Monthly Archives: December 2014

Short Cuts: Flughafen Wien, Alstom, Trilogiq, Sberbank

Flughafen Wien

A quick update on my “Christmas-special situation” investment Flughafen Wien:

82,2% of the tendered shares have been accepted at the offer price of 82 EUR. With the current share price of ~ 77,5 EUR, the overall return results (pre costs and taxes) are :

(0,822*(82-79,25) + 0,178*(77,50-79,25))/79,25= +2,46% For the portfolio I assume that I would be able to close the position (sell the rest) at 77,50 EUR. Privately my broker DAB was not yet able to “release” the tendered shares.


Back in August this year, I looked at Alstom as a potential “sum of parts” play following the GE deal announcement. One open point was the issue of pending corruption charges. I had written the following:

A second big issue is that at the moment no one knows exactly how much of the liabilities will get transferred to GE. Especially with regard to operating leases (nominal ~830 mn EUR), litigation liabilities (528 mn EUR) and pension liabilites (gross 5,2 bn) there is no definitive answer how much will be transferred to GE and what remains at Alstom. In a sum of part calculation, any of those remaining liabilities will have to be deducted from the extra assets as they are economically equivalent to debt.

I had some discussion and the consensus was that litigation liabilities would be transferred to GE, although I was sceptical. It turned out that I was right in this case. Alstom pleaded guilty and agreed to pay 772 mn USD fine. For the valuation, the most important sentence is this one:

In June, Alstom agreed to sell most of its energy business to General Electric. The French company said it would not be able to transfer its fine over bribery allegations to G.E.

Due to the strong dollar, in EUR the fine is actually 100 mn USD higher han the reserves. Overall, for anyone assuming GE taking over those liabilities, this reduced the value of Alstom by 2 EUR per share.. It will be interesting to see how the transport business is actually doing once Alstom publishes annual results. So far, I do not see any reason to buy the stock from a fundamental point of view.


A few days before Christmas, Trilogiq reported 6m figures (30.09.2014). For some reason, the report is not on Trilogiq’s homepage, so one has to look at secondary sources like this one. Sales were slightly lower, gross margins more or less equal to last year. Net income was significantly lower but still positive.

They attribute the lower result to special marketing expenses and new hires:

la hausse de 13% des autres achats et charges externes, notamment du fait de la multiplication des actions marketing destinées à faire connaitre la nouvelle gamme GRAPHiT à travers le monde, l’augmentation de 12% des charges de personnel qui ont été grevées par d’importantes indemnités de départ et par de nouveaux recrutements

Cash is till around 22 mn EUR or 6 EUR per share. If Trilogiq manages to return at leat to 2/3 of the old profitability, (earnings were between 1,45 EUR per share and 1,75 EUR from 2008 to 2013), the stock would be priced at 6-8 times earnings. It remains to be seen if the temporary effects are in fact temporary. A friend forwarded me this equity research piece on Trilogiq where they expect 1 EUR EPS in 2016/2017 which to me looks quite conservative. Nevertheless, I think the further fundemental downside for Trilogiq at the current stock price is rather limited.


Over the holidays, I decided that I will exit my Sberbank position still within the old year at today’s prices. In the private account this also leads to “tax loss harvesting”. For the portfolio it became clear to me that my investment decision now has been invalidated 2 times. First, I estimated that the Ukraine conflict would be over quickly which was clearly wrong. Secondly, I did not account for the drop in oil prices and the ruble. I have honestly no idea how exposed Sberbank is directly or indirectly to oil and the ruble, but the prudent decision is to sell now and look at the stock (and the Russian market) again next year.

It might look very pro-cyclical selling near the low, on the other hand, if an investment case has deteriorated as much as in this case one should better exit before “behavioural biasis” such as “breaking even” etc. kick in.

My 28 investments for 2015 (and maybe a few too many….)

As every year, I will do a short summary of my portfolio for 2015 with comments on each positions. One thing that I recognized is the fact that my portfolio now has 28 positions which is on the high-end of what is manageable. So I have to put a few of them on the watch list to do a deeper review in the coming weeks. New ideas have to replace an “old stock” in 2015.

1. Hornbach Baumarkt

One of my initial positions, family owned Hornbach is a slow and steady grower, their market share in Germany for instance increased from 8,7% in 2009 to 13% in 2013. The stock performance in the last year lacked a little bit as the market did not allow multiple expansion. Very limited downside in my opinion despite hard business. Hornbach could additionally profit from the end of the Baumax chain in Austria, similar to the boost in sales in Germany after Praktiker went bankrupt.

2. Miko

Belgian, family owned company providing Coffee workplace services and plastic packaging. Plastics division could profit from low oil prices. Slow and steady grower, doing small acquisitions along the way.

3. TFF Group

Another initial investment from 4 year ago. Family owned oak barrel manufacturer. Has grown well over the past year due to Asian demand for oak aged french wines and opportunistic acquisitions. Demand for French wine in China seems to hae stopped growing, but long term I think the company is attractive. Next year will be rather unspectacular.

4. Installux

Small French company specialized in aluminium appliances. surprisingly resilient. Despite the nice stock price appreciation in 2014 (+30%) still one of the cheapest quality stocks in Europe. Downside well protected via large net cash position.

5. Cranswick

Uk based “butcher”, producing pork and sausages with a dominant market position. Despite the problems of its biggest clients, Cranswick is still doing well although the stocks are a little bit on the expensive side. This is a stock I will have to review soon.

6. Gronlandsbanken

Gronlandsbanken is the only bank in Greenland and a long bet (or hedge against) Global warming. The ice is melting in Greenland which should contribute to ecominic activity, however a lot of that is commodity related. Stock pay an attractive dividend which looks very safe.

7. G. Perrier

French small cap, specialist for electric installations with a strong position in Nuclear maintenance. Good growth despite economic headwinds. Cheap (ex cash) depite attractive, capital light business model.

8. IGE & XAO

Small french software company, controlling the French market for electrical CAD software. Steady growth, highly attractive margins and still reasonably priced.

9. Thermador

Thermador is a French based construction supply distribution company. Distinct “outsider style” corporate culture. Despite headwinds in French economy still doing well. Reasonably priced.

10. Trilogiq

A French supplier mostly to the automobile industry. Capital light business model including some consulting. However issues in 2014 due to complete change of product offering and resulting disruptions. Despite lower profits still oK priced but I will need to thoroughly review the position next year.

11. Van Lanschot

Dutch base private bank, turn around story with new management. Some progress in 2014. Still well below book value but it needs to be seen if capital will produce adequate returns.

12. TGS Nopec

“Outsider style” seismic data company. Clearly influenced by the oil price but with strong competitive advantages against competitors due to “capital light” business model.

13. Admiral

“Outsider style” direct internet insurance. Uk base, large cost advantages but difficult part of the insurance cycle. Several growth projects on the way.

14. Bouvet

IT consulting company from Norway. Stock price hit hard by oil decline, Statoil is the largest client. Will need to check if investment case still valid as a 50% drop in oil prices and the potential impact on Norway’s economy was not part of my analysis.

15. KAS Bank NV

Specialist bank from the Netherlands. Cheap but good and safe dividend yield. Would profit significantly if interest rates would go up again.

16. Energiedienst

Swiss/German Hydroelectric utility. Still suffers from renewable energy driven chaos in German electricity market. Solid cash generation, defensive position. Could profit from restructuring of the large German utility groups, although electricity prices will stay low if oil and other fossil fuel stays as cheap as currently.

17. Koc Holding

Family owned conglomerate, dominating Turkey’s economy. Low oil price should benefit Koc in several ways.

18. Ashmore

Specialist Emerging Markets asset management company. 2014 was difficult year due to EM volatility. I am still positive as EM is basically the only part of the market where there is any yield left. CEO owns significant part of the company.

19. Sberbank

Biggest Russian bank. When I bought it, I did not expect that the conflict in Ukraine would escalate as much and of course I didn’t expect the oil price go down so fast. Will need to review the case asap.

20. Depfa 0% 2022 TRY

Combined Emerging market investment (Turkish Lira) and bet on Spread tightening for DEPFA.

21. Romgaz

First part of my bet on a Romanian recovery supported by the election if the new, ethnic German president. Extremely cheap producer and distributor of natural gas. Could profit from recent privatisation and efficiency gains, pays solid dividend.

22. Electrica

Part 2 of Romanian “bet”. Extremely cheap electric grid company. Guaranteed profit increase via investment program at guaranteed returns plus extra upside if efficiency gains could be achieved. On of my favourite long-term bets.

23. Drägerwerk Genüsse

Capital structure “arbitrage”. Price of Genußscheine still far below the fundamental value which should be 10x the Draeger Pref shares

24. DEPFA LT2 2015

Tier 2 bond with good yield and low risk. Will mature in 2015.

25. HT1 Funding

Still a “safe spread” subordinated bond with 5% yield until 2017 where it will be most likely called by Commerzbank.

26. MAN AG

“Squeeze out speculation” with guaranteed dividend.

27. NN Group

“Forced IPO” from ING Group. Still relatively cheap.

28. Citizen Financial

“Forced IPO” from RBS. Valuation below US peer group, could profit from higher interest rates.

Some links

Eddy Elfenbein is out with his buy list for 2015

Looks like an interesting book: Forging Capitalism: Rogues, Swindlers, Frauds, and the Rise of Modern Finance plus a good list of investing books

Morgan Hounsel on what to avoid as role model

Very good story on Amazon’s Kindle and the future of books and Henry Blodget interviews Jeff Bezos

BMW’s growing troubles in China

A 3 month old but maybe still interesting post on Paragon Offshore drilling

Via market folly: Howard Marks on oil

My oil price forecast and a few (random) thoughts on oil and oil related stocks

My oil price forecast

To be honest, I have no fxxxing clue where oil will be tomorrow, in 1 month, 1 year or 10 year. The good news is: Absolutely nobody has a clue, too !! Yes, you can read now a lot of comments, interviews etc. of people who have suddenly turned into oil experts and predicting either a jump back to 100 USD/barrel or oil for free for the next 100 years.

I did some research and one of the very few analysts who was actually bearish on oil prices was a guy called Ed Morse from Citibank. I found comments from him in 2012, 2013 and beginning of 2014. But even he only predicted prices down to 75 USD/barrel.

So it is pretty fair to say that no one saw this coming. Therefore one should be extra careful on listening to people try to tell you what is happening next. They are all just guessing. And no, I am not interested in any Saudi/US/Russia conspiracy theories.

My personal opinion is that the current fall in prices could be a combination of additional supplies (indebted oil companies and governments have to pump more oil as prices fall to meet obligations) and momentum riding traders (hedge funds. But this is just an opinion, I have no prove for this.

Is a low oil price good for the economy ?

Although I have no clue where oil is going, I think it is still important trying to understand what this could potentially mean if oil prices remain low. Oil, in contrast to gold, silver or even iron ore is such an important factor in the global economy that it would be naive to believe that this has no impact.

Conventional wisdom is that low oil prices are good for the American consumer as he has more to spend on “stuff” and as a consequence for the US economy. But wait a minute ….wasn’t deflation the biggest “Enemy” of the recovery ? Then why should now deflation via the oil price suddenly be great news ? Is ther good deflation vs. bad deflation ?

I am not a macro guy, but I would say there are doubts if low oil prices are really good for indebted economies struggling with deflation. In the UK for instance, inflation already was at a 12 year low for November. Oil and gasoline taxes are important revenue bases in southern Europe as it is not easy to dodge those taxes.

One other thought: A lot of Oil money got recycled into the stock market. Norway is the biggest shareholder in most European stocks and increasing their stakes continuously. If the oil price stays that way, they clearly have less money to invest.

On oil (and related) companies

Clearly, most oil related companies are negatively effected by lower oil prices. There are business models with more exposure (e.g. oil rigs) and less (oil storage), but in general, the whole oil industry is not happy about a -50% drop in oil prices.

However they do look extremely cheap on a historical basis. But be very careful here. If you look at trailing P/Es or trailing EV/EBIT like the Alpha Architect blog did, be aware that those cheap trailing multiples are based on 110 USD/Barrel and not 55 USD.

Nevertheless, a stock which has just fallen 50% or more often looks irresistible for value investors. This is buying at a huge discount, right ? But just buying on a recent drop in prices is in my opinion “fast thinking”, the typical “catch a falling knife” reaction.

The “slow thinking” and real value investing would be to make sure that the VALUE (not the price !!) of such a company has remained constant.

The problem with this is the following: In order to justify an investment into oil related stocks based on historical profitability you have to assume 2 things at the same time:

1. the oil price has to go back up
2. oil related companies have to be able to earn their old margins again.

Those are basically two bets in one. Especially for capital-intensive companies, the second point does not automatically follow the first. If the oil cycle has actually turned for a longer period, than we will see a lot fewer investments going forward and anything related to Oil capex might be in trouble (and yes Siemens, you might think of directly writing of all of your nice Dresser Rand goodwill purchased at a PE of 32). A good example for instance for this effect are the Steel and shipping industry. All that capacity is not going away quickly and the companies are willing to operate at a loss as long as variable costs are lower than the price.

As a trader, you can clearly speculate on a rebound, as we are just seeing on a daily basis. As an investor, you should make sure that your chosen investments will experience “mean reversion”. For companies with a high capital intensity and lots of debt there a big risk that someone else will reap the benefits of the recovery after shareholders have been wiped out. I am pretty sure, Oaktree is already hiring energy experts by the dozen.

“Collateral damage”

Apart from oil related companies, one should be aware that problems could surface elsewhere. Banks who lend to oil companies are an obvious example. Oil traders or hedge funds who are long oil are another example, an early casualty was OW Bunker, a shipping fuel supplier from Denmark.

Less obvious issues could come up for instance at airlines. Yes, long-term they might benefit, but short-term they could run into a cash crunch due to their hedges. If an airline uses forwards they have to put up a lot of collateral to banking partner at the moment as their forwards are deeply underwater. If then competitors with less hedges then start reducing ticket prices early, this could get interesting.

In Germany, gasoline tax is around 40 bn per year or 4-5% of total tax revenues. In countries like Italy, that percentage is much higher (gasoline is much more expensive in Italy than Germany due to higher taxes…). Especially for those countries, the drop in tax revenues will hurt. I didn’t find hard numbers on that but my guess is that budgets in countries like Italy will not surprise to the upside if oil and gasoline prices stay low.

Potential opportunities

However there is also the chance of what I would call “positive collateral damage”. For instance companies in the oil sector or in oil economies which are not directly hit by the oil price like distributors etc.

Norway could be interesting too. I am suffering at the moment with Bouvet, but I do think that med term this could be interesting. The Norwegian Government has enough fire power to jump-start some supporting initiatives and Bouvet could profit as the Government is one of their biggest clients (Statoil too, I know….).

Turkey and the Lira have been hit badly by the Ruble crisis. I do not fully understand why. Turkey is a big oil importer and lower oil prices will most likely lower inflationary pressures. I guess this has to do with investors selling out local currency EM funds.

Other examples could be oil related distribution companies or infrastructure companies (oil storage, natural gas grids) who earn money based on volume independent of underlying prices. Or Oil tankers, but that is again another story.


If oil remains at current levels, this would be clearly significant, both for the world economy and the stock market. I have no clue what oil will be doing, but it makes a lot of sense to think about potential impacts.

My advice at the moment would be:

– ignore oil price forecasts from people who didn’t see this coming (basically everyone)
– avoid anything which has a lot of leverage and is oil related unless you want to trade short-term
– make sure you understand what parts of your portfolio have direct/indirect oil exposure and in which direction and ask yourself if you are comfortable
– better look for “collateral damage” kind of investments (non oil companies in oil countries etc.)
– don’t rush, let your “slow thinking” part of the brain gain control

4 years of Value and Opportunity and still having fun (plus some advice on that)

Exactly 4 years ago the very first post appeared on the blog, outlining the rules and philosophy of the “virtual portfolio”.

The top 10 posts in 2014

1. How to correctly calculate Enterprise Value
7. Emerging Markets: Sberbank ADRs (ISIN US80585Y3080)- Buying Russia in one stock
8. Banca Monte dei Paschi Siena (BMPS)- Another deeply discounted rights issue “Italo style”
9. The Dutch Job: Royal Imtech (NL0006055329) Deeply discounted rights issue – The “short opportunity of the century”
10. TGS Nopec ( ISIN NO0003078800) – an “Outsider” Company Buffet would buy if he could ?

The most interesting aspect of the Top 10 list is that 5 out of the 6 most popular posts are old, “general investing” posts. Especially the “Enterprise Value” post is attracting many many hits each day.

Personal blogging highlights 2014

First, I am quite happy with the new design of the blog. Although it actually did cost money (those WordPress guys are pretty smart…), I think it was well worth the “investment”.

The highlight of the year was clearly my journey into Emerging Markets. Although not all investments were succesful (Sistema, Sberbank ughhh…), it was a lot of fun (more on that later) and should be seen as an intellectual investment into the future. One thing that annoys me is that I started to look into China & Hongkong quite early but did not follow up.

Another highlight was the MIFA story. Although I didn’t make any money on this, it was still interesting to see that a look into the accounts can reveal so much. Yes, having winners in a portfolio is important, but avoiding losers is even better !!!

A final highlight just occurred yesterday. My E.ON Management disconnect post was explicitly mentioned in the print version if Germany’s most read weekly business paper, Wirtschaftswoche. Many thanks to the readers who told me about this.

And still having fun !!

1 year ago I had already written why and how I write the blog.

Personally, one of my fundamental beliefs is that one can only be succesful if one is enjoying (to a certain extent) what one is doing. This goes for work, personal life etc. Clearly some things have to be done and hard work is almost always necessary, but without having some fun it is very hard to keep something up until success kicks in eventually.

There is an amazing, less than 4 minute “TED talk” on what makes success to be found here and having fun is clearly one of the most important aspects:

One of the great things about investing is the fact that there is not a single way to success but many ways can lead to success. Value investing works, momentum works, activist investing, quant strategies etc. etc. So everyone should be able to find his own way of investing which is fun and still have good chances for long term succss. There is no need to do it exactly one way or the other.

So how can you make sure that you have fun in investing ?

The following points reflect both, my personal experience and observations I made over the years within the financial industry.

1. Make yourself independent of short-term returns.

One of the most gruesome things in investing is the fact that especially as an institutional fund manager you can have the best strategy but if you underperform over 3,6, or 12 months you will begin to lose money. Another bad year or 2 and your job is in danger. The impact on many fund managers is that at some point they lose all the fun they had in the beginning and just try to play it safe. This then leads to bad mid- and longterm performance and often is a kind of vicious circle. Many fund managers I know are actually not very happy in their job. And yes, that is one of the reasons why i never went “professional”.

Focusing on short-term returns often kills both, your long-term returns as well as the fun of doing it. The best and only way for institutional investors is in my opinion to continuously educate clients

As a private investor, I think the key is to invest only an amount which you can easily lose. If you need the money in 3 years to buy a house or you don’t have a buffer to pay for your broken down car DO NOT INVEST IN STOCKS. Get your personal finances in order, determine what you can have available long-term and then start to invest. I cannot guarantee you success that way but I guarantee this way you will feel much more relaxed about it. People often ask me if why I am not afraid to lose money in the stock market. The answer is: I only care long-term ,because short-term I don’t need the money. Oh yes, I forgot: DO NOT LEVERAGE UP STOCKS, because at some point in time your fun will be gone very quickly.

Another thing which helps me a lot is keeping a long-term performance record. Especially for a long-term strategy like value investing, where you easily can underperform several years, at least for me it is a great comfort to look at my now 15 year-long personal track record. A 15 year record does not change much if you underperform in a single year.

2. Establish a routine but be flexile within

success requires a couple of inputs. Work is one of them. This applies for investing too. Yes, there are stories about the guy who got rich by investing 10 thousand in a great startup but most of those stories are wrong and this is much more about playing the lottery than investing. If you want to become good and successful in investing you need to invest money and time.

For me the first trick to do this regularly and still having fun, is to have a daily routine. I usually work on my private investments first thing in the morning. I get up, have a quick (N)espresso and then start. The second trick is that within this routine I then do whatever I want. Although I have a long list of companies I want to research, I still keep for myself the possibility to do something completely different. When one morning I read for instance about the German candidate winning the Romanian election, I decided to ignore my to do list and look into Romanian stocks for the next couple of days.

Even within your normal job there is often some flexibility to do different things. Some very succesful companies allow employees to pursue “own”projects like Google and 3M but in my experience even in other companies it is both fun and potentially good for a career if you sometimes do things “outside the box”. You don’t have time for something like this ? Than just skip a few useless meetings, stay at your desk and think about something different.

3. Keep it simple

Both in private investments and work, just increasing complexity rarely adds value to the outcome. In private investing, adding to much stuff into ones “process” makes things difficult. Yes, checklists are great, quant models can help and understanding macro is important as well as managing the risk of the portfolio. But I found it easier (and much more fun) to look at investments one by one.

In a professional environment I often have the impression that complexity is used to justify fat management fees which for simpler models would be much harder to justify.

If you have to many inputs into the process, the actual decision-making becomes harder. Although simple doesn’t equal easy, it is clearly more fun in the long run.

4. Communicate with other investors regularily

Not everyone can call a genius like Charly Munger to test the newest investment idea, but in general it is not that hard to find like-minded investors and meet them for regular opinion exchanges or just a couple of beers. Communication via the web is great, but at least for me, sitting together with some investors, talking stocks and drinking a few beers is even better. You usually learn a lot and, the most important: it is fun. I do meet for instance with some local guys every 1-2 months and I am always looking forward to it. Often, after those meetings I am motivated to look things up that have been discussed which then leads to new idea etc.

So to summarize this shortly:

In order to have long-term fun in investing, those 4 point might help you:

1. Only invest money you can afford to lose
2. Establish a routine but within that do whatever you feel like doing
3. keep it simple
4. Socialise with other investors

Some links

Don’s miss: 122 things you should know about investing from Morgan Housel

A great list of business/investment books from Farnam Street blog

Must Read: James Montier explaining why Shareholder Value is “The World’s dumbest idea”

Interesting panel discussion on Bershire Hathaway inculding Tom Russo and the CEO of See’s candy.

Review of an interesting book called “The Frackers”

A great TED Talk on “Leading like a great conductor” (by the way: There are a lot of great talks on the TED homepage, check it out)

Special situation “Quickie”: Flughafen Wien AG (ISIN AT0000911805) partial Tender offer

Just by chance I looked at Flughafen Wien these days where since a few weeks an interesting situation is playing out.

Although Flughafen Wien is owned 50% by the Government and cannot be taken over, an Australian based Infrastructure fund called IFM made a partial tender offer for up to 29,9% of the shares.

Initially, IFM offered 80 EUR per share with a minimum threshold of 20% acceptance.

A few days ago, after pressure from soem shareholders, IFM increased the offer to 82 EUR and waived the 20% minimum threshold.

If I understood correctly, the new final date to tender the shares is December 18th. The money then is being paid within 3 working days, so before year end according to the official offer.

IFM seems to have secured around 12% from 2 funds already (Silchester, Kairos).

IFM seems to be a “reputable” investor, there seems to be no relevant operational risks for the offer from a technical point of view as far as I can tell.

However, the stock doesn’t trade at 82 EUR but rather at around 79,20 EUR per share:

This implies that investors expect 2 things

a) that more than 29,9% will be offered
b) and that the share price will fall after the offer below the offer price

Now we can play around a little bit to see if this is something worth betting on. We could start for instance assuming that the stock directly drops to 70 EUR after the offer expires.

Then we can calculate at the current price of 79,2 EUR an implicit or “break even” acceptance ratio:

79,20 = X*82 + (1-x)*70 = 76,67%.

So if 76,67% of the offers get accepted, the remaining not accepted stocks can drop to 70 EUR before one is making a loss on the transaction.

If all tendered shares are accepted, the max. profit would be 2,8 EUR per share or +3,54% for a period of 2 weeks.

Worst case: All minority shareholders tender (The Austrian government will definitely not tender…), then the lowest possible acceptance rate is 29,9/50 = 59,8% and the price falls directly to the value before the ofer (~61,50 EUR). Then the maximum loss per share would be -5,44 EUR or -7,4%.. At a more realistic drop to 70 EUR, the downside would be 2,02 EUR or -2,6%. This would be a positive expected value if the assumption of 70 EUR as a post tender price is correct.

I do think that this is a nice liltle side bet, so I will invest 2,5% of the portfolio at 79,25% into this little “special situation” with a time horizon of 2 weeks

One important note here: There is clearly a downside here and I would not recommend this to anyone who doesn’t regularily do such things, as the “single bet” might be not super attractive. However if one runs such bets on a continous basis (as I do, like MAN, Sky etc.), over time one will make money even with a few loosing trades.

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