Metro AG – Post mortem
As I mentioned in the comments a few days ago, I sold my complete Metro position at around 12,30 EUR /share. Including a 0,70 EUR dividend, this translates into a -26,6% loss and is a new entry into my “flop 10” list.
So what went wrong ?
Looking back at my initial post, my original idea was to buy the “ugly” part of old Metro which was supposed to be Ceconomy. This was clearly influenced by missing out on Uniper when it spun off from E.On, which was a similar ugly duck but performed very well.
One observation that I made back then was the following:
Looking at the stock chart we can see that Metro didn’t create a lot of shareholder value over the last 20 years.
When the split actually happened, Ceconomy traded far above the level that I thought would be interesting:
Interestingly, Ceconomy had a very good start, opening around 9,40 EUR and has gone above 10 EUR per share, far above my buying threshold.
Even more interestingly, the “good business”, the Metro Cash & Carry opened at ~20 EUR but then dropped quickly to a low of around 17,70 EUR as we can see in the chart:
Looking back, I think this was where I made a big mistake: I thought that the “Good Metro” then as a consequence must be undervalued if the other part was so overvalued. Combined with the 1 mn insider purchase of the CEO, I bought the shares without doing a real analysis.
As it looks now, Metro as a whole seems to have been overvalued significantly before the spin-off. Interestingly enough Ceconomy has now reached my initial price that I thought was interesting, however in between the shares almost reached double that level. The chart also shows that both parts of the old Metro have now lost almost the exact same percentage since the split up (yellow: Ceconomy, blue: Metro)
Ceconomy had similar issues in Russia and had to actually pay up in order to get rid of their Russian stores. Interestingly, Freenet thought it is a good idea to buy 9% of Ceconomy at EUR 8,50/share but so far it doesn’t look like a smart decision.
Another mistake I made was to assume that the remaining Metro business would actually be a “good” company. The 20 years of non-performance actually included Media Markt/Saturn which for many years was THE growth engine of the Metro Group.
It’s pretty clear that Real will never make money and the only hope is to sell Real at some point. On top of that, the fact that they don’t make money with Metro in Germany is also a sign that the C&C concept doesn’t seem to work in saturated markets.
The 9M numbers were maybe better than expected but clearly not good. Real is really struggling and also Cashflow and net debt do not look encouraging.
I also was not completely aware how significant the EM exposure of Metro is. The many short sellers were clearly aware of this and made money as the Russian issues would have been not that difficult to detect with some deeper research on the Russian competition.
A final mistake in this case has been that I didn’t have any specific insights into (Food) Retail. My few attempts at retail (Hornbach, Bijou Brigitte) showed very little success and I never dug deeper into the sector. Especially the currently still attractive margins in Eastern Europe seem to be shrinking
In short, my investment was a combination of mistakes:
- Assuming that Metro was cheap because Ceconomy was trading too expensive was a mistake
- Not understanding the EM exposure was an additional mistake
- Not knowing a lot about food retail was a mistake
- Sizing the position as large as I did was the final mistake
Just being a spin-off clearly is not enough to justify an invetsment without deeper research.
Maybe now, both Metro and Ceconomy are cheap enough ? I don’t know but for me, once an initial investment thesis is broken, I find it better to exit the position and focus on more interesting opportunities.