value and opportunity

In an interview, Steve Romick from FPA said something like” You can have either good news or cheap stocks”.

In the case of “core value” stock EVN AG it seems you can have both.

In the half year report issued today, they report significantly higher profits (1.16 EUR per share against 1.04 EUR previous period).

And this despite only so-so numbers from electricity generation.

The “kicker” comes from one of the famous “extra assets” EVN is hiding on its balance sheet, a company called “RAG”, short for “Rohölaufsuchungsgesellschaft”. This Austrian “on shore” oil upstream company seems to do quite well:

The main reason for this improvement was the increased income from investments in equity accounted investees, in
particular the higher earnings contribution from RAG, which rose by EUR 21.0m.

It looks like my valuation in my previous (German) replacement value analysis was much too conservative.

In the last few years, Q3 and Q4 for EVN were :

2008: -0.04 EUR per share
2009: +0.52 EUR
2010: -0.05 EUR
2011: +0.015 EUR

So if we assume a flat H2, we have a P/E of 8.3 which I find is still cheap compared to the quality of the Balance sheet.

Additionally they announced a 1 mn shares repurchase program (~0.55% of outstanding stock). Not much, but increases the total “shareholder yield” which we know now from O’S seems to be an important factor in the long run.

The stock chart doesn’t look pretty, but in this case I don’t care too much as the fundamentals are still strong:

All in all, EVN seems to be the cheap boring stock, howver with good news. So “strong hold” for the time being.

By the way, I think Verbund is now interesting as well. So I am actually considering adding some Verbund stocks to the portfolio as well.