Monthly Archives: October 2013

Portfolio transactions: MIKO BV, Emak SpA


MIKO issued a short Q3 trading update 3 days ago, which in my opinion is very very good. I did already buy more MIko before and have now upgraded into a full 5% position.

This is an excerpt from the release:

Turnhout, 28 October 2013 – Miko NV, the coffee service and plastic packaging specialist listed on the NYSE Euronext Brussels, has announced that during the third quarter of 2013 its turnover was 12.8 % higher than during the same period last year. The combined turnover for the first nine months of 2013 increased by 6.7 % compared with the first nine months of 2012.

The growth in turnover is due, firstly, to increased sales in the plastic segment and, secondly, to the acquisitions in the coffee segment that marked the first half of the year (Kaffekompaniet in Sweden and ABC Mokka in Denmark).

In terms of results, there were encouraging increases in both these segments.

According to Mr Frans Van Tilborg, CEO and Managing Director of the Miko Group: “Within the coffee service sector, we have seen a slight drop in sales in most domestic markets, Germany being a positive exception. Although the economic crisis is far from over, the situation has been helped by a number of acquisitions and by reductions in the price of raw materials. In addition, the plastics division is still performing well, with impressive sales growth at each of our plants in Belgium, Poland and Germany. We are optimistic for the rest of 2013.”

This represents a huge acceleration against the first 6 months.

It is a kind of strange feeling to buy at an all-time-high, but on the other hand I try to avoid any kind of anchoring with regard to past stock prices in my decisions. Fundamentally, I think MIKO is a really good deal at this price level.


On the other hand, I sold half of my EMAK Spa position. EMAK is/was a “special situation” investment I made during the brutal capital increae in 2011. Now, the price jumped to a level where I think the risk/return relationship is not as good any more. There was no fundemenatl news, so I assume that part of this price jump is the due to the momentm of PIIGS small caps in the last few weeks.

Compared to MIKO for instance, which is growing nicely, EMAK seems to be now rather overpriced, even assuming a further recovery in the “PIIGS”.

As I am always selling too early, I sold only half of the position now 😉 I will decrease my FTSEMIB hedge accordingly, as now the Italy exposure is down to only around 12.5% of the portfolio.

AKKA SA (ISIN FR0004180537) – Finally a French- German success story ?

Akka technologies is a French company which is described in Bloomberg as follows:

Akka Technologies provides high-technology engineering consulting services. The Company specializes in scientific project management and engineering, mechanical, electronic, computing, and telecommunications project management and engineering, as well as industrial project management and engineering.

Valuation (at 22 EUR)

P/E 8.6
P/B 2.2
Div. Yield 3.0%
Market Cap 320 mn EUR

The stockprice developed relatively well since the IPO in 2006:

This is supported by a very impressive EPS increase from 0.63 EUR in 2006 to 2.82 EUR in 2012.

Business model:

The company describes itself as „R&D outsourcing“ company. Mostly active in automobile and aviation. Main clients: EADS (22%) and Daimler Benz (28%).

I think it is a little bit more than a „high class“ temp agency. In their half year report they highlight for instance those projects:

• Daimler has just entrusted MBtech with its largest project so far, involving the design of a future vehicle.
• Renault is relying on AKKA for the industrialisation of three new vehicles in China.
• Airbus has entrusted the European coordination of one of its major contracts to AKKA.

Nevertheless, I think their business shows similar cyclical characteristics than their clients. They surely need less fixed assets, which should make results less volatile after deprecisation, but this is definetly not a super stable must-have service business. If times are getting harder for the clients, they will most likely cut first in their „outsourced“ R&D before firing their own guys. On the

I am not sure how dependent they are on the know how of the engineering companies. I guess that the clients try to avoid too much know how transfer.

Overall, this kind of business model can be quite attractive. Competitors like ALTRAN; Atkins (UK) or Bertrand (Germany) earn easily 15-20% ROICs as the business requires not much capital. This translates on average into valuation ratios which are twice as high as for AKKA (Bertrand trades at 11xEV/EBITDA, Altran at 9.6x) .

AKKA for instance showed a net Income margin of around 4.5% over the last 10 years which, due to the low capital requirements, translated into an average ROIC of around 20% which looks very attractive, especially combined with the strong growth.

Why ist he stock cheap ?

Akka used to make acquisitions in the past, but usually only smaller ones. Until 2011, the company had significant cash on hand.

In 2012 however, they made a real big acquisition: The took over a full division of Daimler called MBTech.

The acquisition as such is not unreasonable, although some issues are clearly visible:

– Akka had to take on additional 100 mn in debt to finance it
– MBTech had only one customer: Daimler
– the company is barely profitable, despite the boom in the auto industry

On the other side, Akka got the company quite cheaply (almost at book value) because no one else wanted it. As Akka was already present in Germany, the do have experience and the logic, that such a division, once it is free from ist big parent, improves a lot, does make sense.

Daimler seems to have guaranteed business for 5 years. In the meantime, Akka needs to find new clients. So far, Akka seems to proceed slower than planned with the turn around and overal profitablity is now suffering clearly. Nevertheless, from a pure business point of view this could be an interesting turn around situation ifg the plan works out.

Loking at MBTechs recruiting web site one can see that they are currently searching for 200+ engineers. Daimler, the main client of MBTech has just released surpisingly good numbers. So for the time being it doesn’t look bad.

On the other hand, the purchase of MBTech could be considered to be some kind of „spin off“. As part of the large Daimler conglomerate, this small organization was most likely „rotting“ in the backwaters. Now, within a much smaller focused organization like Akka, theoretically, a lot of improvements could be expected.

Qualitative aspects

On the plus side, the company is still majority owned by the Founder/CEO Maurice Ricci with > 50% ownership. He is 52 years old and will most likely be in the company for a while.


Going through my quality checklist, some issues really bother me. When I look at a company, I ususally google for pictures of the CEO and board members plus I try to watch videos to get a „subjective“ impression.

When I googled Maurice Ricci, I got among others, this link

And those pictures:

So Maurice Ricci seems to enjoy race driving quite a lot. I do have a BIG problem with CEOs who have extravagant hobbies such as race driving.

There are quite a lot of examples of race driving CEOs which drove their company „against the brick wall“, among others, Ulrich Schumacher from Infineon and Eike Batista.

My theory ist hat as a race driver you have to go to the limit all the time in order to be succesful, if you fail, you just need to get a new car. However, if you are shareholder in a company run by such a CEO, you have the risk that your stocks will bet he „old car“….

This alone would be just a warning sign, but when I went through my list, some other slightly worrying issues emerged:

Akka SA behaves a little bit irrational with regard to funding, both in 2011 and 2013, they issued new shares (1 new for 10) but paid a dividend as well. For shareholders, this is clearly value destroying (costs for rights issue, taxes on dividend).

Even more worrying ist he fact, that the CEO didn’t seem to particpate in the rights offering. According to the annual report, his percantage declined more or less with the increased share count.

It looks a little bit that he needs more than the 600 k salary to finance his lifestyle and therefore still pays out the dividend although it would be better to reinvest.

Finally, I am alaways careful if a company does a big acquisition compared to ist size. In this case it seems to have been relatively cheap

Overall, Akka only scores 13 out of 28 in my qualitative check list, which is not enough for my „core value“ portion.

Interestingly, I did some „scuttlebut“ with some French investors and they had a quite high opinion of the company from the operational and technical point of view.

So what now ?

We have a stock which is quite cheap but does only score „mediocre“ with regard to quality. For me, there is one line where I would not make any compromise: Accounting and integrity . If I have the feeling that a company is „cooking“ the books or if management has been involved in shady deals in the past, I will pass.

Here however, this is not the case. But clearly the risk is higher. So what we need here is better understanding of the potential values of the investment.

In order to keep it simple, I define 3 „probable“ scenarios, all three based on a 3 year horizon

1. Status quo.
The company does how it does now. Stock price remains constant

2. Bad case
The lowest net margin for Akka since they are listed has been 3.7% in 2009. If we use this as a basis and the current P/E of 8.5 (and again sales of 900 mn) then we would end up with a earnings of 2.2 EUR per share or a fair value of 18.60 EUR.

3. Good case
In the past, Akka was able to earn a net margin of around 5%. If we assume that they can turn around Germany in 3 years time and generate an overall amount of 1 bn sales, we would have a net income of around 50 mn EUR or around 3.30 EUR per share

If we further assume that they will then trade at a p/E of around 12-15 times as most of the peers, we have a target price range of 39.6 -49.5, with the midpoint at ~45 EUR.

In the next step, I try to come up with simple probabilities and the calculate the 3 year IRR.

The simplest psoobility is always: Equal weight, 33.3% probability each. The result is calculated quickly:

3 year Horizon – Equal weight
Akka Prob
Low case 33.3% 18.6
Status quo 33.3% 22
Good case 33.3% 45

Expected value in 3 yaers 28.53
IRR p.a. 9.1%

So if we assume, all three scenarios are equally likely, weg et an IRR of 9.1% over 3 year which is not very attractive.

We could also look at the scenario where we can assume that the turnaround is basically a 50/50 gamble:

3 year Horizon – 50/50 turnaround
Akka Prob
Low case 25.0% 18.6
Status quo 25.0% 22
Good case 50.0% 45

Expected value in 3 yaers 32.65
IRR p.a. 14.1%

In that case we would get an IRR of 14.1. Not bad, but as this is clealry an above average risk stock maybe not enough.

If we assume a 75% probability of the MBTech turn around, we get the following picture:

3 year Horizon 20% IRR
Akka Prob
Low case 12.5% 18.6
Status quo 12.5% 22
Good case 75.0% 45

Expected value in 3 yaers 38.83
IRR p.a. 20.8%

So in order to come to a 20% IRR which I think would bet he right „Hurdle“, one has to be quite sure that the turn around is succesful.

If one uses the 50/50 scenario to find the „status quo“ level which would provide an expected 20% IRR, we would end up with 18 EUR.

So long story short summary:

I would buy the stock either if the price would be around 18 EUR or if I am convinced that the turnaround is happening with at least 75% probability (and the car sector is not cratering).

So for the time being, despite looking attractive from a pure valuation point of few, the risk/return for Akka is not good enough in order to qualify as core value. As it is no “special situation” neither (at least not in my definition), for the time being it will be a stock for the watch list only.

Some links

The Brooklyn Investor is looking at some potential “Outsider” companies: The “new” Teledyne and Colfax from the US and Transdigm.

Especting Value is looking at UK wallpaper company Colefax

Very interesting presentation from Kerrisdale on Lindsay, an US company which produces automated water irrigation equipment for farmers.

Interesting presentation with some stock ideas from German value fund Discovery Capital.

The funny story of Carl Icahn’s sale of netflix shares by Kid Dynamite. His son didn’t want to sell…..

Finally a non-investment story from Sports Illustrated about the remarkable life a former NBA player who dissapeared on a boat some 10 years ago. I found it remarkable for several reasons:
– captivating story
– great presentation, if online stories are presented like this, traditional media outlets might stil have a chance
– there is finally a “hidden” investment angle: The best friend of the NBA player was Patrick Byrne, CEO of the company Not only is a company which is suspected to be a fraud by Sam Antar, but he is also the son of GEICO CEO John Byrne, highly admired by no one else than Warren Buffet himself.

Short update Portugal Telecom /OI: Sale of 6.1% stake by Caixa Geral

In my first post on the PTC/OI merger I wrote among others the following:

For some PTC shareholders, the problem might be that the suddenly do not hold a Portuguese/European stock but a Brazilian one. According to the official announcement, the new stock will be listed in Brazil, US and on NYSE Euronext, so technically it should be not a problem for shareholders.

Today, Government owned Portuguese Bank Caixa Geral, which owns 6.1% in PTC announced to sell their stake:

Oct 24 (Reuters) – Portugal’s state-owned bank Caixa Geral de Depositos will sell its outstanding 6.11 percent stake in Portugal Telecom in a private sale as part of plans to sell non-core assets, the bank said on Thursday.

The sale of 54.77 million shares will be carried out via an accelerated bookbuilding process aimed at certain investors.

I am not sure if they wanted to sell anyway or if they have issues to hold a Brazilian stock, but in either case I think such a sale provides a good opportunity.

The stock has been currently suspended from trading, but I will try to increase my 0.5% stake to 1% today.

Van Lanschot N.V. (ISIN NL0000302636) – High end Private Banking at a discount price ?

As this is going to be a pretty long post, the “executive summary” upfront:

– For a specialized private bank without PIIGS exposure, Van Lanschot looks extremely cheap (P/B 0,5 vs. 2.0 for other private banks)
– negative 2012 result is very likely „kitchen sink“ result in order to give new CEO a head start
– turn around story. Strategy change under way, goals look achievable
– Van Lanschot has no controlling shareholder, a potential M&A transaction likely if turn-around is sustainable
– potential secular tail wind because of crack down on Swiss Private Banks and regulation for large international banks
– negative overall sentiment vs. Dutch real estate market could explain very low valuation

Read more

Short cuts: EGIS, Hornbach/Praktiker, Rhoen Klinikum, KPN


This is from a broker report issued end of September by “Wood & Company”_

During the brief analysts’ conference call yesterday morning, Servier stressed two points: 1) regardless of the acceptance of the offer, Servier plans to delist the shares; and 2) Servier’s HUF 28,000/sh offer is final and will not be revised.
The minimum threshold to trigger a squeeze out under Hungarian regulations is 90%, which means that Servier needs acceptance from 79.63% of the outstanding free float, or 3.043m shares.
Regardless of the acceptance of the offer, Servier still intends to call an EGM to delist the shares from public trading, a step that requires a 75% majority of the votes cast; to block the delisting would require an absolute minimum of c.1.32m votes against, or c.35% of the free float.

Read more

Confessions of an “arm chair investor”

BeyondProxy,a blog I read frequently, had a big post about investing in Europe which seems to become more popular by the day.

What really caught my eye and made my somehow angry at first was the following quote:

Philip Best, Founding Partner, Argos Managers: “One of the things we really believe in is that there is too much investment that goes on from people who are basically just sitting behind a Bloomberg screen and who are doing arm chair investing. They are sitting there and they are waiting for ideas to come to them. And Marc [Saint John Webb] and I believe a great deal in getting out there. In getting out there and meeting companies and talking with managers and we spend a lot of time traveling around France. And “A” we like that and “B” that is what we think brings the most to the job…We try and read as much of the local press as we can. Whether it’s in France or the UK, Switzerland or whatever and also a bit of the trade press. Plus, it is classic value investor stuff. A lot of the ideas have come from this idea of ‘idea clumping.’ You know you find one cheap software company in Germany and suddenly you find a bunch of others.”

Read more

Some links

Very interesting post from Prof Damodaran on the differences between (value-)investing and trading

Bloomberg story about Eike Batista, the guy who lost ~ 35 bn USD in one year

Nate from Oddball muses about patience, simplicity and retail stocks

Good post about the implosion of Albermarle, the UK pawnbroker

Plus 2 interesting blogs I discovered just recently, both highly recommended:

Valuevista from the UK
AlphaVulture , a poker player and value investor

Finally, an interesting small cap “pump and dump” from Warren Buffet himself in 2000 (via Alphavulture comment section):
– Buffet buys privately a company called Bell Industries in Dec 1999
– in Jan 2000 he sells it after it has jumped 80% because of the disclosure
– in November 2000, he then bought again after the stock collapsed

Portugal Telecom & OI merger – another PIIGS stock transformation ?

It seems like that many PIIGS companies with significant international business operations try to transform their companies in some way or another in order to get rid of the “PIIGS” discount. Basically a first mover was Hellenic Botteling, which delisted in Greece and relisted as Swiss based company in the UK market in 2012. A second, very succesful attempt was made by Autogrill, spinning off the international business.

Now, a few days ago, Portugal Telecom (PTC), the Portuguese TelCo with a large Brazilian subsidiary, came up with a potential new way:

They want to merge with the Brazilian TelCo OI and effectively become a Brazilian Telecom company with a Portuguese subsidiary.

This alone is in my opinion already an interesting special situation. But it gets even more interesting. The structure of the merger is quite complicated, but in general, there will be a merger plus capital increase.

For Portugal Telecom shareholders, it looks like the following:

Each Oi common share will be exchanged for 1 share in CorpCo, and each Oi preferred share will be swapped for 0.9211 CorpCo stock. Each Portugal Telecom share will be the equivalent of 2.2911 euros in CorpCo shares to be issued at the price of the capital hike, plus 0.6330 CorpCo shares.

So on a first look, this looks interesting for Portugal Telecom shareholders. The lower the price of the capital increase, the higher the share in the combined company. Clever Hedge funds might even be able to construct a short OI long PTC trade. Although there is a corridor where either PTC or OI can step back from the transaction if prices would move too strongly in one or the other direction.

Some figures / ratios:

Market cap 3.1 bn EUR
P/E 7.4
P/B 1.5

Market Cap 6.5 bn BRL (~2.1 bn EUR)
P/E 11
P/B 0.6

Both companies carry significant debt.

The share prices of both companies reacted at first positively, but in the recent days, OI shares dropped quite significantly and PTC is back to where it was before (after hitting +30% in the first day):

This might be the reaction to the large cash capital increase undertaken by OI in the course of the deal:

As part of the merger, Oi proposes to undertake a cash capital increase of a minimum of R$ 7.0 billion (Euro 2.3 billion), and with a target of R$ 8.0 billion (Euro 2.7 billion) to improve the balance sheet flexibility of CorpCo. Shareholders of Telemar Participações S.A. (“Tpart”) and an investment vehicle managed by Banco BTG Pactual S.A. (“BTG Pactual”), will subscribe approximately R$ 2.0 billion (Euro 0.7 billion) of the cash capital increase

So from an OI shareholder point of view, one could argue that this exercise is somehow quite dilutive.

For some PTC shareholders, the problem might be that the suddenly do not hold a Portuguese/European stock but a Brazilian one. According to the official announcement, the new stock will be listed in Brazil, US and on NYSE Euronext, so technically it should be not a problem for shareholders.

On the “plus side” for this transaction one could argue with the following points

+ A Portuguese company with a potential “PIIGS” discount will be “transformed” into a potential BRIC growth story.
+ The valuation of the overall group might improve as well, as the OI pref shares will cease to exist
+ As PTC shareholder, there is an additional opportunity with regard to the OI share capital increase. The lower the price for the new shares, the higher will be the percentage in the new company
+ it is very likely that the deal will go through. The CEO of both companies is the same guy and regulators will have no reason to object
+ part of the synergies (i.e. lower refinancing costs) might be relatively easy to achieve.

On the other hand, there are also some clear issues:

– Brazil itself is not in the “sweet spot” anymore
– OI itself is struggling. Being only the number 4 mobile operator, especially ROA and ROE is far below the competition
– in the presentation, the CEO committed to pay 500 mn BRL p.a. in dividends. Including the new shares, this will result in a much lower dividend yield going forward from the current 7-8%. As they want to grow, this makes sense, but for some investors this could be an issue
– debt will be relatively high, further capital increase in combination with acquisitions are not unlikely

At the moment, I need to dig a little bit more deeply into this, but in order to keep me motivated and interested, I take a 0.5 % position at current prices (3.40 EUR per share) in Portugal Telecom for my “special situation” bucket.

DISCLAIMER: As always, do your own research. This is not meant to be any kind of investment advise. When publishing this, the author will most likely own the stock already. Do not blindly follow any tips etc. Use your own brain. The author will also most likely sell the stock before posting this on his website.

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