Monthly Archives: June 2015

Altamir SA (ISIN FR0000053837) – French PE at an attractive discount or CEO “self-service” vehicle ?

Altamir is a French holding company whose main purpose is to invest into private equity funds. Such a structure is called in general “listed private equity”.

To be more specific, this is what they state as the company strategy:

Altamir invests exclusively with Apax Partners, in three ways:

In the funds managed by Apax Partners France:

€200m to €280m committed to Apax France VIII;

In the funds advised by Apax Partners LLP: €60m in Apax VIII LP;

Occasionally, in direct co-investment with the funds managed and/or advised by Apax Partners France and Apax Partners LLP

As investing in only one Private Equity fund company is a quite special arrangement, one asks oneself only one question: Why ? Well, this is explained in the annual report:

Apax Partners was founded in 1972 by Maurice Tchenio in France and Ronald Cohen in the UK. In 1976, they teamed up with Alan Patricof in the United States, bringing the independent entities together under a single banner, Apax Partners, with a single investment strategy and similar corporate cultures, and applying the rigorous standards of international best practices. In 1999, Apax Partners began to merge its various domestic entities into a single structure (Apax Partners LLP), with the exception of the French entity, and reoriented its mid-market investment strategy towards larger transactions (enterprise values between €1bn and €5bn). Apax Partners France opted to remain independent and conserve its mid-market positioning, targeting companies between €100m and €1bn. There are currently no cross-shareholdings or legal relationships between Altamir on the one hand and Apax Partners MidMarket and Apax Partners LLP on the other, nor between Apax Partners Midmarket and Apax Partners LLP

This closes the circle: Maurice Tchenio is the CEO of Altamir and was the founder of Apax Partners in France.

Tchenio retired from Apax only in 2010, so for quite some time he was running Altamir in parallel to being actually part of Apax himself. Maybe to provide stable funding to APAX France ? i don’t know.

So why could this be interesting ?

Looking at Altamir, there were some very positive aspects to be found:

+ CEO owns 26%, is buying (2009: 22%)

+ transparent documentation, reporting. Quarterly NAVs, detailed asset lists

+ French Midcap PE is attractive

+ discount vs. NAV (~30%, 11,20 EUR vs. ~16 EUR NAV). The discount is relatively high compared to other listed P/E stocks (currently on average ~10-15%)

+ no double leverage, net cash

+ paying dividends

+ valuation of unlisted assets relatively conservative, sales prices always higher than last valuation

+ the legal structure seems to be tax efficient for long-term holders (no tax on dividends for French shareholders if one commits to hold > 5 years)

+ track record is pretty OK as we can see in the chart: They did manage to outperform the CAC Mid& Samll cap index since inception based on their stock price, although only at a relatively small margin:

altamir vs cac mid

Actually, those points, especially the “juicy discount” in connection with the large CEO share holding makes this quite interesting

However, the most important thing in looking at such vehicles is the question: How much cost do they add and how much aligned are the interests of management and shareholders ?

And this is where things get a little bit messy. According to the annual report, direct fees are around 17 mn EUR or 2,9% of NAV. This includes in my understanding also the underlying APAX funds. This is not cheap but most likely “in line” with other “fund of fund” PE structures. But the real “fun” starts with the following issue:

The Company has issued Class B shares that entitle their holders to carried interest equal to 18% of adjusted net statutory income, as defined in §25.2 of the Articles of Association. In addition, a sum equal to 2% calculated on the same basis is due to the general partner. Remuneration of the Class B shareholders and the general partner is considered to be payable as soon as an adjusted net income has been earned. Remuneration of these shares and the shares themselves are considered a debt under the analysis criteria of IAS 32.
The remuneration payable to the Class B shareholders and the general partner is calculated taking unrealised capital gains and losses into account and is recognised in the income statement. The debt is recognised as a liability on the balance sheet. Under the Articles of Association, unrealised capital gains are not taken into account in the amounts paid to Class B shareholders and the general partner.

So this is in fact a 18% “carried interest” of the general partner (i.e. the CEO) on any realized profits of the company. So for 2014 for instance, 87 mn EUR of realzed income “shrink” to 57 mn EUR shareholder income as first the management fee gets deducted and then further 18% profit share.

So the “privilege” of a shareholder to invest into APX via Altamir is purchased quite expensively. This also puts the CEO investment a little bit in perspective. Yes, he has invested around 100 mn of his own money into Altamir, but in 2014, the management fees and profit share netted him close to 30 mn EUR direct, whereas the proportional profit of his share position was “only” 15 mn EUR.

Ok, maybe being the Ex Founder of APAX France opens the door to invest into APAX, but charging “3% and 18%” for this privilege (all in) looks quite expensive and explains some of the discount.

Activist angle:

The whole fee issue might also explain why French asset manager Moneta seems to have started in 2012 and “activist campaign” against altamir, see here and here.

They seemed to have pushed for a run-off of the company but so far only succeeded in pressuring to pay a higher dividend than before (increase from 0,10 EUR 2012 to currently 0,50 EUR).

According to Moneta’s homage, they are still active. To me it looks like that the increase in the CEO’s share position has much more to do with control than with actually believing that the shares are undervalued, but of course this could be wrong.

Summary:

In principle, a listed PE vehicle specializing in French mid-market Private Equity could be interesting if the discount is significant. At Altamir however, as I have described above, the structure takes out a lot of money and one needs significant Alpha over time to break even compared to a “do it yourself” portfolio of French small and midcaps.

Tha activist involvement is interesting, but I don’t know enough about French Governance rules to assess the chances of a fundamental change.

So for the time being no investment, however if for some reason (market stress), the discount becomes really large I might be revisiting the case.

Bouvet ASA Update – Annual report & Q1 2015

Bouvet is a Norwegian IT consulting company which I unfortunately “discovered” last year in August before the oil price began its free fall in autumn 2014.

Not surprisingly, the stock price suffered along the other oil dependent stocks. Despite the recent small rebound, the stock is still a relative loser for me, especially compared to the huge rally taking part in German stocks:

To add insult to injury, I lost even on the currency side as the NOK became even weaker than the EUR:

Annual Report 2014:

Let’s look at the 2014 annual report first.

Diluted EPS fell in 2014 from 6,75 NOK to 5,45 NOK. If we look at quarterly earnings over the last 2 years, we can see that already Q2 2014 showed a clear decline which then continued the rest of the year. The profit is now at 2012 levels. With a current P/E of around 14 and EV/EBIT of ~10 Bouvet is not that cheap anymore,.

Also, receivables and “work in progress” increased, resulting in a Free Cash Flow before acquisitions of only ~80% of net profit which is very low for Bouvet.

The most interesting part of the annual report was the info on the CAP Gemini acquisition. They paid 12,5 mn NOK, mostly Goodwill for Cap Gemini’s Norwegian business. This is what they say is the impact:

The acquired company has an estimated contribution with NOK 6.0 million to the Group turnover and NOK 0.6 million to the Group’s profit before tax in the period between the purchase and the balance sheet date.
Included in the value of goodwill are employees and expected synergies with Bouvet Norge’s existing business.

Had the acquisition been carried out on 1 January 2014, the Group’s estimated total turnover for the entire period would have been NOK 1 159.4 million and the Group’s estimated profit before tax would have been NOK 85.5 million.

With this information,we can easily calculate the acquisition multiple:

Stated 2014 sales of Bouvet were 1.132 mn NOK and EBT 81,6. So without the “partial” contribution, Sales would have been 1.126 and EBT 81,0. So the 12,5 mn NOK bought 33,4 mn NOK Sales and 4,5 mn NOK EBT.

Overall this looks like a pretty good deal for Bouvet. Buying at a trailing EBT Multiple of 3,5 is clearly a "bargain purchase" although it's clearly relatively small.

Q1 2015

After the pretty bad last months in 2014, I was quite surprised that they showed really strong Q1 figures for 2015. At 2,32 NOK, Q1 profit is +26,5% against Q1 2014 and EBIT margin was 9,8%, pretty close to their target.

However, Q1 always looks volatile at Bouvet, from 2012 to 2013 for instance, Q1 results dropped by 23% and Q1 2014 was around +16% against 2013.

So I do think it is too early to call a “turn around” at Bouvet, although their tone is quite optimistic:

Demand for Bouvet’s services is good and stable in Norway, and growing somewhat in Sweden.
Bouvet’s turnover is highest in the oil and gas sector, where the company has tailored its range of services and increasingly delivers to the core processes of its clients. That means the decline in sales to clients in this industry has flattened out

I found this quite interesting, as in other oil related industries (drilling etc.) we only start seeing cost cuts and project delays now in 2015. In the Q1 presentation, Bouvet gives additional information.

From my side, the most interesting developments were:

– they diversified their client base

Client portfolio

The 10 largest customers represent 39.3 percent of total revenues – down from 48.8 percent in Q1’14
The 20 largest customers represent 52.5 percent of total revenues – down from 63.6 percent in Q1’14

– they used less “hired” consultants which might explain the increase in margins to a certain extent.

Other stuff

There has been some movement in the shareholder base in the recent week. According to Bloomberg, DNB sold down around -2,5% via several funds. Handelsbanken however increased in their funds the overall position by around +2% of market cap. So overall no big net movemnet.

Summary:

2014 was clearly not a good year for Bouvet and when I bought the stock, I didn’t expect the oil price to drop and their oil related business to suffer so much. On the other hand, Q1 looks very solid although one has to look if this trend really continues. Overall I do think Bouvet is a good “hold” position and if they continue to perform well I might add to the position later in the year.

Overall their strategy to be a “local Norwegian” consultant seems to work and might help them to secure more Government contracts going forward. I do expect that Norway will try to pump money into their local economy if oil stays weak and Bouvet might profit from this.

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