Monthly Archives: August 2013

Pharmstandard (US7171402065) – The Russian Job or interesting special situation with catalyst ?

A couple of weeks ago, when I analysed EGIS and other Eastern European Genric drug companies, I mentioned Pharmstandard OJSC as one of the big players in the interesting Russian Generics market.

A kept an eye on them mainly in order to gain a little bit more insight into the Russian market. But the story which developed over the last week is definitely woth sharing it.

Up until early July, everything looked great. Pharmstandard aggresively bought back shares in an amount of roughly 10% of their market cap. They communicated that they might use those shares to finance M&A transactions.

Then, in the beginning of July some strange news emerged (official press releases can be found here):

– first they stated that they want to do a spin-off of their OTC drug business
– then, on they same day they announced that they are in advanced talks on a potential M& A transaction
– then, still on the same day they announce that they will buy a company called “Bever Pharmaceutical” for 630 mn USD without describing the company at all.
– the bought company then again, will be included in the spin-off
– it is not clear if the spin-off would be listed or not or if GDR holders can legally get those spin-off shares
– then it came out, that one of Pharmstandard’s supervisory board members, Dr. Alexander Shuster is actually the owner of Bever and will become the second largest Pharmstandard shareholder via this transaction
– Nevertheless, a few days ago, a shareholder meeting approved the acquisition with the votes of the majority shareholders
– the next special shareholder meeting will be in September to decide on the spin off

Clearly, this story did not go well with investors. Both, the London listed GDRs as well as the Russian listed stocks got punished hard:

In my opinion, this clearly is not very shareholder friendly, but on the other hand, compared with what I have experienced in Italy (EMAK, Autostrada), this rather looks like an OK transaction at least with regard to the M&A transaction:

– they paid minority shareholders in cash via an open market share buy back
– they used pre “price drop” levels to determine the purchase price consideration

And, at least in Italy, buying into a stock AFTER such an event occured was usually an interesting entry point.

The special situation aspect: Potential buy back offer before spin off at 16.50 USD

Now it gets interesting. In their spin off presentation, they mention that there will be a buy back offer to shareholders before the spin off actually happens. In several articles (I did not found this on their website), a price of 16.50 USD per GDR was mentioned. According to the timeline, this should happen in November if everything works out.

So let’s do some quick math (EDIT: I wrote this yesterday…., today’s price is a lot higher):

If I buy today at 14.65 and get 16.50 in November, that’s a 12.7% return for 3 months. Not too bad. Clearly there is some downside, if the offer will not come and they spin offf without compensation for GDR holders. On the other hand, if the spin offf works out well, there could be significant upside on top of the 16,50 USD offer.

On top of that, I like the underlying business and I think the stock is cheap and undervalued (excluding the Corp Governance issues).

According to my model, the current Pharmstandard is worth far more. The company achieved on average over the last 6 years 20% net margins and 30% ROIC at a current valuation of PE/6, P/B 1.6 and EV/EBITDA at 5.5

Update: I started writing this post yesterday, when the stockprice was at 14.65 USD, today, it jumped already significantly to 15.39. For the time being I will remain on the sideline and watch.

Maybe there will be a opportunity for a odd-lot tender like Norislk 2 years ago. I would also consider adding a small stake if the price is at a ~10% discount to the offer prcie, so below 15 USD (up to 1% of the portfolio). So I will put in a limti order at 15 USD and wait how this interesting story developes.

Sold, rejected but not forgotten: Tracking 2nd level and 3rd Level investing mistakes

Some 15 months ago, I had a post about stocks I had either sold or not bought after analyzing them.

This time I want to update that list plus provide some “theoretical” background why I think this is an important part of any investment process.

Types of investment mistakes

Of course there are many mistakes to be made in investing. Nevertheless, for this exercise I would categorize “investment mistakes” into 3 general categories along the typical process of most “stock pickers”. The process normally looks something like this

A) Stock screening & quick analysis
B) Deeper Analysis
C) Buy decision (or not buy)
D) Sell at some point in time

At all stages, mistakes are easy to be made. Nevertheless I would argue that most analysis goes into what I would call Level I mistakes:

Level 1 mistake: Buying a stock which performs badly.

This is quite easy to identify, because if one looks at most investment reports, one will see the performance of the current portfolio with the bad performers “jumping out of the report”. I guess most of the efforts in many investment firms goes into finding out the reasons for those underperformers and then trying to improve.

A lot less effort usually goes in what I would call “level II” mistakes:

Level 2 mistake: Selling a stock which outperforms strongly after selling.

This is a little bit more tricky. There is a lot less literature of “when to sell” compared to “when to buy”. Once you have bought a stock, there should be already a fair amount of time and effort been made to analyse the stock. So in my opinion it makes a lot of sense to keep stocks on one’s radar screen even after selling. Nevertheless it is of course much more fun to look at new stocks and forgetting about the old stuff. Especially if sold stocks systematically outperform, one should check if one is not a prisoner to some well known investment biases

In my opinion, it also makes a lot of sense to systematically track the performance of sold stocks in order to find out if one could (and should) improve the investment process

Finally, there is a third systematic family of mistakes:

Level 3 mistake: Stocks analysed intensively but not bought

This is one of the advantages of blogging: Whenever I write a longer post, I already have invested quite some time on the specific stock. So it is quite easy for me to track those posts where I did for any reason not buy such a stock.

Again, I think one should look at this closely in order to identify potential biases etc. in one’s investment process.

From theory to practice: The last 17 months

So let’s look first at all the stocks I sold since the March 2012 post:

Stock Reason sold /not bought Date Perf Perf BM Delta
KPN Special situation expired 10.05.13 34.2% 3.3% -31.0%
IVG Conv ESUG 21.05.13 16.1% 1.1% -15.0%
Bouygues Portf. Mgt. 28.06.13 21.7% 7.1% -14.6%
Total Prod dissapointing CI 08.03.13 21.3% 7.1% -14.2%
Mapfre Autumn cleaning 31.10.12 30.1% 19.9% -10.2%
Dart Too expensive 18.07.13 7.1% 2.7% -4.3%
Total Prod dissapointing CI 10.04.13 12.1% 9.0% -3.2%
OMV Autumn cleaning 30.10.12 22.6% 19.5% -3.0%
Dart Too expensive 26.07.13 4.5% 2.8% -1.7%
Buzzi business model problems 23.05.13 2.8% 2.7% -0.1%
WMF too expensive 11.04.13 5.0% 8.1% 3.1%
Fortum Autumn cleaning 30.10.12 6.4% 19.5% 13.2%
Piquadro Sold because of business problems 08.08.12 2.7% 24.5% 21.8%
Nestle Sold because of Pfizer acquisition 23.04.12 11.8% 35.0% 23.3%
EVN Autumn cleaning 31.10.12 -9.9% 19.9% 29.8%
Praktiker Sold because of Anchorage 04.07.12 -81.3% 30.6% 111.9%
        avg 6.6%

Explanation: a negative number means that the stock has outperformed my BM since I sold it, a positive number means the Benchmark outperformed vs. the stock.

On (unweighted) average, the stocks I sold underperformed the benchmark, so this looks OK. This is clearly driven by the Praktiker bonds, where I am very happy that I sold them. On the other hand, I missed out some nice gains as well. With KPN for instance, I think I was a little bit too quick with the trigger finger. My “autumn cleaning” exercise was on average also positive. So this is a good encouragement to follow-up on this exercise.

Next come all the stocks I have analysed but not bought in the same format:

Stock Reason sold /not bought Date Perf Perf BM Delta
Reply Cashflow red flag 31.08.2012 140.6% 24.5% -116.1%
Banknordik forgot to follow up 26.11.2012 70.1% 19.5% -50.5%
Curanum not really interested 05.09.2012 66.7% 25.0% -41.7%
Severfield Too expensive stand alone 21.03.2013 47.7% 7.9% -39.8%
Walgreen M&A 04.07.2012 62.7% 30.6% -32.1%
Osram Target of 23 EUR not hit 08.07.2013 35.7% 6.1% -29.7%
M6 only short analysis, issue with CI 26.11.2012 43.0% 19.5% -23.5%
Cairo undecided 27.06.2012 58.1% 38.9% -19.2%
Halfords Negative momentum 06.06.2012 55.1% 40.5% -14.6%
Hankook could not buy privately 29.10.2012 31.0% 21.0% -10.0%
Astaldi too much debt 23.07.2013 11.2% 3.0% -8.2%
Porsche still don’t like them 29.11.2012 24.3% 17.7% -6.6%
CIR no margin of safety 17.07.2013 7.3% 4.0% -3.3%
EAC Watch only 29.07.2013 2.8% 2.6% -0.2%
Canal+ no real upside 19.09.2012 19.1% 19.6% 0.5%
Rallye leverage 25.01.2013 8.4% 9.3% 0.9%
Bongrain Doesn’t earn coc 26.11.2012 17.0% 19.5% 2.5%
Greek GDP linker   10.06.2013 -2.6% 3.7% 6.3%
Accell low FCF, insider selling 26.10.2012 12.3% 20.5% 8.1%
Solvac not cheap enough 13.12.2012 4.4% 14.9% 10.4%
Mr. Bricolage Too much debt 13.09.2012 9.4% 20.9% 11.5%
Viel Underlying busienss 18.12.2012 2.4% 14.0% 11.6%
Morgan Sindall no mean reversion potential 23.10.2012 1.0% 21.6% 20.6%
WSU because of US problems, not cheap 19.04.2012 10.6% 31.9% 21.2%
Maisons France Cycle 29.01.2013 -12.5% 9.4% 21.9%
Energiedienst Business model 04.02.2013 -12.3% 12.5% 24.8%
TNT Express Too expensive stand alone 21.11.2012 -5.2% 20.8% 26.0%
KHD insiders 30.07.2012 -0.7% 27.7% 28.4%
Fabasoft track record 25.06.2012 -2.7% 40.3% 43.0%
        avg -5.4%

Here unfortunately, the average doesn’t look so good. On average, the stocks I analysed but did not buy outperformed the BM as well. The most obvious miss is Reply SpA. However here, I still think that in the long run it pays to avoid companies with questionable accounting. In this case, clearly at least for now I was wrong to discard it.

A little bit more bothers me that 2 of my potential special situations, Osram and Severfield outperformed. Both were pretty clear-cut cases (Osram, classical spin-off, Severfield classical rights issue), but somehow I was lacking conviction to follow through on the idea. I think I have to be more careful to separate my careful market view and focus on quality from the special situation area.


Looking at sold stocks and stocks rejected lat e in the investment process makes a lot of sense. In my case, I think selling looks OK, whereas I will have to work on my “special situation” investments.

MIKO BV – Quick comparison with Groupe Guillin SA (FR0000051831)

In my MIKO BV post a few days ago, Winter commented correctly, that the plastics division of MIKO looks similar to what a French company called Groupe Guillin SA is doing.

At a first glance, Group Guillin looks even more interesting with the following valuation metrics (in brackets MIKO):

P/B 1.0 [1.24]
P/E 6.8 [11.8]
P/S 0.3 [0.5]
EV/EBITDA 3.6 [5.5]

So Guillin does almost the same but is much cheaper. Cheaper is always better for value investors, isn’t it ?

Guillin looks also quite OK in my Boss model and even shows better free cashflow so what is not to like ? ROEs look Ok as well as this table shows:

31.12.2001 19.3% 9.6%
31.12.2002 27.0% 14.0%
31.12.2003 17.6% 12.6%
31.12.2004 12.0% 11.0%
30.12.2005 15.2% 10.0%
29.12.2006 10.4% 7.3%
31.12.2007 11.5% 8.4%
31.12.2008 7.0% 6.0%
31.12.2009 13.7% 10.4%
31.12.2010 13.4% 7.6%
30.12.2011 7.3% 5.3%
31.12.2012 13.4% na.

However, ROICs don’t look so great as Guillin especially since 2006, when they grew quite quickly after 3-4 years without growth but ROIC suffered significantly

Lets compare this with MIKO’s plastic segment numbers:

MIKO plastics          
  Assets Libailities Net invested assets NI ROIC/ROE
2007 29.3 5.6 23.7 2.40 10.1%
2008 35.1 4.5 30.6 2.16 7.1%
2009 32.4 4.35 28.05 5.17 18.4%
2010 39.4 6.1 33.3 4.55 13.7%
2011 42.9 5.7 37.2 4.04 10.9%
2012 46.7 6.7 40 4.12 10.3%

So we can clearly see that MIKO consistently generates significantly higher ROICs than Guillin (in some years 5-6% more) than Guillin. Guillin uses leverage to achieve OK ROEs, while Miko doesn’t use leverage. Also net margins are on average 2-4% higher for MIKO plastics than for Guillin.

So in my view, the MIKO plastics business looks much better quality than Guillin, despite the fact that the MIKO plastics division is only 15% of Guillins sales. So scale doesn’t seem to be the deciding factor, it looks like that MIKO has found a more profitable niche than the larger Groupe Guillin. As far as I understand, Guillin sells direct to supermarkets while MIKO’s clients in the plastics division are consumer product manufacturers.

I have been looking at Groupe Guillin actually quite often, but the low return on invested capital kept me away. Although one has to say that the stock performed quite well over the past years, also compared to MIKO:

So Guillin is clealry not a bad company, but in direct comparison I think MIKO has greater potential (and a better downside protection) than Guillin.

Slovenia: The next Cyprus or contrarian opportunity ?

I bet that many people could not point out on a map where Slovenia actually is located. Many people also don’t really know the difference to Slovakia.

So lets look at Wikipedia:

Slovenia is a small part of Ex-Yugoslavia. It has a population of around 2 mn and covers 20 thsd square kilometer. The history can be read extensively via Wikipedia. Most importantly, Slovenia was the first part of Yugoslavia which became independent. The next few years, Slovenia was seen as one of the big success stories in Europe, which resulted in Slovenia joining the EU and adopting the Euro already in 2007.

Last year however, Slovenia joined the European countries hit hard by the recession. The prior EUR fueled construction boom resulted in shaky loans, declining GDP, Rating agency downgrades, increase in interest rates etc. Starting last year, there was big fear that Slovenia was headed towards a “Greek style” restructuring.

Lately however, things look better. SLovenia has presented a restructuring plan which among others, includes the sale of a couple of state-owned companies. One should also note, that debt to GDP looks rather manageable:

On top of that, Slovenia’s economy is good at exports, but still, they are struggling in 2013. Nevertheless, Slovenia got 2 years “probation” in order to fix their problems, which they hopefully use.

The latest export vs. import data looks OK, nevertheless, 2013 will show a deficit of around -8% for the Government including bail out costs.

Slovenian stock market

From Bloomberg, one gets ~45 stocks from Slovenia with a market cap larger than 1 mn EUR, and 24 with a market cap bigger than 10 mn EUR. The major Slovenian stock market index only consist out of 7 stocks which are the following:

Ticker Name % Index Weight EV/EBITDA T12M P/B P/E
SBITOP Index          
KRKG SV Equity Krka dd Novo mesto 29.7 6.311327 1.32 10.39
PETG SV Equity Petrol DD Ljubljana 21.4 8.988676 0.98 8.35
TLSG SV Equity Telekom Slovenije DD 19.7 4.734508 0.89 16.89
MELR SV Equity Mercator Poslovni Sistem 13.5 N.A. 0.60 N.A.
ZVTG SV Equity Zavarovalnica Triglav DD 11.8 N.A. 0.76 5.96
GRVG SV Equity Gorenje dd 2.9 5.500231 0.18 15.94
KBMR SV Equity Nova Kreditna Banka Maribor dd 0.9 N.A. 0.08 N.A.

Quick check of the companies:


I have written about Krka already, a generic drug company similar to EGIS. I think this is a very interesting company,. Minimal home country exposure, consistently profitable. Not “extremely cheap” but good value for money. I would buy this company directly (if I could).

Petrol Ljublijana

This is the national refinery plus gas stations owner. Also active in Croatia and Bosnia. High “mean reversion” potential in my model.

Telekom Slovenije

Local telephone company. P/E 15 looks expensive, but company pays 15% dividend and has a 20% FCF yield. Significant debt reduction


Supermarkets, Shopping centers. High debt load, large loss in 2012. However major shareholders sold out to Croatian company Agrokor in June.

Zavarovalnica Triglav

Major Slovenian insurance company, interesting, as valuation is really low for an insurer. 10.5% dividend yield. I would buy this stock if I could.


Household appliances. Has made losses but very cheap (P/B 0.2).

Nova Kreditna

One of the 3 problem banks, the only listed one. Most likely insolvent without Government support

The problem:

There is almost no way to directly buy Slovenian stocks. Only Krka and Nova Kreditna have secondary listings in Poland, but even there it is difficult to trade them. I asked several retail brokers in Germany and only SBroker (where I don’t have an account) told me I could trade the 2 stocks in Poland.

The alternative:

Although I usually do not like certificates issued by banks, in this case this would be the only alternative. I found several of them:

1. RCB7J9 / AT0000A038L9 from Raiffeisen International
2. AA0DMM / NL0000762557 from RBS
3. HV2AXY / DE000HV2AXY3 from Unicredit

The RBS paper seems to have the lowest bid/ask spread. As far as I have seen, they are all without maturity and track the SBI.

The opportunity /upside

For me the Slovenian index is quite interesting due to the following points:

+ there is almost no banking exposure left in the index. the only remaining financial is a cheap insurance company which i would buy outright
+ the Government has to sell some of their stakes, including among others the Telephone company. I am pretty sure that for the time being they will do nothing to punish the TelCo in order to get a price as high as possible
+ the largest stock in the index is Krka with ~30% which I want to buy anyway
+ once the Euro recovery story gets played more seriously (Goldman is already starting to “promote” European stocks), markets like Slovenia will follow with a certain delay.
+ Slovenia did never piss off other countries like Cyprus which supported tax dodging or Hungary which runs on a political amok course. In my opinion, they will be “well” treated by the ECB, EU and IMF.

Nevertheless for the time being I will not invest but look a little bit more into the other large index constituents, especially the TelCo and Oil company.

Book review: Circle of Friends – Charlie Gasparino

During a short holiday break I read that book. It is written by Charlie Gasparino, a quite famous Wall Street reporter.

The book is about the recently uncovered insider trading activity including among others, the infamous Galleon founder Raj Rajaratnam and many people connected with Steve Cohen’s SAC capital.

Those insider cases have been the biggest since Ivan Boesky in the 80ties and many people went to jail. Some trades were “simple” insider tips, others were conducted much more clever via so-called “expert networks”.

The book itself is strong on details about the lw enforcement process. It reads rather like a crime investigation story than a finance book. The author also shows a little bit the history of insider trading which was not illegal until the great depression.

The author several times calls insider trading the “victimless crime”and one does get the impression that he doesn’t consider it such a serious crime. He also stresses that the strict enforcement in these cases might have something to do with both, the financial crisis and the Bernie Madoff crime and the desire to please the public with some high-profile arrests.

Although I agree that a lot of criminal transaction before or during the financial crisis have not been really prosecuted (John Corzine, Dick Fuld etc.), I do not think that insider trading is a victimless crime. Victims are clearly many retail investors esp. mutual fund investors. Although insider trading might nt explain everything, a part of the fact that so many mutual funds underperform might lie in the lack of insider trading compared to unregulated hedge funds.

As a summary I would say the book is not bad but not half as well written as for instance a Michael Lewis book. If you are really interested in how the SEC examines insider trading, you might buy it, otherwise save the money for the next Michael Lewis book.

MIKO NV (BE0003731453): Coffee and plastics – a tasty combination ?

DISCLAIMER: The stock discussed is a relatively illiquid small cap. The author will most likely own the security already before posting any analysis. This is not an investment recommendation and reflects the personal (biased) opinion of the author. Please do your own research.

Miko NV is a Belgian company, which has been lying on my “reasearch pile” quite some time.

However, a few weeks ago when I read the news that the Benckiser heirs were acquiring Coffee company DE Master Blenders for 7.5 bn EUR (2.6 times sales, 27 times book, 23 times EV/EBITDA), I decided to look at them next.

Miko’s traditional numbers look Ok, but not spectacular

Edit: I wrote the post last week, a few days ago for some reason the stock price jumped significantly. I did not update the numbers. The analysis is based on a stock price of around 57 EUR.

P/E 10.5
P/B 1.1
P/S 0.5
Div. Yield 1.9%

At a first glance, their core businesses look like a very odd combination. 50% of sales are coffee related, 50% is plastic packaging for food and cosmetics.

This is how they explain it on their website:

Out of the coffee roasting department, which in 1958 launched the one-cup coffee filter, and which as such acquired significant expertise in the area of plastics, the second core activity of the Miko group developed itself next to the coffee service division, namely plastics processing.

The company looks quite well in my BOSS model, because in the past they have shown consistently double-digit ROEs and ROICs, together with nice growth:

NI margin ROE Sales per share FCF per share
31.12.2002 5.0% 21.7% 55.2591  
31.12.2003 5.2% 21.1% 59.346  
31.12.2004 5.2% 17.5% 61.1627  
30.12.2005 5.3% 16.0% 67.2204  
29.12.2006 5.4% 15.6% 73.2292 -0.5172
31.12.2007 5.5% 15.0% 79.3292 -0.0121
31.12.2008 3.9% 11.5% 90.1941 -2.6932
31.12.2009 7.2% 18.5% 89.0562 10.4591
31.12.2010 6.5% 15.3% 94.8683 1.4043
30.12.2011 4.3% 10.0% 104.8493 -2.5251
31.12.2012 4.6% 10.6% 111.4887 #N/A N/A

However we can see 2 issues in this time series:

a) ROE’s declined to ~10% and net margins to < 5% in 2011 and 2012
b) Free cash flow looks very "Lumpy"

Lets tackle the first one: Why did margins and ROE decline in 2011 and 2012 ? Well both, the plastics division and the coffee division share that they depend on "commodity input". The coffee segment clearly depends on coffee prices, the plastic segment on the price of plastic granule which itself depends on oil price and energy costs.

This is a table how the price of raw material developed in comparison to sales:

Raw materials /Consumables Total sales In % Net Margin
2006 40.7 90.6 44.9% 5.4%
2007 45.7 98.4 46.4% 5.5%
2008 53.9 113.0 47.7% 3.9%
2009 49.6 111.0 44.7% 7.2%
2010 57.2 117.8 48.6% 6.5%
2011 69.4 130.2 53.3% 4.3%
2012 73.1 138.5 52.8% 4.6%

So we can clearly see that input costs compared to overall sales increased quite significantly over the last years. But we can also see that at least in 2009/2010 they seemed to have been able to compensate for the rise in input prices. nevertheless it is interesting to see, that despite almost 9% increase in input prices, they manage to squeeze out more or less the same margin as in 2007. Why so ?


2007 in% of sales 2012 in % of sales Delta % of sales
Other (pos) 1.8 1.8% 2.7 1.9% 0.1%
Raw material etc. -45.7 -46.5% -73.1 -52.8% -6.3%
labour -23.9 -24.3% -30.7 -22.2% 2.1%
Depr. -6.3 -6.4% -7.8 -5.6% 0.8%
other -17 -17.3% -20.8 -15.0% 2.3%
financial -0.1 -0.1% -0.6 -0.4% -0.3%
Taxes -1.5 -1.5% -1.7 -1.2% 0.3%

This table shows the “composition” of the cost base 2007 vs 2012. We can see clearly, that input costs have increased relatively to sales and quite dramatically so. On the other hand, the growth of the company seems to have produced good economies of scale effects. Labour percentage is down, depreciation and other costs.

So we can see that we have a company here which is clearly a price taker to a large extent, but was able to grow quickly enough in order to realize economies of scale and keep the margins more or less constant. This means that management has done a good job and can grow while at the same time control costs. I see that as a huge plus and a sign for good management.

Lumpy free cashflows

In today’s investment world, investors want to see a smooth increasing figure for free cash flow per share. I have written about this quite often. But in reality, for a “normal” company, free cash flow is anything but smooth. A real “traditional” company will buy or build a long-term asset, sand depreciate it over a certain amount of time and then buy the asset again etc. Naturally for a traditional company, free cash flow will be lumpy, unless it is “managed”. Operating leases for instance are a management tool or M&A activity. Personally, I can live with “lumpy” free cash flows. At Miko, they clearly are not “managing” this because it think the majority family shareholders are not too interested in such an exercise.

The core Coffee business

Their core coffee business is relatively straight forward. They install and service larger coffee machines in offices and bars/restaurants including additional supplies like roasted coffee, milk, sugar, cookies. They do not produce coffee machines themselves, also the technical service is outsourced to a partner. However they do lease them out if required. So once they have got a contract, it seems to be a nice “recurring” business although they are clearly not the only company offering it.

When they expand internationally, they usually buy a local company and then expand on that basis. In the last few month, the bought in this fashions small existing companies for instance in Denmark and Sweden.

Qualitative aspects / checklist

The score in my checklist is a good 19 (out of 28), at the same level as for instance G. Perrier or Tonnelerie. Highlights are

+ small market cap 71 mn and only 1 analyst following company
+ 55% Family owned via 2 holding companies
+ unusual feature of 2 very different businesses in one stock (investors prefer “pure plays”)
+ potential catalyst for higher margins: Lower coffee prices
+ solid balance sheet, no significant pensions, low debt, low operating leases
+ straight forward reporting, no fancy “adjusted” numbers
+ the company operates over a diversified region (Belgium, UK, Germany Poland)
– not actively shareholder oriented (no buy backs etc.)

An interesting soft factor is the fact that the stock cannot be traded at one of my two brokerage accounts (DAB Bank). This means that no one of the currently 600k clients in Germany has ever traded that stock. Which


My BOSS model (which I don’t take to seriously in that regard) says the shares have an upside of 75%-150%. With a more simple approach I would assume the following:

Both, the coffee service and plastic packaging businesses are “above” average businesses. An “average” business for me would justify a PE of 10, an !above average” like those two something like 12-13 times. On top, MIKO has demonstrated that it can grow and compound in both areas. This is also something one should not pay for explicitly but factor in. All in all, for me a P/E of 15 or EV/EBITDA of 7-8 would be not totally unreasonable.

Based on this, I would see an upside from the current share price of ~30-40%. The downside risk in my opinion is relatively limited. Miko never traded below book value since its IPO, so the current 1.1 P/B seems to be comparably cheap.

Overall I would rate this as buying an above average investment at a below average price.

Stock price

The stock price looks quite interesting. The current price is approaching the all time high from 2007/2008. In comparison to now, Miko then was valued at around 13-14 trailing P/E, so around 30% higher than today. I am not a chartist but if they actually manage to crack this ATH, this is normally a good sign.

Timing & oither considerations

An important question to keep in mind is the following: Would I buy this stock also now if I would not sit on a pile of cash ? The answer is yes, I would even buy it if I were 95% invested or I would also be prepared to sell lower conviction stocks like SIAS for it.

The reason is the following: As discussed earlier, I am not really positive on BRIC and commodity prices in general. So I stay away from anything which profits from increasing commodity prices. MIKO, on the other hand benefits from a decline in commodities, especially coffee.

This is the coffe price chart over the last 15 years:

This illustrates quite well, how unusual the 2011-2012 period was. SO I do think that there is a good chance that we can see improved margins in the coffee business, starting already in 2013. The sole analyst covering Miko is actually expecting 7 EUR Earnings per share for 2013 and 8 EUR for 2014. I don’t think it will be that good, but nevertheless it looks like a good time to buy into Miko.

Miko is in my opinion an interesting stock because it doesn’t fit in most “value” categories. It is clearly no “wide moat” company, it is not a “bargain” nor will it show up on a lot of classical value screens. Also those investors who want (or need) a high dividend yield will not consider the stock However, as a new member of my “boring but sexy” quality stock portfolio it is a very interesting “off the beaten path” addition.


Miko fits nicely into the type of stocks I am looking for:

+ it is small, unspectacular family owned company followed by only one sole analyst
+ the underlying two businesses are stable, solid balance sheet, good management
+ the company should be able to compound at 10-15% ROE for quite some time
+ there might be a small “catalyst” with increasing margins in the coffee business dut to lower input prices
+ geographically it nicely diversifies vs. my France/Italy holdings (mostly Belgium, UK, Germany, Poland)

I therefore establish a “half” position at 58 EUR per share (see disclosure above).

Short cuts: IVG, KPN, ThyssenKrupp


Friday night or Saturday is always a good time for another “breaking” news item about the IVG restructuring. This time they came out with an outline of the restructuring plan.

As expected, equity and hybrid capital are effectively wiped out. What I found highly surprising however is this part:

Further, it is, inter alia, envisaged that SynLoan I and the convertible bond will both be transferred to the company by way of a contribution in kind with 100% of their respective face amounts (so-called debt-to-equity swap), which would lead to a quota-ratio of these two creditor groups’ share in the stated share capital of 80% (SynLoan I) to 20% (convertible bond).

This is a great surprise that although collateralized, the Syn loan I is treated “pari passu” with the convertible. I do not fully understand this, but maybe the collateralization has happened to late (and too close to potential bankruptcy) and would have been invalid in case of bankruptcy. This explains the price jump in the convertible this morning I guess.

As usual in such cases, I am surprised that the equity is still valued at 35 mn EUR.


Interesting development at KPN: After KPN decided to sell its German Eplus subsidiary, Carlos Slim canceled the “stand still” agreement and is now bidding for KPN. I think this will be interesting to watch, as KPN surely doesn’t want to be acquired. I am pretty sure, they will come up with some defences like poison pills etc. Nevertheless I clearly sold out too early . I think I underestimated the “calros Slim” angle here.


ThyssenKrupp might be an interestign “special situation in the making”. Last week, Berthold Beitz, the 99 year old industrialist who efefctively controlled ThyssenKrupp via the Krupp foundation, passed away. Rumours about an accelerated capital increase are emerging.

It is interesting to see in the shareholder structure that a lot of German inevstors got out (Deka, Union) and Anglos Saxon investors got in in the last few months. This could become really interesting.

Some links

Red has some very good comments on Dart Group.

Must read: Michael Pettis on China

Punchcardblog is writing a fictitious letter to Jeff Bezos about the newspaper business

Expecting value looks at pawn broker H&T Group

Wilbur Ross is looking at Spanish and European banks.

Interesting table: Cable TV vs internet

Interesting study: Defined benefit pension plans (DBO) seem to perform siginficantly better than defined contribution plans

Short cuts: Installux, Maisons France, SIAS, EMAK


Installux reported 6m numbers. As they have already indicated, sales were down -10%. Interestingly, they managed to keep their EBIT margin at a constant 11%, despite higher depreciations.

This is very remarkable. The net result went down ~-11% mostly because taxes remained unchanged on absolute terms. At the end of the day, EPS for the first 6m was 13.80 EUR. If history is any guide, I would expect an additional 5 EUR EPS or so in the second 6m, resulting in 19 EUR EPs. Net cash went slightly down to around 16 mn EUR or ~53 EUR per share due to higher receivables which is normal for Installux in the first six months.

All in all, Installux is still one of the cheapest stocks around and the business seems to be surprisingly resilient and their cost base quite flexible.

Maisons France Confort

As expected, MFC is experiencing an even deeper decline in sales than Insatllux. Maybe it was also the weather, but sales are down -10.5%, excluding M&A by -15.4%. However they will publish results only in beginning of September. So lets wait and see. The stock price remained surprisingly resilient.


SIAS released 6M numbers as well. Numbers were Ok. Traffic seemed to have picked up later in Q2. Overall, as now the “special” is gone, one of my lower conviction ideas. Good dividend and still below book value but that’s it.


Finally, EMAK released the 6M report. Despite unchanged topline sales, they managed to significantly increase profitability which I find remarkable (profit margin 6.2% vs. 4.4%). Even moreinteresting, their European sales increased nicely despite the unfavourable weather and sales decreased mostly in Turkey. One more data point for my “gorilla theory”…. This is what they say:

In the “Asia, Africa and Oceania” the decline in sales is mostly due to the decrease in shipments to Turkey, tied to a moment of weakness of the local market.

They lowered slightly their guidance for 2013, but still the expect 38-40 mn EBITDA which would transale in somethin like 0.10 EUR profit per share.

Overall, EMAK in my opinion is on a very good way and has significant recovery potential from here.

« Older Entries