Short cuts: Koc Holding, NN Group, Romgaz

Koc Holding

Koc releaed 2014 earnings already beginning of March. Looking at the presentation (there is no English annual report yet), one can see that despite the troubles, Koc showed a remarkably solid result with overall net income up 1% against 2013, although operating profit was down -6%.

I read the earnings conference call transcript as well. The major story was that Turkey was struggling in the first 6-9 months but following the oil price decline, things seem to have improved in the last 3 months or so. This confirms the general assumption that Turkey as a large oil importer should benefit from lower oil prices.

Management made a point that the largest subsidiary, oil refiner Tupras is expected to increase earnings significantly in 2015 as a 3 bn USD investment program will be finished and the refinery then will run on full capacity. Although Tupras had losses on inventory, Koc stresses that margins are independent of oil prices.

Koc clearly has suffered as well from their USD denominated debt, but other than many EM companies, they do have a “natural” hedge because of their large, foreign currency denominated earnings stream.

Almost exactly 6 months ago, I reduced my Koc stake by 2/3 as I was worried about Turkey in general and my bad experience with Sistema in Russia. Looking back, I have to admit that this might have been a typical “fast thinking” mistake. I actually do think that Koc is  a very good long-term investment if one believes in the Turkish economy. I am therefore inclined to increase the position again to around 2,5% of the portfolio, as I think that Koc with a P/E of ~10-11 is still good value, considering both, the quality of the company as well as the potential growth opportunity. The long-term downside in my opinion is relatively limited.

NN Group

NN Group had issued their annual report some days ago. Overall, earnings etc were unspectacular. However there was on extremely interesting sentence right in the beginning:

NN Group’s Solvency II capital ratio, calculated as the ratio of Own Funds (OF) to the Solvency
Capital Requirement (SCR) based on our current interpretation of the Standard Formula, is estimated to be in a range around 200% as at 31 December 2014. NN Group is considering to apply for the usage of a Partial Internal Model. The Solvency II capital ratio remains subject
to significant uncertainties, including the final specifications of the Solvency II regulations and the regulatory approval process.

This is remarkable in 2 ways. First, the Solvency II standard formula is relatively onerous so having 200% in the standard formulae is a good sign. Secondly, many competitors actually do not comment at all on their Solvency II ratios. Aegon for instance or more recently Talanx didn’t even give an indication. Swiss Life, which is not subject to Solvency II but the Swiss Solvency test (SST) also declined to give numbers.

One can of course interpret this in many ways but in my opinion, not communicating estimated SII ratios is much more a sign of weakness than anything else.

There is also a recent presentation to be found on NN website which clearly shows that their ALM matching in their big life Dutch company looks Ok. Plus they made a 200 mn EUR share repurchase (from ING) in February. Not a bad idea when the stock is valued at 0,43 times book. Overall, I am quite happy with NN despite the big fundamental headwinds for the industry. This is a stock I will invest more into when there is weakness in the stock price.


Romgaz issued preliminary numbers for 2014 as well. In my interpretation, they are incredibly good. Net income increased by +44%  to 3,72 RON, resulting in a P/E of ~9 even before taking into account net cash. Even better, the dividend will increase to 3,15 RON or roughly 9,5% yield at current prices.

As mentioned, Romgaz is pretty independent from market prizes for the time being as they are just starting to adjust to (higher) market prices.

In any other market, this should have had at least some impact on the share price, but for now the market seems to have ignored it completely. For fun, I ran a quick correlation analysis for Romgaz since the IPO. Romgaz has a pretty low correlation to the Romanian stock index with a value of around 0,45. It is however even less correlated to any European index. For the Stoxx 600 it is around 0,21. Interestingly for the Euro Stoxx Oil and Gas it is even lower at around 0,17.  As I do like uncorrelated investments a lot, this is a big plus for me.

Deutsch Bank started to cover Romgaz some days ago with a buy rating, although in my opinion with a pretty strange way of calculating the cost of capital.

Anyway, as a consequence of the great results, I increased my Romgaz position by around two percentage points to 4,2% of the portfolio at around 7,70 EUR per share.


  • Hi memy,

    what is your assessment regarding the half-year statements of Romgaz and NN Group?

  • Hello Memy
    did you manage to read through the Q2 reports of Romgaz? How do you see the EPS drop from last year same period?

    • Zoltan,

      I quickly read it. There seem to be some one-time effects and lower demand from the fertilizer industry. My case however does not rely on quarterly or even yearly earnngs. It relies on the overally value of the reserves. If they sell less now, tehy can sell more in the future. So there is a time effect but it is not big.


  • NN-Group AGM 28.05.2015

    1) macht einen Aktienrückkauf über 150 Mio EUR von ING (5,9 Mio Aktien je 25,46 EUR)

    2) zahlt eine Dividende wahlweise 0,57 EUR je Aktie oder in Aktien gleichen Wertes. Lt. Einladung zur AGM soll das Bezugsverhältnis festgelegt werden vom 17.6.-23.6. Erstaunlicherweise hat mir flatex/BIW per 6.6. bereits ein Bezugsverhältnis von 44,9:1 mitgeteilt. Aus der Mitteilung ist auch nicht die Möglichkeit einer Bardividende erkennbar, lediglich die Verwertung der Bezugsrecht.
    Die Einladung zur AGM und die Abstimmungsergebnisse gibt es hier

  • Yeah. I should have thought of that. Thanks for bringing this company to my attention. Hopefully I’ll get around to reading some of the prospectus at some point.

  • Nichtölkenner

    I still wonder how you actually claim your dividend with the US Romgaz stock. In the dividend note Romgaz says you have to be registered with the Romanian stockholder register – but this pertains to the RO stock. Do you have an idea?

  • I wonder what are your thoughts on Van Lanschot’s annual results.
    They seem strong to me: growth in AuM, decrease in provisions, good cost management, loan book run-off on schedule (real estate financing is still an issue), pension scheme renegotiated, dividend doubled. The bank claims its execution is on track to achieve its 2017 target return on equity of >10% with “hard work, discipline and focus”. Yet it still trades at around 0.5x book value.
    At least one institutional investor did notice: Wellington bought a 9.9% stake in December.

  • On which exchange do you trade Romgaz?

  • So cost of goods sold for Romgaz went way down because they sold less imported gas. This seems to be related to ANRE order 24/1023. Is this a permanent change or is there a chance that they will have to buy a bunch of imported gas in the future which will shrink their profits a lot from last years level?

    • #Bayard,

      I don’t want to pretend to be a super expert on Romanian gas regulation. At the end of the day you pay for the infrastructure plus the gas in the ground. Less imports means more pumping and less gas remaining under ground. So overall pretty neutral any way. The bigger story is how royalty payments to the Government will develop. But this will only be visible next year.


      • They plan on spending 1.1 RON in CAPEX this year (from 3rd quarter 2014 presentation), which is significantly higher than D&A. Are they taking on debt or cutting the dividend? Is there some danger that being government controlled they spend more money than they would on CAPEX than if they were controlled by private shareholders?

        • I would assume they use their cash pile first,

        • They definitely are less efficient because they are a state-owned company, but Romgaz’s cash flow can cover investments, as well as dividends quite well. When they’ll need some extra cash, the company should use the accumulated cash first, just like mmi pointed out.

          What used to happen in the past was that state-owned companies would issue debt because lots of banks (especially foreign ones) “persuaded” the management that financing via debt will allow them to distribute more cash to the owners. Of course, what actually happened was that they took on debt and the profits shrunk instead of increasing (because they spent the extra money on useless stuff and had to start paying interest income).
          Nowadays the situation is a lot better, so I don’t expect them to issue debt unless it really is a good financing option.

          The greatest risk with Romgaz (in my opinion) is the potential royalty increases in 2016. Our government is very unpredictable when it comes to fiscal changes, so it’s hard to estimate the impact it will have on the company. At the same time, the increase should be moderate, as they don’t want to scare investors.

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