Monthly Archives: September 2012

Interesting short idea from Bronte (and a free course in forensic accounting): Focus Media (Chinese RTO)

For those who don’t read the outstanding Bronte Capital blog regularly, I can ony recommend: put it on your priority reading list.

After his not so well timed Richemont short, he has now set his eyes on Chinese company Focus Media from China.

Focus Media is a (on paper) fantastically profitable company from China wich was already subject of a Mudddy Waters report.

John Hempton has now a real series of very detailed posts about the company:

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Some half year updates – Poujoulat, Total Produce, Dart Group, Installux


Quite surprisingly, Poujoulat announced a stock split 1:4,, this is the release from Poujoulat:

En date du 21 juin 2012, l’Assemblée Générale de la société POUJOULAT a décidé la division par 4 de la valeur nominale de l’action POUJOULAT négociée sur le marché ALTERNEXT Paris. Cette mesure permettra de fluidifier les échanges et de rendre le titre POUJOULAT plus accessible (son cours étant actuellement supérieur à 130€) En pratique, l’opération de division par 4 sera réalisée sur les soldes EUROCLEAR du vendredi 7 septembre prochain et sera effective le lundi 10 septembre à l’ouverture du marché. Les détenteurs d’actions POUJOULAT se verront attribuer automatiquement 4 actions nouvelles pour une ancienne.
Les droits antérieurs rattachés aux actions ne seront pas modifiés, notamment le bénéficie du droit de vote double pour toute action gérée au nominatif pur depuis plus de 24 mois. Le nombre d’actions POUJOULAT en circulation sur ALTERNEXT Paris sera ainsi porté de 489 750 à 1 959 000.

Let’s wait and see if this somehow helps the stock or not.

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Leveraging Investment returns if you are not Warren Buffet and you do not own an Insurance company

This post was inspired by an interesting paper which explores how much of WBs success is attributable to leverage.

The authors calculate that Buffet applied (mostly through his insurance float and debt a leverage ratio of between 1.4:1 to 1.6:1 over the life of Berkshire.I would speculate that this might be even higher if one factors in his sales of S&P puts and CDS protection.

However, for the ordinary investor it is quite difficult to gain access to cheap insurance float and the AAA funding cost Warren Buffet enjoys.

So what are the alternatives for “normal” investors ?

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Guest post: Curanum AG (ISIN DE0005240709)

Reader Ben forwarded me his great write up for Curanum, the German care and serviced appartment provider for senior citizens which I publish with his permission:

Curanum AG – Write Up (1)

His conclusion was as follows, but I think one should read the whole piece although Ben is not recommending the stock at the moment::

As overcapacity is expected to be reduced in the upcoming years I expect occupancy rates to recover from their current lows. As this will give Curanum some time to breathe, the management will have to make additional investments in their facilities to be able to comply with regulatory requirements. From my perspective there is not much room for additional acquisitions for the following reasons.

First, the company is highly leveraged. Second, the company just increased its number of outstanding shares by almost 20%. Hence, demand from equity holders should be satisfied at the moment and banks are currently reluctant to even refinance existing debt. Given the high cost pressure and limited pricing power a further decline in margins within the next years is highly likely from my perspective. The company is currently generating healthy cash flows, though capex seems to be too low, which will negatively affect cash flow generation in the future. Most of this is reflected in the current share price, so I do not think that Curanum is a prime short candidate.

To the contrary, given the current downside trend in the stock price, the sock seems to be ready for a rebound. A short term catalyst could be a successful refinancing of the maturing debt facility. However, from a long term investor perspective I do not think that the company does offer an attractive risk/return profile.

Rhoen-Klinikum (DE0007042301) – or why merger arbitrage is a really hard business

The Story of the takleover fight for German hospital operator Rhoen Klinikum has been in the news quite often lately.

I try to summarize it in a few short sentences:

Fresenius AG the big German healthcare group launched a bid at 22.50 EUR contingent on getting 90%
– in the meantime, some of the German competitors bought large stakes (Asklepios, Braun) of 5% to block the deal
– additionally some M&A arbitrage specialists (John Paulson) took stakes as well, hoping for a higher bid
– on the weekend, Fresenius then declared that they will not pursue the offer and the stock price drops almost 30%

Rhoen is now back or even below the level before the offer:

This shows that merger arbitrage is not an easy business. I have to confess that i was tempted to speculate on the Fresenies offer as well, but thanks to not having time to write a blog post, I didn’t jump into it as I would have done before I started the blog.

Fresenius is a big player and I would have thought that they might make at least one more attempt to gain 90%, which under German law would give them the right to squeeze out monrity shareholders.

However, now it is a different situation.

Rhoen is a well managed company and scores quite well in my Boss model. On top, we know that the private market value of the company is 22,50 EUR and one could theoretically buy it at a nice discount. Rhoen is one of the few German companies which do not have a majority shareholder although the fuender with his 13% holding still has a big influence but obviously not enough.

However, Rhoen is now clearly “in play”. I am considering really hard, if I should not open a half position for my “special situation” bucket.

Any opinions on that one ?

Weekly links

Sequoia Funds shareholder day Q&A transcript

Toby Carlisle (Greenbackd blog) lecture about how to beat the magic formula

Bronte has a couple of great posts about Chinese company Focus Media as a potential short. Despite his mistake with Richemont, I think Bronte is still an outstanding investment blog, if not the best.

Great post from Damodaran about Apple’s short product life cycles

Don’t miss Nate’s take at diversification at Oddball.

Some interesting blogs I discovered lately:

Ragnar is a pirate Great blog about off-radar investments including reantal housing experiences etc.

Also sprach analyst: Hong Kong based blog with a lot of (critical) infos about China

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