AS Creation (DE000A1TNNN5) Half year report 2013 – SELL

AS Creation was on my watch list for a potential sale quite some time.

The initial investment casé was as follows:

At the time of writing in 2010, AS Creation was trading at around 29 EUR. We thought at that time that either “reversion to the mean” of net margins of around 5% and/or the Russian JV could give earnings and of course the stock price a nice boost. Our overall fair value at that time was estimated at around 38 EUR, a weighted average of good/medium/weak scenario.

In the meantime however, both assumptions were not reached. Net margins went down to 2.4% in 2011 and back to 3.6% in 2012. So far away from the 5% we assumed for the good case.

Additionally, based on the 6 month report issued on Monday, the Russian JV seems to develop rather dissapointing. The second quarter alone brought an additional “at equity” loss of 1.5 mn EUR after 0.5 mn loss in Q1. The reasons for this disappointing developement were “unforeseeable” difficulties in getting their stuff into the sales channels. This sounds like a quite weak explanation. Additionally they mention declining demand in Russia which fits into my “Gorilla” thesis.

So our old “best case” seems hard to reach. I mean if they don’t earn their margin now, with parts of Germany in a real estate bubble, then I highly doubt that they can do that ever again.

Combined with some other issues, like a non-explained general waiver for management in connection with the ongoing cartel investigations, I do not see a lot of upside in the stock for the next couple of years.

As the current share price is way above the estimated “Mid case” valuation, the only possible consequence is to sell the AS Creation position completely.

This further increase the cash pile, so I have to work hard on new ideas….

11 comments

  • Let me know what do you think about MOX Telecom AG as an investment idea… A bit difficult to understand, German listed company with 70% of the business from latin inmigrants in USA + criptic accounting/structure, but profitable and growing consistently.

  • João Fernandes

    May you tell how much worth your portfolio? You run your potfolio in full time?

  • João Fernandes

    I have just invested in Mobistar SA (P/E: 5;ROE:31%, net profit margin:8%, EV/EBITDA: 3)
    They halted the dividend for the next year (they had a 9% dividend)
    They are struggling to have cable tv access. In the 3 quarter we will have news from the Competition autority.
    What do you think about this stock? Is it a bargain?

  • “with parts of Germany in a real estate bubble”, why do you think Hornbach will improve from here?
    Praktiker markets maybe won’t all close down because of new investors.

    Why do you need new ideas instead of increasing existing positions?
    Maybe I am missing something here.

    • 2 good questions:

      Hornbach: I think Hornbach will continue to gain market share. We will have to look at see how Max bahr/Praktiker will end up, but my assumption is that the best branches will go to current players. With Praktiker out, I assume overall competition will be less brutal and margins recover. Hornbach will not shoot up liek Tesla, but byuing at book value and compounding on average at 10% is in my opinion a pretty solid deal.

      New ideas: I am not a big fan of large concentrated bets, at the moment even less so. Most of my positions are at a level where I feel comfortable.

      mmi

      • Thank your for sharing your insights.

        I like hornbach, too. I think their human capital is superior to the competitors. The Praktiker near my home town closed town and they had mediocre staff. Obi is a little better, but Hornbach beats both regarding customer service. This is just a small sample though. Hornbach also uses SAP Software. Although their database is not upgraded in real-time, this could be an advantage because this makes data analysis quite easy.

        Regarding new ideas I am more diversified than your portfolio because I have primarily positions established before tax reform in 2009 and I can’t beat this positions on an after tax basis with new shares. Only dividends and savings are invested in new ideas.

  • “so I have to work hard on new ideas….”

    Do you think its worth to have a look in the potash marked?

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