Interactive Brokers (Sell), Sino AG (Buy), Tiffany & Co (Buy)
As mentioned in the comments on the previous post, I sold my Interactive Broker stocks. Why ? Mainly because of the following reasons:
- although I still think that it is a very good company, I reconsidered some of my assumptions after reading the “Chuck” Schwab autobiography
- Despite the fact that the Covid-19 crisis seems to have driven an increase in new accounts and trading commissions, the long term effects of lower interest rates (and margins) will be significant as interest margins are the main driver of profitability in the mid- to long term. My current scenario is that interest rates will remain very low even in the US for a very long time.
- I also don’t believe in any “excess capital”. The security of deposits is essential for a broker as Chuck Schwab lines out nicely in his book and the capital of the broker provides the security. Without that buffer, they would have a lot less business especially with professionals
- Finally I also had issues to fully understand the P&L of the company. Due to the special structure with the LLC, the statements are hard to read anyway but at the end I did not understand a couple of line items which makes me feel uneasy. Not that I imply anything here, I just like to understand P&Ls of companies that I invest in and the annual report is not self explanatory.
I covered Sino AG in my “All German Shares” series part 18 when the share price was around 50% lower than it is now. Sino is at its core a small high-end brokerage stock. But the main attraction is actually their stake in the German version of Robinhood, an app called “Trade Republik”.
Between my post back then and now, Trade Republik managed to do a big funding round. As part of that funding round, Sino AG cashed out 8 mn EUR which was 50% of their market cap when I wrote that post. They still own 16% of Trade Republic which translates into a value of 22 mn EUR. Another 2,5 mn EUR “extra” asset is a 12,7% stake in listed company Tick Trading. Together this already covers the current market cap of 25 mn EUR. The core business is basically “for free” plus net cash.
Sino has paid a
0,64 0,89 EUR per share dividend at the end of May, but there should be still a few million cash on their accounts.
For me, the Sino AG investment is a FinTech “bet” on Trade Republic. I think the “Robinhood” like business model has very good potential and with some new top investors on board (Accel, Peter Thiel), they should have a good chance to grow outside Germany as well. The business model of Trade Republic als depends less on interest margins and has some very interesting opportunities to offer different products to the target clients (mostly young people who invest the first money they have saved).
Personally, I do think that the Trade Republic business model is at least as attractive as the “Neo Banks” like Revolut, Monzo or N26. Actually I do think that the target customer group is even more attractive. At some point in time, Trade Republic might be even an interesting acquisition target for these guys.
Therefore I allocated 1,5% of the portfolio as a starter position into Sino AG at a share price of around 10,70 EUR/share.
In November 2019, LVMH made an improved offer for Tiffany at 135 USD/share. The “Undisturbed” price has been around 95 USD/share.
In the meantime, shareholders both, from Tiffany and LVMH approved the deal, so in theory closing should be a formality and was expected for the middle of 2020.
In recent days however some rumors surfaced that LVMH might somehow walk back from the deal. FTAlphaville has for instance a good summary of pro’s and con’s here.
At the current share price of 114 USD, the market seems to assume a 50/50 chance of the deal happening or not (depending of one considers the 95 USD still an “undisturbed price” after Covid-19).
My personal take is that the chance of the take-over is above 50%. The main reasons are:
- the long term value of Tiffany’s jewelry business should be not impacted too much. At Richemont for instance, jewelry held up much better than watches
- If LVMH walks away now, this opportunity will not come back any time soon. And there are not that many comparable “trophy” assets available
Therefore I decided to initiate a 2% position in Tiffany as special situation at 114 USD/share.