Some links

Brad Feld thinks startups should prefer “clean” down rounds to crazy structures

A deep dive into the factors why Nuclear Power is so expensive

Despite some popular home runs, Biotech Stocks as a group have underperformed over the long term

The Value Shares blog likes Vopak (German)

Searching4Value likes Croatian Pharma stock Krka

Bill Gates has released his “5 books for the summer” reading list

TikTok seems to have become essential for Music labels

 

 

Inflation vs. Pricing Power for Chemical companies & Nabaltec follow up (ADD)

Disclaimer: This is not investment advice. PLEASE DO YOUR OWN RESEARCH !!!!

Inflation & Pricing power

One of the obvious strategies for for investors in an inflationary environment is to pick companies that have “Pricing power”. Pricing power means that companies should be able to raise prices at least as quickly as costs rise.

Now one could try to do some deep thinking if and how different business models react to inflation. As I am a more “hands on” guy, my solution is to look at actual numbers and then try to draw my conclusion.

For any company that is producing material goods, the best indicator for pricing power in my opinion is Gross profit, i.e. the difference between selling price of a product minus the direct costs to produce them.

A company with pricing power should keep the gross margin or ideally even improve gross margins in an inflationary environment.

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All Danish Share part 8 – Nr. 71-80

And another 10 randomly selected Danish shares. This time, only one stock made it onto the watch list. With 80 out of 179´stocks, we have covered almost half of the Danish universe by now..

 

71. Scandinavian Brake Systems (SBS) A/S

SBS is 4 mn EUR market company that seems to be a failed automobile supplier. “Pass”.

72. Relesys A/S

Relesys is a 34 mn EUR market cap SAAS software company that was IPOed in early 2021 and has lost -50% since then. The company has around 5 mn EUR in revenues in 2021 and is growing at around 30-40% p.a.

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Some links

Not surprisingly, Wall Street Banks earned very well during the SPAC boom

And another long read on SPACs and upcoming regulation that would make the promoters actually liable (and therefore kill SPACs altogether, thank god)

“Undermoney” seems to be a very interesting book according to this review

In case you need a reminder: Market timing is not working

“The  Superinvestors of Augustusville” looks like a promising new stock blog/substack

Interesting reference to a 1950s Spin-off and a very interesting sounding Special Situations Book

The Private Equity sector looks quite shaky based on the recent behaviour

 

Insurtech Massacre part 3 – Lemonade & Churn, churn, churn !!

Long time readers know that I have a soft spot for insurance companies. Some weeks ago, I started looking into Insurtech companies and then I looked into Lemonade’s 2021 earnings. Since my first post, Lemonade has lost another 1/3 of its value and is now significantly below its IPO price.

What I like about Lemonade is that they indeed created a “fresh” insurance brand, however the numbers were clearly challenging. My main takeaways from last time were as following:

  • Growth is slowing
  • marketing cost is increasing (per new dollar premium)
  • The business is not really scaling

Already a week ago, Lemonade issued its Q1 earnings. This time, I have compiled a few line items that I find interesting on a quarterly basis in order to analyze things more deeply:

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Some links

Nice write-up on Apollo Global (although I would not invest there)

An interesting essay on streaming – Unbundling vs. Bundling etc. from the former CEO of Sky

NotBoring on the Terra-Luna implosion

Why the US has an infant formula (milk powder) crisis

The UndervaluedJapan Blog celebrates its (slightly frustrated) 10th anniversary

Rare feature on Chris Hohn (TCI Fund)

John Hempton is angry about the Management of Swedish Match because of the proposed take over

All Danish Stocks part 7 – Nr. 61-70

Looking at randomly selected Danish shares is a nice exercise in order to calm one#s nerves during times like these. here is yet another batch of 10 Danish shares. This time, two of them I found worth to “watch”, for one of them i even started an initial position.

 

61. Genmab A/S

Genmab is a 18.4 bn Biotech company that manufactures among other stuff antibodies that are used for cancer treatment. The company is extremely profitable, with net margins between 35-60%. 

At 50x 2021 earnings and 17x revenues, the stock is not cheap, despite a drop in profits in 2021.

The share price has corrected a little but investors that hold the stock for a few years should be still very happy:

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Some links

There is some evidence that “Bond King” Bill Gross was indeed a great bond investor

Wired story about Shein, the Chinese Ultra Fast fashion company

A not so positive take on Spotify

Some very deep (and not very optimistic)  thoughts on inflation by Prof. Damodaran

A nice pitch for Medios AG from VERUS (German)

Nice post on some lessons learned from “master capital allocator” Tom Murphy (Capital Cities)

A good thing to remember: Warren Buffett’s (short term) market timing skills are not that good

More thoughts on Inflation (Linkers, Pension liabilities, highly indebted Countries)

As inflation is something that we haven’t seen for a few decades, I am still trying to get my head around this trying to understand how this could influence investments going forward.  In this posts I just wanted to touch three areas: Inflation linked bonds, pension liabilities and highly indebted countries. 

  1. Inflation linkers

When looking for assets that gain or at least compensate for inflation, one should not forget Inflation linked bonds. Per construction, they compensate at least fully for the officially measured inflation.

In addition, Inflation linked bonds function also as an instrument to observe “implied” inflation rates, I.e. the market price of an inflation linked bond contains the investor’s expectation for future inflation rate.

The German agency for debt has a good page (in German) that explains how these securities work. One thing to mention is that most bonds are linked to Eurozone inflation, not German inflation.

Looking at the detail page of the 2033 linker we can see that this bond carries a 0,10% coupon and trades at a yield of -1,73%.  Comparing this with the 2032 fixed rate bond (there is no 2033 fixed rate Bund) that yields around 1%, we can estimate that the difference between the two yields (1-1,73%)= 2,73% is the market’s current estimate for the inflation in the Eurozone for the next 10 years or so. (Remark: in reality, this is more complex, see for instance here, but for this exercise it is good enough).

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