I do use AI tools (Gemini, Claude, NotebookLM) extensively during the research but I write everything “by hand”. In some cases, I will however copy & paste a summary or result table from a query after checking that the content is plausible. But I will always explicitly mention if I do this explicitly.
Management Summary:
Fielmann Group, the majority family owned German optical retailer has seen a significant multiple compression over the past 10 years despite a very decent operational performance since the Covid lows.
Based on a credible 5 year plan laid out in 2025, Fielmann is attractively priced and if they continue to execute under the leadership of the second generation family CEO, the stock offers significant potential over the next 4-5 years.
For this high margin, high return on capital business with a rock solid balance sheet and strong cashflow generation, the current valuation of ~15 NTM P/E and ~3,3% dividend yield looks attractive.
I talked to some other investors about this and they mostly mentioned that this looks (once again) as a one-time effect with maybe compensating negative results some quarters down the road, very similar to what happened after the attack on Ukraine.
That most likely explains the very muted reaction to a 35% increase in EBIT in Q2 and a significant increase in the full year guidance that according to the release already is conservative.
I actually bought back the shares slightly higher to the level I solid them last year (33,50 EUR vs 31,50 selling price).
What I found especially interesting in the statement from Fuchs was the following passage:
“The strong revenue and earnings growth in the second quarter of 2026 resulted from robust sales performance, driven by pre-buying effects stemming from the conflict in the Middle East,limited delivery ability among certain competitors,and organic growth. “
Digging a little bit deeper one can relatively easily find articles that the Gulf region was and is a major exporter of lubricants and especially the underlying base oils that are needed for high performance lubricants.
In addition, on major base oil refinery in Qatar was directly hit by Iran according to this article:
“Approximately 44% of U.S. Group III demand is typically supplied from the Persian Gulf, but that supply is now largely offline. Damage to Shell’s Pearl GTL facility in Qatar—caused by Iranian rocket strikes—has halted production from a key source of roughly 30,000 barrels per day, with repairs expected to take at least a year. Additional disruptions stem from force majeure declarations by producers in Bahrain and the UAE, as well as the continued closure of the Strait of Hormuz, which has stranded product in the region. “
Although I don’t know exactly how Fuchs sources its base oils, it seems that for the time being that they are able to deliver while others have problems.
Of course the situation with Iran can change any day with a single Tweet, but I guess that some supply chain managers are maybe rethinking their dependence on Guld based lubricants which could be a structural opportunity for an independent player like Fuchs.
We will need to see how this develops, but I think Fuchs looks a lot more interesting now at least from my perspective.
Then, after the approach from Stripe and Advent I mentioned the following:
Last Friday, the stock traded at 55,5 USD, offering a 9% “discount” to the potential acquisition price which motivated me to buy a 1,5% position at that level.
The risk return ratio is not too bad at that level. The “undisturbed” price is ~47 USD and there is a pretty good chance of a higher bid either from Advent/Stripe or maybe another competitor might enter the race.
As always, one needs to prepare for volatility around any news in either direction but I think it offers a nice, uncorrelated “bet” on a potentially higher clearing price.
One key player here is clearly the new CEO whose massive bonus is tied to a stock price increase that to my knowledge is much higher than the 60,50 USD offered. So he clearly has an incentive to hold out for a high price OR a nice “golden parachute” from the buyers.
However one more thing is important to mention: This is a special situation investment for me. So if for some reason, Stripe & Advent withdraw their bid, I will sell, no matter what. For a “Value investment” I still find Paypal too hard at this stage.
At the time of writing, the Paypal share price has climbed back to 58,40 USD per share, a level where I would not buy (more).
(for some strange reason, Google Finance says Paypal is now called Adobe 😉
However, that was soon followed by disappointing 6M numbers. The preliminary 2025 numbers were not great, but back then the outlook for 2026 was still quite positive in March.
This was of course very disappointing and I started to sell part of my stake after that. We can also see that the share price is now lower than when I wrote up the stock in June 2024:
An EBIT /operating profit at the lower end of the 40-50 mn range would mean an EBIT similar to 2023 and that in a year with two very big events, the Winter Olympics and the Football Worldcup.
While that is not a catastrophe, they are now clearly far away from the 10% p.a. growth path that I had underwritten originally. To be honest, I don’t fully understand why the business is so weak.
What I also found interesting, that Canadian listed competitor Evertz has been doing very well over the past 12 months at least looking at the share price:
So while EVS claims that the war in the Gulf is the culprit for the unsatisfactory business, Evertz speaks of “revived growth” in the Middle East. That is quite surprising in my opinion and casts some doubts on the EVS Broadcast story.
So overall, I am not that confident in EVS for the time being and decided to sell my position entirely as I see better opportunities elsewhere.
Frosta, the German “Hidden frozen Food champion” that I wrote up in February already released 6M results this week.
Highlights:
Overall sales volume increase by +11,7%. easily beating the market which was around +3%. The real kicker is that the Frosta Brand itself grew by +25% and seems to be further accelerating.
Among other things, Frosta has released two new lines of frozen meals: “High Protein” meals with more meat and “a la carte” restaurant quality meals. Both new lines are at a slightly higher priced point than the original.
I find this a clever strategy, not to increase the prices of their classic range but rather offer even better meals at a higher price point.
After tax income only increased by 2,4%. Gross margins increased a little from 48,3% 6M 2025 to 48,8% in 6M 2026, net income margin declined slightly from 5,5% to 4,9%.
However, the outlook for the full year is VERY positive.
If we take the two midpoints, 13% sales increase and 6,5% net margin, we would end up at 50 mn EUR net profit or an EPS of 7,35 EUR.
Considering that Frosta has ~10 EUR Net cash Cash per share, this translates into 13x P/E for a strongly growing company that is executing extremely well.
If we just compare this with the self proclaimed “Leading European Frozen Food” company Nomad foods, we can clearly see from whom Frosta is taking market share:
As always, Investors were not impressed very much:
I used however the opportunity to increase my Frosta position from 3,2% to 4,5%. And I will keep buying if the share price remains below 100 EUR.
Forsta is in my opinion one of these typical “Peter Lynch” investments: As a german, you can easily go into a supermarket, look how empty the Frosta Shelfs are and buy yourself a few packs to test the quality you get for the rather moderate price.
Paypal
In March I wrote about Paypal and just found it “too hard” for me, given my limited knowledge in the Payment sector.
Even back then, the rumor was that Stripe might be interested in Paypal but I found it not really realistic as there was a limited fit:
The share price jumped to around 57 USD, leaving only a 5-6% spread. which indicates that some arb players seem to expect and price in an increased offer.
As it is quite early in the process, I will keep watching this. If the price goes down a bit and we would see a spread closer to 10%, this could be a potentially interesting special situation.
From a structural perspective, teaming up with Advent makes a lot of sense for Stripe because then they can choose exactly the parts that they like and Advents monetizes the rest.
In this post, out of pure self-interest, I looked a little bit deeper into Terry Smith’s controversial 6M Fundsmith report and focus on the “Active vs. Passive” debate, how Fundsmith’s Buys and Sells look under my own Momentum scoring and some thoughts on changes in investment management styles.
Intro & Background
Terry Smith, the outspoken Boss of UK “Quality Value” Fund Manager Fundsmith dropped a quite unexpected 6M letter to investors where he basically communicated a pretty drastic pivot compared to what he said over the past 15 years.
In an “unprecedented” move, he switched ~50% of the portfolio within 6 months which is very unusual for his fund. In previous years, annual turnover of the portfolio was on average less than 10%.
His mantra of “do nothing” was repeated in every letter and often repeated in his talks.
In the most recent letter, he blames, as several times before, “passive ETFs” for market distortions and claims that those active managers that are currently successful are most likely “momentum chasers”.
Fundsmith to be clear is not the worst active fund. With a TER of ~1% they are also not on the extremely expensive side and since inception, the track record is still pretty ok. However, a quick look at his recent fund factsheet shows that for the past 4 ½ years, the fund underperformed the MSCI World pretty drastically:
He underperformed both, in up markets and in the down year 2022. So it is clearly not a “low vol” effect.
Nevertheless I found that letter interesting due to the following aspects in which I will dive a little bit more:
Active vs. Passive
Smith’s somehow inconsistent treatment of “momentum” which is a factor I have been paying more attention to since some time now
The question of how to generally shift/pivot/adapt an investment strategy (if at all)
Active vs. Passive
I actually read the Substack post that Terry Smith referenced which can be found here:
It summarizes quite well the general view from many active managers why too much index investing is very dangerous and might end in a total collapse of the stock market. While there might be a (smallish) probability for this scenario, it sounds a little bit like the typical “Old man shouting to the clouds” cartoon.
On the other hand, the article also doesn’t really cover that as a whole, Active Management just has never really justified its rather significant cost.
In the “good old times”, active funds had been the gate keepers between individual investors and the stock market with the only alternative being stock brokers.
These days however, the ease of buying an ETF and the low cost is clearly a very attractive value proposition compared to “classical” funds where often still an intermediary is clipping an additional fee (and or the bank).
Only claiming that there will be Doom with too many passive structures is not so convincing and rather looks like an attempt to scare regulators in protecting the still very profitable business of underperforming asset managers and wealth advisors.
In my opinion, these days an active manager really needs to have a more convincing story than just that one from Mr. Evan-Cook. Your really need to offer something to investors that they can’t get through low cost Index ETFs which is not so easy.
They argue that the opposite is true: As the remaining ones are the smart ones, there are not enough “patsies” to make the “big hay”:
In any case, it will be interesting to see how the active vs. passive debate continues, but there won’t be a magic turnaround any time soon in my opinion. Index ETFs are here to stay and the Active Management industry really needs to find ways to create actual value for investors in some way.
2) Momentum
In the letter, it almost seems that Terry Smith has written parts without looking at the whole “enchilada”.
On page 3&4 he shows a chart that Momentum is dangerously high as last seen in 1999 before the Dotcom Boom. And then, only a few pages later he writes the following:
We will take more account of momentum — both fundamental and share price — in our investment decisions. In particular, we will be much less willing to deploy the time-honoured technique of buying quality companies when they hit a glitch
As some of my readers might remember, I did start to include momentum into my decision process a year ago. But in a less drastic way than Terry Smith and more “gradual”.
In my comprehensive Scoring system, Momentum is reflected by 4 indicators as part of an overall score that also includes “Quality” and “Valuation”:
For “momentum” my crude assessment looks as follows:
Current EPS momentum (i.e. EPS LTM is higher than the previous year): 1 Point if Yes, 0 otherwise
Stock price is above the 200 day moving average 1 Point if Yes, 0 otherwise
The stock price performance of the last 6 Months (1 Month lag) is positive or negative (1 Point of Performance is > +5%, -1 point if Performance is <-5%, 0 points otherwise)
The stock price performance of the last 12 Months (1 Month lag) is positive or negative (1 Point of Performance is > +5%, -1 point if Performance is <-5%, 0 points otherwise)
So overall, my “momentum score” can go from minimum of -2 to a maximum of +4 within a total score that can reach, including Quality and Valuation, scores a total score of 18.
So for fun I just tried to score the stocks that Fundsmith sold and bought. Here is Terry’s summary:
And here is the table scoring Terry’s stocks, both, the buys and sells with my crude momentum measure:
Two things stand out in aggregate:
The stocks that he sold, on average, look indeed worse from a momentum perspective than the ones he bought. And the stocks he sold are a lot cheaper than the ones he bought.
It’s also interesting that only 3 of the stocks he bought would get a maximum Momentum score in my system (GE Vernova, TSMC and Nextpower). Some of the stocks have rather negative Momentum under my definition (Uber, Netflix & Veeva).
It’s also obvious that he wanted to have some exposure to the Datacentre /AI theme via TSMC, GE Veronica, NextPower, Legrand and maybe UBER.
Overall it looks to me that he still focuses on fundamentals but looks for more “positive fundamental momentum”.
One question I have been asking myself is why he didn’t sell some of these stocks earlier. One example which I have looked into under another context is Essilor Luxottica. Here is the chart of the implicit NTM PE over the past 10 years:
We can see that until the end of 2025, the stock was valued at 40x NTM P/E, far above the average.
If we look at the margin and Return on Capital ratios over time we can see that after the merger between Essilor and Luxottica, margins never recovered there previous level and Return on Capital was a depressing mid single digit.
That begs the question why you would want to own such a stock at such a valuation in the first place.
Anyway, Terry Smith clearly now wants to avoid “unloved” stocks and is looking to invest more into stocks that do at least from a fundamental perspective well, even if the new stocks are on average significantly more expensive than the sold ones.
With such an approach, in my opinion, his “do nothing” mantra won’t work, because in the current environment, fundamentals can change ven more quickly than before.
It will be interesting to see if and how fast he will turn over his portfolio going forward.
3) If and how to shift/pivot/adapt an investment strategy
One “peer” to Terry Smith is Nick train from Linsell Train funds who has a similar “quality focused” approach. In his 6M letter (Global Fund) however, he is rather adding to his losers than selling them. One prominent example is Intuit:
But buying a consensus AI loser stock today doesn’t mean arguing no risk from AI (or anything else we haven’t yet seen coming). It means taking a calculated risk, based on
likelihood and the trade-off with price, and accepting the emotional discomfort of appearing unconventionally wrong. To give a pertinent example, Intuit was easily the Fund’s worst performer in June, declining 21% in USD terms, down now nearly two-thirds from last year’s highs. Whilst 2025’s valuation was arguably steep at a c.2.5% free cash flow yield, the collapse to what is now over 10% feels egregious. As above, we think it likely that the prior
bullishness resulted from the general extrapolation of past successes – with, it must be said, some justification: Intuit has grown revenues organically at double-digit rates every year this decade, whilst its EPS is up 4.5-fold versus FY2016. But the forward bearishness, predicated we assume on acute (but typically unsupported) fears of AI disintermediation, feels disproportionate. The non-GAAP multiple on next year’s EPS (which management still guide to grow at c.16-18%!) is now down to 11x. To achieve a normal nominal return (say the US market’s historic 9% p.a.) now implies negative forward earnings growth. As little as a year ago, analyst debate focused on whether Intuit could sustainably hit 20% revenue growth versus the prior mid-teens rates
I think the Nick Train vs. Terry Smith “contest” is an interesting case study on the merits of changing your investment approach abruptly.
One needs to mention that Nick Train’s track record for this fund is even worse than Terry Smith’s, underperforming the MSCI World by a pretty wide margin since inception in 2011:
Overall, I think in every long investment career, it will be necessary to change and adapt one’s approach to investment in order to stay relevant.
The most famous example here is Warren Buffett who changed his approach fundamentally at least 2 times. From Graham Deep Value to Quality to “Full scale take-over conglomerate” investing. With his initial approach, he would never had been able to reach the size that he has reached today. The same with listed-minority investments in general.
From what I have seen, a rapid increase in AUMs for any manager is often in the end much more a curse than a blessing. Yes, you earn a lot more fees but unless a manager significantly adjusts the strategy, returns will suffer after a certain increase almost inevitably.
The question is clearly how to do this in a way that does not create confusion on the investor side and is hopefully constructive for the future results.
In Terry Smith’s case, I am struggling a little bit with his previous mantra that “do nothing” is the one and only thing and then abruptly change that within a 6 month period. My feeling would have been that he should have toned down the language a little bit earlier already, unless he really did this pivot on short notice.
In Nick Train’s case, doing nothing (or not much) after now being down since inception is maybe also not 100% optimal.
For a lot of institutional investors, 3 years are maybe the maximum they can tolerate underperformance before they pull the trigger. Both Fundsmith and Lindsell &Train are clearly past that mark.
From my perspective, every active fund manager should realize that luck is a big part of the game and when things are good, one should give some credit to good luck instead of claiming all the outperformance due to superior skills. I guess that might make things a little bit easier when inevitably things don’t look so great.
In any case, I do think that a shift in strategy should be prepared and executed including relevant and documented changes in process and also personnel.
What you clearly also need is some patience. Don’t expect that a structural change will improve performance on day one. This will need time.
In any case, as mentioned above, Active Equity Management is facing a lot of headwinds any way, which makes it even more difficult to dig yourself out from an “performance hole”.
Summary:
It is obviously too early to tell if and what we can learn from Terry Smith’s recent actions, but on the surface they look a little bit like a “panic move”.
Going forward, Lindsell & Train will be a good comparison because they seem to keep doing what they have been doing and are even doubling down on their losers.
In any case, for me personally it is clearly some kind of evidence that completely ignoring “momentum”, being fundamental or purely stock price driven is not a good idea. “Do nothing” in my opinion is harder than ever and maybe not the dominant strategy going forward. In my opinion, using momentum as an additional factor in stock picking and portfolio management can clearly improve the process to a certain extent.
In the first 6 months of 2026, the Value & Opportunity portfolio gained +8,1% (including dividends, no taxes) against a gain of +6,2% for the Benchmark (Eurostoxx50 (25%), EuroStoxx small 200 (25%), DAX (30%), MDAX (20%), all TR indices).
Links to previous Performance reviews can be found on the Performance Page of the blog.
Performance review:
As mentioned in the last 12M review, I decided to do only one midyear review instead of 3 quarterly ones.
Relative to my European focused Benchmark, the first 6 months were pretty Ok. In absolute terms, once again I was lucky not to have had a Crystal ball at the beginning of the year.
With the Iran war, the Strait of Hormuz still being closed and inflation ticking up, I would have not thought that stock markets would be up in the first 6 months.
Some of my positions disappointed, such as EVS, Wise or the Active Ownership Fund (once again). However, my bigger positions, especially Jensen, Eurokai, Bombardier and DCC did well.
For the record, this is the monthly development of the relative performance for 6M/2026:
For the first 6 months, the portfolio performed as intended: Lower drawdown in bad months but also less upside in good months. As I have mentioned several times over the years, I feel better having less than market volatility in my portfolio.
Going forward this will be not only about feelings but also a necessity as I will soon enter the “harvesting” period in my investor career. Which means more money will flow out of the portfolio than inflows which makes it even more important to manage volatility. But more on that at a later time.
I have implemented everything now in my investment process. Did it help ? Hard to say, because a short term performance record is subject to a lot of random noise.
One thing I can say is that my portfolio would look differently if I had not implemented these changes. I might not have bought for instance more Eurokai, Jensen and Bombardier. I might have added to EVS instead after the share price dropped or actually sold some of the larger positions.
So far, I “feel” that these changes help me focus better but of course this could turn out to be wrong. To be continued.
Transactions 6M 2026:
The current portfolio can be seen as always on the Portfolio page. Cash is currently around 9% of the portfolio.
I exited Special Situation Bois Sauvage after a decent run up as well as SFS which I found too expensive in relative terms. I also sold my little bet in Sixt common shares, SAMSE and Laurent Perrier.
I bought and sold as Special Situations BioNTech and Rocket Internet.
New positions were Frosta, Bachem, Norma and 7C Solarparken. I added to Frosta, Gerard Perrier, Frosta and recently Sixt. I reinvested the gross dividends into Eurokai and Sixt. I reduced my EVS position after the quite disappointing outlook and the exit of the CFO. In addition, I also reduced STEF mainly because of their cutting the dividend. Both, STEF and EVS declined significantly in my internal ranking which makes it difficult to justify a large position.
In addition, I also decided to quit the Active Ownership Capital Fund and sent a cancellation order which will be executed by year end.
Current Cash levels are at around 9,3%, the largest 10 positions sum up to 56% with the top 3 totalling 25%,
Random ramblings: AI winners vs. losers, European AC, Volkswagen & Football 2026 Worldcup
AI winners & losers
Despite some setbacks, the “AI trade” is still strong and I think very few people now seriously doubt that the AI revolution is for real. Sometimes it is hard to believe that only 3 ½ years ago, the world experienced the “ChatGPT” moment when the first version of OpenAI’s chatbot had been released and this crazy journey started.
What I find very interesting is how quickly the favorites have changed on the “front end” side of things. Initially, everyone agreed that OpenAi and Microsoft would be the winners in this game among the big Hyperscalers. Microsoft secured early a big stake in OpenAI and immediately tried to integrate it into a product called “Co-Pilot”. The same playbook they used for instance to crush Zoom with Teams. “Distribution always wins” was the early verdict.
Now, It currently looks like Alphabet/Google is winning on the retail side and Anthropic on the B2B side if the current US Administration will let them do so. OpenAI, the “first mover” on the other hand seems to be pushing its much anticipated IPO into 2027 and Anthropic might not want to IPO either, as at any second, the US Administration could try to kneecap them again.
Microsoft’s Copilot is only used by people who have no other choice. Despite Microsoft having sold 20 million seats, some sources say that only 20-30% of those seats are used on a weekly (!!) basis.
Looking at the “Mag 6 (ex Tesla)” stock charts since November 2022, the best trade was clearly Nvidia which is no surprise. But Meta, which clearly has not been very successful at the AI business, is clearly number 2.
Meanwhile the initial clear winner, Microsoft, is the worst performer. Even Apple, which so far has done very little on the AI side, is doing better.
For Meta, part of the explanation is clearly that they were trading historically cheap in autumn 2022 at around 10x LTM EV/EBIT. On the other hand, they also tripled EPS from 2022 to 2025:
Microsoft in comparison traded at around 20x EV/EBIT in Autumn 2022 and is now trading at a slightly lower multiple:
And more importantly, EPS “only” increased by less than 100% depending on where you make the cut-off.
So what I want to say here is that even looking at the Hyperscalers, starting valuation and EPS increase are at least equally important than the pure story telling.
We are still early in the race and so far, the “first mover advantage” didn’t really seem to have worked out for Microsoft and AI. I guess we will see in the next years if maybe even Apple’s approach of wait and see is maybe the best one ? Prof. Damodaran even praised them with an article called “An ode to restraint”. In my opinion, the winners of this “platform shift” are clearly not carved in stone and maybe we will see completely new players in the next few years and don’t forget the Chinese players.
On the other side, with all the Capex, the risk on the side of the Hyperscalers clearly increases, especially if they are not among the winners.
European AC & Climate adaptation
During the recent heat wave, my Twitter feed was full of posts that “Europeans are too stupid” or too poor to have AC.
As always, generalizations like this are generally extremely stupid (with the exception of this generalization of course). While I am writing this, we have heavy rains and ~20 degrees Celsius and the worst seems to be over for now.
But behind that stupid discussion, there lurks an “unconvenient” truth: The climate is getting warmer and half a degree more on average in a year unfortunately does not mean half a degree more every day but more and more very hot days in summer.
20, 30 years ago, there were maybe 2-3 really hot days in Summer, now it is maybe on average 11 and still increasing:
This is surprisingly (or not) a bigger problem in the more moderate climate zones like central Europe than in the North or in the South of Europe. Anyone who has actually travelled in Europe for the last 20-30 years knows, that the poorer Mediterranean countries like Portugal, Spain, Italy or Greece are very well equipped with AC. Summers were always hot in Italy and that’s why Italians are at the Beach in July and August and only stupid tourists are walking around on foot in Rome and complaining.
The problem is clearly much more in areas like Southern/Middle Germany for instance. The Rhine basin where a lot of the big population centers are in Germany is generally a relatively warm region. Traditionally they have always been wine growing regions unlike for instance Bavaria where I live or Northern Germany near the coast,
Really hot days in a row, where the temperature does not go down at nights are clearly a strain without air conditioning.
The average age of residential buildings in Germany is around 40-50 years. That means they were built in a time where on average there were only half the hot days that we have now. In addition, a lot of renovations increased the “vulnerability” like increasing window size or remodelling roof storage units into apartments.
Many homeowners that I know have already installed AC in the last few years. However, one of the issues in Germany is that more than 50% of Germans are renters and installing an AC in a rental unit is much more difficult.
In addition, a lot of public buildings still get built without AC and authorities are really slow to retrofit AC in public buildings. This in my opinion is the real issue: Hospitals, old age homes, schools etc. need to be upgraded as quickly as possible. On the weekend, there was an “open house” of the brand new Fire Brigade building in my neighbourhood and of course it does not have AC.
According to some articles, an existing program to fund AC in public buildings has been actually cancelled for 2026 by the current Government. As always, there is a struggle between local authorities and the Central Government who is responsible.
But AC is only a part of the story. The much more inconvenient part of that story is that Global Warming is real, that countries with relatively moderate climates are not well prepared and that the lack AC might only be the tip of the iceberg. In the past few years, we already had some really dry summers that led to pretty bad harvests for instance.
Climate adaptation is a much bigger topic than just installing more AC units. I think even the hardcore Greens are beginning to understand that one has to face reality and cannot only dream of stopping Global Warming but really make an effort to compensate for the effects.
Right now, everyone is looking for more exposure to AC manufacturers, but in my opinion a company like Thermador which specializes in irrigation components also plays an important part in helping with climate adaptation. The stock chart already shows some life in the past few days:
Volkswagen
Volkswagen made a big wave this week that they are planning to “fire” up to 100K workers. As with the German National Football team, each and everyone seems to know exactly why Volkswagen seems to be doing so badly.
The main culprits mentioned are often the Decommissioning of the Nuclear plants in Germany or the EU guidance to not allow Internal Combustion Engine (ICE) cars to be built from 2035 onwards and the general laziness of German workers.
From my perspective, Volkswagen troubles are more a function of the following factors:
Legendary bad Corporate Governance: With the Government owning a “golden share” and the Porsche/Piech families not really knowing what to do, the only common denominator for a long time was just size which is never a good strategy in the long term
Too many brands that are hard to differentiate (VW, Audi; Cupra, Skoda…..)
The combination of US tariffs, JPY/KRW devaluation and cratering sales in China
The unwillingness and inability to fully compete with Chinese EV makers, reducing the profit in China from 5 bn EUR p.a. at its peak to currently below 1 bn EUR
Difficult footprint for accessing the US market (no Northern American plant for Audi/Porsche), Volkswagen is only in Mexico)
The inability to offer state of the art software for their “premium cars”
Badly managing their premium Sports car brand Porsche which became more and more similar to Audi
If we look at the stock chart of the big 4 remaining European car makers, we can see that we have two groups: The bad and the ugly:
BMW and Mercedes are kind of hanging in there but Volkswagen and Stellantis are both struggling. Interestingly, until early 2025, Stellantis looked like the superstar, but that did not last long.
If we compare Toyota and Ford with the German players, we can see that especially Ford jumped from the Group with Mercedes and BMW into a new Group with Toyota.
My guess is that the market is pricing in the protection for Ford in its US home market via Trump’s “liberation day” tariffs.
In any case, there is no easy and quick solution for Volkswagen. If I have counted correctly, Volkswagen (incl. Audi) has ~13 or 14 main plants in Germany compared to BMW which only has 4. Per employee, BMW and Mercedes generate more than 2 the amount of sales than Volkswagen.
So if Volkswagen wants to remain competitive, they need to do some slimming down now or things might even get worse in the future.
From a pure tactical perspective, I guess Management may have mentioned a larger number than what they are aiming for in order to give the Trade Unions and the Government some kind of “sacrifice” during negotiations.
Overall, I see this as a necessary step. The worst case in my opinion would be if they are not able to increase productivity due to political interference. This would be really bad mid- and long term, not only for Volkswagen but for the whole economic complex around it.
It hink the only remotely interesting listed asset of the Group would be Porsche (the manufacturer, not the holding), if they were to become more independent from Volkswagen.
Football World Cup
With a one day period to stomach the loss against Paraguay, a few (maybe unqualified) thoughts on the 2026 Word Cup:
Overall, the decision to let more teams play in this final tournament was in my opinion a pretty good one, although I didn’t like it in the first place. A lot of interesting teams that might otherwise not make it to the finals played really well (e.g. Paraguay, Cabo Verde or most African teams)
Although people don’t seem to like the Hydration breaks, I personally find it quite convenient to have a quick break to get something to drink myself.
The new rule to require an “injured” player to stay out of the match for 60 seconds is a really good rule. It limits these situations very much which were very common in the knock-out matches before when one team had a narrow lead and suddenly players were falling like flies.
The quality of the matches on average is pretty good. I watched a few matches so far (with convenient starting times) and they were all very good and enjoyable.
In general there doesn’t seem to be a big skill difference at overall team level between the best 30 teams or so. So far, the main difference really has been the exceptional performance of some of the Superstars who then really make the difference
Teams like Germany (and Italy or Uruguay) are at the moment really lacking these individual Superstars which might explain the lack of success for those traditionally strong football nations.
The only negative is that for Europeans, the starting times of the matches are sometimes very inconvenient. On the other hand, the availability of summary videos on the next day compensates to a certain extent.
There was a lot of noise around Berkshire’s 10 bn participation in the Alphabet capital increase. However, at the Berkshire AGM, Greg Able mostly singled out the investment of Berkshire into Japanese Insurer Tokio Marine as a great investment.
Therefore “Hello Japan” for the first time on the blog.
Interestingly, I was not able to find any real write-ups on Substack, just a few very “light” ones mentioning the Berkshire partnership. The “Buffetologists” have ignored that one so far.
Strategic Investment: NICO acquired a 2.49% stake in Tokio Marine Holdings for approximately $1.8 billion, with options to increase its holding up to 9.9%. To my understanding, Tokio Marine sold Treasury shares to Berkshire.
Reinsurance Agreement: Berkshire entered a whole-account quota-share reinsurance arrangement, absorbing a portion of Tokio Marine’s globally diversified portfolio to help the Japanese insurer mitigate natural catastrophe and underwriting volatility. M&A Collaboration: Both companies plan to collaborate on global M&A and strategic investment opportunities.
Technically, the investment is done by NICO (National Indemnity), not Berkshire. The third part is really interesting and unique. It will be interesting to see how this would look in practice.
Tokio Marine overview
Looking at the TIKR overview, we can see that Tokio Marine has a market cap of around 85 bn USD, is quite profitable and trades at 14x LTM P/E. The 3% dividend yield is quite high for Japanese standards.
The share price has done very well in Yen. Although as this chart shows, part of the more recent performance is also due to the very weak yen. But the company still easily outperformed the European peers Zurich and Allianz by a wide margin over the past 5 years:
One aspect that really surprised me is that their business seems to be by majority in the US (measured by “adjusted net income”) as this chart shows:
So essentially, Tokio MArine is a US Specialty Insurer with a Japanese business. Looking at the mixed track record of Japanese acquisitions in the US, this looks rather smart in comparison.
Business plan:
Their plan is to double Net income by 2035:
This is some more detail:
Of course, as insurance is not always predictable, this should be taken with a grain of salt, but putting out a 10 year plan is nevertheless a very positive aspect.
Switch from Japanese GAAP to IFRS
What makes things a little bit more complicated to analyze is the fact, that according to the presentation, Tokio Marine is switching from Japanese GAAP to IFRS in 2026.
They have this table which seems to indicate that IFRS profits are higher, but ROE lower, as net assets (Equity) is jumping after the switch:
Overall; Tokio Marine estimates that profits on an adjusted basis will be higher and less volatile compared to JGAAP.
Buying an Engineering design company
One pretty unique transaction was their purchase of an Engineering design company in 2025. That’s pretty unique among insurers.
I am really curious if and how this will actually develop in the next 2-3 years.
Capital optimisation
One of the “dirty secrets” of Insurance stocks is that a significant part of the Big Insurer’s capital base consists of bonds, so called “hybrid bonds”. Those are significantly cheaper than equity. This is Tokio Marine’s slide that shows that they have made little use of that so far:
Just getting to their competitor’s levels gives them a lot of flexibility with regard to M&A and/or share buybacks.
What’s interesting is clearly also how Tokio Marine has increased dividends and share buybacks over the past 10 years which can be seen in this table:
Return expectation:
A simplified return expectation for Tokio MArine would look like this:
Dividend yield + Buyback yield + growth rate
Taking Tokio Marine’s numbers this would result in:
3,1% + 1,5-2% + 7% = 11,6-12,1% p.a. without assuming any multiple expansion
This is not bad, but to be honest, also not super great.
Here is a quick Peer Group table which shows that Tokio Marine enjoys an absolute average valuation in my subjective Peer Group:
The question or upside would be if Tokio Marine is really an “above average” player, then maybe they would deserve an above average multiple. Based on their very conservative capital structure, they should (in theory) be able to grow more than competitors.
To be honest, based on this quick check, I am not yet ready to give them an “above average” rating despite Ajit’s endorsement.
Pro’s/Con’s
As always, a quick summary of Pro’s and Con’s
Ajit generally knows what he is doing & Berkshire Cooperation
+/- not super cheap, expected return below my hurdle rate +/- Japan GAAP to IFRS transition +/- complex business
+/- USD/JPY risk (as EUR investor)
General Nat Cat exposure (famous Japanese Earthquake)
Summary:
Tokio Marine looks kind of interesting. Especially the fact that the majority of its profit comes form the US is a big surprise to me.
However, after the Berkshire announcement, the stock is not so cheap anymore.
So for the time being I will put it onto my “focus watch list” but not invest. I think it will be interesting to see how IFRS results will look like in 2026.
In any case, this shift from JGAAP to IFRS seems to be a very interesting item for Japanese insurers.
DISCLAIMER: This is not investment advice. The author might own, buy or sell shares without advance notice. The assumptions might be flawed or outright wrong. PLEASE DO YOUR OWN RESEARCH !!!!
Publishing research is a good way to get constructive feedback. With regard to my Norma Group Special situation post from earlier this day, one friendly person reminded me that there were at least two cases in Germany of big Buy back tenders in the past which had separable tender rights. I didn’t remember them, neither did Gemini.The two cases were:
In both cases, for every share you owned, you “only” got a “partial” tender right, i.e. for Rocket, every share got a right to tender only ¼ of a share. The Rocket internet case was very special, as Oliver Samwer “gifted” his tender rights to activist investor Elliott.
But the principle is clear: In order to tender more than your relative share, you had to buy additional tender rights. You canot just hope that someone doesn’t tender and you will then benefit.
So far, with Norma we don’t know if and how they will offer these separable rights, but this could change and require more active involvement especially when the tender rights are trading.
I just wanted to put this out. I have not sold or bought any shares because of this. I need to research the two cases and potential other cases more closely.
DISCLAIMER: This is not investment advice. The author might own, buy or sell shares without advance notice. The assumptions might be flawed or outright wrong. PLEASE DO YOUR OWN RESEARCH !!!!
DISCLAIMER: This is not investment advice. The author might own, buy or sell shares without advance notice. The assumptions might be flawed or outright wrong. PLEASE DO YOUR OWN RESEARCH !!!!
Executive Summary:
Norma Group, a previously PE owned German manufacturer of small connector parts, is planning to use part of the cash it received from selling a division to buy back a significant percentage (>30%) of its outstanding shares via a tender offer at a premium of up to 20% compared to the current share price.
Although there are some moving parts and the overall case turned out to be more complicated than I thought initially, this represents a potential uncorrelated special situation for 3-4 months with an expected (probability) return of around 13% based on my assumptions.
Norma Group Background/Introduction
Norma Group has clearly seen better days. IPOed in 2011 as a previously PE held company (3I), the stock price did well until 2019 before then losing -80% when the stock price reached a low of below 10 EUR per share in early 2025:
Interestingly, according to TIKR, Operating margins had been on a downtrend since the IPO date and EPS peaked in 2017, but until 2019 no one bothered too much:
Norma was active in what they called “joining technology”, mainly connectors and other small parts out of metal and plastics for industrial applications, the car industry and “water applications”. Here a sample picture:
Norma said that they already paid back most of their debt and will keep 70 mn for investments into the remaining business and use the rest to buy back shares.
However, that only partially resolved the Excess Cash problem which leads us to this
The special situation: A 30% (plus) buy-back tender at a (up to) 30% premium
Three weeks ago, Norma announced a 208 mn EUR share repurchase tender at a premium of “10% to 30%” to a certain reference price.
Under German corporate law, in this case the AGM has to approve this decision before the board can formally issue a tender offer. The AGM will take place on July 1st in Frankfurt.
The long stop date for both, the acquisition and the cancellation of the shares is February 27th 2027
The buy back premium will be between 10% and 30% (the management board has signaled that they are going for 30%) compared to a certain “reference price”
The total amount that will be spent is 208 mn EUR in any case
Shareholders will receive a dividend of 0,14 EUR after the AGM in any case
That reference price is defined as follows
Initially I thought that this was referring to the date of the initial board resolution,which would have translated into a reference price of 15,62 EUR, but after an in-depth discussion with Gemini, I think it is the 90 day period prior to actually publishing the offer.
At the time of writing, the current 90 day average of Xetra closes is 16,09 EUR and increasing as long as the share price is at the current 17 EUR as we can see in this chart:
That the upper cap of the buy-back price is 20,87 EUR which is a “fair value” estimate by the Management
This is how this has been derived:
The Management Board has therefore, in preparation for the Capital Reduction proposed to the Annual General Meeting, commissioned a valuation of the Company in accordance with the IDW S1 standard as at 31 March 2026. This valuation resulted in an average value of EUR 20.87 per NORMA Group Share as at that date.
Looking back: How did the first tender offer in March work out ?
In March, Norma made a buyback tender for 16,59 EUR per share for up to 10% of the total share capital.
This was released on February 26th 2026. The closing price the day before was 14,92 EUR per share, so ~10% premium. The offer period ran from Feb 27th to March 27th.
Interestingly, 18,1 mn shares or around 57% of all shares were tendered, which is a lot for such a small tender with a relatively small premium. As only 10% of the shares were available, only 17,6% of the tendered shares were bought back. We will look at this later once again.
Interestingly, as we can see in the chart, the share price reached a high of 17,10 EUR on the day after the end of the tender period. One week later, on April 7th, the share price reached a low of 13,78 EUR, around -20% vs. the tender offer price:
Maybe that had to do with the release of the 2025 numbers on March 31st and the news that the CEO would step down.
The current Tender: What we don’t know
As I have outlined above, we know certain things about the tender already, but not everything. The main variables that we don’t know are as follows:
What will be the ultimate premium & share price at which the tender will take place ?
Although they state that the buyback will happen at a range of between 10-30% above the reference price, certain wordings indicate that they will go towards the high end. The most telling sign is the wording in the supplement to the AGM invitation
“The price clause described in section 2.2 enables the Management Board to offer shareholders a repurchase price closer to the intrinsic value of the share.”
For me, this is a very strong indication, supported by their largest shareholder, which will join the Supervisory board, that they will aim for the upper end of the range or close to their “fair value”.
Just to show the numbers:
With 16,09 as reference price, the low end of the range would be 17,70 EUR per share, whereas at the high end would be 20,87 (capped by the “Fair value”).
What will be the acceptance rate of the tender ?
If we assume the 20,87 as the ultimate tender price, this would translate into 208 mn/20,87 EUR = 9,97 mn shares which represents 31% of all shares or ~35% of all shares ex current treasury shares.
So if all shareholders tender fully, the minimum acceptance rate for every shareholder should be 35% (around 2x the acceptance rate from the first offer)
Another assumption is that Teleios, the 17,15% shareholder, will not want to lower their stake when they simultaneously join the board. So if we assume that they tender only 35% of their shares, we can assume that another 17,15-(0,35*17,15%)=11,2% of shares will not be tendered for sure.
This translates into a “worst case” acceptance rate of around 40% for the scenario with the maximum purchase price.
On the other hand, it is also very likely in such cases that not everyone tenders. I will solve this issue by creating several scenarios and weighting them with my subjective probabilities. More on this later.
At what price will one be able to sell the shares that are not accepted in the tender
This is clearly a tricky one, but it is also necessary to assume that one in order to be able to calculate an expected return for this special situation.
My assumption here is that one should at least get the current reference price of 16,09 EUR per share. I will share some thoughts on the potential value of the “stub” at the end of this post.
Actual timing of the offer
To be honest, I am not 100% sure how fast they can execute after the AGM approval. There might be some regulatory requirements (entry into the company registry) or maybe some of the usual suspects will try to blackmail the company with legal challenges.
But my assumption would be that the tender offer period starts in August and will be concluded in September. So from today, the time required for this to fully play out will be 3,5 to 4 months.
AI excursion: Analyzing the potential tender rate and resulting Acceptance rate
One main element that one needs to estimate is the percentage of shares that will actually be tendered. I have mentioned in the beginning, that in the first tender, 57% had been tendered with only 10% available, resulting in a relatively small acceptance percentage of 17,6%.
Based on empirical evidence, a higher premium increases the tender rate, but a bigger tender size relative to the outstanding shares increases the acceptance rate.
I asked Gemini to analyze tenders from the past years and estimate a regression. Interestingly, tender ratios are often quite low and acceptance rates much higher than one would normally think.
This is what Gemini estimated for a 30% Tender with a 30% Premium vs. a 10% Tender with a 10% premium both, in the US and Europe:
According to their regression, a 90% Acceptance/Allotment should be expected and only 30% of shareholders would tender. Now this sounds to good to be true and the first tender of Norma earlier seems to have been already a clear outlier.
So looking at historical data clearly helps but in any case one has to make one’s own assumptions for this case.
Overall; I do like to use AI models as a sparring partner especially in these Special Situations. Although one needs to get used to its “cocky” behaviour, I do think the discussions and additional analysis improve the process and hopefully, in the long run over many transactions, the outcome.
Return estimation based on a 30% premium to the reference price:
So now we have everything to estimate an overall expected return, of course based on all the assumptions I described above.
Here is my return estimate based on the 30% premium (capped at 20,87 EUR) and on a current share price of 17 EUR (including the dividend and 16,09 selling price for not tendered shares):
So 13,3% “expected return” over 3,5-4 months is not too bad given the current 2,25% short term interest rate in EUR.
Of course this is based on my assumptions that I have laid out above and different assumptions lead to different results.
Many of the uncertainties will go away over time such as:
The AGM will take place on July 1st. After the AGM we will know if someone wants to play games with the tender offer or not and how a realistic time table will look like
Once, the legal requirements are met, the management will formalize the offer and we will then know the actual premium
Finally, after the end of the tender period, we will know the final acceptance rate and then also the share price for the shares that can not be tendered
What happens at the low end, a 10% premium ?
This would of course be less attractive but one needs to consider the following: Norma intends to spend the full 208 mn, so the assumption here would be that they buy back more shares and the acceptance ratio will go up. The minimum acceptance would be 47%.
Also, there would be more value for the stub, but I will stick with the 16,09 EUR as selling price for the non-tendered shares. The probability of the acceptance rates also needs to be adjusted upwards.
Based on these assumptions. my return expectation looks as follows:
So at the low end which is basically almost the worst case, I would have a return of ~2% based on a current share price of 17 EUR. Only in the worst case, when basically everyone tenders, there would be a small loss.
So based on my assumptions, the situation looks like a pretty cheap “option” on a potentially higher acceptance ratio.
Some thoughts on the “Stub”:
If we assume that the tender gets through and that the shares will go back to 16 EUR per share, we will have a company that has around 18,7 mn Shares outstanding at a market cap of 18,7*16= 300 mn EUR if they pay the 30% premium
They plan to have a net cash position of 70-90 mn EUR by the end of 2026 according to their Q1 presentation, so EV would be between 210 and 230 mn EUR.
For 2026, Norma expects 820-830 mn EUR in sales and a 2-4% “adjusted EBIT margin” which would translate into ~16-35 mn in “adjusted EBIT”. At the midpoint, this translates to 25 mn adjusted EBIT or an EV/Adjusted EBIT multiple of 8,4-9,2x.
In the case of a 10% premium and a 16 EUR share price, the market cap would be ~270 mn EUR and EV/EBIT between 7,2-8,0 x EV/EBIT.
Not “dirt cheap” but not expensive either. In the second half of 2026, they plan to present a “2028 strategy”.
I think despite the relatively unexciting business, the valuation of the stub is cheap enough that I think that from a fundamental side, the downside risk is limited to a certain extent after the execution of the tender. Of course, if there is an overall market crash, no one cares about fundamentals anyway.
One important point here: For the time being, I am not planning to bet on a turn-around.
For me this is a Special Situation investment and I will exit once the tender is settled.
Technicalities:
This is an interesting detail from the invitation to the AGM
To the extent technically possible with reasonable effort, tender rights trading (Andienungsrechtehandel) is to be established.
The shareholders’ declarations of acceptance are taken into account according to shareholdings by tendering the tender rights attributable to the shareholding as well as any additional tender rights acquired from other shareholders.
So this means that there might be a mechanism that similar to a capital increase with subscription rights, in this case the tender rights might be split of from the shares and traded separately.
I haven’t seen this before and if this is implemented, it could create a special situation in itself, if those rights might trade higher or lower than the intrinsic value. So from that perspective there might be an additional “option” to improve the outcome
Timing option
As we have seen in the example of the fist tender, during the official tender period, the shares had already approached the tender price. Depending on how this is structured, I will definitely make sense to tender rather late in order to keep the option of selling the shares at a decent price before the execution of the tender.
If we have separate tender rights, then the opportunity will be mostly in analyzing the tender rights as mentioned above.
Summary:
At the current price of 17 EUR, I do think that the upcoming tender offer of Norma Group offers a decent return to park some cash for 3-4 months at an expected (probability weighted) return of 13% (not annualized).
Even at the low end, under my assumptions one would be able to make a 2% profit and the very worse case would result in a small loss (less than 1%).
For a special situation, I think there is also a lot of additional optionality baked into this whole process which in my opinion outweighs the uncertainties.
There are still a couple of moving parts and the tender is rather complex, so my overall allocation to this is rather small at 3% of the portfolio.
I will watch this very closely and I might increase the position if the price goes down or if new positive information comes in and the price stays low.
What I do like is that the risks are very specific and not much correlated to the overall market, which makes it attractive for the “opportunity” part of the portfolio.
I guess that also the complexity of the offer creates an opportunity here.
DISCLAIMER: This is not investment advice. The author might own, buy or sell shares without advance notice. The assumptions might be flawed or outright wrong. PLEASE DO YOUR OWN RESEARCH !!!!
This is a 12,5% increase (ex dividend) from the initial offer. Less than I expected but it seems the board off DCC is already happy with this:
Having carefully evaluated the Revised Proposal together with its advisers, the Board of DCC considers that the financial terms of the Revised Proposal are at a level which the Board of DCC would be minded to recommend to DCC shareholders should a firm intention to make an offer pursuant to Rule 2.7 of the Irish Takeover Rules be announced by the Consortium on the same financial terms, and subject to the satisfactory agreement of the full terms and conditions of any offer and satisfactory agreement and execution of definitive transaction documentation.
Just to be clear here as a reader asked why the price did not directly jump to the offer price.: KKR hasn’t made a formal offer yet. This is so to say the “pre-discussion”.
Looking at DCC’s long term share price, the offer price equates roughly the share price DCC had 10 years ago:
Looking at the historical P/E, we can also see that 2026 was the period in time when people thought that DCC is a 24x NTM P/E business:
As DCC’s board seems to have already accepted the bid, the only further upside would be now a counterbid from another PE fund or a strategic buyer.
I am not sure how probable that is, but maybe not 0% either.
Such rumours are actually not rare in these situations. Sometimes they are launched by hedge funds who might not want to wait until the offer is executed but get out close to the offer price long before that. In other cases, the rumour actually becomes true.
Wise Plc – What is the potential impact of the AML issue
I think what is important to know is that the subsidiary in Belgium is not a tiny little subsidiary but basically handling all Euro transactions for WISE. I guess this has regulatory reasons.Unfortunately, Wise doesn’t report what percentage of its volumes have one leg in EUR, but it is clearly a very significant currency.
The size of a potential fine
The question that I had and tried to solve with AI is the following: Suppose Wise is “guilty”, what would be the fine they would have to pay and what or the other consequences ?
In reality, without making this to sound harmless, these kind of AML issues are not that rare, so there are precedents.
Here is what Gemini is saying:
the maximum charge from a criminal perspective (if guilty) in Belgium is “only” 1,6 mn EUR
the maximum penalty from an administrative side could be up to 10% of sales or in Wise’s case around 190 mn EUR
In practice, the fines often seem to be a level of 1% of the volume. So overall, Gemini estimates the fine to be in the range 5-10 mn EUR. Which would be not so much.
Indirect costs: More compliance
The more critical part could be cost increases through additionally required Compliance functions. Gemini estimated that total compliance costs (which the estimate at 260 mn GBP at Wise) could increase by 30%, which would be around 80 mn GBP/100 mn EUR per year, which would be quite significant.
I think that is maybe an over-estimation, as so far, this only concerns the European operations. but still, 10-30 mn EUR per year could be realistic.
A further risk is that more compliance also maybe means less customer satisfaction and slower growth.
If we take May 29th as a reference, where the share price was at 9,35 GBP, as of the time of writing, the share price is down ~1,15 GBP or -12%. In monetary terms, Wise lost more than 1 bn GBP in market cap.
Payment in general has a difficult time in 2026
Another aspect is that payments in general are not doing that well in 2026. I have collected a small peer group here where Wise is still one of the better performers:
So where does that leave us with Wise:
For me, it is currently too early to say if and how this could impact Wise in the future. The share price drop clearly prices some pain and AML is always a risk for money transfer businesses, but I am not 100% sure if now is the time to increase the position. So I personally will wait for the next 2 or 3 quarters to see if growth keeps up and maybe add then.
If the share price falls significantly from here, I would rather sell and watch.
Last week I mentioned in the comments on the blog and on Twix that I got some “bad vibes” and decided to liquidate my Rocket Internet position even before the planned SpaceX IPO next week.
There were overall 3 things that kind of spooked me and let me to take the profit (+30%) instead of waiting the one more week. Here are the 3 items:
I mentioned initially, although it was not part of my investment thesis, that there might be a chance of a special dividend. Now it has become clear that there will be no special dividend. However, it also became clear that Rocket Internet intends to limit information flow to shareholders even more in the future which is clearly not positive
SpaceX: Another news item that spooked me was that SpaceX is aggressively pitching via German brokers for German retail investors. German investors had never access to US IPOs before. Some might find this positive, I find that rather “surprising” and potentially a hint that demand is not high enough for Elon’s appetite.
Another surprising event was the “surprise Capital increase” from Alphabet/Google. Interestingly, this represented the largest capital increase of all time at 85 bn USD but there was only very limited coverage about it in the financial news and mostly about Berkshire’s participation. But more on this later
Overall, I decided that the “easy money” was now made with Rocket internet and I was able to sell at around 25,80 EUR per share, netting a profit of 30% within 5 months, which is clearly one of my better “Special situations” investments.
I am not 100% sure that the share price increase was driven by SpaceX, maybe the rapid increase in the value of the Kalshi stake helped as well. I am not sure if there are a lot of other “plays” to benefit from KalshI’s incredible growth.
One could argue that I left some upside on the table here but the success of this investment is almost 100% depending for some time on someone else paying me more for the shares that I paid for, which is something I don’t feel too comfortable for a special situation investment.
Overall, I was clearly lucky with the timing on this one.
2. More SpaceX thoughts: Hyperliquid Perps and Damodaran
As mentioned above, we now know that Elon loves Germany so much that at the time of writing, German retail investors can now access this IPO via 8 or 10 different retail brokers.
According to some sources, in order to compare apples to apples, one would need to discount the price by 10% to make it comparable to the actual SpaceX shares. That means on this “grey market”, a synthetic SpaceX share only trades at ~153 USD, above the 135 USD “sticker price” but inside the 135-162 USD bookbuilding range.
Although no one knows for sure if this has any relevance, it is at least a reference point and it seems to be traded quite liquid.
Another interesting source is the attempt of a valuation by Prof. Damodaran. What I like about Damodaran is that he at leasts tries to put values on these kind of situations and is very transparent with his assumptions. I know most tech bros laugh about these attempts but I think avery serious investor should read what Damodaran writes because there is always a lot to learn.
In a nutshell, Damodaran values SpaceX at about 100 USD per share. The ain changes to his initial, pre prospectus valuation is that he increased the margins for the Space and Starlink business, but significantly decreased the expected margins for the AI business.
“My biggest shift is in my estimated target margin is for the AI business, where the dynamics that are pushing gross margins down, i.e., increased competition and high costs of delivering AI services, will persist; my estimated operating margin drops from 45% to 25%. “
Damodaran is also smart enough to mention that in the first days after the IPO, valuation clearly doesn’t matter at all. But within the first 12 months or so, even for SpaceX, reality will need to be met somehow.
For me however the main take away is the significantly reduced margins for the AI business which leads me to the:
Surprising 85 bn USD Capital increase of Alphabet
Being a Corporate Finance/Treasury guy by training, the news that Alphabet is raising 85 bn USD via a capital increase really surprised me.
According to the FT, this is the largest capital increase in the history of capital markets, the second largest was Petrobras in 2010 at around 70bn.
The financial press focused mainly on the 10 bn stake that Berkshire Hathaway took as part of the package. To be honest, this is a very small amount of money for Berkshire’s current size. It is also hard to really judge how good of an investor Greg Abel actually is.
The interesting thing about this capital increase is that so far, at least in the ~40 years that I follow stock markets, capital increases in size only occurred in the following situations:
Primary share portion in an IPO
Emergency capital raising in a crisis ( e.g. Banks in the GFC)
Major M&A transaction where the acquiring company pays with new shares (Paramount)
In Google’s case, clearly none of the three situations applies. According to TIKR, Alphabet still has net cash despite ~100 bn in bonds outstanding. So in theory they could issue a lot more debt.
I heard the argument that Equity is “cheaper” than debt as the interest rate on a debt offering would be 5% whereas the “earnings yield” at the current 30x P/E is “only” 3,3%. However this does not reflect the tax shield from interest and especially not the fact that Alphabet’s earnings will most likely increase for the foreseeable future and that very soon that “earnings yield” for the issued shares will be much higher than the current 3,3%.
This is the main “justification” of Alphabet for the capital raise besides a 30 bn additional tax bill:
If you read this carefully, it is clear that they could still fund the 2026 Capex more or less with operating cashflow, but already in 2027, they plan to spend much more than that.
The really interesting thing is clearly: What are their plans beyond 2027 ? My best guess is that they plan with even larger investments that are not offset by operating cash flow.
But even so, why not wait until 2027 or so when they have a clearer point of view ? And I think here comes something into play which in my old Corporate Finance days was the golden rule of financing: “Raise when you can, not when you must”.
I think the Alphabet guys might have seen SpaceX’s announcement, they know that OpenAI filed for an IPO and that Anthropic will come to the capital markets as well.
As large as the listed capital markets are, there is only so much appetite for capital increases. Maybe they even fear a significant market correction which would require them to issue a much larger number of shares for the same amount of money.
Funnily enough, there were rumours that even Meta seems to think about raising large amounts of capital to fund their AI Capex programs.
One other factor that might also play a role here is that both, Private Credit and Private Equity which have been offering significant amounts of capital so far fight with redemptions themselves and are potentially overallocated to data centres already.
To me it is pretty unclear where all this is going. However one thing now is clearer to me:
The capital required to scale up this technology is larger than even the latest and best funded players like Google expected.
In my opinion, this means that it is very unlikely that we see 5 companies scaling this in parallel on their own (Alphabet, Meta, OpenAi, Anthropic & SpaceX). 1,2 or even 3 of those players might fold at some point in time or would need to collaborate really closely with someone like Microsoft or Apple to stay in the race. Or get help from the Orange guy in some sort.
Scrutinizing Data Centre Infrastructure orderbooks
For ordinary investors this might also mean to better scrutinize order books of companies that are supposed to profit from a further AI build out and trade at high multiples themselves.
At the moment, it is enough if a company releases “AI data centre” contracts to justify sky high multiples. I guess going forward, maybe even sooner than later, one really needs to understand from which counterparts those contracts are. Because not all of them might be actually turn out to be valuable.
In any case, as someone who loves capital markets, this is a great time to be alive and witness what is going on at the moment.
value and opportunity 