Merry Christmas – Frohe Weihnachten – Feliz navidad !!
My 22 investments for 2013
Many bloggers and other market pundits are currently touting their 2013 picks.
Mcturra for instance names 5 of them, Nate at Oddball selected his 13 stocks for 2013, red has pulished 3 full portfolios for 2013 (UK portfolio, Euro portfolio, US portfolio).
So in order to contribute something here, I will show my 22 favourite investments for 2012, which by total coincidence, are similar to my blog portfolio. As an added value for the readers (and for me), I try to add 2 or 3 sentences for each investment in order to summarize the investment case.
1. Hornbach Baumarkt
Solid long-term compounder. 2012 was weaker than 2011 but Hornbach has a solid long-term strategy and is increasing market share steadily. Potential upside catalyst if main competitor Praktiker will not manage turn around.
2. AS Creation
German market leader for wallpaper. Hit by anticompetitive issues, but recovered quite nicely. Upside catalyst: Start of Russian JV in 2013. Russian JV partner has bought already 10% of AS Creation.
3. Buzzi Unichem pref
Italian based cement company, however with large international operations. Comparably low leverage, long-term strategy. Company announced a few weeks ago to squeeze out minority shareholders of German subsidiary Dyckerhoff. In my opinion a sign for increased financial flexibility and long-term thinking.
4. WMF AG pref
KKR bought majority from previous PE owner Capvis. Underlying business, esp. Coffee makers still going strong. Interesting to see if KKR will try to take WMF off the stock market or spin-off the coffee maker division. No reason to sell, downside well protected.
5. Tonnelerie Francois Freres
French “hidden champion” for oak wine barrels. Acquired major competitor Radoux in 2012, issued very good results just a few days ago. Very long term oriented company.
6. Vetropack
Swiss based producer of glass bottles, however production locally in central and eastern Europe, so no FX issues. Ultra solid company, lately no big growth because of stagnating eastern European markets. Looks like owner family will try to increase stake directly and indirectly via share repurchases. ultimately, they might want to take company private.
7. Total Produce
Ireland based fruit and produce wholesale company. Good stock price momentum at the moment. Business relatively independent from overall economy. However, a large number of smaller acquisitions in the last months, so one must scrutinze closely if this pays off.
8. SIAS Spa
Italian toll road operator. Despite overall weakness in Italy, holding up very well as tariff increases almost fully compensated traffic decreases. Has a lot of excess cash because of sale of LatAm operations. Large special dividend expected.
9. Installux SA
Unspectacular french company specialised on aluminium related products. No special story here, but ultra cheap and safe as well very profitable.
10. Poujoulat
Similar to Installux, cheap and profitable French company. 2012 might not look so good from P&L as French building activity is very low, but company invested a lot into wood pellet production. If this works out, earnings could increase significantly.
11. Dart Group
UK based operator of ground transportation and budget airline. Spectacular growth in packaged holidays. Still cheap despite share price having doubled in 2012
12. Cranswick
Very unspectacular UK based pork specialist. Very consistent, in my opinion with a certain kind of moat. Current share price does not reflect quality of business and balance sheet.
13. April SA
French based Insurance broker and specialist insurance company. Still owner managed, generates incredible high free cashflow without real capital requirements.
14. Bouygues SA
Sum-of-part undervaluation story. Bad headline news for mobile subsidiary overshadows ultra solid road and construction business. Company is very shareholder friendly for a French company.
15. KAS bank
Specialist Dutch depository bank. Currently valued at single p/E at bottom of the cycle margins. Very good mean reversion potential over 3-5 years.
16. Gronlandsbanken
Major bank in Greenland with very good margins. Will benefit greatly if any of the energy projects in Greenland will be realised. Management bought shares until recently.
17. Draegerwerk Genuesse
Special situation /capital structure arbitrage. Theoretically, the “Genuesse” should be worth 10 times the pref shares (theoretical price ~700 EUR against current price of 300 EUR). Management has already tried to buy back the Genuesse but got only back a part of them.
18. IVG convertible
Convertible bond with a 2014 put option for the bond holders. Although IVG is still struggling with some legacy real estate, very good risk/return relationship based on the short time to put exercise date.
19. Depfa LT2 bond
Special situation bond with good risk/return potential despite issuing company Having been bailed out by the Government.
20. HT1 Funding
Special situation Commerzbank deeply subordinated bond with coupon guarantee. Has profited from repeated equity raisings as more and more equity is now below the bond. At current prices stilla very solid “hold”.
21. EMAK
Italian special situation. Manufacturer of garden tools etc. Currently hit by Italian recession but with increasing international exposure. Significant reversion to mean potential.
22. Rhoen klinikum
Special situation investment, following the unsuccessful take over attempt from Fresenius. Only available “target” in the German hospital sector. I expect further take over attempts going forward. Standalone solid company, relatively low downside risks.
Weekly links
With a little delay, some hoepfully interesting links:
MUST READ: Damodaran with a three part series on acquisitions: Acquisition accounting part I and part II and success factors for acquisitions.
Good paper about investing under uncertainty
Interesting interview with Jean-Marie Eveillard with comments about accounting across time and countries (good comments about British accounting and securities…).
Stableman with an interesting quote from Seth Klarmann about complex securities as investment opportunities
Wilbur Ross warms up to Spanish Banks…
Chovanec on the crackdown of the SEC against Chinese auditors
Viel et Cie (ISIN FR FR0000050049) – “sum-of-parts” or long/short opportunity ?
Viel et Compagnie SAis one of the many French companies with a good Boss score. According to Bloomberg they are active in the following areas:
Viel et Compagnie is a broker of financial products for the French interbank market. The Company deals in money market instruments, and offers clients a range of derivatives.
Traditional valuation metrics look OK but not extremely exciting:
Market Cap: 194 mn EUR
P/B: 0.62
Div. Yield 6.0%
Trailing P/E 12
However looking into the companies’ annual report, one can easily see that the Bloomberg description in this case is actually not very good.
The company describes itself the following way:
VIEL & Cie comprises three core businesses in the financial sector: Compagnie Financière Tradition SA, an interdealer broker with a presence in 27 countries, Bourse Direct, a major player in the online trading sector in France, and a 40% equity accounted stake in SwissLife Banque, present in the private banking sector in France.
Now it gets interesting, Compagnie Financiere Tradition SA itself is a Swiss listed company (ISIN CH0014345117) with a market cap of currently 320 mn CHF or 267 mn EUR. Viel & Cie owns 63.54% of the company, so that should be worth 170 mn EUR.
So again, we have here a holding company, which seems to become one of my specialties…
According to the annual report (pages 85 and following), the holding company had 70 mn in cash and 25 mn liquid securities and 150 mn in debt, leaving net debt of ~65 mn EUR.
The holding company owns on top of the participations:
– 29 mn EUR “other” securities
– 89 mn receivables
If we assume a “haircut” of 50% on those assets, we are left with around 55 mn EUR “extra assets” at holding level which I would net out against the debt.
So a first sum of parts analysis would get us.
Market cap: 194 mn EUR
+ net debt 65 mn EUR
– own shares (9.4%) 20 mn EUR
= EV 239 mn EUR
Assets:
63.5% of Cie Fin. Tradition : 167 mn EUR
+ other holding assets at 50%: 55 mn EUR
= 225 mn EUR
So we have 27 mn EUR left which should cover
a) 100% in the French online broker “Bourse en ligne”
b) 40% in Swiss Life Banque Privee
According to Viel’s annual report, the online broker earned 3.5 mn EUR in 2011, so with a 10 P/E, this company would be worth 35 mn EUR
The 40% Stake in the French Swiss Life Banque Privee seems to be the result of a 2007 transaction with Swiss Life.
However, this 40% stake only generates “at Equity” profits of 2 mn EUR, even optimistically I would not attach more than 25 mn EUR valuation for this minority stake.
So bringing it together, the Sum of Parts looks as follows:
a) Cie Fin tradition 167 mn
b) holding assets 55 mn
c) Online broking 35 mn
d) 40% Banque 25 mn
Sum 282 mn EUR
Against an “EV” of 239 mn EUR, so only a slight 16% “discount”. So not really something to follow up and let’s move on with some other stock ?
Not so fast: It is quite interesting to look at the relative performance of Viel &Cie against its main participation over the past 2 years:
For some reason which I don’t understand, the two stocks completely “decoupled” in January 2011. Since then, Viel & Cie remained constant and Compagnie Financiere tradition lost ~54%. Or put it another way: In January 2011, Viel was trading at a very large discount (50% or more) to sum of parts whereas now it trades almost without any discount.
I found this very strange. Most of the value of Viel comes from its stake in the Swiss company and for some reason, Viel shareholders do not care that the major stake looses 55% ?
I don’t know if one could short Viel, but a “long CFT / short VIL” trade might be a very interesting market neutral opportunity.
Another potential idea out of this is Compagnie Financier Tradition. This could be a very interesting situation in its own.
Edit: I had originally written this post 2 weeks ago, since then Viel already lost 10% relative to Compagnie Tradition
2 years of valueandopportunity.com – Thank you very much !!!
Exactly 2 years ago, Valuematze and I got our first post online, the German version of our investment philosophy.
Since then a lot of things happened, among others, Valuematze went “professional” after a few months. I then started to write mostly english language posts from November 2011.
So after 680 posts and 2000 comments it is a good time to have a quick look back as well as forward
Some numbers:
– 680 posts or ~ 0.8 per day
– 2000 comments
– in the first month, December 2010, the blog had 309 views in total for the month
– since then, the blog had around 260 k visits, currently around 500-800 views per day
– on a typical day, ~30-50% of the readers are still German readers, followed by US, UK, France and Switzerland
The Top 10 posts over the last 2 years are:
1. WFG Anleihen-interessant oder lieber finger weg
2. “Risk free” rates and discount rates for DCF models
3. Kurzanalyse Prokon Genußrechte
4. Exotic securities-detachable GDP linked Greek warrant – valuation-approach
5. Piquadro SpA – Competitors, market analysis and strategies
6. (Hard Core) Opportunity Investments: WestLB 2011er Genußscheine
7. Exotic securities: “Detachable GDP linked Greek warant” (ISIN GRR000000010)
8. Operating Leases – Bewertung und anstehende Änderungen (IFRS 17)
9. Praktiker Anleiheprospekt – “Poison Pill” gegen potentielle Übernehmer
10. Quick check: Vivendi SA – Seth Klarman “Cigar butt”
Interestingly, only one of my successful investment ideas (WestLB) made it into the top 10. People seem to be more interested in popular “grey market” investments (WGF, Prokon), high profile cases (Praktiker, Greek GDPs, Vivendi/Klarman) and general issues (risk free rates, leasing).
As I am not a financial journalist, I will still focus on (long) investment ideas. Looking at bad investments (and frauds) is also some kind of hobby of mine, but usually one gets a lot of negative comments and from time to time even “not so nice” emails from lawyers. Nevertheless, I think this is some kind of “community service” to the investment community I will try to provide in the future.
Why I blog
For me, the main purpose of this blog is to have a kind of journal which helps structuring my thinking and provide some immediate feedback.
It is a very different thing to just have a half baked idea and trade compared to writing it down, publishing it and defending it against critical comments. Also with books for instance, I found it extremely helpful after reading them, to summarize the content in a “book review” post.
So one of the big benefits of writing this blog is that I approach my investments much more structured way than I did before and trade less than ever. On the other hand, the blog motivates me to continuously search for new ideas.
The icing on the cake however are the many valuable comments I got from the readers.This kind of immediate feedback is really really helpful and very motivating.
Portfolio performance
I personally see the portfolio performance more like a side-effect, especially over such a relatively short time period like 2 years. Since running th blog, I was very very lucky. Basically almost every “opportunity” idea really had a catalyst event, most notably Draegerwerke and AIRe. Also, the “window of opportunity” of interesting situations with good risk/return relationships which opened up following the financial crisis is closing pretty quickly.
Of course, a good performance also motivates me to write in the blog, but I am pretty sure that I would still enjoy blogging with a benchmark (or worse) performance.
Portfolio composition /turnover
As most of you have already found out, this blog is not about market timing or quick trading tips. After 2 years, ~50% of the portfolio are still the original constituents.
Two of the original constituents (AIRE and Depfa) were taken over or matured. So Portfolio turnover was something like 20-30% p.a. which corresponds nicely with my target investment horizon of around 3-5 years.
Targets for the future
For the next year, I have set myself the target to review hopefully 1 new stock/bond per week. I know that’s quite ambitious but on the other hand, looking at companies for me is the most effective way of improving my investment skills. Reading books etc. is nice, but nothing beats the experience of researching a stock and make an investment decision.
Further, I try to further develop my Boss Score database. I am currently at ~2500 stocks covered and I have some ideas to improve the model. So far Ia m extremely happy how it works.
I will also try to interact more with other financial bloggers. I think this one of the great aspects of blogging against just scribbling down one’s notes on a piece of paper. The exchange about HoldCos with Geoff Gannon for instance was quite funny and yielded some interesting thoughts on this topic.
So finally, many thanks again to all readers and especially to those who have commented and/or sent me Emails or even contributed write ups for the blog. Blogging is much more fun with feedback and I think I have learned quite a lot of things over the last 2 years.
By the way, I am always open for contributions to the blog. Let me know if you have something that I should put on the log.
Holding companies – Solvac SA (ISIN BE0003545531)
This is a quick follow-up on the Porsche SE post and the Holding company post.
Solvac SA (Had tip to reader G.) is the Belgian Holding company for 30% of the shares of Solvay SA, the Belgium based Chemical company. Majority shareholders of Solvac are the heirs of the founding Solvay family.
The holding company shares some interesting similarities with Porsche, for instance they hold also a 30% stake and account for the stake at equity.
Read more
Boss Score – Top 25 Spain, Portugal & Ireland
Next in my series about the “Boss Score model” results are Spain, Portugal and Ireland. I decided to leave out Italy for the moment as Italy is worth a separate table.
Weekly links
Via Stableman: Soros lecture on bubbles
50 minutes interview with Howard Marks. Maybe the best counter cyclical investors of our time.
Variant Perceptions on the difficulty of retail turnaround
Via Alea: A very good description of the Target2 system
Damodaran nails it why companies make bad M&A deals
Red corner has published an UK portfolio with 7 stocks which, according to the comment, should outperfom the UK index by 20% next year. Bold claim, let’s watch this……
Very good analysis of Delticom from Stephan at SimpleValue. No buy yet…For Delticom, it is also worthwile reading the wallstreet online thread, especially Joschka Schroeder’s comments.
Depfa Funding PLC II, II, IV – Liability management or blackmailing ?
Disclosure: author might own one or several securities mentioned, The discussed securities are illiquid and very risky.
Last year, I introduced Depfa Plc, the subsidiary of the Bank formerly called Hypo Real Estate already and started a position in LT2 bonds.
Some thoughts on discounts for Holding structures (Porsche SE, Pargesa, Autostrade Torino)
In my post about Porsche SE, I concluded the following:
However on a relative basis I don’t think that there is a lot of upside in the Porsche shares, as I don’t see a quick “real” catalyst and a certain structural discount (20-30%) is justified due to holding structure and non-voting status of the traded shares.
Geoff Gannon used this summary to come up with his view on holding company discounts:
I do know something about holding companies that trade at a discount to their parts. And I don’t agree with that part of the post. If the underlying assets are compounding nicely – you shouldn’t assume a holding company discount is correct just because the market applies one to the stock.
So he is basically saying one should ignore the holding structure and look at the underlying only.
Interestingly, we had such a discussion on the blog about the same topic in the Bouygues post. Reader Martin commented that “one usually applies a 20-30% holding/conglomerate discount” which I didn’t apply in my sum-of-parts valuation.
So far this seems to be quite inconsistent from my side, isn’t it ?
I have to confess that especially for Porsche, I did not mention all my thoughts about why I applied a discount there. However maybe I can shed some light on how I look at “holding structures” and when and how to discount them.
For myself, I distinguish between 3 forms of holding companies:
A) Value adding HoldCos
B) Value neutral HoldCos
C) Value destroying HoldCos
A) Value adding HoldCos
This is in my opinion the rarest breed of HoldCos. Clearly, Berkshire Hathaway is an example or Leucadia. Those HoldCo’s add value through superior capital allocation capabilities of their management. In those cases I would not apply any discount on the underlying assets, however I would be hesitant to pay extra.
B) Value neutral HoldCos
Those are holding structures which exist for some reason, but most importantly are transparent and do nothing stupid or evil to hurt the shareholder. Ideally, they are passing returns from underlying assets to shareholders.
A typical example of such a company would be Pargesa, the Swiss HoldCo of Belgian Billionaire Albert Frère. They are quite transparent and even report their economic NAV on a weekly basisandpass most of the dividends received to the shareholders. Nevertheless, the share trades at significant discount to NAV as their own chart shows:
At the moment, we see a 30% discount for Pargessa. So one should ask oneself, why such a discount exists for such a transparent “fair” holding co ? I can think of maybe 3 reasons:
– The stock is less liquid than the underlying shares
– people do not really trust Albert Frere despite being treated Ok so far
– no one wants to invest into this specific basket of stocks
Nevertheless, one has to notice that even for such a transparent company like Pargesa, a 30% discount does not seem to be the exception.
C) Value destroying HoldCos
Here I have the privilege to have documented such a case in quite some detail, Autostrada Torina, the Italian Holding company for toll road operator SIAS SpA.
As I liked the underlying business, I thought buying at a discount, following Geoff Gannon thoughts that a nice compounding business at a discount is an ever nicer business.
However, I had then to find out the hard way that the discount of the holding company was clearly a risk premium. In this case, the controlling Gavio family “abused” the holding to buy an interest in another company (Imprgilo far above the market price. They couldn’t do this in the operating subsidiary, as the sub was subject to regulation. The Holding co stock recovered to a certain extent but in this case the underlying OpCo was clearly the better and safer investment
My lesson in this was the following: Stay away as far as possible from such “value destroying” HoldCos. They are totally unpredictable and doe not have any margin of safety.
So going back to our Porsche example, what kind of Holding company is Porsche ?
Well, it is definitely not a “value adding” holding. The question now would be if it is a “neutral” or potentially even “value destroying” hold co ?
In my opinion there are already some warning signs:
– Porsche SE already communicated that they will not distribute the cash, but build up an additional portfolio of “strategic participations”
– Porsche only issues detailed reports twice a year, accounting is rather “opaque”
– in my opinion, Volkswagen has a lot of incentives to achieve a weak Porsche SE share price in order to then acquire their own shares at a discount (and swap them into VW pref shares if possible) at a later stage. Common shareholders (Porsche & Piech family might get a better deal. Under German law it is possible to treat pref holders differently
Compared to Pargesa for example, I would definitely prefer Pargesa with a 30% discount to a Porsche pref share at 35% discount.
So to summarize the whole post:
– With holding companies, it is very important to determine the intention and risks of the holding structure
– neglecting or even “evil” holding management can quickly turn a “discount” into a real loss
– better err on the safe side in such situations
– in doubt, assume there is a reason for the discount if you cannot prove the opposite
– however for skilled activist investors, those situations might create potential. So maybe Chris Hohn has a different game plan.But don’t forget that a lot of famous Hedgefund managers (incl. David Einhorn lost a lot of money with Porsche/Volkswagen already in the past.
value and opportunity 