Following an annual tradition once a year I’ll try to review my current portfolio by writing short summaries/update for each individual position. This year, only 11 of the 20 companies from last year are still in the portfolio and I have 16 new positions which is a (Covid-19 driven) record in turnover. 6 of the 27 shares are part of a “basket trade” on a recovery in tourism.
The summaries of the previous years can be found here:
My 20 investments for 2020
My 22(+1) Investments for 2019
My 21 investments for 2018
My 27 investments for 2017
My 27 investments for 2016
My 28 investments for 2015
My 24 investments for 2014
My 22 investments for 2013
1. TFF Group (7,2%)
Disclaimer: This is not investment advice !!! PLEASE DO YOUR OWN RESEARCH.
At first a big “health warning”: My track record with Spin-offs is awful although I dedicated significant efforts into this area. Over the last years, I missed out on several good ones (Uniper, Trisura, Osram) and I unfortunately invested in a few bad ones (Cars.com, Metro). My best spin-off investment so far was Italgas.
Siemens Spin-off history
Siemens itself is an interesting case, as under (soon to be former) CEO Joe Kaeser, and even before, they are one of the few German companies that use spin-offs more or less frequently. Over the years, Siemens has spun off for instance Quimonda (bankrupt), Infineon (has recovered quite well), Osram (taken over by AMS) and Siemens-Gamesa (very volatile but strong performance lately). Overall I would say that on average the Siemens Spin-offs did very well despite being mostly “ugly ducks” at the time of spinning off. Siemens Healthineers in comparison was not an ugly duck (despite the stupid name) and that’s why they actually IPOed it.
Siemens Energy AG Spin-off
This is the latest spin-off from Siemens, spun-off on September 28th with a first price of around 22 EUR, a lot lower than initially expected. As we can see in the chart, the shares dropped at first but now recovered to the initial level in line with Siemens AG and the DAX:
Disclaimer: This is not investment advice. DO YOUR OWN RESEARCH !!!
Readers of my blog might remember that I already owned Fitbit in late 2018 at 5 USD per share. I was lucky to sell the stock with a small profit before the stock lost more than half of its value in summer 2019:
This is what I wrote initially as part of the investment case:
My long term readers know that I did a lot of research on travel stocks in the past, however with little result other than a only slightly profitable investment into Expedia.
With the current situation, I decided to have a quick look at the travel sector again.
Up until now, the tourism industry has been seen as a secular growth industry, mainly due to 2 mega trends: Emerging market middle class tourists and older, more wealthy first world tourists were driving tourist numbers and subsectors such as cruises or AirBnB rooms. Just last year, “overtourism” became a major trend in social media, I guess this problem will not be a big issue in 2020.
Innogy Tendered Shares
A quick update on this “cheap option play”: To a small extent this has developed better than I intitially thought as I had mentioned in the comments. My initial expectation would have been a small loss. However, E.On now has increaesd the price for the tendered Innogy shares voluntarily to 37.59 EUR which, inclding the dividend of 1,40 will lead to a small profit (before taxes and cost) . However the ultimate upside, if there is a lawsuit, will be smaller as the E.On shares dropped to 9 EUR and the theoretical value of the tendered shares is now 4.371*9= 39,34 EUR.
A few weeks ago, PE big weight KKR had announced to make a voluntary tender offer for German publisher Axel Springer at EUR 63 per share.
It is an interesting case as the offer is targeting only a minority stake. The threshold for the offer is set at only 20%.
The background seems to be that the biggest shareholder, Friede Springer and the CEO Döpfner, who own together ~45% want to make sure that they control the company together with KKR as they have entered into a shareholder agreement.
Looking at the stock price we can see that the offer has been made at a significant premium (~40%) but still below 2018 prices:
There seem to have been other attempts to make sure that Friede and Döpfner control the company but they didn’t succeed.
This will be a very short one:
Bain Capital and Carlyle want to take over Osram at 35 EUR per share. The offer is friendly as Managment and Supervisory board have agreed to the takeover.
The offer runs until beginning of September and minimum acceptance level is 70%.
There is no detailed offer document out now yet.
Nevertheless I established a 2,5% position at ~33.1 EUR, providing a 5,7% potential return.
Major risk is in my opinion politics (loss of jobs), chances to the upside could come form activists pushing for a higher price. In the meantime there could be clearly hick-ups (not reaching the 70% because of activist involvement) but Bain and Carlyle are pros.
The buyers are top tier PEs who execute this kind of offers well and have the money.
For those investors who remember: I looked at the Osram spin-off 6 years ago, but then failed to buy the stock because my limit was a few cents too low. So I know the company relatively well. This doesn’t of course guarantee any success ……
After reading “Merger Masters” I decided to practice my new found knowledge a little bit and apply it to Metro. My long time readers know that I bought Metro as a spin-off and exited with a pretty painful loss.
The Czech billionaire Daniel Kretinsky, who became Metro shareholder a year ago, made a voluntary offer of 16 EUR per Metro common share and 13,80 EUR per pref share. Little is known how Kretinsky actually became a bilionaire, as he is now only 45 years old. Maybe it helped that he married the daughter of another Czech billionaire, Petr Keller. Some call him a Czech “oligarch”. Up until now, he mostly invested in the energy space, most notably buying coal assets in Germany.
Metro Management has already rejected the offer as too low, so the deal is clearly a “hostile” one.
From the Merger Masters book, I use the initial checklist to quickly assess the opportunity:
- What is the srpead ? What is the annualized return ?
–> 0%, stock price trades at offer price at the time of writingm the pref share even above the offer price
- What are the regulatory issues/hurdles
–> Most likely no big hurdles. Acquirer is not active in this industryy
- What are the conditions of the agreement
–> unlcear. Unspecified “Minimum acceptance” level
- What is the strategic rational of the deal
–> unclear. Buyer has no experience in retail. Most likely “opportunistic” and/or real estate driven
- What is the downside if the deal breaks ?
–> – 10 to -15% (my estimate)
So based on this first assesment, the situation doesn’t look very interesting. For a hostile deal one should expect some sort of premium which doesn’t exist. The major issue is clearly that there is little information about the acquirer and his motives.
On the other side, the market seems to expect clearly a higher bid, otherwise the current price makes no sense. However I cannot think of any other bidder for Metro but maybe I am wrong.
So my assesment here is clear: At this price the risk/return profile for Metro is not worth it and I’ll pass.
P.S.: Does any reader know how the current legal situation is for German Prefs ? WIll an acquirer need to pay the same price as for the common shares
The guys from Paladin AM have outlined the Innogy case very nicely on their blog (in German): Intro & Update
I’ll try to summarize it in my own words:
Innogy, the renewable energy spin-off of RWE is in the process of being taken over by competitor E.ON. E.ON in 2018 had announced to purchase the 77% stake of RWE and has offered on a voluntary basis 36.74 EUR per share which, plus the upcoming dividend adds up to a total consideration of 38,14 EUR per share before tax. The closing of the transaction is subject to a relatively complex regulatory approval process which is already facing some delays. Most experts however think that the transaction will be ultimately approved.
Having this blog is nice because I can look back at what my original ssumptions were. I bought Van Lanschot in 2013, almost 5 1/2 years ago.
This was how I “valued” Van Lanschot back then:
A simple, “Berkowitz style” valuation would be: Book value
With ~0.51 times book value, Van Lanschot is one of the cheapest banks in Europe. Even Greek Banks like Piraeus Bank trade higher. The current valuation is on a level with „quality banks“ like Unicredit, Espirito Santo and Credito Bergamesco.
Interestingly, the P/B multiple for listed Private banks is a lot higher. Swiss competitors Julius Baer, EFG and Banq Privee de Rothschild for instance trade on multiples between 1.1-2.0 times book, a clear premium to „normal“ banks.
So with a “normal” result, one could argue for a valuation somewhere at 1.5 x book value. Clearly, this will be a long way, one should not expect exploding profits in the next quarters. But in a time period of 3-5 years, I could imagine that the stock can triple if the turn-around is succesful. Also, when people finally realize that not every Dutch homeowner will go broke, there might be a re-rating of Dutch financial stocks in general. But this might also take time.
It would be easy to come up with a much more complicated valuation method, but I like to keep it simple. If there are no big holes in the balance sheet and costs are kept under control, equity is at a safe level, then book value should be achievable for any bank.