Quick news: EMAK Spa, AS Creation, Autostrada & SIAS & Impregilo

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EMAK has published a new Investor presentation. Proforma 2011 P/E is around 7, P/B around 0.64. Still very cheap.

AS Creation:

The Russian JV partner has bought another 5% in AS Creation and holds now 10%. Despite the lackluster results of AS Creation in 2011, this is a very encouraging sign.

For me, this purchase should be counted as “insider transaction” as the Russian JV partner will be in the best position to judge the success potential of the Russian JV which is expected to start this year.

I am actually contemplating to fill up AS Creation to a full position (currently 3.7%) if the stock price weakens over the next few weeks.

Autostrada

Autostrada continues to implode. Interstingly the regulated subsidiary SIAS is doing relatively better:

In contrast, Impregilo continues to increase:

Impegrilo reported preliminary results this week with a 50% increase in earnings due to the sale of some South americen Assets. So there seems to be some real value in this company.

I am actually tmepted to get back into Autostrada at some point in time. They roughly lost 170 mn market value since the IGLI Deal, although the disdavantage dissapears with each increase in the Impegrilo share. I think when the capital increase is going to be announced, then it could be a good opportunity to get back in.

Magic Sixes Portuguese companies : Conduril (ISIN PTCDU0AE0003) – Too good to be true ???

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Although my last “Magic Sixes” (P/B < 0,6, P/E 6%) Investment, Autostrada was not a runaway success, I still use the screener from time to time to see what companies are “really” cheap.

It might not be a big surprise that some Portuguese companies are among those “cheapies” now. As of today, the following Portuguese Companies are “magic Sixes”:

P/B P/E Div Yield
Ramada Invest 0.380 2.68 10.45%
Orey Antunes 0.440 5.11 15.48%
Grupo Soares 0.400 3.30 7.48%

Ramada is a steel company, Orey a shipping company and Soares a construction company.

As discussed before I also run a “Magic Sixes light” screener with slightly relaxed rules (P/B < 0.7, P/E 5%).

Here we get an additional 5 companies:

P/B P/E Div Yield
Corticeria Amorim 0.67 6.78 7.09%
Sonae 0.66 0.66 7.39%
Sonaecom 0.67 0.43 5.71%
Conduril 0.66 1.50 6.82%
Espirito Santo 0.47 3.44 5.28%

One has to keep in mind that only around 65 Portuguese companies are actually listed, so 8 “dirt cheap” out of a total 65 is quite significant.

A relatively well known problem of most Portuguese companies is their relatively high debt load. With Portuguese banks in trouble (not to speak of the Government), it is intersting to look at debt levels. I usually look at nebt debt / market cap in combination with EV/EBITDA:

Net debt per share Share price Net debt/Marcet cap EV/EBITDA
Ramada Invest 3.03 0.67 452% 6.52
Orey Antunes 0.55 1.15 48% n.a.
Grupo Soares 4.87 0.29 1679%  
Corticeria Amorim 1.01 1.41 72% 4.35
Sonae 0.62 0.45 138% 4.33
Sonaecom 0.76 1.23 62% 3.38
Conduril -33.8 22 -154% 0.55
Espirito Santo 313 5.3 5906% n.a.

Ratios above 100% are very critical in my opinion, because then a capital increase to “save” the company needs to be above current market cap which is highly unlikely.

Based on this list, Conduril looks like a ” bad data” input.

A P/E of 1.5, EV/EBITDA of 0.55 and Net cash above current market cap must surely be a mistake or ?

However a quick look into Conduril’s 2010 annual report shows an amazingly profitable company.

In 2009 and 2010, the company earned net margins 13-14% and ROEs of 30-40%. .

So how comes ? The answer seems to be relatively easy: Conduril is very active in the “hot” African markets Angola, Mozambique and Botswana. I only have 2009 figurtes, but of the 250 mn EUR sales in 2009, 167 mn were in Angola and only 45 mn or less than 20% in Portugal.

Of course doing business in those countries will be quite risky, but nevertheless it is a very intersting case.

Trading seems to be relatively strange. As far as I can see, 1000 shares are traded most of the days at 22 EUR per share, the chart doesn’t really look like a stock chart:

However it is definitely a stock I want to research deeper.

It might also make sense to look at the other less indebted comapanies at some point in time. If one wants to bet on a Portuguese Non-default, those stocks might be more interesting than Portuguese Govies.

Praktiker update – Loss 2011 and result of first vote of “voluntary bond haircut”

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Praktiker, the troubled DIY chain has issued a preliminary earnings release yesterday evening.

They managed to book a total loss of 554.7 mn EUR, which translates into -9.56 EUR per share. So most of the 2010 book value of around 14 EUR has now dissapeared within a year.

Very strange (at least for me) was the following passsage:

– So führte die erstmalige Anwendung einer neuen Bewertungssystematik für Warenvorräte zu einer Wertberichtigung des Vorratsvermögens (69,8 Millionen Euro).

So inventory was written down by 70 mn EUR due to a new “method”. This is almost -10% of the 800 mn inventory they showed in Q3 2011. I would be really curious what kind of “method” they used before.

Voluntary Bond haircut

For some reason, I only found the results of the first bondholder praktiker 27.03.2012“>vote through the Luxemburg exchange and not through Praktikers homepage.

So within the process described in a previous post, less than the required 50% have voted in the first round.

However, in the second round only 25% of the bondholders have to vote. So let’s wait and see if those 25% are already “in the bag” and if in the second round more bondholders participate.

It would be really interesting to know, who voted in the first round but as a non-participant I don’t have access too this file on Praktiker’s homepage.

Banca Civica – Take over Spanish style

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A couple of months ago I looked at Spanish “Thrift conversions”, especially Banca Civica which was a potential take over candidate.

Now, the take over was finally announced by Barcelona based Caixabank, however with a significant discount to the prevailling market price:

The share valuation for Civica in the transaction is 27 percent lower than the 2.70 euro-per-share price of its initial public offering in July, in which it raised 600 million euros. CaixaBank has a market value of 12.1 billion euros

The offered 1.97 EUR is a 11% discount to the previous day closing price and equally an all time low for the Banca Civica stock since its IPO.

So this is something to keep in one’s mind: You can basically do takeovers/tender offers in Spain well below current market prices.

Weekly links

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Great post why market timing based on “expert advice” is a sucker’s game

Must read: Damodaran’s 2012 update on equity risk premiums

Interesting analysis of Warren Buffet’s stock picks after they are made public

Must see: Great (and very funny) speach of Jim Simmons, founder of one of the most succesful hedge funds ever, RenTec.

The strange story of the flash crash of BATS, a stock exchange operator, on its own stock exchange a few minutes after its IPO. Very very strange.

Draeger – Results of repurchase offer for Genußscheine & Warrant

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Genußscheine

Draeger released yesterday that they bought back 41.1% of the outstanding Genußschein. In one of my previous posts, I said the following:

I am still struggling how to interpret potential acceptance outcomes for the offer. If we have a very low acceptance for instance, we have two potential factors which could influence future Genußschein prices:

1. With a low acceptance ratio, everyone knows that Draeger needs to do more to buy the Genußschein back (positve)

2. In theory, they could try to make life difficult for the Genußscheine either by continuing low dividends for a longer time (negative) or try some other tricks like possible dilution etc. (negative)

With a high acceptance rate we have the following potential issues:

3. The Genußscheine will become illiquid, larger investors will no longer be interested (negative)

4. Draeger will not need to increase the offer (negative)

5. However, Draeger could afford to raise the dividend quite fast back to or above last years levels as it doesn’t hurt shareholders anymore (positive).

Now we are somewhere in between. The percentage is high enough so that Draeger does not need to do really nasty stuff, although the percentage is too low to see higher dividends on very short notice. Draeger will also be motivated to buy anything which comes on the market under 210 EUR, so going forward there is a nice “put” under the current market price.

For the patient investor, I think the Genußscheine will be still an intersting medium term investment. For the portfolio I will hold them unless I find something better, there is no need to sell.

Interestingly, in their latest Earnings release , Draeger actually showed “diluted” earnings for the first time. They call it “Earnings per share in the case of full distribution”…

Warrants

Early this week, a (at a first glance) very strange deal took place, where I had to look twice to really understand it. What happened is best explained in this IFR article:

Siemens had already seen the value in the convert market last month and looked to take advantage once again by attaching the warrants into pref shares, which were turned into a tradable warrant by Deutsche Bank, to a bond. Rather than take the normal approach of a Deutsche Bank SPV bond, some Bunds of a near tenor (2.5% February 2015s) were sourced and bundled – to create a German state exchangeable into Draegerwerk, without either party being involved.

The bonds of €79.6m principal trade at 106% of par and the March 2015 bonds were issued with a 2.5% coupon and packaged with the warrants for a total 134.631% of par to raise €107.17m. A placing in the illiquid prefs helped with the delta hedge for hedge funds that dominated the book of about 40 lines. As the warrants have an exercise price of €63.68, versus the €78.40 placing price, this was a true technical trade, but a few outrights were interested and were filled in full.

So basically Siemens did cash out the Warrants from Draeger which they got when they sold their JV stake to Draeger. They used this structure so that hedge funds could invest in this instrument and extract the option premium.

Updates: As Creation, Hornbach & Frosta

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A very busy day:

AS Creation

As Creation reported a significantly lower profit for 2011 plus a dividend reduction. The stock price remeined relatively flat, which in my opnion is driven by the “Russian option”. For the normal business it is clear that risiong costs are an issue and pricing power is limited.

Frosta

Frosta, which is sold a couple of weeks ago, reported also relatively weak numbers. Very similar to AS Creation, costs rose faster than prices.

Hornbach

Core Value stock Hornbach however showed very strong preliminary numbers today. Increasing same store sales, increasing market share and increasing profits. It is still a joke, why such a business tardes at book value and a single digit P/E.

Record Profit Margins – follow up German companies

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Following up on Tim’s comment, I had a quick look at German HDAX companies. Unfortunately, only a subset of 2011 figures are currrently available.

What I did was the following: For those companeis where 2011 net margins were available, I calculated the 10 year average net margin. I then subtracted this from the 2011 margins to see if 2011 was better or worse than the average.

name avg 10 Y margin 2011 NI margin Current vs. average
FUCHS PETROLUB AG -PFD 6.0% -0.3% -6.3%
PUMA SE 10.6% 7.6% -3.0%
BEIERSDORF AG 7.3% 4.4% -2.9%
MUENCHENER RUECKVER AG-REG 3.9% 1.2% -2.8%
SALZGITTER AG 4.7% 2.4% -2.3%
KRONES AG 3.2% 1.8% -1.5%
RWE AG 5.1% 3.6% -1.4%
HEIDELBERGCEMENT AG 4.5% 3.2% -1.3%
QIAGEN N.V. 15.4% 14.2% -1.2%
HOCHTIEF AG 0.5% -0.7% -1.2%
DEUTSCHE LUFTHANSA-REG 2.1% 0.9% -1.2%
ADIDAS AG 4.8% 5.0% 0.2%
HENKEL AG & CO KGAA VORZUG 7.6% 8.0% 0.4%
AURUBIS AG 2.1% 2.6% 0.5%
BECHTLE AG 2.6% 3.1% 0.5%
BILFINGER BERGER SE 1.9% 2.7% 0.8%
DEUTSCHE TELEKOM AG-REG -1.9% -1.0% 0.8%
COMMERZBANK AG -0.5% 0.7% 1.1%
GILDEMEISTER AG 1.3% 2.7% 1.4%
CONTINENTAL AG 2.3% 4.1% 1.8%
CARL ZEISS MEDITEC AG – BR 6.7% 8.9% 2.1%
BAYER AG-REG 4.5% 6.8% 2.3%
SGL CARBON SE 2.5% 4.8% 2.3%
LEONI AG 1.8% 4.2% 2.4%
SOFTWARE AG 13.6% 16.2% 2.6%
BAYERISCHE MOTOREN WERKE AG 4.4% 7.1% 2.7%
FRAPORT AG 7.5% 10.1% 2.7%
DAIMLER AG-REGISTERED SHARES 2.5% 5.3% 2.8%
BASF SE 5.5% 8.4% 2.9%
DUERR AG -0.5% 3.2% 3.7%
SIEMENS AG-REG 4.5% 8.6% 4.1%
ADVA AG OPTICAL NETWORKING 1.3% 5.5% 4.2%
PSI AG -0.2% 4.3% 4.5%
DEUTZ AG -0.1% 4.5% 4.6%
HUGO BOSS-PFD 8.9% 13.8% 4.9%
K+S AG-REG 6.9% 12.8% 5.9%
VOLKSWAGEN AG-PFD 3.2% 9.7% 6.4%
SAP AG 16.7% 24.1% 7.5%
DRILLISCH AG 2.0% 12.0% 10.0%
AIXTRON SE 3.1% 13.2% 10.1%
MORPHOSYS AG -7.6% 7.9% 15.5%
DIALOG SEMICONDUCTOR PLC -6.1% 10.7% 16.8%

So from the 42 companies with relevant data, only 11 are below average, whereas 31 are above the 10 year average net income margin in 2011.

On average, 2011 profit Margins were 6.4% of sales for those companies against 3.9% for the last 10 years. If we would assume constant P/Es, than a return to “normal” would mean a drop in earnings on average by -39% or implcitly an over-valuation of those companies of 39% (keeping everything else constant).

I will try to update as sson as more results are published, but if one believes in reversion to the mean, some of those comapneis should be avoided.

Efficient markets – WestLB Genußschein edition

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As a quick follow up to the previous post, a quick reminder how innefficient the markets in those securities can be:

WestLB came out with their press release at 11 am CET yesterday. As discussed in the last post, the release started with a very small loss on a consolidated level. If the consolidated loss would have been mirrored in the local GAAP accounts, this would have meant a payout for the Genußscheine of around 95%.

However further down in the release they mentioned “casually” that the nominal repayment will only be 85.1% due to a higher local GAAP loss.

Interstingly, between 11:02 and 11:11 yesterday, aroudn 380 k of the Genußscheine were traded at 91%, which was clearly an inefficient price if one would have read the whole press release.

Unfortunately, I did not have the time to react on this, but some lucky guy found some lazy guy who didn’t fully read the release.

This is something which can be observed with a lot of these bonds. Information only gets priced in after a certain time lag. Something to look out for.

Quick news: WestLB results 2011 are out

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Yesterday, West LB released its consolidated 2011 results.

On a Group level, the show a slightly negative result after tax. As discussed in the post about the Genußscheine, the relevant result for the finalpayout is however the “AG result”, which is the single company result of the holding company.

They don’t explicitly state the local GAAP result of the holding company, but they tell us the following:

Die Kapitalquoten im Konzern wurden durch das negative Jahresergebnis der WestLB AG auf HGB-Basis belastet. Die Kernkapitalquote betrug am Jahresende 8,8% (i. V. 11,4%), die Eigenmittelquote 13,8% (i. V. 15,9%). Die stillen Einlagen und das Genussrechtskapital der Bank nehmen gemäß den Emissionsbedingungen am handelsrechtlichen Bilanzverlust teil. Der Rückzahlungsanspruch beträgt nunmehr 85,1% für die Genussscheine und 82,9% für die Hybrid Tier 1 Anleihen aus dem Jahr 2005. Zudem unterbleibt für diese Instrumente vertragsgemäß die Zinszahlung für das Jahr 2011.

That means the payout for the Genußschein will be 85.1% plus the 2012 interest of around 2.9% or a total of 88%. This is a little less than in my base scenario, but still a relatively nice gain of around +42% for 10 months with a relativ small amount of risk involved..

Unfortunately, i don’t see too many similar opportunities at the moment.

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