Monthly Archives: August 2013

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.

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….

Some links

Cassandra about the difficulties of reinsurance companies run by hedge funds

Michael Lewis has a new big piece about the ex Goldman programmer who got 8 years in prison for stealing HFT code

Recommended: Jason Zweig (Co Author Intelligent investor) interview

Bad week for Bill Ackman: JC Penney drops, Soros has joined the ranks of the Herbalife “squeezers”. Ackman tries to fight back, but at the moment without any impact.

Interesting stock idea: Japan Airlines, bought by Jana Partner

Performance review July 2013 – Comment “Did you see the Gorilla ?”


July was a strong months for equities. The Benchmark (50% Eurostoxx, 30% Dax, 20% MDAX) increased by +5.0%, resulting in a YTD performance of 12.5%. The portfolio in comparison gained “only” 3.1%, YTD it is up 21.4%.

The underperformance in July is to be expected. 25% of the portfolio is now in cash, a further 7% in bonds. Most of the stocks have betas significantly below 1. So underperformance in a strong market should be expected.

Best performers were some of the French stocks, G. Perrier +18.6%, April +16.0%, plus Dart Group at a whopping +25.2%. Losers were AS Creation -8.7% and EGIS -4.6%.

The only 2 transactions in July were the complete sale of Drat Group, with a gain of total +226 and my add ons to the Hornbach position. Due to low trading volume, I only got up to 4% from 3.7%, so I will continue to buy in August.

Portfolio as of July 31st 2013

Name Weight Perf. Incl. Div
Hornbach Baumarkt 4.0% 6.1%
AS Creation Tapeten 3.6% 27.7%
Tonnellerie Frere Paris 6.1% 96.8%
Vetropack 3.9% 5.8%
Installux 2.6% 14.2%
Poujoulat 0.9% 11.4%
Cranswick 5.3% 33.4%
April SA 3.9% 30.5%
SOL Spa 2.7% 35.3%
Gronlandsbanken 1.9% 12.3%
G. Perrier 3.6% 40.2%
IGE & XAO 2.0% 7.6%
EGIS 2.5% 1.3%
Thermador 2.6% 3.9%
KAS Bank NV 4.7% 31.9%
SIAS 4.9% 43.0%
Drägerwerk Genüsse D 8.9% 181.3%
DEPFA LT2 2015 2.6% 63.5%
HT1 Funding 4.2% 49.4%
EMAK SPA 4.8% 54.5%
Rhoen Klinikum 2.3% 21.4%
Short: Prada -0.9% -15.8%
Short Lyxor Cac40 -1.1% -14.2%
Short Ishares FTSE MIB -1.9% -10.4%
Terminverkauf CHF EUR 0.2% 7.1%
Cash 25.5%  
Value 45.7%  
Opportunity 32.5%  
Short+ Hedges -3.8%  
Cash 25.5%  

Comment: “Did you see the Gorilla ?”

There is a classic psychological experiment being done in many seminars which goes the following way:

A video is shown with two 3 person basketball teams, one with white shirts and one with black shirts. Both teams in a somehow chaotic fashion pass the ball to each other. The viewer gets the task to count the passes between the white shirt players over a time period of around 90 seconds.

You can try this yourself for instance here:

Participants get then asked how many passes were played. Most participants get the number right. The second question then is unexpected: Did you see the gorilla ?

I have to admit that when I did this experiment the first time in a seminar, I didn’t see the gorilla. I had the exact amount of passes, but no, I didn’t really see that a guy in a gorilla costume was walking slowly through the picture.

In my opinion, the current situation in the financial markets is very similar. Everyone (and his grandmother) is looking at Ben Benanke. Every single speech gets analysed down to the last word and market react violently on any interpreted change etc. Every speech, minutes etc. get analyzed over and over. For me, watching every word of Bernake is like counting the passes of the white shirt basketball team.

Yes, the FED does impact certain things but real business activity depends on a lot of other things. If you are a Bavarian “Mittleständler”, you do not build a new production hall because Ben Bernanke is saying this or that. You expand if you expect more orders from China, Brazil, Australia etc.

And this is in my opinion the big gorilla dancing in front of our noses: The slow down of the BRIC (and associated) economies. Despite any faked official numbers it is clear, that the high time of BRIC/EM growth is over. I watch closely many companies which are active in China and all of them are reporting problems. Interestingly, very few people seem concerned about this. One can now read many articles which talk about “soft landing” in China or “decoupling” of the US. Yes, both of those things could happen, but my experience tells me whenever you here “soft landing” and “decoupling” you should actually prepare for the worst case.

So what does that mean for the portfolio and investment strategy ?

For me, it doesn’t mean to get out of the stock market right now. Market timing is an art I do not understand. Nevertheless I will follow (further) some general guidelines:

– be extra careful with companies with EM market exposure
– rather err on the conservative side when analyzing companies. Take less risk, not more.
– focus more on special situations
– do not rely on stock momentum for existing position. Sell when too expensive
be patient, don’t invest just because cash is piling up
– expect and prepare for significant underperformance in the next few months
– Don’t count the passes, but focus on the Gorilla …..

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