When I looked at Novo Nordisk 3 months ago, I found the stock too expensive at 315 DKK/share. That was my summary back then:
What could make the stock interesting again ?
Well, that’s simple: Either a lower stock price or higher growth. Maybe management has low-balled growth ? Who knows. Maybe the market over reacts if the next quarters don’t look that good ? According to Bloomberg, analysts officially still expect double-digit earnings per share growth well into 2019. Even adjusting for share buy backs, this will be difficult to achieve based on the growth rates communicated by management.
For me, the stock would become more interesting at around 250 DKK under the current growth assumptions. I think I would also like to see more negative comments from analysts.
With the stock now trading at ~229 DKK, it is clearly necessary to revisit the stock again.
Due to the well-known Brexit troubles in the UK, my contrarian instincts seem to motivate me to look more at UK companies these days. One of the UK companies on my watchlist was Staffline Plc, a recruitment and “human resources outsourcing company”.
The company got on my radar screen because friends mentioned that it looks like an interesting company and that the have a “great CEO”.
Those are the usual multiples:
Market Cap 232 mn GBP
P/E 2015: 15,6
P/E 2016: 7,4
The company grew sales almost 10-fold over the last 10-12 years. Interestingly however GAAP EPS in 2015 was at the level of 2006.
Currently there are a lot of articles in the financial press about the perceived “fight” between active and passive asset management styles.
The passive guys make the point that on average, after fees, active funds have to underperform against the index and low-cost index funds, which is difficult to counter. On top of that, “alpha” created by large active funds is not very persistent.
From the active side, there is the argument that if there is too much money invested in index funds, market efficiency will suffer and stocks will go up and down together because not enough people are analyzing single stocks. If stocks go up and down together without reflecting fundamentals, at some point in time “good stocks” should be too cheap and bad stocks to expensive. Which then should be some easy money for any good stock picker.
Is the market already inefficient ?
This argument reasonable at first but is there any evidence that the market is less efficient ? Let’s look for instance at the DAX 30, the major German index. It is hard to come up with good numbers but I do think that maybe between 10-15 % of the DAX is somehow invested via index funds with a clear trend towards more index ownership.
So let’s look how the DAX constituents have performed so far this year (as of Nov. 2nd). The Dax itself ytd is down -2,8% This is the YTD performance of the constituents:
Amsterdam Commodities (Acomo) is a Dutch based company which “trades and distributes agricultural products”.
The company went on my “to-do list” some time ago because at first glance it looked like a company which managed to grow nicely over many years by maintaining very health returns on capital.
This resulted in very healthy shareholder returns over the last years as we can see in the chart:
Including dividends, ACOMO Shareholders made 27,2% p.a. over the last 10 years and (10-bagger), 25,2% p.a. over 15 years (29 bagger) and 22,5% p.a. (60-bagger) over 20 years. So a real success story. Interestingly, despite these mind-boggling returns, only 2 analysts cover the stock according to Bloomberg.
Readers of my blog know that I do like “outsider” like financial companies and that I do like UK banking (Handelsbanken Lloyds).
Therefore it was highly interesting to read about Metro Bank, a recently listed “UK Challenger bank” in a letter of an investor I greatly respect. I had a look at “online only” UK challenger Bank Aldermore but didn’t like it too much, but as Metro Bank runs a “Branch strategy”, I decided to look into them.
Following my Old Mutual “sum of parts” valuation I saw the following Ira Sohn presentation of Exor Spa, the Agnelli family holding (FiatChysler, CNH etc.) as a potential “Sum of part” value investment.
To summarize the presentation in my own words:
- Exor Spa is basically a “Berkshire like” company at a “Graham” valuation
- Exor is managed by a “great capital allocator” and trades at a discount as people see it as an Italian company
- After the acquisition of Reinsurance Partner Re Exor should trade at similar valuations as Berkshire or Markel
- Big upside potential as FiatChrysler, Ferrari (and CNH) are severely undervalued (“Coiled springs”)
The study sees a potential upside of several times the current share price. They forecast a 150 EUR NAV per share (vs. ~50 EUR now and 30 EUR share prices), driven by a quadrupling in value of the FCA and the CNH stakes.