Monthly Archives: March 2013

Total Produce (IE00B1HDWM43) 2012 preliminary results – Disappointing

Total Produce is one of the core holdings since the beginnings of this blog. In the beginning, we analysed the stock mostly in German, nevertheless, we finally settled after some back and forth on a fair value range of 0.69-0.83 EUR per share based on a free cash flow analysis, assuming ~8 cent of “adjusted” free cash flow per share (adjusting esp. for minorities.

One of the issues with Total Produce were back then Balance sheet quality (lots of goodwill, leverage) and only average return on equity, which however was set off by a very cheap price, significantly below book value

In between 2 things happened:

1. The price of the stock increased nicely to around 0.61 EUR. resulting in an overall performance of +55% incl. Dividends.
2. The quality of earnings however deteriorated in my opinion.

I think I have to explain point 2 a little bit in more detail. If you read the 2012 premliminary results, everything looks great:

Revenue (1) up 11.2% to €2.8 billion

Adjusted EBITDA(1) up 17.8% to €70.4m

Adjusted EBITA (1) up 21.4% to €54.6m

Adjusted profit before tax (1) up 19.1% to €47.3m

Adjusted EPS (1) up 12.0% to 8.11 cent

Final dividend up 12.0% to 1.512 cent; total 2012 dividend up 10.0% to 2.079 cent
Key performance indicators are defined overleaf

So everything is up double digits, where is the problem ? Well, the problem could be the use of the word “adjusted” in most of the items presented.

If one flips to the next page of the report, we can already see that “unadjusted” EPS declined by -7.5% from 7.11 pence to 6.58 pence per share.

Where does that come from ?

The “explanation” reads as follows:

Adjusted earnings per share excludes acquisition related intangible asset amortization charges, acquisition related costs, exceptional items and related tax on such items.

On the one hand, one could say OK, acquisitions are not part of the operating business, let’s ignore that. However, Total produce does a lot of acquisitions, year after year. Most of their growth actually comes from acquisitions, organic growth seems to be quite limited.

Total Produce, year after year reports those “adjusted” earnings, whereas the “regular earnings” are always lower. Let’s look at the past 4 years:

2012 2011 2010 2009 Avg
“adjusted ” EPS 8.11 7.24 6.84 6.47  
EPS 6.58 7.11 5.25 3.7  
EPS/Adj. EPS 81.1% 98.2% 76.8% 57.2% 78.3%

So not surprisingly, we only see “upside” adjustments, on average the “real” EPS is only ~78% of the adjusted EPS.

But it gets worse. In my opinion, one of the most “underused” pieces of information about the quality of a companies’ accounts is the Comprehensive Income statment.

“Modern” IFRS accounting allows quite a lot of items to be booked directly into equity as those items are considered sort of non-operating as well. Usual suspects in this category are:

– pension revaluation
– fx effects of foreign subsidiaries
– revaluation of fixed assets

In my opinion, one has to look at all those items because all of them influence the value of the equity position. Let’s look again at the last 4 years:

2012 2011 2010 2009
EPS 6.58 7.11 5.25 3.7
EPS “Comprehensive” 5.15 4.21 5.39 7.34

2009 looks better based on comprehensive income, however especially 2011 and 2012 look bad from that perspective. This is mostly the result of pension charges. interestingly, in 2009, they booked a 3 mn EUR pension gain into comprehensive income, since then, Total Produce however had to book in total 30 mn EUR negative charge through comprehensive income.^The discount rates used to discount the liabilities at the end of 2012 are still relatively high at ~4.2% both for EUR and UK. So there will be more charges coming.

Many analysts will tell you that comprehensive income doesn’t matter, because it is not operational, but I have a different view. With regard to pension for instance, an increase in pension liabilities means that you will have higher cash outflows in the future and the shareholder will get less.

Free Cashflow

For 2012, Total Produce reports ~41 mn EUR Free cashflow. That’s about 12.5 pence per share or ~50% higher than in our base case scenario. Again, this has to be taken with a “grain of salt”.

Again, as in the first post about Total Produce, I would eliminate the working capital movement, especially as the improvement only came from higher payables and not a reduction of inventory or receivables.

If we do a quick “proxy” calc I would calculate the following Free Cash flow:

+ 38 mn EUR OpCF
– 13.5 maintanance capex (depreciation)
– 1.1 “net minority dividends
= 23.4 mn EUR or ~7.8 cents per share.

This is only slightly below the initial assumption of 8 cents per share but does not include the various payments for the acquisitions.

The problem I do have is that most of the free cash flow is now used for acquisitions, where I am not sure how “value added” that part is.


In my opinion, Total Produce’s earnings quality deteriorated significantly. The “adjusted” numbers should be ignored, based on comprehensive income the company only earned ~5.15 pence for the shareholder and this is based on quite optimistic assumptions for the pension liabilities.

The company is using the majority of its free cash flow for acquisitions, where due to all those special effects, it is not clear to me if they earn really enough return. The priority seems to be to increase the size of the company. In my initial thesis, I was giving them extra credit for buying back shares but this seems to be no priority any more. Total value creation suffers quite significantly because of all the related expenses etd.

So I do not see much upside from here as the stock is now already close to my (slightly reduced) value range.

As a result, I will in a first step reduce my Total Produce position by 50%. I assume to have executed this end of last week at an average price of 0.61 EUR per share.

The other 50% are “on probation” so to say, I will look at the annual report and maybe 6M numbers in order to decide finally (or something better comes up).

Berkshire Hathaway 2012 listed stocks performance

I hope everyone has now read the 2012 annual Berkshire Letter which came out last week.

Among other stufff, Warren Buffet complained a little bit that he didn’t beat the S&P 500 based on the increase in Book Value at Berkshire.

Just for fun, I hacked in Berkshire portfolio.

In a first step I looked at all the disclosed positions above 1 bn USD.

2012 perfomance P/E P/B EV/EBIT EV/EBITDA Beta Volume
American Express 23.57% 14.7 3.8 16.1 8.9 1.05 8,715
Coca Cola 6.51% 19.6 5.3 16.6 14.0 0.72 14,500
Conoco Philips 9.20% 9.5 1.5 6.5 4.4 0.98 1,399
Direct TV 17.31% 10.8 #N/A N/A 9.0 6.2 0.89 1,154
IBM 4.17% 13.7 12.4 11.6 9.4 0.91 13,048
Moody’s 51.86% 16.6 29.1 10.3 9.5 1.31 1,430
Munich Re 54.71% 8.1 1.0 #N/A N/A #N/A N/A 0.94 3,599
Philips 66 50.41% #N/A N/A 2.0 10.8 8.5 1.16 1,097
POSCO 1.19% 8.3 0.7 9.0 6.4 1.01 1,295
Procter & Gamble 5.18% 19.4 3.2 14.4 11.9 0.64 3,563
Sanofi 34.20% 20.0 1.7 13.2 6.9 0.76 2,438
Tesco -8.20% 10.8 1.7 10.4 7.2 0.72 2,268
US Bancorp 20.96% 11.9 1.9 #N/A N/A #N/A N/A 1.09 2,493
Walmart 16.97% 14.6 3.2 10.3 7.9 0.59 3,741
Wells Fargo 27.37% 10.7 1.3 #N/A N/A #N/A N/A 1.15 15,592
Total / Avg 17.56% 14.27 5.0 13.4 10.1 0.92 76,332

To add some value, I have added some valuation metrics and aggregated the performance based on year end values. Although this is not the 100% correct way to do this, we can see that the listed stock portfolio outperformed the S&P Total return index (+14.1%) by a margin of almost 3.5%. A very respectable outperformance for a 75 bn USD portfolio. One can also see that the Beta of the portfolio is clearly below 1, so the outperformance really looks like alpha. (EDIT: I do not know which Index Buffet used for his 16%, I took S&P 500 total return performance from Bloomberg).

From simple valuation metrics, the portfolio of course looks quite expensive. P/E of 14.4 is in line with the S&P 500, but it looks like that Berkshire doesn’t consider P/B as a meaningful metric for listed stocks anymore. Also, the average EV/EBIT of 13 and EV/EBITDA of 10 is far above I would be prepared to pay.

In a second step, I added all the stock positions which were disclosed by Berkshire plus anything available on Bloomberg with a value of more than 200 mn USD.

2012 perfomance P/E P/B EV/EBIT EV/EBITDA Beta Volume
American Express 23.57% 14.7 3.78 16.05 8.88 1.05 8,715
Coca Cola 6.51% 19.6 5.33 16.55 13.98 0.72 14,500
Conoco Philips 9.20% 9.5 1.47 6.54 4.38 0.98 1,399
Direct TV 17.31% 10.8 #N/A N/A 9.03 6.16 0.89 1,154
IBM 4.17% 13.7 12.41 11.56 9.41 0.91 13,048
Moody’s 51.86% 16.6 29.11 10.29 9.48 1.31 1,430
Munich Re 54.71% 8.1 0.96 #N/A N/A #N/A N/A 0.94 3,599
Philips 66 50.41% #N/A N/A 1.98 10.82 8.52 1.16 1,097
POSCO 1.19% 8.3 0.70 8.96 6.36 1.01 1,295
Procter & Gamble 5.18% 19.4 3.21 14.44 11.88 0.64 3,563
Sanofi 34.20% 20.0 1.74 13.22 6.88 0.76 2,438
Tesco -8.20% 10.8 1.74 10.40 7.15 0.72 2,268
US Bancorp 20.96% 11.9 1.86 #N/A N/A #N/A N/A 1.09 2,493
Walmart 16.97% 14.6 3.21 10.27 7.86 0.59 3,741
Wells Fargo 27.37% 10.7 1.33 #N/A N/A #N/A N/A 1.15 15,592
Davita 45.80% 19.4 3.33 14.95 11.94 0.80 1,830
Swiss Re 49.31% 6.8 0.92 #N/A N/A #N/A N/A 1.15 909
Washington Post 1.20% 17.6 1.16 9.27 4.52 0.81 704
General Motors 37.40% 9.3 1.47 #N/A N/A 1.31 1.19 697
M&T Bank 31.99% 13.7 1.43 #N/A N/A #N/A N/A 1.07 558
BonY Mellon 30.69% 12.2 0.92 #N/A N/A #N/A N/A 1.28 544
Costco 26.15% 24.8 3.50 13.49 10.21 0.75 444
USG 166.24% #N/A N/A 502.76 48.17 18.47 2.14 472
Viacom 16.92% 14.5 4.21 9.25 8.70 1.16 459
Precision Castparts 12.83% 20.3 2.92 15.23 13.93 0.92 374
Mondelez 6.24% 12.7 1.58 9.46 7.81 0.62 366
National Oilwell -0.76% 11.5 1.43 8.19 6.96 1.51 357
Deere 11.80% 11.2 4.67 8.22 6.75 1.14 355
Wabco 43.46% 14.4 6.48 12.46 10.07 1.72 281
General Dynamics 6.04% 10.6 2.10 30.15 17.28 0.97 262
Visa 47.56% 24.6 4.68 18.01 17.09 0.98 250
Torchmark 18.82% 11.2 1.25 #N/A N/A #N/A N/A 0.97 245
Mastercard 29.89% 23.9 9.38 14.04 13.27 1.00 214
Total / Avg 19.57% 14.4 7.6 13.6 10.1 0.94 85,653

A few observations here:

I do not understand, why DaVita was not included in the shareholder’s letter with a market value of 1.8 bn. Maybe they have forgotten this position ?

Secondly, including those additional ~10 bn of stocks increases the total performance of the total portfolio by an incredible 2%.

In a third step, I calculated the performance of what I would call the “Non Buffet” Portfolio, taking Direct TV from the annual letter and eliminating Swiss Re and Washington Post from the < 1bn list.

2012 perfomance P/E P/B EV/EBIT EV/EBITDA Beta Volume
Direct TV 17.31% 10.8 #N/A N/A 9.03 6.16 0.89 1,154
Davita 45.80% 19.4 3.33 14.95 11.94 0.80 1,830
General Motors 37.40% 9.3 1.47 #N/A N/A 1.31 1.19 697
M&T Bank 31.99% 13.7 1.43 #N/A N/A #N/A N/A 1.07 558
BonY Mellon 30.69% 12.2 0.92 #N/A N/A #N/A N/A 1.28 544
Costco 26.15% 24.8 3.50 13.49 10.21 0.75 444
USG 166.24% #N/A N/A 502.76 48.17 18.47 2.14 472
Viacom 16.92% 14.5 4.21 9.25 8.70 1.16 459
Precision Castparts 12.83% 20.3 2.92 15.23 13.93 0.92 374
Mondelez 6.24% 12.7 1.58 9.46 7.81 0.62 366
National Oilwell -0.76% 11.5 1.43 8.19 6.96 1.51 357
Deere 11.80% 11.2 4.67 8.22 6.75 1.14 355
Wabco 43.46% 14.4 6.48 12.46 10.07 1.72 281
General Dynamics 6.04% 10.6 2.10 30.15 17.28 0.97 262
Visa 47.56% 24.6 4.68 18.01 17.09 0.98 250
Torchmark 18.82% 11.2 1.25 #N/A N/A #N/A N/A 0.97 245
Mastercard 29.89% 23.9 9.38 14.04 13.27 1.00 214
Total / Avg 34.97% 15.2 33.6 15.3 9.9 1.07 8,862

And here we can see that Weschler and Combs really “shot out the lights”. 35% performance for 2012 is a fxxxing fantastic result. Ok, Beta is slightly above 1 but at least for 2012 the did a outstanding job. No wonder Buffet said that in his annual letter:

Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins. They left me in the dust as well.

So even if some of the smaller stocks are “Warren & Charlie” stocks as well, Weschler and Combs showed them how its done at least with a smaller portfolio. Maybe the smaller size of the portfolio is the reason ?


Once again, the portfolio of listed stocks of Berkshire outperformed the S&P 500 by a nice margin. However it seems to be that Buffet’s “elephants” don’t have a chance against the smaller holdings of Weschler and Combs. Nevertheless, for the “lazy” value investor, copying the Berkshire portfolio looks still like a winning strategy.

Copying the “small” Berkshire stocks however looks like the absolute killer strategy.

Gerard Perrier SA (ISIN FR0000061459) – French “Hidden Champion ” ?

DISCLAIMER: The stock discussed in the following post is a very illiquid small cap. The author might have already bought some of it or might sell it at any time.

Gerard Perrier SA is a French company, which has nothing to do with the famous sparkling water but, according to Bloomberg does the following:

Gerard Perrier Electric designs, manufactures, installs and maintains electrical and electronic equipment for industrial machines and automated processes. The Company’s subsidiaries include Soteb and Geral.

“Traditional” valuation metrics look Ok,but not spectacular:

Market Cap: 68 mn EUR
P/E (2011 Trailing): 9
P/B 1.7
P/S 0.5
Div. yield 4.1%

P/B is quite high, EV/EBITDA quite low, how comes ? Well, end of 2011, they had ~7 EUR net cash per share, so this drastically reduces EV/EBITDA to such a low level.

So far so good, but why might this be a “hidden champion” ? Well, a look at “standard” returns over the last few years shows a picture of a very very good business:

EPS FCF Profit margin ROE Net debt per share
2002 1.55 1.80 5.6% 19.9% -3.8273
2003 1.65 0.34 6.0% 19.1% -3.5185
2004 1.80 1.87 5.9% 17.4% -4.9838
2005 1.82 0.93 6.0% 15.8% -5.027
2006 1.51 0.46 4.3% 12.7% -2.938
2007 2.04 0.61 4.9% 16.6% -1.349
2008 2.43 2.11 5.2% 18.1% -1.1732
2009 2.29 3.37 5.0% 15.9% -4.2205
2010 3.21 1.67 6.3% 20.0% -5.2313
2011 3.55 4.23 5.8% 20.0% -6.6423
  21.84 17.39    

If we adjust ROE for Net cash, we can see ROEs (or ROIC) of 30% or higher for the last few years. Whenever I see such numbers, the question is of course: How are the doing it ?

Well, according to my understanding, Gerard Perrier to a large extent is rather an engineering /servicing company than a production company. Under the roof of Gerard Perrier, the operating business is run via 5 subsidiaries, which are the following:

This entity had in 2011 ~48 mn of sales out of the 122 mn total sales. This is the largest entity and also the core entity which installs and mantains electrical installations at large industrial sites. This company is quite asset light, as the business model does not require large fixed assets etc.

Automation geral, Seirel automatism and SERA are the subsidiaries which are summarized under the segment “Fabrication” in their segment report. In 2011, the 3 companies together made around the same sales than Sotheb (47 mn EUR). The largest part of this segment seems to be equipment for automation of industrial production. Naturally, anything which is fabricated requires more capital. So compared to Soteb, they need twice as much fixed assets to generate the same amount of sales.

This is the company which represents the “energy” segment. In my understanding, Ardatem with 2011 sales of around 29 mn EUR is specialised service company for electrical installations,etc. for nuclear power plants with the largest client being EDF. Again, very low fixed asset requirement

So all in all, 2/3 of the business seems to be “asset light” service businesses with (hopefully) a large amount of recurring revenues. The production segment seems to be more capital intensive, but as far as I understand this is a very specialized production process with specific orders and also relatively limited working capital requirements. So in 2011 for instance, Gerard Perrier in total had total inventory of only 3.6 mn EUR or around 11 days. So this looks like a good “Just in time” or “on demand” fabrication model.

Competitive advantages ?

I have to admit that I did not yet dig deep enough if there is any sustainable moat. However, from my practical experience I know that electrical installations are quite special. I recently moved into a new apartment in a newly built house. Of course there were some issues with the electrical installations. Maybe for cost saving reasons, the landlord called in a different electrician to fix those problems. Despite having all the original plans, the guy from other company was struggling hard with fixing the problem. When I started to talk to him he told me that yes, there are the plans where everything should be but in practice, they have to deviate for different reasons from the plan and often those plans are then not updated anymore. So the electrician who has installed the system has of course a “natural” moat regarding this installation and fix problems quicker than a third party electrician.

Just by coincidence I had a similar discussion with an electrician who was working for the City council where I am living. He said basically the same thing, that you cannot trust plans for electrical installations and you have to know how it is actually wired, otherwise you need a long time to find the problems.

So I am not sure if this applies here as well but I can imagine if you have already installed a very complex electrical installation in an industrial plant, the client wants problems fixed really fast in order not to delay production. So once you have the job, I guess chances are good that you get all the follow up work.

Regarding my checklist, the score is pretty good, some highlights:

– The company is family owned (61%), the son of the founder is co-CEO
– only one analyst is following the company (Gilbert Dupont)
– share count has decreased since 1998
– always free cash flow positive, earnings to FCF conversion high (80-90%)
– not too many acquisitions, good organic growth
– veryx capital efficient business modell, low fixed assets
– Beta ~0.6, do relatively independent from index
– 260D stock price volatility of 19%, relatively low
– other shareholders: Small stakes (~1%) of Natixis, Fidelity, Amundi. Due to low trading volume not interesting for most funds


Simple Version:

Assuming a 2012 EPS of 3.75 EUR and 7 EUR net cash (not required for operating purposes) per share, Perrier trades at a P/E of ~9 (gross ) or 7 net. For such a high quality company, a “fair” P/E should be anywhere between 10-15 (net), so a fair price could by between 45-65 EUR per share.

More sophisticated version:

Gerard Perrier managed to convert ~80% of its earnings into free cash over the last 10 years while being able to grow sales and profits by 130% over the same time with only one small acquisition in 2011. So if we start at 3 EUR free cashflow (80% of my estimated 3.75 EUR 2012) we get the following “value” grid relative to discount rate and growth:

Discount 1% 2% 3% 4% 5%
11% 30.00 33.33 37.50 42.86 50.00
10% 33.33 37.50 42.86 50.00 60.00
9% 37.50 42.86 50.00 60.00 75.00
8% 42.86 50.00 60.00 75.00 100.00
7% 50.00 60.00 75.00 100.00 150.00

Mean reversion potential

This is a very interesting point. Based on historical P/Es, margins etc., Perrier trades more or less exactly at historic levels. This is because the stock rarely traded at double digit P/Es. However if we look for instance the 15 year period we can clearly see that this still led to a great performance of ~13.4% p.a. against 3.8% for the Benchmark. The same applies for 10 years (16.3% p.a. vs. 5.1% p.a.) , 20 years (24.6% p.a. against 6.2% p.a.) and 5 years (25.9% p.a. vs. 9.6% p.a.).

It is almost unbelievable, that a stock which outperforms in such a consistent manner over such a long time still only trades at single P/Es. Efficient markets “French style”.

Stock chart

For a “hardcore” counter-cyclical investor, G. Perrier looks almost like a momentum stock:

I am not a chart analyst, so I leave it to my readers to interpret this.

Risks & Issues

Of course, there are always issues with any stocks so let’s look at some of them:

France / EUR crisis
This is clearly one of the main reasons why the stock is cheap. In the case of Italy, I clearly underestimated the extent of the decline in local economic activity. Clearly this is a risk for G. Perrier, as most of their business is domestic. However the actual number look relatively good. The had a string first quarter in 2012, then 2 slower quarters before in Q4, growth picked up again.

Interestingly, growth came mostly from the energy sector according to this news release, and the “core” SOTEB remained more or less flat. Nevertheless, 4% organic growth is quite an achievement in those times.

It seems to be that (so far) their business is relatively isolated from the general French economy. Although I am not sure if for instance their business is concentrated on certain industry plant where a close down might hurt business for Perrier.


Gerrard Perrier for me is a very interesting stock. Although P/B is rather on the high end for my taste, the company looks like a very interesting “hidden French champion”, with a very cash generative, capital light business model, good management and resilient business.

Regarding the portfolio, I will assume that I could have purchased 9.000 shares since the beginning of 2013 at 33,60 EUR, the VWAP from 01.01. until 4.03. This translates into ~2% of the portfolio.

Together with Installux and Poujoulat, this will be my “French Micro Cap” basket with a weight of ~6%. My maximum weight for illiquid French “micro caps” would be 10%.

Deeply disounted rights issue watchlist: Severfield-Rowen Plc (ISIN GB00B27YGJ97)

UK based Severfield-Rowen is according to Bloomberg

Severfield-Rowen plc is an engineering and construction company. The Company designs, fabricates and erects structural steelwork, specialist claddings, and ancillary products. The Company also manufactures and markets a range of equipment for the meat and poultry processing industry through the subsidiary Manabo Limited. Severfield-Rowen operates primarily in the United Kingdom.

S-R came out in November with a profit warning, estimating Pre Tax profits of ~ 1mn GPB

By James Amott
Nov. 5 (Bloomberg) — Pricing pressure, protracted contractual settlements posing significant challenges, co. says in statement.
• Performances of U.K. businesses mixed
• FY pretax profit likely to be ~GBP1m
• Co. confident revamp will improve performance

Then, a little bit like in the Imtech case, the news got worse in January:

By Nadine Skoczylas
Jan. 23 (Bloomberg) — Severfield-Rowen says U.K. performance, further, “and materially,” hurt by cost overruns on 122 Leadenhall contract.
• Board intends to review current contract base, will provide update to mkt as soon as possible
• “In light of these recent developments,” board concluded that change of leadership needed to “re-establish confidence” with stakeholders
• CEO Tom Haughey standing down, leaving board with immediate effect
• Chairman John Dodds will assume role of CEO until new chief found; board “actively engaged” in search

Of course, after the CEO departure some more issues were identified and again, similar to Imtech, a capital raising was more or less dictated by the banks.

Last week then, Severfield came out with the preliminary 2012 numbers (Loss of 18.2 mn GBP) and the details of a deeply discounted rights issue.

At a current market cap of 70 mn GBPs, Severfield wants to raise ~50 mn GBP. In order to guarantee success (and to please the underwriting banks), they will issue new shares under the following conditions:

– 7 new shares for 3 old ones
– issue price 0.23 GBP (against 0.79 current price), so a discount of almost 70% !!
– the “ex date” for the subscription rights is March 19th, trading of the subscription rights will happen from March 19th to April 4th

The value of one subscription right should be at current prices:

(0.79-0.23)/((3/7)+1)=0.39 per share/subscription right.

Clearly, shareholders are not big fans of large capital increases.

The shareholders are the “who is who” of UK fund managers, the biggest are:

Prudential 13.4%
M&G 12.7%
Jo Hambro 11.3%
Aviva 10.1%
Threadneedle 6.7%

Interestingly, US Small Cap value firm Royce had built up a 3.9% stake end of last year, I guess they are not that happy now.

The stock price has been punished quite severely over the last months:

One can also see the different stages of hope and despair, especially in the last few weeks. I haven’t looked too closely at the company yet, but in my Boss model, the stock doesn’t look that bad. Interestingly, if one looks at the balance sheet, one might think that debt should not be such a problem, although they do have pension liabilities as well.

So for the time being no action, but an interesting candidate for my “deeply discounted rights issue” research.

Weekly links

Must Read: Warren Buffet’s annual letter to Berkshire shareholders 2012

Must Read (2): Charlie Munger transcript from the Daily Journal annual meeting

Turning around retailers is really hard: The Periodic Capitalist on JC Penney

Retailer turn around (2): Eddie Lampert’s annual letter to Sear’s shareholders

One of the best investment blog out there, Aleph Blog got six years old. Congratulations. If you don’t follow this blog, it’s your own fault.

Performance February 2013 – Filtering out the noise

February performance for the portfolio was again very satisfactory. The portfolio gained 2.5% against 1.4% for the benchmark (50% Eurostoxx, 30% Dax, 20% Dax). YTD the portfolio is up 11.3% against 4.7% for the BM.

Since inception (1.1.2011), the score is now 46.6% for the portfolio against 14.2% for the BM.

Portfolio as of February 28th 2013:

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.1% 8.3%
AS Creation Tapeten 3.9% 29.6%
WMF VZ 3.5% 60.5%
Tonnellerie Frere Paris 6.0% 79.1%
Vetropack 4.5% 8.1%
Total Produce 5.4% 48.3%
Installux 3.0% 12.1%
Poujoulat 0.9% 6.4%
Dart Group 3.7% 97.5%
Cranswick 5.1% 17.5%
April SA 2.9% 23.3%
SOL Spa 2.4% 8.0%
Gronlandsbanken 1.2% 41.1%
KAS Bank NV 5.0% 29.3%
SIAS 5.6% 51.2%
Bouygues 2.7% 12.5%
Drägerwerk Genüsse D 10.2% 166.4%
IVG Wandler 4.4% 13.8%
DEPFA LT2 2015 2.7% 53.0%
HT1 Funding 4.6% 48.5%
EMAK SPA 4.1% 21.0%
Rhoen Klinikum 2.3% 9.0%
Short: Focus Media Group -0.9% -3.5%
Short: Prada -1.1% -22.0%
Short Kabel Deutschland -1.0% 3.6%
Short Lyxor Cac40 -1.2% -8.2%
Short Ishares FTSE MIB -2.0% -5.4%
Terminverkauf CHF EUR 0.2% 6.3%
Tagesgeldkonto 2% 11.8%  
Value 46.6%  
Opportunity 47.4%  
Short+ Hedges -5.9%  
Cash 11.8%  

Performance drivers were Tonnelerie (+15%), Buzzi (+13%), Draeger GS (+10%) and Gronlandsbanken (+13%). Underperformers were April (-11%) and SIAS (-6%). I find the Buzzi performance especially interesting, it seems to be that the market has realized that they are much more an international than an Italian stock.

The only notable change in February was the new -1% short position in Kabel Deutschland. Additionally, I trimmed back the Draeger Position, but again it increased above the 10% threshold.

At the moment, a lot of “preliminary” 2012 numbers are coming in but I find it hard to base any decisions on those preliminary numbers. I prefer to wait for the annual report in order to really see how the companies have developed.

Comment: “Filtering out the noise

If you follow the financial media, the world seems to be jump from one life threatening event to another. “Fiscal cliff”, vote in Italy, “the sequester”, speech of Japanese BOJ chief; Bernanke speech etc. etc. The media wants to promote the picture that thw whole world is “walking on a tight rope” and if any one event goes wrong, doom is ensured. As a result, people are “glued” to their TV sets, Bloombergs etc. in order not to miss the one “big event” which will change it all.

In reality, in my opinion this is all bullshit. The world doesn’t stop if Bersani gets elected or Monti or Berlusconi or if Bernanke is changing the order of words in his statements. The big problem with all the “sensational” media reporting is in my opinion that the “average investor” is driven into bad and sometimes fraudulent investments.

In Germany for instance, despite the relatively good economic background, many people are scared to death about financial markets and the inevitable hyper inflation, that they are easy prey for all kind of scams, like the recent “S&K” scandal or schemes like WGF. The basis theme of those scams is always the same: The world is going to end soon and the only way to protect is to buy “real assets” like precious metals or real estate. Many people are so scared that they forget to make even basic due diligence. The same applies to the mad rush of people in large German cities to buy on a highly leveraged basis residential properties at price level where rent doesn’t even cover depreciation.

Often, i try to discuss this with people but they think I am a madman if I tell them that most of my money is in stocks. What the “man on the street” doesn’t seem to notice is that a stock in a solid company is a very “real asset”. And yes, the price may fluctuate but good companies (or cheap companies) will create real value over time no matter what happens.

The other extreme is of course the permanently bullish sell side information stream, but that is a topic for another comment.

But I admit, it is very hard not to be influenced by the constant stream of mainstream media news. Some of the “tricks” I try to handle it (and filter out the noise) are the following:

– follow only blogs of people who have a long term horizon (see blogroll)
– focus on media appearances of proven long term thinkers (Buffet, Chanos)
– actively ignore media appearances of sell side analysts, market timers etc.
– don’t watch Bloomberg television, cnbc etc.
– take time to read investment classics, biographies, economist articles etc.

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