Monthly Archives: May 2012

AIRE KGaA – Increase of Tender offer to 18,25 EUR per share, Q1 report and Uncle Sam

What a day again for the AIRE KGaA stock.

As reader AS has commented already, AIG has increased the tender offer again up to 18.25 EUR per share.

To make the situation even more interesting, the Swiss fund Alpine Select filed that they have increased their share holding to close to 17%.

In parallel, AIRE published today the Q1 report 2012 which did not contain any news. Money is still coming back. Interestingly they showed on page 8 that 55% of the portfolio is residential real estate, I assume most of this in the US. Current NAV is around 20 EUR.

One funny aspect of the current situation:

I was quite confused that the US Treasury Department was disclosing a stake in AIRE KGaA, ut the i read this sentence:

These voting rights are to be attributed pursuant to sec. 22 para. 1 sentence 1 no. 1 WpHG via American International Group, Inc., United States of America.

As the US Treasury is still holding the majority in AIG, effectively one can sell now the AIRE shares to Uncle Sam.

I think I will soon start selling the shares as the upside seems to be now relatively limited. at the current price it will e the first real “Double”.

Quick news: WMF, Walmart, Praktiker


According to a Boersenzeitung article, for some reason WMF is considering exchanging the Pref shares into ordinary shares (full article can be found in the W:O Thread)

I do not really understand how Capvis could profit from an exchange, unless they already have bought a lot of Pref shares. Then it would be a good deal for them.

Interestingly, the Pref shares now more or less are back to the level of the regular shares.

Maybe time to sell on good news ? Q1 numbers seem to have been really good. For the time being: no action.


Walmart issued unexpected positive Q1 numbers today. Here I will definitely ue the momentum and sell the shares at today’s VWAP.

For some reason I do not believe in the US recovery story, at least not for “physical” retailers. Even if Warren is still buying…..It was never a “high conviction” play anyway, although it made good money.


Praktiker seems to have found an U Hedgefund for its “secured” loan, US Hedgefund Acnhorage. Although it is too early to assess, the downside scenario for the bonds would now be of course more severe, however the proabality of a deafult is lower. No action yet.

Update DJE Real Estate, SEB and CS Euroreal

DJE Real Estate

Thanks to a friend a received the link to the recording including the slides.

Most important points:

– cash payment of ~17-20% of NAV in Juli (1.30-1.50 EUR)
– however overall cash flow to fund holders much slower than initially thought

In the original post I wrote the following

A) around 2/3 of the fund’s investments (based on NAV) are relatively liquid. It should be no big problem for DJE to return 5 EUR or more within the next 12 months or so. This would mean that at current prices, the investment itself should flow back pretty soon and the discount to intrinsic value could decrease equally soon

This seems to be have been overly optimistic. As far as I understood, a couple of funds have extension options from the side of the fund and some of the still open funds need at least 12 months notice to get the money.

According to management, the secondary market for those funds seem to be very illiquid with large discounts.

So for the portfolio, I will start selling the fund from today on, as my investment case which implied signifcant cash flows in the next 12 months does not really hold.

SEB & CS Euroreal

As now already widely known, the SEB has closed for good beginning of last week.

The CS Eurreal is trying its luck now with Monday, May 21st as the last day where investors can ask for redemptions.

Current price action and price to NAV for the CS indicates a very low propability of reopening:

So potential real estate buyers will see a large pipeline of real estate offers from all those funds with sometimes quite similar objects.

One thing which is interesting is that as far as I know, the funds do not really have to sell all obejcts within the communicated timeframe (i.e. SEB 5 years, AXA 3 years). If they don’t manage to sell, the deposit bank has to take over.

As the deposit banks most likely will not want to be involved in those cases (there will be a wall of law suits along the way) they most likely will directly auction off the properties.

So the end could be quite ugly in the worst case. On the other hand, if prices fall further, the run off funds could become interesting again.

SIAS SpA – Deutsche Bank “buy” recommendation and risk free rates

Normally I tend to ignore any sell side ratings for the stocks I am interested in.

However, this time with the Deutsche Bank “buy recommendation” for portfolio Stock SIAS (target 7,70 EUR) I find it interesting how they justify their valuation in the summary:

Our target price of E7.7 is based on an SoTP, which values each concession with an individual DCF based on an 8.5% WACC (5.5% risk-free, 5.0% risk premium and beta of 1.3x). We subtract net debt and provision and we then apply a 20% discount to reflect lower liquidity than peers and risk of value destructive M&A. Sias trades at a 30% discount to the European peers: 2012E EV/EBITDA is 4.5 (vs. 7x for the sector) and 2012E PE is 7.4x (10x). Downside risks are regulatory changes, more negative traffic performances, capex delays and value-destructive M&A (see page 32).

This is highly interesting. As I have written in an earlier post about risk free rates, the CAPM requires to use the default free risk free rate in the currency of the issuer.

It is difficult to determine an “undisturbed” risk free rate in the EURO anyway and maybe the 10 Year rate for Bunds at 1,46% is too low, but using 5.5% as a EUR risk free rate is defintiely wrong. Even more as the Bonds outstanding from SIAS yield 4.9 and 5.4%, which is below the assumed risk free rate.

In my opinion, the Deutsche Bank assumptions double counts the Italian risk because they use a high Beta and a “risky” rate to discount rate. Just as another interesting point: SIAS beta relative to the Italian FTSE MIB is only 0.8.

Nevertheless it is interesting, that even with double counting Italian risk they still end up with a price target of 7,70 EUR which would imply a 65% upside from the current 4.70 EUR.

This shows how undervalued some of the PIIGS shares are at the moment.

Magic Sixes – “new entries” quick check (BAM, ENEL, Mr. Bricolage, Europac)

After the recent stock market declines I had a look into the “Magic Sixes” screen (P/E < 6, P/B 6%), if some interesting companies show up as potential candidates for “contrarian” Plays.

Currently, using Bloomberg, the following “new” companies seem to be interesting:

BAM Groep

P/E 5.9, P/B 0.49, Div. Yield 6,42%

Dutch constrcution group. However highly leveraged, lots of goodwill and negative free cash flow, chart looks like a falling knife on the way to zero —> NOPE


P/E 5.4, P/P 0.57, Div. Yield 10.7 %

Large Italian utility.. Political risk, high debt load and negative tangible book. Howver significant free cash flow genration –> WATCHLIST

Mr. Bricolage

P/E 5,3, P/B 0.4, Div. Yield 6.34%

French DIY chain. Relatively low tangible book, relatively high debt but improving. Stable results over past year —> WATCHLIST


P/E 4.6, P/B 0.6, Div. Yield 7.7%

Spanish paper and cardboard producer. Good tangible book, however relatively high debt load. Volatile Free Cashflow generation, although very profitable in 2011 —> WATCHLIST

Summary: It is interesting to see that some “normal” companies enter into the “Magic Sixes territory”. So the choice for contrarian invetsments is getting better.

French stocks (3): Poujoulat (ISIN FR0000066441) – boring building materials or renewable energy growth machine ?

After my first French stock analysis Installux, let’s have a look at another of my favourite French small caps, Poujoulat SA

As this is a pretty long post, I will introduce a kind of “management summary” in the beginning:


– Poujoulat is a small family owned chimney producer in France

– company is not an asset play (P/E ~ 8, P/B 0.9) but a cheap stock which showed consistent profit growth of 15% CAGR since 1999 with little impact from business cycles

– Poujoulat has profited and profits from the secular trend to energy-efficient heating and is investing into renewable energy (wood pellets)

– if the new “renewable energy” segment really takes of, the company could be worth multiples of the current stock price, if not, the downside is relatively limited as the stock is cheap without any growth


Bloomberg describes the company as follows:

Poujoulat is involved in the building supply and heating industries, and specializes in manufacturing chimneys. The Company, through its subsidiaries, supplies construction companies and individuals in France, the United Kingdom, Italy and Belgium.

If we look at “traditional value metrics, the stock is cheap but not spectacularly so (all information from the 2011 annual report)

MArket Cap: 62 mn EUR
P/E 2011 8,0
P/B 2011 ~0.95
P/S 0.4
Div. Yield 2.7%

So nothing special which would show up on one of the various screeners. So what’s interesting about this company ? That becomes clear if we look at the recent history since 1999:

1999 2.61 2.9% 8.3% 5.6%
2000 3.39 3.4% 10.0% 6.1%
2001 5.85 4.9% 15.8% 8.6%
2002 3.81 2.9% 9.3% 5.3%
2003 5.41 3.9% 12.2% 6.7%
2004 5.10 3.4% 10.5% 6.3%
2005 7.56 4.3% 13.6% 9.9%
2006 9.76 4.7% 15.2% 15.7%
2007 11.62 4.8% 15.8% 10.6%
2008 14.19 5.0% 16.8% 10.3%
2009 16.73 5.9% 17.0% 9.9%
2010 18.15 5.8% 15.8% 9.8%
2011 16.62 4.6% na na

Poujoulat managed to grow its earnings relatively steady by 15% CAGR from 1999 to 2011.

NI margin have almost doubled, however with a small set back in 2011. ROE has increased to a nice 15-17%, ROIC is slightly lower because Poujoulat has some debt on its balance sheet.

So this stock looks like some nice “Growth at reasonable price” stock or GARP. GARP investing was the “Mantra” of Peter Lynch, the legendary Fidelity Portfolio manager.

The most important ratio for “GARP ers” is the PEG (or Price Earnings Growth ratio). The PEG ratio is calculated relatively easy by P/E divided through the growth rate in absolute terms.

For Poujoulat this would be

P/E = 8 , Growth 15%, PEG = 8/15 = 0.53. Everything under 1 is normally considered good, a value like here at 0.53 is even considered very good.

I have no statistical evidence if GARP really works, but all things equal, I always prefer a cheap growing stock to a super cheap no growth stock.

Business model / reason for past growth

Before we go into the valuation exercise, let’s have a look at the business itself. Chimney manufacturing is a highly localised and fragmented industry. Poujoulat calls itself “market leader in Europe” however 85-90% of their business is located in France.

As chimneys are an important part in Fire prevention, chimneys have to be certified by the respective authorities in most countries. So we have certain local barriers of entry because you cannot just import stuff from China and sell it, but I wouldn’t consider this as a really high moat.

Most chimneys are sold through the respective construction companies, so the sales organisation is more business to business than business to consumers. So we should not expect too many branding effects etc. However I could imagine that a good established b2b sales force (plus service and infrastructure) might be a competitive advantage.

Chimneys themselves are not only simple tubes to lead exhausts outside the house, but there seems to be a fair amount of technical knowledge involved.

In summary I would assume that there is no real moat in this business but maybe some regional competitive advantages like sales force etc.. So where did the strong growth in the last 10-12 years come from ?

The answer is relatively easy: usually you need a new chimney if you build a new house or if you change the heating system. As everyone knows, building activity itself is somehow subdued, but due to high oil prices and government incentives, heating systems are being exchanged in an ever-increasing pace.

What seems to be especially interesting is the fact that you seem to get nice tax credits in France especially for wood pellet stoves. According to this article, tax credits have evolved as follows:

In France, 30 – 40% of the population in most areas uses wood as a primary or secondary heat source. However, there was not the explosion of low efficiency polluting devices that occurred in the US in the 1970s and 1980s. As a result, the average French person does not regard wood heating as a pollution problem as many Americans are likely to.

France has had tax credits for stoves at 15% starting since at least 2001. In 2005, they rose to 40% and were as much as 50% in 2008 and 2009. In 2010 they went down to 40%, and in 2011 they were further reduced to 36%. Due to budget cuts, tax credits are likely to be reduced again in 2012 or end altogether.

Also many of the other energy-saving heating systems usually require new chimneys as exhaust fumes are colder and more humid.

So one could compare this a little bit with the German company STo AG, which produces insulation material and profited as well from the energy-saving boom.

If we compare the charts, we can see that at least to a certain extent the stocks performed similar to each other:

So to summarize the business case: We do not have a moat company but a company which has profited and might profit from a secular trend, in this case energy-saving.


Even if we don’t account for growth, the company seems to be really cheap. We can buy a company below book value with an ROE of 15%. Even if we assume no growth and 10% CoC, Poujoulat should still be worth something like 160-170 EUR.

If we assume only half of the growth from the past (~7%) then the stock would could be worth 300-400 EUR.

So from a valuation point of view, I think one gets a free option on the further growth of energy-saving solutions which is not a bad deal.

Management / Shareholders / etc.

The company is led by Frederic Coirier, the son of Yves Coirier who bought the majority of the company in 1975 and is still President of the supervisory board.



The family holds around 73% of the shares, another 11% are held by three French funds according to Bloomberg. In the annual report they mention a forth fund (“Ocean”). So free float is really small, below 10 mn EUR.

Balance Sheet quality seems to be relatively good. Only small amounts of goodwill, no big acquisitions in the past. The company uses debt. Debt to capital ratios improved until 2010, but debt increased due to relatively large investments in 2011. I did not find anything with regard to hidden assets.

Unlike Installux, there is a link to the annual report on the homepage, even English annual reports are available, unfortunately only until 2009. On a quarterly basis, the company only issues sales updates.

Issues / Problems

For a “perfect” stock, Poujoulat does not generate enough free cashflow. Total Free Cashflow since 1999 is negative. This means that they actually had to invest to grow. Which is normal for a company but some investors do not seem to like companies who invest in fixed assets.

Especially in 2011, Poujoulat invested 25 mn EUR or almost a third of the market cap into fixed assets. On the other hand, if a company manages to earn 10% on invested capital and 15% ROE relatively stable across business cycles one could argue that this is actually a good sign if a company has such reinvestment opportunities.

Another issue to be aware of is of course the impact of tax credits and regulations. This is an issue all the renewable energy stocks share, the impact of the Government is huge and regulations could change quickly.

Finally trading for the stock is really illiquid and prices jump around like crazy. It is nor unlikely that from session to session, prices move by 10% without any news up or down.

New business segment

One interesting aspect is that they are actually diversifying away from producing chimneys. Starting only in 2011 they show now a separate segment “Bois energy” which I would translate as “wood based energy”. Almost 50% of new investments in 2011 went into this area, however with a negative result of -600 K EUR in 2011.

If I understood this article correctly (and Google translated well), they are actually moving into manufacturing wood pellets and logs to be used in wood heating. The new production site also seems to include a biomass electricity generation.

Normally I would see this kind of activity as “diworsification” but with Poujoulat this might be a little bit different. Due to their know how with wood heating and chimneys, they might have a relatively good inside view into this market.

So this could even be the start of a new fast growing segment for the company. As far as I know, the wood pellet market is currently quickly growing and to my knowledge, Poujoulat is the only listed company with exposure to this segment of renewable energy. I have some friends who work in Private Equity who consider this area as quite interesting.

The business segment showed a loss in 2011 although this seems to be normal if you start something like this from scratch. In another article, they say that the new processing plant went live only in Novmeber 2011. Here is a picture:

Accoring to the articel, the dried wood logs and pellets are sold through 1.400 point of sales. So this is something to watch closely, although due to the reporting of Poujoulat we will see the next results only in next year’s annual report.

If we assume a 15% growth rate for this business and a 10% ROA based on the current 25 mn EUR investment, this segment alone could be worth an additional 50-100 EUR per Poujoulat share.

Current quarter

In the first quarter 2012. as usual they only report sales divided into France and “export”. On a group level, they increased sales by a whopping 14.5%, with France actually growing 17%.I assume that this includes the wood energy segment has contributed significantly to this growth.

If the Wood energy business returns the same ROA as the other businesses, we should see some extra 3-4 EUR earnings per share pretty soon.


As a pure building material stock, Poujoulat would not be interesting. However due to the fact that they profit over proportionally from the secular trend to energy-saving, the stock becomes more interesting. The final argument for me was the “free option” included for the new segment “wood energy” which looks promising and is not priced in my opinion.

So for the portfolio I will start accumulating Poujoulat from today with a limit of EUR 140, although due to the low trading volume it might take a while before a reach even 1% of the portfolio.

Praktiker Bond – catalyst event (sort of…)

Interesting developement for my “special situation” investment, the 2016 Praktiker senior bond. In my analysis I had written the following:

Potential Catalyst:

In my opinion, something with regard to financing has to happen this year. So there might be a good chance that the bond reacts positively within a limited time frame if the refinancing package is hopefully finalized.

So fast forward to this weekend: The CEO and another board member have been fired and one oof the supervisory board members stepped in.

According to this Handelsblatt article, a new restructuring concept was presented by the largest shareholder which requires a lot less capital (120 mn EUR compared to 300 mn EUR) than initially announced.

There seems to be a new loan of 85 mn EUR and a capital increase in the pipeline, however no further details are available.

If one looks at the chart of the bond one can see that this was clearly positive news for the bond:

So where do we stand with regard to the initial scenario analysis ?

With this in mind, I think one can now try to analyse the different possible scenarios for bondholders, which in my opinion are

1) No bankruptcy – (unrealistic) best case: Take over within 1-2 year and early full pay out of bond
2) No bankruptcy – normal case: Bond pays out as scheduled
3) No bankruptcy – bad case: coupon gets reduced in second round of bondholders vote
4) bancruptcy – normal case: bond gets “fair” share of liquidation value 40% in 2016
5) bancruptcy – bad case: “DIP” financing reduces liquidation value significantly , value 10% in 201

I think at the moment, it is too early to fully assess the situation as the details of the financing are not available yet. Due to the bond covenants I asume the loan financing might be tricky.

So for the time being, I will hold the bond despite the quick 30%+ gain in only a few weeks. However if the bond goes above 60% without further news I will most likely sell as the intrinsic value of the negative (and cautious) scenario would have been fully realized.

Edit: On Praktiker’s homepage they issued a press release about this.

They talk of ” Vorrangiges Darlehen” which equals a senior secured loan. It will be interesting to see how they reralize this. As I have mentioned before, the bond contains a “negative pledge” covenant which should prevent any pledging of relevant assets. So this will be really interesting….

Weekly links

If you only want to read one thing today, I would highly recommend the Jim Chanos Interview in the spring issue of the Graham & Doddsville newsletter.

Great post at Greenbacked about the Magic Formula

Interesting post about fallen Angel UK retailer Supergroup from ExpectingValue

Excellent write up on Avon by Wexboy.

Nate from Oddball about managing risk an and learning from mistakes. Odd how similar his portfolio management rules are to my rules.

Stefan at SimpleValue analyses AutoHellas, a Greek company which is on my watchlist but I never really had time to write about. Recommended !!!

SIAS SpA – Mixed Q1 report & special dividend

It was an interesiting week for SIAS SpA shareholders already. Today, SIAS published Q1 numbers.

Traffic decreased significantly, but was compensated more or less through tariff hikes.

The most interesting part of the press releae was however this one:

As already highlighted in Management Discussion & Analysis of the Financial Statements as of 31 December 2011, SIAS S.p.A. has signed an agreement on 24 February 2012 with Autostrade per l’Italia S.p.A. concerning the disposal of the entire stake held in Autostrade Sud America S.r.l. (representative of 45,765% of share capital) for an overall amount of EUR 565.2 million; on 8 March 2012 the first installment – equal to EUR 100 million – of the consideration has been collected. The predictable completion of the transaction in the above mentioned terms (expected by 30 June 2012) could result in the distribution of an extraordinary dividend, in one or more tranches, associated to the capital gain produced by the same disposal.

As I have written earlier, the capital gain has been around 380 mn EUR.

So this could mean a special dividend of up to EUR 1,50 per share. I consider this announcement as extremely positive, as the fear of Gavio using SIAS for further Impregilo purchases should be no longer valid.

Maybe this explains the crazy reversal int he stock price from yesterday’s lows:

Together with the normal dividend, at the current price of 4,80 EUR one gets back more than 40% of the shareprice in the next 12 months. That should be quite some support for the share price.

On this basis I will accumulate up to a full position beginning next week.

By the way, yesterday’s 1% purchase was executed at the VWAP of 4,39 EUR per share.

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