“Verdeckter” Insiderkauf bei AS Creation ?
Beim Portfoliowert AS Creation gab es letzte Woche eine ganz interessante Meldung:
Category Archives: Value Stocks
Quick news: Einhell, Praktiker, Frosta
Einhell & Praktiker
Einhell, which I fortunatley sold a couple of weeks ago has issued a sales warning after which the stock tanked significantly:
April SA (FR0004037125) – Interesting based on “sum of parts” valuation ?
April SA is a french specialty insurance and insurance brokerage company.
Currently, the company looks kind cheap, however not super cheap compared to other Insurance companies. Traditional ratios are:
P/E 7.4
P/B 1.1 (P/B tangible 2.4)
P/S 0.64
Div. Yield 3.9%
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AIRE KGaA, Microsoft and Frosta AG
A few short updates:
Microsoft:
As announced, I sold the shares at USD 25.51 or EUR 19.02. IIncluding the quarterly dividend received, the total gain was around 4%. Almost all of the gain is a result of the USD appreciation, as I bought the shares at USD 25.88 and an exchange rate of 1,41 USD/EUR.
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Autostrada Q3, EMAK and Microsoft
Autostrada
Already some days ago, Autostrada has published their Q3 report and a corresponding Invetsor presentation.
In short, despite a small decrease in overall traffic, profits YTD increased in line with tarrif increases at around 9%, however with a lower increase YOY in Q3. In the quarterly report is mentioned, that the expected IPO of the South american participation seems to be delayed. The call it “examining all options”.
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Total Produce – Capespan show down
Blogger Wexboy has a very interesting post about the Capespan bid war.
In a nutshell, it looks like that the two South African investors Zeder and Bidvest are fighting for control over Capespan, where Total Produce now holds a stake of 20% (Value ~ 15 mn EUR).
Based on a link I have posted in the comments at valuetock inquisition it looks like that Total Produce is actually the “overseas partner” of Zeder investment.
Just a couple of hours ago, Capespan reported that something is happening soon:
Capespan Group Ltd., South Africa’s biggest fruit exporter, said its investors are in undisclosed talks that may cause its share price to move.
“There are ongoing talks among shareholders,” Angelo Peterson, Capespan’s spokesman, said by phone from Cape Town today, declining to provide more details.
So it looks like the final show down will happen now any time.
Personally, I hope that Total Produce will not go for full control of the entity, as this would be quite dilutive for the shareholders. My best case scenario would be that Total Produce sells out with a nice profit and keep its cooperation agreement.
Vetropack – Business model, Peer Group
After yesterday’s starting post for Vetropack, I would like to add some additional thoughts.
Business model & possible moat:
Vetrpopack basiscally produces glass bottles for beer, juice and softdrink companies. With all those beverages, usually both, the brewing and botteling part is done locally. Beverages esp. in glass containers are ussually difficult and expensive to ship, so especially the big breweries and soft drink companies produce everything locally.
The same applies for the glass containers themnselves , which are relatively cheap but expensive and difficult to transport. So somehow similar to a cement plant, someone with a local glass bottle production has a local natural cost advantage (“moat”) to competitors from geographically remote regions. The major difference to cement plants being the lower cyclicality of the business.
Peer Companies
I found the following companies which could be considered “peers” i.e. companies manufacturing glass packaging:
Vidrala SpA (Spain, glass bottles, very similar to Vetropack)
Gerresheimer (Germany, glass and plasticv bottles, more focused on pharmaceutical containers)
Zignago Vetro SpA (Italy, glass bottles)
Based on “simple” valuation ratios, the results look interesting:
| Tkr & Exch | Mkt Cap | P/E | P/B | P/S | EV/EBITDA T12M | Net D/E LF |
|---|---|---|---|---|---|---|
| VET SW | 650.8 | 10.40 | 1.23 | 0.80 | 4.46 | 0.00 |
| VID SM | 418.1 | 10.49 | 1.84 | 1.08 | 6.33 | 76.20 |
| GXI GR | 913.4 | 17.59 | 1.81 | 0.86 | 6.38 | 69.45 |
| ZV IM | 373.6 | 11.03 | 3.51 | 1.41 | 6.40 | 69.86 |
Although the P/Es are quite similar, all the other peers carry a significant amount of debt. This results in a singificantly lower EV/EBITDA multiple for Vetropack compared to its much more highly levered peers, which interestingly all trade around 6.4x EV/EBITDA.
EV/EBITDA is often used as a “proxy” for a private company valueation (Gabelli). Under this metric, Vertropack would be significantly undervalued compared to its Peers.
For me its not clear why the most solid company of the peer group should have the lowest relative valueation, in my opnion this should actually imply a premium.
Portfolio Management
As mentioned in the first post, Vetropack has currently a weight of 2.9%. As the cash balance in the portfolio is currently at the low end of the target (10%), I will either need to decrease another position or fund the increase through a short position.
My initial idea to create a pair trade between Vetropack and Gerresheimer (short) does not work to well. Correlations between the peer companies are extremely low (Vetropack against Gerresheimer for instance 0,24 for the last 12 months).
So before increasing the Vetropack position I will have to reduce other positions first.
Vetropack (CH0006227612) – Rock Solid Swiss compounder
Vetropack is one of the “Core Value” shares of my portfolio which I haven’t covered in detail yet.
Vetropack describes itself on its homepage as follows:
Vetropack is one of Europe’s leading manufacturers of packaging glass. With a rich variety of glass packaging products to offer the beverages and food industry, as well as a broad spectrum of services, Vetropack truly delivers “tailor-made glass”.
and:
This end-to-end service is the fundamental reason for Vetropack’s position as market leader in its six home markets, namely Switzerland, Austria, the Czech Republic, Slovakia, Croatia and Ukraine.
Based on “traditional” metrics, the stock looks OK but not “super cheap”:
P/B 1.25
P/E 2010 17.6
P/E 12M Trailing 10.4
P/E Graham (10 years): 13.5
EV/EBITDA 12M Trailing 5.1
Div. Yield 2%
FCF Yield (2010) 9%
No debt (95 CHF net Cash per share)
no intangibles
A quick view on historical earnings shows quite an impressive picture:
| EPS | BV/share | FCF Share | |
|---|---|---|---|
| 1999 | 10.96 | 497.29 | 25.21 |
| 2000 | 36.58 | 510.66 | 92.28 |
| 2001 | 27.22 | 534.51 | 30.76 |
| 2002 | 59.78 | 578.15 | -29.87 |
| 2003 | 91.03 | 681.03 | 120.04 |
| 2004 | 97.74 | 768.46 | 19.42 |
| 2005 | 119.10 | 909.37 | 85.48 |
| 2006 | 101.20 | 933.70 | -22.48 |
| 2007 | 236.30 | 1,180.99 | 138.17 |
| 2008 | 182.55 | 1,243.69 | 105.58 |
| 2009 | 184.84 | 1,371.71 | 207.95 |
| 2010 | 91.24 | 1,283.77 | 155.84 |
We can clearly see the incredible rise in Earnings and Book value since 1999 until 2007, however in the last few years the picture has changed to a certain extent.
Looking at the Earnings developement in Swiss franks only shows part of the picture. Only 17% of Vetropacks sales are generated in Switzerland by the Swiss operations, 83% is outside Switzerland. Important: Vetropack does not export anything from Switzerland.
So if we look at peak Earnings in 2007 and compare them to the 2010 earnings, we should take into account that the 87% of Euro denominated Earnings have been reduced by a significant reduction in the value of the EUR against the CHF. Even more interesting is the effect on Free Cashflows:
| FCF CHF | FCF EUR | FX Rate CHF/EUR | |
|---|---|---|---|
| 2007 | 138.17 | 83.56 | 1.65 |
| 2008 | 105.58 | 70.69 | 1.49 |
| 2009 | 207.95 | 140.16 | 1.48 |
| 2010 | 155.84 | 124.51 | 1.25 |
| CAGR | 3.2% | 12.3% |
Over the last 4 years, Cashflos in CHF have increased by 3%, the underlying EUR Cashflows by 12%, quite a difference. The currency movement also explains the lower book value in 2010 against 2009 despite the profit made.
So how can we value Vetropack ? If we look at the last 5 year free cashflows, we can see that the 2006 number looks quite odd, being negative. A quick glance into the 2006 annual report shows, that actually operating cashflow was strong but the company invested some extra amount in acquisitions and starting productions in contries like Slovakia.
So if we just take the average Free Cash flow of the last 4 years (which would be 150 CHF per share) and capitalise them at 10% we would end up with an intrinsic value of 1.500 or roughly 5% less than the current market price of 1.600 ChF.
Now we enter a difficult area for a contrarian investor: lower discount rates and growth.
If we just look at the following table where I simply discount the avg. Free Cash flow with various growth and discount rates (Discount rate X axis, growth : y axis)
| 7% | 8% | 9% | 10% | |
|---|---|---|---|---|
| 1% | 2,516.67 | 2,157.14 | 1,887.50 | 1,677.78 |
| 2% | 3,020.00 | 2,516.67 | 2,157.14 | 1,887.50 |
| 3% | 3,775.00 | 3,020.00 | 2,516.67 | 2,157.14 |
| 4% | 5,033.33 | 3,775.00 | 3,020.00 | 2,516.67 |
| 5% | 7,550.00 | 5,033.33 | 3,775.00 | 3,020.00 |
We can clearly see that for a margin of safety of 50% I would need to assume for instance a discount rate of 8% and a growth rate of 3%.
If history is any guide, Vetropack should be easily able to grow by 3%, having achieved much much mor in the past. Additionally, a 8% discount rate for a non-cyclical consumer product related company with net cash and an extreme conservative balance sheet should be reasonable.
Finally a quick check of the stock chart:
In 2008 the stock went down to almost 1.100 CHF, slightly below book value. Currentbook Value is around 1.300 CHF, so in a 2008 scenario we look at a 20% downside from here.
Summary: Vetropack is a stock with extremely strong historical growth, strong free cash flow generation and a rock solid balance sheet. Based on relatively conservative assumptions (3% growth, 8% Cost of capital), the current price would imply amargin of safety of almost 50%. If the stock should show some weekness in the next few days, I would actually be tempted to increase the allocation from the current 2.8% to 5% on acurrency hedged basis.
UPM Kymmene part 3: Qualitative aspects, Value Trap check and conclusion
So after the quick check, the Replacement Value analysis and the calculation of the EPV we have the following result:
Replacement Value ~ 14 EUR
EPV between 9.2 and 13.5 EUR depending on the assumption for future Capex.
Reader Weljo grouv however made a very good comment: The lower Capex seems to be an industry wide developement, so actually projecting the currently low capex expenditures into the future might be aggressive.
If we then just try to explain, why a conservative EPV is so much lower (maybe ~10 EUR) than the replacement value, the simple answer could be that I falsely took all the machinery at book value instead of applying a discount.
At this point in time it makes also sense to check for characteristics of a value trap. I posted already the great presentation from Jim Chanos and like to use now as a exercise.
I will start with the first mentioned characteristic:
Cyclical and/or Single Product
• Cycles sometimes become secular (Steel, Autos)
• Fad does not equal sustainable value (Coleco,Salton, Renewable Energy)
• Illegal does not equal value (Online Poker)
The first point is really the key: Will demand for paper (especially magazine paper where UPM is market leader) really recover ? Or will the Ipad take over. I am not an expert in this, but this is definitely a “red light”.
Hindsight Drives Perceived Value
• Technological obsolescence (Minicomputers,Eastman Kodak, Video Rental)
• Rapid prior growth – “Law of Large Numbers”(Telecom Build-Out)
This is also an interesting point. Although UPM is not a technology company, its major product magazine paper could be a victim of technolgy change. Let’s call this an “yellow light”.
Marquis Management and/or Famous Investor(s)
• New CEO as a savior – ignoring Buffett’s maxim(Conseco)
• The “Smart Guy Syndrome” (Take your pick!)
No problem here, “green light”.
Cheap on Management’s Metric
• EBITDA…Arrgh! (Cable TV, Blockbuster)
• Ignore restructuring charges at your own peril(Eastman Kodak)
• ‘Free’ cash flow…? (Tyco)
This could be a problem. Management stresses “free cashflow” based on current low Capex. We don’t know how sustainable that is. “yellow light”.
Accounting Issues
• Confusing disclosure (Bally Total Fitness)
• Nonsensical GAAP (Subprime lenders)
• Growth by acquisition (Tyco, Roll-ups)
• Fair value (Level 3 assets)
“Green Light” here I would say.
So all in all, that makes 2 green lights, two yellow one red.
So basically we can stop at this point. Especially based on the EPV analysis, UPM doesn’t really offer a “hard” Margin of Safety. It also shows several characteristics of potential value traps. The relativley high free cashflow could be at least partly more a liquidation than a going concern.
Despite some very positive characteristics like
– transparent use of free cash flow
– strong market position
– some upside due to consolidation (recent takeover of smaller competitor)
– vertical integration
– some “extra assets”
the risk of ending up with a value trap in a secular declining industry is not offset by the margin of safety.
As a result, I will still follow UPM and maybe look at other paper companies (SCA is maybe a better choice), but for the time being I will not buy any shares of UPM at the current price.
Portfolio transaction update – Einhell & AIRE KGaA
Einhell:
As anounced a couple of days ago, I have been reducing the Einhell position since then.
Due to the low volume of trading and my restriction not to simulate trades greater than 20% of daily volumes, I was only able to sell roughly 2/5 of the position at the VWAP of 34.03 EUR per share. Einhell is now doww to ~1% of the portfolio and will be reduced to 0% going forward.
AIRE KGaA
In parallel, as mentioned here, I continued to build up the AIRE KgAA Position into a “full” position , which means a 5% portfolio share.
Total trading volume since then (20.10.) has been 79.139 shares at a VWAP of 8.17 EUR per share. 20% of that volume results in a purchase of 15.827 shares at 8.17 EUR, increasing the weight of AIRE to 4,6% at a cost of 8,75 EUR per share.
After these transaction, the cash percentage dropped below 10% (9,9%), so going forward I will only increase the AIRE position to the extend Einhell shares can be sold at the same time.
value and opportunity 