MUST READ: Graham and Doddsville fall edition (Greenblatt, Royce, Tisch)
Steve Romick plays the “Renault stub” game among others.
Long read from Micheal Pettis about how to be a China Bull
16 timeless lessons about investing from Walter Schloss
16 timeless lessons on investing from Sir John Templeton
So to conclude my “Bouygues week”, a final post about the company.
In my recent post about Bouygues, a commentator said if I can’t correctly project future profitability levels for the French mobile phone market, then investing into Bouygues is not a good idea.
As I call myself a fundamental investor, I have to admit that I do not have any extra knowledge about the french mobile market at the moment.
Recent news
After my buy decision two days ago, the share price jumped immeadiately 3%, but this was not the result of my blog but of some interesting news from the French Government, which was interpreted as positive for Bouygues Telecom.
The French Government seemed to have clarified that Illiad SA wil not be able to rely on cheap roaming contracts forever, but has to build out their own network rather sooner than later.
O2 IPO
Another, in my opinion even more interesting story is the currently planned IPO of Telefonica’s German mobile business O2. According to the FTD (German), Telefonica is looking for an EV/EBITDA multiple of 6.5-7.
One has to keep in mind that this is only the number 4 operator in Germany and they are offering a minority stake only.
So I would say my 6.5x EV/EBITDA for Bouygues is not that far off from reality.
What I found even more interesting is the fact that at least in the second quarter, O2 managed to earn 333 mn EBITDA based on 789 mn EUR sales. This is an EBITDA margin of 42% against ~20% for Bouygues. This is really interestign becaues for me it shows the potentail for Bouygues if O2 manages to earn such margins in such a tough market as Germany which has already 4 carriers.
I will have to reread Bruce Greenwalds “Competition demystified”, but I am pretty sure that if at some point in time Iliad has etsablished itself, there is a good chance that margins might “mean revert”.
In any case, if the IPO goes through, O2 will be a very good comparable for Bouygues, much better than Vodafone or France Telecom.
After looking at one of the main subsidiaries Colas in the last post, let’s have a quick look back at Bouygues, the holding company itself.
Sum of part valuation
As I have mentioned in the initial post, Bouygues has 3 listed subsidiaries, Colas, TF1 and Alstom as well as 3 unlisted major subs which are Bouygues Construction, Bouygues real estate and Bouygues Telecom.
To get a feeling for a “sum of parts” valuation, we should start with the listed subs and then make assumption for the unlisted ones.
Following the first post about the Bouygues Group, I want to have a look at Colas SA, the major listed subsidiary of Bouygues.
Colas itself looks not really cheap based on traditional valueation metrics, only EV/EBITDA looks like a joke (according to Bloomberg)
Market Cap 3.5 bn EUR
P/E 11.0
P/B 1.4
P/S 0.27
EV/EBITDA 2.4
When I published the https://valueandopportunity.com/2012/09/26/publishing-the-boss-score-top-25-france/ Top 25 Boss Score List for France, I was not aware that in the 3 lists, basically all listed subsidiaries including the mother company of the Bouygues Group showed up.
As far as I have seen, Bouygues owns the following percentages in those listed companies:
Colas SA 96.55%
Alstom SA 30.71%
TF1 43.59%
Again, September has been a surpisingly strong month against the Benchmark. The Benchmarl (50% Eurostoxx, 30% Dax and 20% MDAX) gained +1.3% resulting in a YTD perfromacne of 18.2%. The portfolio returned however +3.3% in September, resulting in a YTD performance of 28.7% or 10% better than the benchmark.
Full performance overview:
| Bench | Portfolio | Perf BM | Perf. Portf. | Portf-BM | |
|---|---|---|---|---|---|
| 2010 | 6,394 | 100 | |||
| 2011 | 5,510 | 95.95 | -13.8% | -4.1% | 9.8% |
| Jan 12 | 5,972 | 99.27 | 8.4% | 3.5% | -4.9% |
| Feb 12 | 6,275 | 105.90 | 5.1% | 6.7% | 1.6% |
| Mrz 12 | 6,330 | 107.22 | 0.9% | 1.2% | 0.4% |
| Apr 12 | 6,168 | 108.02 | 0.8% | -2.6% | -3.3% |
| Mai 12 | 5,750 | 108.90 | -6.8% | 0.8% | 7.5% |
| Jun 12 | 5,969 | 110.17 | 3.8% | 1.2% | -2.6% |
| Jul 12 | 6,229 | 112.15 | 4.4% | 1.8% | -2.6% |
| Aug 12 | 6,428 | 119.48 | 3.2% | 6.5% | 3.3% |
| Sep 12 | 6,510 | 123.48 | 1.3% | 3.3% | 2.1% |
| YTD 12 | 6,510 | 123.48 | 18.2% | 28.7% | 10.5% |
| Since inception | 6,510 | 123.48 | 1.8% | 23.5% | 21.7% |
Top performers in September were Total Produce, SIAS, Buzzi and KAS Bank, although most of the positions were positive.
There were no big changes to the portfolio apart from the two new shorts (Prada, Focus Media) and the 1% Rhoen Position. Piquadro has been completely sold down. As discussed https://valueandopportunity.com/2012/06/18/cranswick-plc-isin-gb0002318888-business-model-and-valuation/#comment-3106, Cranswick has been “upgraded” to a full position.
Portfolio as of Sep. 30th 2012:
| Name | Weight | Perf. Incl. Div |
|---|---|---|
| Hornbach Baumarkt | 4.6% | 2.6% |
| Fortum OYJ | 3.4% | -23.8% |
| AS Creation Tapeten | 3.9% | 9.5% |
| BUZZI UNICEM SPA-RSP | 4.9% | -2.4% |
| EVN | 2.7% | -5.5% |
| WMF VZ | 3.9% | 51.2% |
| Tonnellerie Frere Paris | 5.1% | 27.0% |
| Vetropack | 4.8% | -3.1% |
| Total Produce | 5.5% | 28.1% |
| OMV AG | 2.1% | -6.2% |
| SIAS | 6.0% | 35.8% |
| Installux | 2.9% | 1.4% |
| Poujoulat | 0.7% | 10.2% |
| Dart Group | 2.5% | 12.6% |
| Cranswick | 5.2% | -0.4% |
| April SA | 3.3% | 15.3% |
| Mapfre | 0.7% | 44.2% |
| KAS Bank NV | 5.2% | 12.6% |
| Drägerwerk Genüsse D | 9.7% | 94.0% |
| IVG Wandler | 2.1% | 13.4% |
| DEPFA LT2 2015 | 2.9% | 39.2% |
| HT1 Funding | 4.4% | 21.1% |
| EMAK SPA | 5.0% | 26.3% |
| Rhoen Klinikum | 1.0% | 4.0% |
| Short: Kabel Deutschland | -2.2% | -52.2% |
| Short: Focus Media Group | -1.0% | 2.4% |
| Short: Prada | -1.0% | 1.7% |
| Short Ishares FTSE MIB | -2.3% | -3.0% |
| Terminverkauf CHF EUR | 0.2% | 5.1% |
| Tagesgeldkonto 2% | 13.9% | |
| Summe | 100.0% | |
| Value | 67.4% | |
| Opportunity | 25.1% | |
| Short | -6.3% | |
| Cash | 13.9% | |
| 100.0% |
Comments:
The portfolio now has a certain “tilt” towards the Euro crisis. Although the direct percentage of PIIGS is only around 18%, a couple of the other positions (HT1, IVG, April) do show correlation with the developement in the Eurozone.
I do not have a problem with this as I think all those stocks are cheap based on “bottom of the cycle” valuations. As indicated in my “boss Score” posts, I will prioritize to a certain extent French stocks going forward, as I find them exceptionally cheap as well.
Regarding the macro picture, I have nothing new to add. BRIC’s look relatively weak if you look through the hype and the US is not doing that well either. So I find no reason to go “hunting” for value outside Europe for the time being.
Cash is with 13.9% still comfortably high, I could add one position and still maintain my minimum threshold of 10%.
All in all I try to prepare myself for some months of underperformance as the current status seems to be “too good to be true”. Past experience however shows that such “hated rallys” have really long legs and it usually doesn’t pay to time the market.
Following the Top 25 Germany post, let’s look at the next big Euro stock market, France:
Top 25 France 10 Year Boss Score:
Top 25 France 5 Year Boss Score
Those lists are based on a sub set of ~ 400 french stocks.
The most fascinating aspect about the French market for me is the fact that French companies look much much cheaper than their German counterparts. Of course, both list contain some “deep value” stocks like Toupargel, where a “terminal decline” might be possible.
On the other hand, there are still enough cheap “quality” companies. For instance, if we include an additional criteria like Stock Price > 1.25x book value, we still get a nice list of cheap “higher quality” companies:
For me, France is currently one of the most interesting markets for Value investments. Despite the bad press, there are many interesting and cheap companies. It reminds me a little bit about Germany and German companies 10-15 years ago, when Germany had to suffer the “reunification hangover”.
Looking back it is hard to understand why German quality companies were so cheap. I think there is a good chance that France will do its homework. One shouldn’t forget that most of the tough reforms in Germany (Hartz 4, work flexibility etc.) were actiaslly implemented under a Socialist government.
As announced in the last post, until I find a nicer solution for the whole file, I will publish selected lists.
As there are many German readers, I start with German stocks.
First the Top 25 German stocks based on the 10 year Boss Score:
and then the German Top 25 stocks based on the 5 year Boss Score
This is based on ~400 German stocks, so it is not a complete list.
Not surprisingly, a couple of stocks are in my Portfolio (Hornbach, AS Creation, Rhoen) or were in the portfolio at some point (Frosta, Einhell, Bijou). Interestingly, one can see that in the 10 year Top 25, there is a mixture of cyclical stocks (Salzgitter, Aurubis, H&R, Bauer), Holding Co’s (Indus, Gesco), port operators (Eurokai, Bremer Lagerhaus) and Nanocaps (Nucletron)
One of the stocks I really have to check out is Mühlbauer, I always considered it as a “neue Mark” stock but maybe it is worth a second look. Also I find interesting how well the expensive “quality stocks” like Sixt and Grenke are scoring.
From the 5 year list, I find IVU and Bechtle most interesting. Eurokai might be worth a second look as well.
All in all however, German stocks look relatively expensive in my model. Other countries like France yield a lot mmore interesting companies.
All tables will be posted on the Boss Score page.
A few month ago I described my Scoring model which tries to identify potentially interesting stocks which show low fundamental volatility at attractive valuations and ROEs above cost of capital (“Boss” for “Boring sexy stocks”).
In the meantime I have built up a Excel database of around 1.500 stocks (and growing…). As I am a big fan of sharing information, I tried to come up with a convenient and cheap way to publish the results.
Ideally I would like to have something like an “Online database” where one could search & filter by certain categories, like Name, Score, Volatility, ROE and then get the results. And of course this should be easy to implement (no programming, easy update and free of charge).
So far I managed only to embed a google spreadsheet into WordPress. I imported the first 50 stocks in the database starting with A in a test page on the blog. The page is online already since a couple of weeks but so far no one has noticed (or no one is interested anyway). The result looks like this:
(By the way, Accell really looks good in the model…..)
Google Docs is a great way to do this. As soon as I update the Google sheet, it updates automatically in the blog. However, embedding the sheet in WordPress does not allow to use the search function or similar things
So here is the question:
Does anyone have an idea how to make the embedded google sheet more user friendly, i.e. searchable through something like a drop down menue ? I don’t really want people to access the underlying sheet.
Or is there another way to put a searchable Excel sheet online without programming and costs ?
In the meantime alternative I would just publish selected subsets like Top 10 per country or something like that.
So if you know how to do this, please send me a mail or comment on the page.
value and opportunity 