value and opportunity

It has become already a small tradition that I do a short review of my portfolio at the end of the year. As mentioned before I found it quite helpful to list my current investments at the end of each year and try to explain (to myself) the investment case in a few sentences.

Former posts can to be found here:

My 27 investments for 2016
My 28 investments for 2015
My 24 investments for 2014
My 22 investments for 2013

Compared to last year, Hornbach, Koc, the Depfy TRY bond, the HT1 Bond, NN Group, Citizen’s and Greenlight have been sold. New positions bought in 2016 are Dom Security, Majestic Wine, Handelsbanken, Coface,  Silver Chef, Italgas and SAPEC and Kuka. Some positions (Gaztransport and Kinder Morgan) went in and out in 2016.So 19 out of last years 27 are still in, a turn-around of 30% is acceptable and consistent with my strategy.

With 27 stocks, the portfolio is still maybe a little bit too diversified, my preference would be to have not more than 25 positions. However 2 positions (Kuka, Sapec) are special situations which will most likely be sold/terminated early in 2017. The cash level at the moment is quite low at around 4%.

1. Miko

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

2. TFF Group

One of the initial investments from 6 years ago. Family owned oak barrel manufacturer. Has grown well over the past years due to Asian demand for oak aged french wines and opportunistic acquisitions. Demand for French wine in China seems to have stopped growing, but long-term I think the company is attractive. Currently, Whisky barrels are booming and driving growth.

3. Installux

Small French company specialized in aluminium appliances. surprisingly resilient. Still run by the founder and majority shareholder, one of the cheapest quality stocks in Europe. Downside well protected via large net cash position.

4. G. Perrier

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

5. IGE & XAO

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

6. 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, “outsider” style management.

7. Van Lanschot

Dutch based private bank, turn around story with new management. Some more progress in 2015. Still well below book value but it needs to be seen if capital will produce adequate returns. So far the results have been Ok but not great, however I bought cheap enough.

8. 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. Has weathered the storm, stock price almost doubled from the lows in 2016. Needs to be seen where oil prices go.

9. Admiral

“Outsider style” direct internet insurance company. UK based, large cost advantages, management/founders own signifcant share positions Several growth projects on the way. Insurance cycle seems to have turned for now in UK car market. In 2016 at first the stock price increased without reason, then came back. As it is not a full position yet, i might be tempted to increase, especially if we see good news from the US.

10. Svenska Handelsbanken

Handelsbanken in my opinion is an “Outsider” style bank which has a strong position in Scandinavia and growing quickly in the UK. Althought they offer internet access, their focus is on branch based banking with full delegation of responsibility. Although there seems to be some concerns on real estate prices in the Nordic, Handelsbanken for me is clearly a company I want to own for the long run.

11. Bouvet

IT consulting company from Norway. Stock price had been hit hard by oil decline, Statoil is the largest client. Has continued to perform well despite the hit to Norwegian economy due to low oil prices. The stock showed a strong recovery in 2o16 and has actually hit my target price. I will need to review if there is still enough upside left.

12. Aggreko

Contrarian investment into global leader providing “temporary electricity solution”. Hit hard by lower activity in mining. However in my opinion durable business model and cheap compared to the quality of the business. Could profit by any “Black Swan” event with regard to natural catastrophes. So far, the results have to a certain amount disappointed. I would have hoped for significant free cash flow generation and maybe some stock holder friendly buybacks. I will need to look deeper into the company in 2017

13. Partners Fund

An investment into a fund run by a close friend. Mathias is a “Munger style” investor with a relative concentrated portfolio of “moat” companies, many of them from the US. I think it is a good complimentary exposure for my investment style. It has worked very well in 2016 and I assume he will do well over the next 5-10 years

14. Ashmore

Specialist Emerging Markets asset management company. 2016, their funds seem to have delivered very good returns, however also EM funds are under structural fee pressure and Brexit causes them clearly some issues (passporting). Ashmore is a stock I clearly have to review in 2017 if my assumptions are still intact.

 

15. Romgaz

First part of my bet on a Romanian recovery . Extremely cheap producer and distributor of natural gas. Could profit from recent privatisation and efficiency gains, pays solid dividend. Stock price hit by drop in commodity prices despite, profit has been lower but much better than other Oil&Gas companies. Solid hold position

16. 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. Still one of my favorite positions with significant long-term potential.

17. Drägerwerk Genüsse

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

 

18. Gagfah

Special situation speculating on a squeeze out under Luxemburg Law. Squeeze out didn’t materialize in 2016. I still think that something could happen in 2017, fundamentally the underlying assets should have gained significantly in value.

19. Lloyd’s Banking Group

Having been hit hard by the financial crisis and miss selling scandal, Lloyds in my opinion is the best of the big 3 UK banks. The stock price has been held down by continuous open market sales and then was hammered after the Brexit. Now things look fundamentally better. One positive sign is the December 2016 acquisition of the BofA UK Credit card business at a quite attractive price.

20. Pfandbriefbank

“Rushed IPO” by German Government. Portfolio cleaned up and enough capital to grow. Very cheap. Some trouble with a legacy transaction in 2016, but in my opinion still attractive risk/return. David Einhorn initiated a position in 2016. Stock got hammered by potential legacy issues which in my opinion was overdone.

21. Silver Chef

 

Australian based financial services company which leases in a special format (rent, try , own) mainly restaurant equipment to restaurant owners. Added a second business line (GoGetta) which expands the concept to other assets. Also trying to expand into Canada, which could be big if they succeed. Stock got hammered by a relatively small online fraud case. Depending on the operational development, this could be a position to add in 2017. However it needs to be checked what if the new CEO can adequately replace the founder and major shareholder who stepped down some weeks ago (for the second time).

 

22. Dom Security

Small French “hidden Champion” which specialises in locks and home security. Although DOM is a small player, they have good positions in Germany and France. Still run by the founder and major shareholder, the stock looks cheap despite a significant stock price increase in 2016.

23. Majestic Wine

A UK based wine retailing company. This is a “bet” on the new CEO which came on board when Majestic acquired online wine company Naked Wine. I think the underlying business is solid despite the Brexit and protects the downside at current levels and the upside lies in a continued success of Naked Wine.

24. Coface

Coface is one of the big 3 Credit insurers in a global oligopoly. The stock was hammered in 2016 as they lost the service business for the French Government (which was known well in advance). This created an interesting contrarian opportunity.  Despite the nice rebound, there is still ~30% upside to my estimate of intrinsic value.

25. Italgas

Italgas is a relatively simple Spin-off special situation investment. Italgas was spun off with really bad timing and dropped quickly. I think the underlying business is solid. The stock still has ~20% upside to my price target.

26. Kuka

Kuka is a Merger Arbitrage Special situation which has almost played out. The stock traded significantly below the 115 EUR offer price as doubts existed with regard to required US approvals. The critical US business now has been sold and the deal will close in spring 2017. This position will definitely disappear in the next few months. The upside is limited and I would be prepared to sell earlier if I have new ideas.

27. Sapec

Sapec, a Belgian HoldCo sold most of its operating business to PE company Bridgepoint. After the transaction, SAPC will have 230 EUR net cash of which they want to distribute a “significant” part. Despite the recent increase, I still think there is good upside for this Special Situation especially considering that there is a short-term catalyst.