After writing yesterdays post about the Praktiker bond, I wanted to summarize my current thoughts about Praktiker in a more structured way.
My current take aways are:
1. The exercise of looking at Praktiker from a control distressed investor shows, that the plan from the CEO to invest an additional 300 mn EUR into Praktiker does not leave a lot of upside to investors due to the already high amount of net debt (~300 mn EUR).
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Those investors who bought the 2016 Bond at par early this year will most likely be not happy with the current distressed price levels.
I had covered Praktiker several times and said that the bond will only be interesting at 40-50% of par. As the chart shows we are now at ~38%.
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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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After having quickly analysed “Magix Six” stock Esso S.A.F a few days ago with some encouraging results, I dived a little bit into the company.
Despite beeing a subsidiary of ExxonMobil, the homepage is “french only”.
Luckily, I managed to understand at least the two investor presentations they have on their website.
Both, the 2011 and the 2010 show a quite depressing picture.
It seems that someone is working hard to achieve the “Paranoia Scenario”for the EMAK capital increase.
Today, a whopping 877 thousand shares have been traded. The intraday chart looks really weird, I don’t remeber having seen anything close.
Tomorrow, December 6th is the last trading the for the rights. So it will be interesting to see if there will be even more selling pressure in the EMAK stock.
Wenn man nur ein Video anschauen möchte, dann das Interview mit Seth Klarman und Charlie Rose
Interessante “Distressed Debt” Analyse zu AMR
Wie immer lesenswert ein der Blick auf Griechenland bei GreekDefaultWatch
Für Fans von Wirtschaftsgeschichte ein Muss: Ein neues entsprechende Blog bei Bloomberg
Ein vielversprechendes neues Value Blog namens CS Investing mit vielen schönen Analysen und Videos
Another “New Entry” in the Magix Sixes Screen (P/B < 0.6, P/E 6%) is Esso S.A.F.
The company is described by Bloomberg as follows:
Esso S.A.F. refines, distributes and sells petroleum products such as gasoline, heating and other fuels, distillates and asphalt. The Company’s subsidiaries include Esso REP and Esso Raffinage.
Esso is a 82% subsidiary of Exxon Mobile, market cap is around 800 mn EUR (12.9 mn shares at 63.4 EUR)
Current “traditional” valuation metrics are:
P/E: 5.8
P/E 10: 5.3
In the month of November, the Portfolio underperformed by -2% with -3.4% against -1.2% of the Benchmark (50% Eurostoxx, 30% Dax, 20% MDAX).
However, year to date the performance shows still an outperformance of 4.6%.
This is the second “down month” where the portfolio underperformed. The main and simple reason was the incredible bounce on the last day of the month. On November 29th, the portfolio would have shown an outperformance of 2% against the BM for November, but many of the portfolio positions have realtively low beta to the market.
Performance 2011 on a monthly basis:
| Bench | Portfolio | Perf BM | Perf Portf. | |
|---|---|---|---|---|
| Start | 6394 | 100 | ||
| Jan | 6567 | 101.46 | 2.7% | 1.5% |
| Feb | 6645 | 102.49 | 1.2% | 1.0% |
| Mrz | 6559 | 103.92 | -1.3% | 1.4% |
| Apr | 6833 | 105.07 | 4.2% | 1.1% |
| Mai | 6645 | 101.23 | -2.8% | -3.7% |
| Jun | 5646 | 95.35 | -15.0% | -5.8% |
| Jul | 6486.69 | 99.03 | 14.9% | 3.9% |
| Aug | 5504.92 | 91.73 | -15.1% | -7.4% |
| Sep | 5154.68 | 92.75 | -6.4% | 1.1% |
| Okt | 5667.92 | 95.46 | 10.0% | 2.9% |
| Nov | 5600.83 | 92.19 | -1.2% | -3.4% |
| YTD | -12.4% | -7.8% |
Portfolio Transcactions
In the last view days, the following transactions have been made:
Einhell:
The remaining shares (1% of the portfolio) has been sold for an average price of 32.31 EUR at a loss of 20.52%.
EMAK:
Between November 24th and November 30th, 65,734 EMAK shares have been bought at 0.5493 EUR per share and 200.000 subscription rights at 0.2567 EUR per right. As the rights will be exercised into 5 EMAK shares each at 0.425 cents, this is implicitly a position of 1.065 mn EMAK shares at an average purchase price of around 0.495 EUR. This will result in an 5% position for the portfolio, the maximum position I am willing to invest for any single investment.
Finally, the current compostion of the portfolio:
| Name | Weight |
|---|---|
| Hornbach Baumarkt | 5.2% |
| Fortum OYJ | 5.4% |
| Magyar Telekom | 4.9% |
| AS Creation Tapeten | 3.1% |
| Westag & Getalit VZ | 4.1% |
| BUZZI UNICEM SPA-RSP | 5.2% |
| Autostrada Milano Torino | 5.1% |
| EVN | 3.5% |
| Walmart | 4.5% |
| WMF VZ | 3.8% |
| Tonnellerie Frere Paris | 3.3% |
| KSB | 2.5% |
| Vetropack | 2.9% |
| Total Produce | 5.0% |
| Frosta | 2.8% |
| OMV AG | 2.5% |
| Sto AG VZ | 2.5% |
| Nestle | 2.3% |
| Microsoft | 2.5% |
| Drägerwerk Genüsse D | 7.6% |
| IVG Wandler | 2.5% |
| WESTLB 6.9% | 5.5% |
| DEPFA LT2 2015 | 3.0% |
| AIRE | 4.8% |
| HT1 Funding | 4.0% |
| EMAK SPA | 0.4% |
| EMAK SPA-RTS | 0.5% |
| Short: Kabel Deutschland | -1.3% |
| Short: Green Mountain | -2.0% |
| Short: Dräger VZ | -6.5% |
| Terminverkauf CHF EUR | 0.4% |
| Tagesgeldkonto 2% | 10.3% |
| Summe | 100.0% |
| Value | 70.9% |
| Opportunity | 28.3% |
| Short | -9.4% |
| Tagesgeld | 10.3% |
Outlook:
Including the EMAK new shares, the portfolio will have a 95% net position. As my current target is max. 90%, I will have to sell 5% exposure in the coming days or find suitable short candidates.
In the last days I analysed the strange behaviour of the EMAK shares since the subscription rights started to trade (Part 1, Part 2).
Just to remember: On Friday 18th, before the subscription period, the Stock traded at ~ 2,10 EUR. This equals 0,75 EUR after the split of the subscription rights.
Since then, the stock systematically trades down towards the exercise price of the subscription right (0,425 EUR).
Remark: A lot of the available charts do not correctly adjust for the subscription right. The correct historical chart can be found for instance at Borsa Italiana directly.
So what is happening here ? In my opinion one has always to ask: Do I miss something here ? Or to put it another way: Does someone have a strong incentive that the price will go below the subscription price by the end of the subscription period ?
If we go back one step, we should ask addtionally: What was the purpose of the whole exercise anyway?
When I read the announcement that the majority shareholder Yama SpA wants to sell his other holdings to EMAK, my first reaction was: they need cash. However after disclosing that they will take up their share of the capital increase, the cash effect for the shareholder was relatively small.
Another reason could be the following: Maybe Yama’s real intention is to scare away minority shareholders and take over the minority shares as cheap as possible ?
Lets consider the following:
For a squeeze out in Italy , they need according to this document 95% of the company.
Before the rights issue, Yama held 74% or 20.5 mn shares of a total 27.6 mn shares.
After the exercise of the subscription right, we will hav a total amountof 163.9 mn shares (5 new for 1 old minus Treasury shares).
In the past trading days since beginning of the subscription period, a total of 1.05 mn shares have been trades for around 600 Tsd EUR which resulted in a drop from around 0,75 EUR to 0.48 EUR (low intraday today)
So in theory (paranoia scenario), the following could happen:
– Yama is currently selling its own shares to depress the share price below the subscription price of 0.425 EUR (only 4.5 cents to go, they have plenty of material).
– most shareholders then will not exercise the subscription right. Normally the unexercised subscription rigths will be sold for almost nothing in an closing auction at the last day
– Yama buys all the subscription rights and exercises them
This would result in the following change in percentage ownership, assumed that Yama needs to sell another 1 mn shares, to reach this target:
Before:
Yama: 20.5 mn shares, 74%
Minorities 7.1 mn shares, 26%
After: (total 163.9 mn shares)
Minorities 7.1 + 2 mn = 9.1 mn shares or 5.5%
Yama: 20.5 – 2 mn + all new shares (~136 mn) = 154.8 mn shares or 94.5%
So if this works out, YAMA almost reaches the threshold for a squeeze out. If they tehn achieve to hold the shareprice down for a further few months, the might be able to purchase the remainder for a relatively small fee.
Summary: There could be a downside scenario where the majority shareholder has structured this whole exercise to be a clever way of squeezing out minorities at a depressed price level. I am not sure how possible this is, but it should definitely be considered in any investment decision.
IVG is an interesting example for a “distressed” company, where the position as Senior bondholder is much more comfortable than being a shareholder.
After announcing relatively good Q3 numbers on which I commented earlier this month, they announced today the following:
The management board of IVG Immobilien AG, Bonn (ISIN DE0006205701) has, with the consent of the supervisory board, resolved to increase the registered share capital of the company from € 138,599,999 by € 69,283,885 by issuing 69,283,885 new ordinary bearer shares.
The new shares will be offered to existing shareholders by means of indirect subscription rights at a subscription ratio of 2:1, meaning that two existing shares will entitle a shareholder to subscribe for one new share. The subscription price is € 2.10.
A lot of people bought IVG shares because they trade well below book value, howver, issuing such a huge amount of new shares at an ever larger discount to book value is a clear dilution for existing shareholders. The result was a 15% drop in the shareprice.
For the 2014/2017 Convertible bond, this is in contrast good news which shows in a steadily increasing bond price:
From my point of view, there are a few take aways from this situation:
– looking at price to book ratios for distressed companies should always include the possibility of massive dilution
– especially when banks are involved who can use loan covenants as a tool the force capital increases, shareholders will normally suffer
– in such cases buying senior bonds at a large discount looks like a much better position compared to stocks
– stock or subordinated debt of distressed companies will only become intersting, once liabilites are reorganized in a way that no refunding is necessary for an extended amount of time (e.g. through long term bond issuance)
In my opnion, we will see more or less similar actions for Praktiker.
value and opportunity 