2% of the tendered shares have been accepted at the offer price of 82 EUR. With the current share price of ~ 77,5 EUR, the overall return results (pre costs and taxes) are :

(0,822*(82-79,25) + 0,178*(77,50-79,25))/79,25= +2,46% For the portfolio I assume that I would be able to close the position (sell the rest) at 77,50 EUR. Privately my broker DAB was not yet able to “release” the tendered shares.


Back in August this year, I looked at Alstom as a potential “sum of parts” play following the GE deal announcement. One open point was the issue of pending corruption charges. I had written the following:

A second big issue is that at the moment no one knows exactly how much of the liabilities will get transferred to GE. Especially with regard to operating leases (nominal ~830 mn EUR), litigation liabilities (528 mn EUR) and pension liabilites (gross 5,2 bn) there is no definitive answer how much will be transferred to GE and what remains at Alstom. In a sum of part calculation, any of those remaining liabilities will have to be deducted from the extra assets as they are economically equivalent to debt.

I had some discussion and the consensus was that litigation liabilities would be transferred to GE, although I was sceptical. It turned out that I was right in this case. Alstom pleaded guilty and agreed to pay 772 mn USD fine. For the valuation, the most important sentence is this one:

In June, Alstom agreed to sell most of its energy business to General Electric. The French company said it would not be able to transfer its fine over bribery allegations to G.E.

Due to the strong dollar, in EUR the fine is actually 100 mn USD higher han the reserves. Overall, for anyone assuming GE taking over those liabilities, this reduced the value of Alstom by 2 EUR per share.. It will be interesting to see how the transport business is actually doing once Alstom publishes annual results. So far, I do not see any reason to buy the stock from a fundamental point of view.


A few days before Christmas, Trilogiq reported 6m figures (30.09.2014). For some reason, the report is not on Trilogiq’s homepage, so one has to look at secondary sources like this one. Sales were slightly lower, gross margins more or less equal to last year. Net income was significantly lower but still positive.

They attribute the lower result to special marketing expenses and new hires:

la hausse de 13% des autres achats et charges externes, notamment du fait de la multiplication des actions marketing destinées à faire connaitre la nouvelle gamme GRAPHiT à travers le monde, l’augmentation de 12% des charges de personnel qui ont été grevées par d’importantes indemnités de départ et par de nouveaux recrutements

Cash is till around 22 mn EUR or 6 EUR per share. If Trilogiq manages to return at leat to 2/3 of the old profitability, (earnings were between 1,45 EUR per share and 1,75 EUR from 2008 to 2013), the stock would be priced at 6-8 times earnings. It remains to be seen if the temporary effects are in fact temporary. A friend forwarded me this equity research piece on Trilogiq where they expect 1 EUR EPS in 2016/2017 which to me looks quite conservative. Nevertheless, I think the further fundemental downside for Trilogiq at the current stock price is rather limited.


Over the holidays, I decided that I will exit my Sberbank position still within the old year at today’s prices. In the private account this also leads to “tax loss harvesting”. For the portfolio it became clear to me that my investment decision now has been invalidated 2 times. First, I estimated that the Ukraine conflict would be over quickly which was clearly wrong. Secondly, I did not account for the drop in oil prices and the ruble. I have honestly no idea how exposed Sberbank is directly or indirectly to oil and the ruble, but the prudent decision is to sell now and look at the stock (and the Russian market) again next year.

It might look very pro-cyclical selling near the low, on the other hand, if an investment case has deteriorated as much as in this case one should better exit before “behavioural biasis” such as “breaking even” etc. kick in.

MIFA Bond (ISIN DE000A1X25B5) – Distressed debt & Restructuring “German Style”

I had covered the case of MIFA several times in the last few months (part 1, part 2, update, update 2).

Over the week-end, finally some news emerged with details about the restructuring.

If I understood the filing correctly, the following will happen:

1. Existing shareholders will be diluted 1:100
2. Bondholders will accept a “haircut” of 60% plus the coupon will be reduced to 1% (from 7,5%) and the maturity will be extended to 2021 (from 2018)
3. Hero cycles will inject (up to) 15mn EUR via a capital increase
4. Bondholders will get 10% of the new company for the 15 mn haircut and a subscription right for additional shares

Interestingly, the advisor nominated by the bondholders also made a press release. Some additional info from this release:

– the advisor estimated a recovery rate of only 15% for bondholders in the case of bankruptcy
– technically, bondholders will own 91% of MIFA equity before Hero cycle invests
– bondholders get subscriptions right and could, if they want to invest new money, own up to 30% of MIFA including those shares they get via the debt equity swap

As some details are still missing (price of new shares) etc., it is hard to correctly say how much the bonds are worth and if bondholders were treated fairly compared to Hero. However current prices at ~38% seem to imply most of the upside.

My 5 cents on this

For me, the following aspects of this whole episode are interesting:

– How can be the recovery rate of bond issued twelve months ago only be 15% ? Where did the 21,5 mn EUR disappear ? In my opinion, MIFA was a fraudulent company for quite some time and was already insolvent when they issued the bonds.

– Will there be any law suits by bondholders ? Why did Hero take the risk and didn’t wait for insolvency ? Are there any special provisions for Hero to back out if law suits come up ?

“Senior bonds” under German law should not be treated and priced as senior bonds. As this example shows, one can “haircut” bond holders under German law (“Schuldverschreibungsgesetz”) without even going into bankruptcy procedures. German Bonds are much more similar to potentially perpetual, deeply subordinated bonds or “Genußschein” than a senior bond under international law. Any covenants written into the prospectus are worth nothing as it is so simple to just restructure the bonds.

such a restructuring can be decided with only a small percentage of the bondholders. Only 28% of the MIFA bondholders were present when the advisor, who can commit to binding changes, was elected. So in theory, 14% of the bondholders can decide what happens to the remaining 86% of the bondholders with very little chance for any “hold outs”. Maybe Greece and Argentina should issue their future bonds simply under German law. Tha would make life much easier for them.

. why does the MIFA share (1% of the future company) trade at 80 cents or 6 mn EUR market cap ? Do shareholders think that the company is worth 600 mn EUR ? This is a clear “short zo zero” situation if one could actually borrow the shares

– one could argue that the restructuring makes sense because MIFA will be able to continue to operate and now jobs are lost. However I think it would be naive to believe that Hero will operate MIFA they way they worked before. Hero wants the brands and the distribution, not the production. I am pretty sure that they will not guarantee a lot of jobs.

– but at least, the order that existing equity gets wiped out before the senior bonds still holds, even under German law. I had some serious doubts about this.

The most important lesson: As I have written before, new corporate bonds under German law should be avoided at all cost. Especially the “Mittelstandsanleihen” are in principal similar 20 EUR bills issued at 100 EUR with a tiny little option to receive 100 EUR. The “lipstick on this pig” is the high coupon. But German investors seem to buy anything with a high coupon these days anyway. No surprise maybe if you have to pay for holding 2 year treasuries at the time of writing.

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