Category Archives: Quick Check

Short cuts: Kabel Deutschland, Rhoen Klinikum, Greek GDP linker, Royal Imtech

Kabel Deutschland

Man, this looks like I got it really wrong. According to some press articles, now Liberty wants to buy Kabel as well for 85 EUR a share. So there seems to be a bidding war before even the first official bid has been announced.

The interesting point of this “red-hot” news is that Liberty has already once tried to buy the former Telekom Cable network in 2002 but this was not approved by the German Kartellamt.

How realistic is this ? I am not sure. Just in February, the German Kartellamt blocked the takeover of the smaller rival Telecolumbus by Kabel Deutschland itself because even the combination of KAbel Deutschland and the smaller rival was a problem for them.

So what is going on here ? I have no idea, but to a certain extent it looks like one of the best “stock promotions” ever. What kind of M&A process is this when everything “leaks” to the market ?

For some market participants, this doesn’t matter anyway. My “favourite bad research provider” Makor (yes, those guys who use the wrong formula to calculate fair prices after right issues) has the following recommendation viea Bloomberg:

We recommend initiating positions in Kabel shares, as we consider the shares trading about fair value in the context of a possible offer. However, given the strategic interests for the potential buyers (Vodafone, Liberty Media), a premium is probably justified and notwithstanding regulatory issues, a price above Eur 90/sh could easily be justified.

Wow, sometimes the stock market is so simple.

Rhoen Klinikum

Unfortunately, the “Rhoen surprise” did not last very long. Some more details were emerging . It looks like that the boss of the supervisory board (and the guy who wants to sell to Fresenius) decided, that the 5% votes of one of the blocking shareholders were not valid. The result will most likely be a court battle over up to 18 months. So lets wait and see what happens.

Greek GDP linkers

The most recent jump in the GDP linker seems to come from a “research piece” of Deutsche bank which several readers forwarded to me (thank you guys !!!).

Let’s look how the look at the nominal hurdle:

Based on the latest IMF forecasts, the 2011 level of GDP is expected to be re-attained in 2017. By fixing this point, we can then solve for the nominal growth rate required in order to exceed the nominal GDP threshold in a given year. We find that in order to exceed the threshold in 2022 (for warrant payment in 2023) would require a YoY nominal growth rate of 5.0%. A growth rate of 3.6% would be required to meet the threshold in 2024. If recovery to the 2011 level is achieved a year earlier than expected (in 2016) then the required growth rate for the first payment to be in 2023 falls to 4.2%, or rises to 6.3% assuming a year delay. These sensitivities are illustrated in the chart to the right.
Although it is far from certain, it seems reasonable to assume 2023 to be the year when payments commence on the warrants.

Ok, so the basic assumption is that the new IMF forecast from 2012 is now correct, after the initial forecast was completely wrong. Hmm, one might call this “positive thinking” if one wants to be nice.

Their final conclusion (after some “nonsense funky doodle” modeling) is as follows:

The combination of more stable macro-economic assumptions, and reduced default probability now mean that we find the current valuation of the warrants as being broadly justified (relative to the GGBs). Considering our constructive view, the additional beta of the warrants and also the additional ‘yield’, we now find the GDP warrants to be more attractive than the GGBs themselves as a means to take exposure to an eventual Greek recovery. We caveat that such a recovery remains uncertain and will likely be lengthy; implying that any anticipated outperformance of the warrants should be seen as a medium to long-term expectation.

So this conforms my view, that the GDP linker is more like a short-term “beta” play than an intrinsic value” investment as the Deutsche Bank “analysts” only take the IMF projection as fundamental basis and do not add anything new here.

Royal Imtech

Royal Imtech has released a quite bad Q1 report. It looks more and more that larger parts of the company are in real trouble and that the fraud might have been just the “top of the iceberg”. Time to take them of the “rights issue watch list”. As I am not a “fraud-turn around” investor, this seems to be the not the situations I am looking for.

Quick check: Cairo Communication (ISIN IT0004329733) – 12% dividend “wonder” or liquidation ?

A reader pointed out that Italian company Cairo Communciations might be an interesting investment.

Company description per Bloomberg:

Cairo Communication S.p.A. carries out its activities in the communication field as an advertising broker for a variety of media, such as commercial television, analog and digital pay television, press, and the Internet. The Company also publishes magazines and books and operates an Internet portal through its own search engine, Il Trovatore.

Cairo looks relatively cheap on an earnings basis (2011):

P/E 8.5
P/S 0.7
P/B 3.13

The company doesn’t have any debt but significant net cash (0.70 EUR per share against a share price of 2.56 EUR).

ROCE and ROE are both above 30%, so is this a value investor’s wet dream ?

Cairo is listed since 2000, so let’s look at some figures from the past:

BV Sh EPS DPS NI Margin Sales pS ROIC
29.12.2000 1.62 0.09 0 5.6% 1.5348 3.03%
31.12.2001 1.70 0.08 0 4.8% 1.7509 2.84%
31.12.2002 1.73 0.07 0.04 4.7% 1.5929 1.93%
31.12.2003 1.72 0.07 0.24 3.8% 1.7299 2.74%
31.12.2004 1.65 0.09 0.16 3.6% 2.3745 3.54%
30.12.2005 1.58 0.08 0.16 3.5% 2.3161 3.81%
29.12.2006 1.19 0.15 0.30 0.0% 2.7983 7.74%
31.12.2007 1.11 0.15 0.25 5.4% 2.9956 11.34%
31.12.2008 0.91 0.17 0.40 5.6% 2.9527 14.22%
31.12.2009 0.86 0.16 0.20 5.3% 2.9259 15.12%
31.12.2010 0.90 0.27 0.20 8.3% 3.2273 27.67%
30.12.2011 0.82 0.30 0.40 8.3% 3.6192 31.81%
Total   1.67 2.35    

The numbers look really interesting. On the one side, it looks like a liquidation, with dividends being constantly higher than earnings. On the other hand, Cairo managed to more than double their sales with almost half of the equity and at the same time increase their margins to a healthy 8%.

Together, this of course leads to a dramaticv increase in ROE and ROIC.

Interestingly the stock price hovers only slightly above the post internet bubble prices:


I think this really looks interesting and worth a deeper look into the drivers of the sales increase and profitability development. If this would be “sustainable” then Cairo might indeed be an attractive opportunity.

Quick check: Fabasoft AG (AT0000785407) – Cheap EV/EBITDA 2.4 stock or value trap ?

From time to time, readers ask my about my opinion on certain stocks. First of all this is of course flattering, secondly it is also a good motivation to look at as many stocks as possible.

However, I am not an expert on all stocks in the universe, but nevertheless I want to share some of my thoughts from time to time on the blog.


Fabasoft is a small Austrian software company which is active in Document management solutions, mostly for Government and Defence companies. Fabasoft was IPOed in the middle of the “Neuer Markt” boom in 1999.

According to Pat Dorsey, Software companies can be interesting “moat” business, also the business scales pretty well, meaning increasing sales incrrease profits over-proportionally.

For Fabasoft, this doesn’t really hold true. Although they managed a turn-around in 2011/2012 according to their annual report, they seem to swing from profit to loss like a pendulum from year to year. The loss in 2010/2011 was preceded by a profit in 2009/2010 and again a loss in 2008/2009. the same again for the preceeding 2 periods. Loss, profit, loss, profit.

Since 2000 this looks like this:

29.12.2000 -0.37 3.24 -21.35%
31.12.2001 -0.20 3.09 -12.11%
31.12.2002 -0.12 2.91 -6.14%
31.12.2003 0.41 3.31 12.90%
31.12.2004 0.53 3.80 13.21%
30.12.2005 0.34 3.92 7.57%
29.12.2006 -0.07 3.68 -1.98%
31.12.2007 0.09 3.80 2.36%
31.12.2008 -0.29 3.27 -7.35%
31.12.2009 0.45 3.45 10.02%
31.12.2010 -0.05 2.76 -2.03%
30.12.2011 0.15 2.91 3.35%

The stock chart shows that since 2005/2006 the stock is trading sideways:

Sales have remained more or less constant since at least 2006. What makes the stock attractive under EV metrics is the relatively large cash pile.

As of 31.03.2012, the company showed around 14 mn EUR in cash which, based on 5 mn shares, a shareprice of 3.75 EUR and roughly 2 mn EUR EBITDA results in an implied EV/EBITDA of around 2.4, which looks very cheap.

However, this is one of the cases where a simple EV/EBITDA calculation might be a bit misleading. On the liability side for instance, they show prepayments of around 7 mn EUR. One could discuss this now for some time if we have to deduct prepayments from EV, but the major point for me is the followng:

Fabasoft is not a Net-Net, the market cap is still higher (19 mn EUR) than net short term assets (13 mn EUR) as well as net equity (14 mn) and the business is not consistently profitable. We do not know what they do with the cash. They paid some dividends and bought back some shares in the past, but nothing regular.

So even if they pay out all the cash, one is still left with a business which over the cycle does not earn its cost of capital. At least for me that doesn’t sound very attractive. I would prefer companies like Installux, who have a profitable business AND low EV/EBITDAs, there are plenty of them out there.

Summary: Despite an optical low EV/EBITDA, I don’t think Fabasoft is a very attractive investment. Mainly because they couldn’t prove that their business is actally profitable ovewr a longer period of time. If one is sure about a lasting turn around, than it might be a good investment, but as I don’t really know the business, this would be too risky for me. Based on past performance, this could well be a typical value trap.

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