value and opportunity

In the first 3 months 2020, the Value & Opportunity portfolio lost  -17.7% (including dividends, no taxes) against a loss of -24.6% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all perfomance indices).

Links to previous Performance reviews can be found on the Performance Page of the blog. Some other funds that I follow have performed as follows in Q1 2020:

Partners Fund TGV: -19.5% 
Profitlich/Schmidlin: -19,2%
Squad European Convictions -21.9%
Ennismore European Smaller Cos -10.53% (in GBP)
Frankfurter Aktienfonds für Stiftungen -21.6%
Evermore Global Value  -32.2%(USD)
Greiff Special Situation -10.6%
Squad Aguja Special Situation -13.8%

Since inception (01.01.2011), this translates into +139,0% vs. 60.6%  for the Benchmark.

Performance review

In volatile days like these, performance measured at a single day can be quite random. I am mostly happy with the performance despite some obvious mistakes (Draeger….). The lowest draw down was ~-22% vs. around -35% for the benchmark on that very same day. On a monthly basis, returns looked like this:

March 2020 was indeed the most volatile month since inception. However, especially in the beginning of the blog during the Euro crisis in 2011, one could see a similar volatility. Here are the first 11 months of 2011 on a monthly basis:

So as a European investor one does not need to go back to the 1930s for similar volatility, 2011 was for European markets quite comparable from a volatility perspective. Especially during June- October, 4 out of 5 months resulted in double digit index returns. Sometimes I have the feeling that US investors are a little bit “too pampered” with low volatility since 2008/2009. The rest of the world still knows how stock market volatility looks like.

Current portfolio / Portfolio transactions

The current portfolio can be seen as always on the portfolio page. Transaction in Q1 were as outlined in the“Panic Journal 4” post plus 2 further transactions before end of Q1:

• sale of the remaining Paul Hartmann position at 298 EUR. The company released their annual report. Based on intransparent reporting, they predicted a -20% EBITDA decline for 2020 even before the crisis and a foggy 5 year plan to become more profitable. It hink ther will be better opportunities
• sale of 50% of my Vostok New Ventures position at 52,50 SEK. I think that they are more vulnerable due to their exposure to ride sharing/Mobility than the sister company Vostok Emerging Finance. SO I decided to lower the exposure

The cash position is now back at ~18%, a level that is similar to the end of 2019.

Covid-19 Update

As mentioned in my “Panik journal”series, the situation is continuously evolving and it is extremely hard to look far into the future. Again I have to admit that I have vastly underestimated the impact in the beginning. My current priorities are to better understand the impact of the Covid-19 pandemic within my current portfolio and manage the risks accordingly.

Based on my current understanding and taking into account potential second and third order effects, my assumption is that there will be some time to jump on other opportunities. However, experience from the past also shows that being too pesimistic is also not a good strategy in the long term, so finding the right balance is key.

Covid-19 “Quick test” for portfolio companies

1. Miko (4,2%)
   Miko has reported solid 2019 numbers, however impacted by a one-off negative effect from an earn out arrangement in the UK. Clearly their business will be effected, I guess the workplace coffee business more than the packaging. The decided to cancel the dividend which I think makes sense. However the company does have increase debt levels. Net debt increased for instance from around 1xEBITDA in 2014 to a level of (my estimate) 2x EBITDA at the end of 2019. Not dramatic, but this clearly limits them in using the crisis as an opportunity to acquire competitors. However, I am not really concerned here but one needs to keep the eyes open on how this will develop.
2. Installux (2,2%)
   Although they did an acquisition in late 2019 in Spain, I still think that they are sitting on a comfortable pile of net cash. The CEO is “battle hardened” and often used downturns to acquire cheap assets. Operationally there will be clearly an impact, but no existential threat.
   
   
3. Gerard Perrier (5,0%)
   Stable business, net cash and the ability to acquire cheap in downturns. G. Perrier is a company where I don’t need to worry at all.
4. Bouvet (5,9%)
   Norway is clearly exposed to the double hit of Corona and oil prices. However, Norway has a lot of firepower to keep the economy running and Bouvet has shown that it not only can survive such crisis but emerge stronger. In a weak economy, for starnage reasons consultants often do more business than in normal times. So yes, clear short term impact but long term resilience.
5. SFPI (2,1%)
   SFPI is the company that I exchanged my DOM security shares into some time ago. The company has net cash but had already some issue in 2019 before the crisis in its other divisions. So far it doesn’t look that the swap was beneficial for DOM shareholders. The annual report is expected for end of April I will need to analyze and then decide what to do.
6. Sol SpA (0,4%)
   I bought a small “starter” position in Sol SpA. Sol is a company with two segments: A Italy focused industrial gas business which clearly will get hurt, and a European “healthcare business” that provides oxygen for hospitals that will clearly boom. To be honest, I do not feel 100% comfortable in benefiting from Corona victims, so I might sell them.
7. Brenntag (1,1%)
   Brenntag is a chemicals distribution company that fits perfectly into my “Boring” bracket. The company despite its PE past, is relatively conservatively financed (Short term debt 0,5x FCF) and the business should be relatively stable. Even with lower activity going forward, they till should be able to run profitable. This is a position I plan to add on  (slowly) going forward.
8. TGV Partners fund (5,2%)
   I have written about the fund several times. As the fund is much more concentrated than my portfolio, performance is sometimes more volatile. Nevertheless I am convinced that my friend Mathias will allocate money wisely over the next 20-30 years and his investors will reap a very attractive long term return.
9. TFF Group (6,5%)
   Despite the Corona Crisis, people will drink good red wine aged in oak barrels. I am not sure how much is consumed in fine restaurants (which are of course closed), but I do think that wine drinkers can more easily find a way to enjoy a good bottle of wine at home than to get the food. They do have net debt (~2x EBITDA) but I think there are no existential worries here.
10. Vostok Emerging Finance (1,9%)
    VEF in my opinion is better prepared for the crisis than its sister company VNV. The underlying trends driving Fintechs in Latam (esp. Brazil) remain intact. Especially SME credit portals will get a lot of “free” customer acquisition opportunities. The company has acted very cautiously and other than VNV has ~20% of the NAV or ~30% of the market cap in cash which gives them some nice opportunities going forward. However the value of the underlying investments will be volatile in the next quarters
11. Vostok New Ventures (1,6%)
    As mentioned above, I reduced the exposure by 50%. Although I like the company and its management, I do think that the focus on mobility (Bla Bla, Gett, Voi) makes them vulnerable. Babylon, their biggest asset might profit from the crisis, but in my opinion 2020 will be brutal for the start-up mobility sector and one needs to see which players will survive.
12. Zur Rose (5,2%)
    Zur Rose was a lucky shot. The company benefits from the crisis as going to a physical pharmacy these days is not a popular activity. When I tried to order from DocMorris, I had to try quite often because their servers were overwhelmed. For Zur Rose, the crisis was a giant customer acquisition event. I wil keep the shares until my price target is hit.
13. Sixt (3,1%)
    As I mentioned in the blog, Sixt is a company that clearly will be hit hard by the crisis, as part of their business is related to travel (leisure and business). On the other hand, car travelling in my opinion will be the preferred mode of transportation once bans get lifted step by step and Sixt has the ability to look for opportunities. They showed good timing in selling Sixt Leasing just before the crisis. The main issue is that CEO Erich Sixt is in his seventies and it needs to be seen if and when he passes over to his sons and what happens then.
14. Richemont (3,0%)
    Richemont is “an old love” of mine, which I found too expensive a few years back. My thesis is that Asia, especially China, which drives most luxury purchases, bounces back quicker. Yes, Richemont sales will decrease short term due to lack of tourism, but luxury expenses are something that normally like cars gets caught up to a certain extent after a crisis. I was initially very skeptical on their acquisition of Yoox, the leading luxury online retailer but this could turn out as a very lucky move now. The company has net cash and will most likely be able to use the crisis and acquire some struggling smaller competitors.
15. Washtec (1,2%)
    Washtec is the German/European leader for building and maintenance of car washing facilities. I have been watching the company for some time. After a long time of growth, the company faced already in 2019 some operational challenges. However I think that at current levels, Washtec offers a good risk/return profile for the long run. The crisis will  impact the business relatively little (most facilities are still open) and they have only very little debt. This is also a position I plan to increase gradually.
16. TGS Nopec (3,2%)
    TGS Nopec is clearly feeling the “double whammy” of Covid-19 and the tanking oil price. It is extremely difficult to predict how this will develop. Nevertheless I will stick with the position as they have shown that they can manage crisis very well. However I won’t increase the position.
17. Admiral (9,1%)
    Admiral is now my largest position, the result of a great relative performance YTD and some opportunistic purchases. As mentioned frequently, the business model (car insurance, little capital market exposure) is “antifragile”. Clearly, a long term depression scenario would not be great for them but in relative terms they are well prepared. The only area to watch is their newly started direct consumer car loan business which will face a stress test pretty soon.
18. Svenska Handelsbanken (2,2%)
    Handelsbanken is my only remaining banking investment. In the past, each “normal” crisis was at the end a net positive for Handelsbanken as they emerged stronger. On needs to see how this one turns out. Luckily, they have not been involved into the baltic money laundering scandals as some of their peers, but it needs to be seen how the structural shifts towards online/fintech will impact especially their UK business and how their loan portfolio performs. If at a later time the shares would become really cheap, I might be tempted to increase the position.
19. Thermador (4,0%)
    Thermador  was actually in very good shape in 2019. As a distribution company one needs to see to what extent they might be impacted from supply chain disruptions and also the expected downturn in the economy. On the other hand, the special culture of the company and the low level of debt should ensure that they do not face existential threats. usually it was not a bad idea to add to the position during a deep crisis, but I think right now is too early.
20. Naked Wine (4,2%)
    Looking back, the decision to sell all their physical stores in 2019 looks like pure genius. The company is sitting on a nice pile of cash and might profit from their online presence. The only negative thing is that the CEO decided to retire. However this is clearly a stock to keep with little need to worry about crisis impacts.
21. Electrica SA (4,0%)
    Electrica is the remaining position from my Emerging Market experiment a few years ago. The company will clearly survive any crisis but overall my expectations were notmet. I underestimated the issues with the local regulator and the difficulties to put their money to work. Also, they got hit hard by fluctuations in local energy prices for their legacy supply business. Electrica is clearly a position that I will run off at some point in time, as my intitial time horizon (3-5 years) is now over and I don’t see a big change going forward.
22. German Startups Group (5,1%)
    German Start-up Group is a special situation from last year. The company liquidated a significant part of their portfolio in 2019. The company sits on a big pile of cash (1 EUR per share), so the downside seems to be limited. It will be interesting to see what they do with the cash. Clearly the remaining portfolio will see negative impacts, but I am quite optimistic that they will use the funds wisely.
23. JDC AG (0,4%)
    Part of my German Small Cap “basket” that is tarted to implement before the crisis hit. JDC is a insurance broker that is also offering software tools to manage insurance portfolio to other players like banks. The comapny has yte to show real profits from that business as investments were significant, but I guess the underlying business should be relatively stable. Debt is at a very manageable level with little short term maturities. So no need to wory right now, but monitoring how the business will develop
24. SHS Vivieon (0,4%)
    SHS Viveon is a small B2B software company that successfully executed a turn around. The company planned a big sales push to increase business which of course will be much more difficult now. On the other hand, the existing business should be relatively stable an they have net cash to weather the storm for some time.
25. Mediqon (0,4%)
    Mediqon is a small holding company that plans to create a portfolio of acquired software companies similar to what Constellation did in the US and Vitec in Scandinavia. Clearly the cirsis will create opportunities but acces to capital will also be more difficult.