Tag Archives: AS Creation

Short cuts: AS Creation, Fortum, KAS Bank annual report

AS Creation

As Creation is a stock I owned in the past. Last November I had quickly updated the case and written the following:

In any case, I don’t think AS Creation is interesting at the current level of 30 EUR. At a 2014 P/E of 15-20 (before any extra write-offs on Russia) there seems to be quite some turn around fantasy being priced in.

Just a few days ago, AS Creation came out with an anouncement. There will be no dividend and the loss for the year 2014 is 9,3 mn EUR, at the upper end of the communicated range. In parallel, the CFO left the company. The loss seems triggered by a 10 mn EUR FX loss and a 5 mn EUR fine in France. They did not give further details but one can assume that the German business wasn’t that great either.

In any case a good reminder that despite cheap fundamentals, not every “value stock” is good value.


Fortum is also a stock which I owned in the past. I sold them in autumn 2012 because I was not really convinced by the idea anymore.

Looking at the chart, we can see that Fortum has done OK since then, especially compared to like German utilities like RWE, which looked a lot cheaper back then:

Again a reminder that cheap doesn’t mean good. The even more interesting aspect is that a few days ago, Fortum finalised the sale of the Swedish power distribution grid to a consortium of pension plans and insurers for 4.4 bn EUR.

According to Reuters, the multiples were quite “Juicy” for the seller:

The deal values the network at around 16.6 times earnings before interest, taxes, depreciation and amortization (EBITDA), the same as for Fortum’s Finnish grid sale in 2013.

16,6 times EBITDA for a business which is quite comparable to my portfolio stock Electrica is an interesting price point. Clearly, you need to take some kind of discount for a recently privatized Romanian company, but I think it clearly shows what kind of prices especially pension and insurance companies are ready to pay. This makes me feel even better about the prospects of Electrica than before.

KAS Bank annual report

When I looked first at KAS Bank 2 and a half years ago, i was drawn in mostly by a very low valuation and the solid business model with a good “mean reversion” potential. that’s what I wrote back then:


KAS Bank for me looks like a very interesting opportunity within the banking sector due to the following reasons:

+ attractive specialist business model (custodian)
+ cheap valuation even based on current “bottom of the cycle” earnings
+ valuation depressed because of overall hostility against banks
+ low or no analyst coverage
+ reversion to the mean speculation a lot less risky than with normal banks as virtually no risk of dilution (even Basel III standards are met by a wide margin)
+ potential upside ~100% over the next 3-5 years plus dividends+ low correlation / beta good portfolio diversifier

The upside has realized much quicker than i thought. As of now, including dividends, the stock return +75%. So good analysis, great return ? Well not really. Actually, if I am honest, this was mostly luck as I made a big mistake or omission when i analyzed the stock: I did not look at the pension liability. And this despite the fact that I have written and warned quite often about pensions.

In Kas Bank’s case I have ignored that because the plan was funded. That was a mistake and I will show you why.

Looking into the 2014 annual report of KAS Bank, we can see that they made a nice 24 mn EUR profit this year, which includes the one time effect of the canceled German JV. However, total equity DEcreased from 213 to 194 mn EUR. As the 2014 dividend is around 10 mn EUR, the question is clearly: Where did the other 35 mn EUR equity go ?

The solution to this question can be found on page 52, in the Comprehensive Income statement: KAS Bank lost 52,6 mn EUR pre tax) because of the increase in its pension liability. 2014 has been a brutal year for pensions. The discount rate has been reduced significantly. In 2013 I didn’t pay attention, but KAS Bank used 3,9% which was on the very high-end of permitted rates for EUR. In 2014 they had to slash this to 2,2% (page 80). It gets even crazier if we look at the gross numbers on page 81. The gross DBO increase 105 mn EUR from 182 mn to 287 mn. Luckily, some of that increase could be countered by asset increases. From an overfunding of 40 mn EUR, the plan went to break even. What really surprised me is the duration of the plan with around 22 years. The problem for me is the following: Despite the current funded status, there is a significant amount of risk in the plan. The gross size of the plan is 1,5 times the equity of KAS Bank. The run a significant equity allocation (85 mn EUR or ~ 45% of KAS Banks Equity). So in a scenario with a stock market crash with continuing low-interest rates, KAS Bank would pretty quickly be forced to do a capital increase.

Additionally, the current environment is clearly not helping KAS Bank in its core business. A custody bank is always deposit rich which is a problem now. Another second level problem is mentioned on page 18:

Treasury income, mainly securities lending, decreased by 20% to EUR 11.4 million (2013: EUR 14.3 million). The lower income from securities lending was primarily due to a market wide liquidity surplus which decreased
the prices for securities lending services.

This decrease happened even before the ECB started pumping liquidity into the markets.

So overall, I have been very lucky so far. I didn’t take into account the pension liability in my first analysis and fundamentals got worse for the business itself. Nevertheless I made good money because i bought cheap enough. Optically, the stock still looks priced oK at P/B 1, trailing P/E of 7 and 5,6% dividend yield, but fundamentally, especially looking at ultra low interest rates for quite some time, KAS Bank is in my view now at fair value.

However, I didn’t want to stretch my luck too far and therefore I sold the whole position at around 11,50 EUR per share.

Quick updates: Sol SpA, AS Creation, Vetropack

Sol SpA

Sol came out with a “preliminary annual” already end of March. The numbers were not really surprising.

Sales were up 4.9%, EBITDA was up +1.4%, however net result was down -6.8%. I find this surprisingly good especially considering the tough environment for the mostly Italien based industrial gas business.

Most interesting is this part of the statement:

In comparison to 2011, the sales increased slightly in Italy (+0.2%) but much more abroad (+10.8%), which represents 46.8% of the total turnover. The home-care business, in which the Group operates through VIVISOL, marked a growth of 10.9% (sales equal to € 264.9 ml), while the technical gases business increased of 1.3% (sales equal to € 344.9 ml).

I think this is also the reason why the share price is doing quite well at the moment, despite the overall EPS decrease.

AS Creation

Also last week, AS Creation came out with its annual report for 2012. Numbers were ok (EPS 2.67 EUR per share against 1.69 EUR last year. Dividend will be increased to 1.20 EUR.

This is all quite positive, however the shares are now not cheap anymore. With a trailing P/E of 16 and the German economy running on full steam, there seems to be quite a lot of positive expectations for the Russian JV priced in.

AS Creation is one of the stocks where I have to check in more detail if there is still a real “margin of safety” at this level. (Edit: Interestingly, in Bloomberg they show a wrong EPS number for 2012. Here the EPS is 3.22 EUR, this makes the stock look cheaper)

The stock price has great momentum and is on its way to challenge the ATH from 2007 at around 50 EUR:


Last but not least, Vetropack came out with their 2012 report some days ago. Although EPS wass up strongly at 197 CHF per share, operating profit was down. The reason for this was a sale of non used real estate. Vetropack invested significantly more in 2012 than 2011, the question will be if this results in more growth.

In 2012, positive developements in some countires were off set mainly through negative developements in Switzerland and high energy costs.

I still like Vetropack as a very boring, extremely defensive (indirect) consumer play, again one has to monitor if the capital is allocated efficiently. At the moment a solid “hold” position.

The stock price is stagnating clearly, also compared for instance vs. Italian competitor Zignano:

Vetropack is trading at a discount (EV/EBITDA) both to Zignano and Vidrala, the 2 European peers which, in my opnion should be theother way round.

Duell: Colefax Plc vs. AS Creation AG – part 1

AS Creation is one of my core holdings. It is the clear market leader for wallpaper in Germany, however subject to an Anti Trust probe. Historically, AS Creation has produced rock solid returns. Currently there is some grwoth potential in the stock as they are building up a significant joint venture in Russia.

I was not aware that there is a UK listed company specialising in wallpaper as well. Interactive Investor Blog (highly recommended by the way) had a very nice summary post on Colefax Plc a few days ago.

So I thought it might make sense to compare the two companies “head to head”. I am not sure if Colefax and AS Creation are really competitors. Colefax sells most of its products in the US and the UK and only a relatively small part in Europe, whereas AS Craetion is more focused on Germany with some French wholesale activities.

Colefax has a market Cap of ~31 mn GBP, AS Creation around 62 mn GBP.

Let’s have a quick look at “traditional” valuation metrics

Colefax AS Creation
P/B 1.19 0.77
P/B tang 1.19 0.86
P/S 0.41 0.36
P/E 7.7 11.1
EV/EBITDA 3.31 4.75
EV/EBIT 4.6 9.1
Debt/Capital 0% 27%

Apart from Price/Book and Price sales, Colefax looks a lot cheaper than AS Creation. AS Creation has some debt on its balance sheet vs. Colefax which actually shows net cash. AS Creation used to have little debt or net cash as well, however the investments in the Russian JV have been funded with debt.

Let’s look at historical profit margins next:

Net margin  
1999 5.66% 4.67%
2000 5.75% 5.61%
2001 5.38% 3.77%
2002 5.23% 2.78%
2003 3.94% 3.05%
2004 5.00% 3.43%
2005 5.33% 4.13%
2006 6.68% 5.49%
2007 5.95% 5.20%
2008 5.06% 2.51%
2009 4.14% 3.43%
2010 4.55% 5.88%
avg 5.22% 4.16%

From 1999 to 2010, AS Creation managed to earn 1% more margins on average with a lower volatility than Colefax. So one could conclude that AS Creation at least historically had better pricing power than Colefax.

However if we look at ROE and ROIC, the picture changes completely:

AS Creation   Colefax  
1999 12.98% 6.90% 26.01% 17.82%
2000 14.87% 8.19% 30.92% 20.42%
2001 13.52% 10.39% 17.72% 13.15%
2002 12.42% 9.83% 12.83% 10.37%
2003 8.79% 7.74% 14.83% 12.81%
2004 11.53% 9.63% 17.55% 19.24%
2005 12.41% 11.05% 20.22% 18.01%
2006 14.93% 12.54% 25.34% 22.55%
2007 13.45% 10.42% 23.57% 26.94%
2008 11.36% 7.86% 9.07% 22.37%
2009 9.14% 7.97% 10.75% 16.55%
2010 9.73% 8.00% 18.85% 21.06%
avg 12.10% 9.21% 18.97% 18.44%

Colefax shows almost twice the returns on equity and invested capital compared to AS Creation. The absolute amount achieved by Colefax is remarkable as well, even if some of the difference could be explained by differences in UK and EUR interest rates.

Before jumping to the conclusion that Colefax is the cheaper and more capital efficient company, we should chekc 2 major items which may distort return on capital numbers and Enterprise Value (EV) multiples:

– pension liabilities
– operating leases

Pension liabilities:

Interestingly enough, Colefax seems to be a very untypical UK company. They have only a tiny defined benefit plan (DBO) with liabilites of 1 mn GBP. AS Creation’s DBO liablities are higher at around 7 mn EUR. So no big impact in both cases (remark: to be on the safe side, DBO should always be added to finanical debt)

Operating leases

This is more interesting. AS Creation only records 600 tsd EUR of Operating leasing liabilities whereas Colefax has around 25 mn GBP gross liabilites. If we look at the different components of assets required to run the busines we see some intersting numbers:

Colefax AS Creation
Sales 77,722 184,603
Non-Current Assets 7,282 50,770
Net WC 11,881 66,424
Operating Leases 25,258 600
NCA/ Sales 9.4% 27.5%
NCA+OL/Sales 41.9% 27.8%
Net WC/Sales 15.3% 36.0%
NCA + NWC+OL 44,421 117,794
in % of Sales 57.2% 63.8%
EV/EBITDA 3.31 4.75
EV/EBITDA OL 7.20 4.80
Net Debt+OL+pension/total Assets 47% 14.4%

Non Current Assets (ex Goodwill) at Colefax in percentage of sales is only a fraction of AS Creations non -current assets. However taking into account the (gross) operating leases, the picture suddenly shifts dramatically.

Both, EV/EBITDA and leverage ratios suddenly shift to AS Creations favour if one accounts for the operating leases.

Colefax still uses less capital in percentage of sales, but this is “only” due to much lower working capital requirements.

I don’t really understand why Colefax needs to rent such a large amount of land and buildings if they are not producing the stuff. Do they have a warehouse in Central London ?

Business models

One thing I forgot to mention is that the two companies have very different business models, despite both selling mostly wallpaper. Colefax only designs and distributes their products, whereas AS Creation creation really produces all the wallpaper themselves.

“Producing” wallpaper is basically only a specialised version of printing, with the big advantage that at least so far the internet has failed to come up with a paperless alternative in contrast to many other printing products.

Despite having outsourced production, Colefax employs 305 persons (fy 2011) for 77 mn GBP in sales whereas AS creation generates 172 mn EUR sales with 706 employees (2010).

The differences in the business model can be easily seen if we look at the major cost blocks compared to sales:

Colefax AS Creation
Staff cost 14,933 39,336
– in % of sales 19.2% 21.3%
Marketing, distribution & admin 36,345 27,166
– in % of sales 46.8% 14.7%
COGS 34,929 96,064
-in % of saless 44.9% 52.0%

Colefax needs to spend a lot more on advertising and administrative expenses than AS Creation. I am somehow surprised that Colefax seems to buy their merchandise cheaper in relation to sales than AS Creation has to pay for the raw material.

Staff costs are relatively comparable, which is interesting as well.

First results:

– Colefax “design and distribute” model is less capital intensive than AS Creation’s “full production” operations
– taking into account operating leases, the major advantage seems to be a lower amount of required working capital
– surprisingly, Colefax seems to require a lot of fixed investments if one includes operating leases
– however return on invested capital is still higher for Colefax despite slightly lower profit margins
– the higher voltality in Colefax profit margins ist most likely due to higher leverage through off balance sheet operating leases
so far I can see no clear “winner” between the two companies. Both copmpanies have problems but also opportunities.
– Colefax might be a good diversification in order to gain exposure to UK and US housing recovery while AS Creation has growth opportunities in Russia and benefits from a still strong domestic market

In the second part I will try to come up with a valuation for Colefax Plc to see if it is an interesting investment for the portfolio.

Halbjahresergebnisse AS Creation, Frosta und Magyar Telekom

In den letzten Tagen gab es bei einigen der Portfoliowerte Halbjahresergebnisse. Da das Portfolio langfristig ausgerichtet ist, messe ich einzelnen Quartalen keine allzu große Bedeutung zu. Dennoch solte man überprüfen, ob es Nachrichten gibt die irgendwie den Investment Case verändern.

Frosta hat den Halbjahresbericht veröffentlicht. Das Ergebnis pro Aktie ist im ersten Halbjahr mit ca. 47 Cent pro Aktie deutlich schwächer als im Vorjahr, wo noch 0,87 EUR ausgewiesen wurde. Allerdings war das zu erwarten, weil Frosta auch in der Vergangenheit erhöhte Kosten im Einkauf nur mit Verzögerung weitergeben konnte. Der Operative Cashflow und Free Cashflow pro Aktie hat sich deutlich positiv etwickelt, der Free Cashflow von ungefähr 0,46 EUR pro Aktie auf 0,63 EUR. Aktuell also kein Handlungsbedarf.

AS Creation
As Creation hat trotz deutlichem Umsatzzuwachs ein auf den ersten Blick etwas enttäuschendes Halbjahresergebnis von 1,63 EUR nach 1,74 EUR im Vorjahr gemeldet. Cashflow mässig belastet die Investition in Russland und ein Lageraufbau, man meldet auch, dass man die Preise nicht genügend erhöht hat. Aber auch hier gilt, das es m.E. keinen fundamentalen Handlungsbedarf gibt.

Magyar Telekom
Magyar meldet 3% niedrigere Umsätze als im ersten Halbjahr. D.h. das ist natürlich eher am unteren Rande unserer Szenarien. Das Ergebnis pro Aktie liegt deutlich neidriger als im Vorjahr, Grund sind einige Sondereffekte, inkl. der Ungarischen Sondersteuer. Besonders interessant ist aber dieser Passus aus dem Halbjahresbericht:

Free cash flow (operating cash flow and investing cash flow adjusted for proceeds from / payments for other financial assets) increased by HUF 10.4 bn in the first half of 2011 to HUF 63.8 bn from HUF 53.4 bn in the same period of 2010. Improvement in working capital led to a HUF 3.1 bn increase in operating cash flow. Lower CAPEX spending and higher proceeds from real estate sales also supported the higher free cash flow.

Magyar scheint anscheinend die CAPEX dem Umsatz anpassen zu können, ohne Marktanteile zu verlieren. Auch hier aus meiner Sicht eigentlich eine positive Entwicklung und kein Handlungsbedarf.

Fazit: Sowohl Frosta, wie auch AS Creation und Magyar Telekom zeigen (allerdings erst auf den zweiten Blick), das die jeweiligen Investmentcases intakt sind.