Short cuts: Hello (again) Magnus And Forced German Stock Delistings (Centrotec)
Disclaimer: this is not investment research. PLEASE DO YOUR OWN RESEARCH !!!!
Play Magnus Group – Again
I really hesitated if I should keep this private but then decided against it. Believe it or not, I have again bought shares in Play Magnus. After initially buying the stock at around 16,90 NOK per share, I sold the shares at a loss at 14 NOK per share. Buying now again a 2% position at 17 NOK per share looks extremely stupid, but these are the reasons why I still did it:
- when I bought the shares initially, I knew very little about them and I underestimated the volatility of Norwegian small caps which can easily move+-10% on a single day
- With the stock falling so quickly and with no news, I was afraid that some people might know more about the Q3 numbers which would be the first quarterly earnings after the IPO
- However, the Q3 numbers that came out today were pretty much there where one would have expected. The Q3 reporting is quite good.
- They made a few interesting additional moves: They were able to sell the rights for the upcoming tour to TV Channel Eurosport
- In parallel, the “official” rapid & Blitz world championship was postponed to 2021
- PM acquired a small business in the US with a lot of Chess content at a “reasonable” price with a “great CEO”
- I already linked to the interview with Magnus Carlsen that I found really interesting on where the big opportunities for this company could actually be
- Finally, the new Netflix series “The Queen’s Gambit” about a super talented Chess playing girl seems to be really really popular and could give a short term boost to the online chess ecosystem, I have actually watched the mini series myself and can only recommend it.
- Finally, I will eliminate the stop loss for the next 6 months and will just hold the shares whatever happens
So let’s see if this second attempt works better than the first one. My main learning from the first try is to be more careful on setting a mental stop loss.
You may call me stupid in the comments but I will reserve the rights to delete more insulting expressions 😉
Forced Delistings in Germany (Centrotec)
There were some discussions in the blog, that some markets (for instance Spain) might not investable due to lack of controls, bad Governance etc.
However as a native German I have to concede that the German stock market, especially small caps is in a pretty bad shape from a Governance perspective. After Rocket Internet, Centrotec is the next example where a dominant shareholder tries to screw minority shareholders helped by the really weak governance of German stock markets.
The strategy works like this:
Under German Law, a management board (not the shareholders !!) can decide to delist from official stock exchanges if they make an offer to minorities that is basically a trailing 3 month average. Following the Corona crash, Rocket Internet was the first company to do this, now Centrotec tries its luck. Before the announcement, the Centrotec stock traded at around 18 EUR and was on a nice upward trend, the 3 Month trailing offer however was only ~15 EUR:
As most index and mutual fund investors are not allowed to own unlisted stock, there is usually a big loss once this delisting is announced. In some cases such as Rocket, the share price recovers, especially when some activist gets on board.
In Centrotec’s case I would have little hope for recovery. The CEO already bought through Centrotec a company from himself earlier this year and being non-listed will allow him to report less and even change to the very intransparent German GAAP standards.
I can only reiterate that one needs to be really careful with German small caps especially when you have a large shareholder who is interested to buy the company at a low price after a crash or shortly before a turn around. To my knowledge, this possibility to delist so easily doesn’t exist elsewhere in Europe. Usually you need to own at least a significant portion of the shares (usually >90% or so). In Germany, you would not even need a majority.
The only way to protect against this is trying to understand how a dominating shareholder thinks and if there is any hint that she/he might be tempted to screw minorities. If yes, then stay away.
value and opportunity 
After the recent share price increase above my price target without any news, I decided to sell ~1/3 of the position at 38,5 NOK/share
Bravo !
Nice “Blog post” from Play Magnus on the impact of “the Queen’s Gambit” on downloads…..
https://www.playmagnusgroup.com/news/the-queens-gambit-surpasses-world-championship-impact
Stronger and longer lasting effect than world championships
Extremely interesting interview with the CFO (and International Master of chess):
https://www.sportskeeda.com/bos/from-wall-street-to-the-64-squares-in-conversation-with-international-chess-master-dmitri-shneider
https://www.bloomberg.com/graphics/2020-chess-boom/
HolyMolly ! +12% up… (+15% ex-FX !!).
I haven’t linked to the Q3 call yet which was pretty solid in my opinion:
https://www.playmagnusgroup.com/investor
Chess seems to boom more and more. Today I saw more than 100.000 Players online at lichess for the First Time. Normaly it was about 80.000
Interesting replay of the final game of The Queen’s Gambit:
2.4 mn views.
They did cheat a bit as they told in the series the opening of the game was an Albin countergambit which it isn’t (and that opening is also not played at that level).
But the original game they based their “final game” on is an impressive and non-obvious pick. Apparently Kasparov himself was the one who chose the game and made the adjustments compared to the original game.
Also it’s probably an inside joke that they chose a game of Ivanchuk, as he is known to always look at the ceiling during play just like the main character in the series.
Thanks for this insight !!!
Chess set sales are soaring https://www.nytimes.com/2020/11/23/arts/television/chess-set-board-sales.html
Another interesting interview with Magnus CArlsen:
https://www.theguardian.com/sport/2020/nov/21/magnus-carlsen-chess-interview-queens-gambit-beth-harmon-netflix
One of my investors of references got into DuckCreek. You definitely should be familiar w the business. I am long to that.
Looks like Guidewire but with a silly name. Never heard of them. Seem to trade at 20x revenue with only 50% of the revenue being SaaS revenue. Not sure if it is worth digging ddeeper.
But thanks for mentioning anyway.
Seems like I am MaryPoppins! DuckCreek +5% x-s
Yes, Software stocks can only go up, never down.
I also have my secret sauce “006”, with superior timing as main ingredient. You should taste it, rather than going trump about it !! 😛
Sorry, didn’t want to trump you. This is strictly “forBiden” on this blog 😉
Btw I just had read that they arranged issuing secondary stock and secured it at 41 $. When outstanding stocks were trading at 39, this gave a bit of arbitrage. And I just profited from it. Not so different from your deeply reasearched merger arbitrages, but made simpler.
HolyMolly ! +12% up… (+15% ex-FX !!).
I‘ve bought and sold and bought and sold BYD three times now. I completely missed put on Tesla. So, no judgement here ;-).
Who really needs the stock market in a world of unlimited money flows? It’s a great way to exit your half dead horse via IPO, but besides? The rise of passive investing also leads to a very attractive environment for delistings, as the index funds are forced to sell at any price.
Though I still think the rising number of delistings will lead to many good investment opportunities for the slow, long term oriented investor that simply does not need the liquidity of a stock market.
By the way: I’m very surprised to see only so few “Gray Knights” out there in Germany, that consolidate the small shareholders agressively in order to gain negotiating power for a better buy-out deal.
Good luck with Play Magnus (again).
I’m also tempted, but I already played around too much this year with a lot of lucky results, so it’s time to return to calmer investing!
Errare humanum est. X-D
I do not know if it gives you any comfort, but I have done more stupid things than you just did. I hope your „investment“ works better this time.
On German small caps / stocks in general I agree.