value and opportunity

Since the first post about Gronlandsbanken last year, the stock developed quite nicely so far, around +33%.

Part of that positive developement can be clearly attributed to the very positive 2012 annual report.

The first sentence of the report sets the tone:

Record Profits at The BANK of Greenland in 2012 – Return on Equity of 17.9% p.a.
Throughout the years of the financial crisis, The BANK of Greenland has managed a consistent series of fine results. Therefore, the bank is satisfied with the fact that the 2012 result was the best in the bank’s history. The profit on ordinary activities was DKr. 135 million – an increase of 72% as compared with 2011.

Earnings after tax were ~51 Kroner per share, resulting in a Trailing P/E of 12. Surprisingly for me, Gronlandsbanken decided to almost double the dividend from 30 Kroner to 55 Kroner, providing a “juicy” 8.8% dividend yield based on current share prices of 625 Kroners.

The report is again a very good summary of the situation in Greenland. They also mention the potential big projects and as a bank of course the recommend the following:

These major projects are a unique opportunity. It is crucial to take advantage of them.

Now comes the interesting part:

3 days ago, Greenland elected a new Government. And, surprise surprise, the opposition party did win, with Aleqa Hammond becoming the first woman to become prime minister.

In the press, the new Government is often cited as “Anti Mining”, in my opinion however they only difference is that they want to receive higher taxes and make sure local people get work too. For the mining companies, this means of course higher costs, but for local businesses (incl. Gronlandsbanken) this could mean that more money stays in the country which would be very good.

An additional interesting aspect was that the old government was against rare earth mining, because that stuff contains Uranium which was a no go for the old president.

There is also a quite recent article in the Economist which kind of confirms that view.

Summary:
So all in all I think the Bank is on good track and the nice dividend will maybe attract further investors. The change in Government should be good for local businesses going forward. I have therefore increased the stake by 1% of the portfolio (2000 Shares) up to a 2% position at a share price of ~630 Danish Kroners, representing the VWAP from March 8th to March 14th.