Tag Archives: Fortum

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.

Newsflow – kein schöner Tag (Fortum, Dräger)

Zwei mal Nachrichten zu unseren Portfolio Werten:

Hat heute Halbjahreszahlen gemeldet. Lag anscheinend unter den Erwartungen der Analysten und es ging dann gleich bis auf knapp unter 18 EUR runter. Das Ergebnis war von Sondereffekten geprägt, die aber alle POSITIV waren. Der Wachstumstreiber Russland läuft wohl gemäss den Erwartungen- Aus Value Sicht kein Handlungsbedarf.

Draeger hat heute die Guidance fr die EBIT Marge für das Gesamtjahr erhöht. Der Kurs der Vorzugsaktie ist in der Spitze um deutlich über 10% gestiegen, die Genußscheine nur um 2%. Das ist natürlich nicht gerade gut für unsere Vorzüge Short / Genußschein long Strategie. Fundamental hat sich aber an der Einschätzung zum eklatanten Misspricing nichts geändert.

Portfoliotransaktionen – Verkauf ENI & Aufstockung Fortum

Per heute werden wir, wie beim Rückblick auf das erste Halbjahr angekündigt, schon eine erste Transaktion vornehmen:

Verkauf ENI, dafür wertgleiche Aufstockung FORTUM

Bei ENI ist unsere These von einem schnellen Rebound wg. Lybien nicht aufgegangen. Bei Fortum ist u.E. der Investmentcase intakt und die Sondersteuer eine gute Gelegenheit um nachzulegen.

Generell dürfte das Thema Sondersteuer bei Energieunternehmen und Versorgern in Italien evtl. auch noch mal ein Thema werden, in Finnland hat man das jetzt hinter sich.

VWAP wird noch nachgereicht.


ENI VWAP 13.07.: 15,57 EUR, Verkauf 20 Tsd Stück mit Erlös 311.400 EUR. AK 17,40 EUR, macht einen Verlust von -10,52% vor Dividende, nach Dividende -7,87%Fortum VWAP 13.07.: 19.17 EUR, Kauf 16 Tsd. Stück zu 306.720 EUR.
Nach Transaktionskosten erhöht sich der Cash dadurch um 3.680 EUR.

Target Portfolio as of January 1st 2011

Beschreibung des Ziel-Portfolios in deutscher Sprache

Target Investments „Core Value“

This is an overview with short comments for the current portfolio. We will add detailed analysis for the positions in the coming weeks.

AS Creation (ISIN DE0005079909) 7%
European market leader producing and whole selling wallpapers. Family owned, cheap valuation with continuous growth. Currently issues with the German anti trust authority which lead to a drop of ~15% in the share price.

Buzzi Unichem Pref. (ISIN IT0001369427) 6%
Italien based cement producer. Family owned, cheap on the basis of historical valuation. Exposure to problematic Italian and US markets, however strong presence in Germany through Dyckerhoff subsidiary. Low debt and goodwill compared to other cement companies.

Vetropack (ISIN CH0006227612) 5%
Swiss based specialist for glass packaging. Strong profit growth in the last couple of years but still relatively cheap. Currently issues due to strong Swiss Franc.

Bijou Brigitte (ISIN DE0005229540) 5%
Costume jewelery and accesoires retail chain, former growth „star“ company. Peak of sales and profit in 2008, since then shrinking sales and profits. However, company produces lots of cash and is relatively cheap. 100% equity financed, family ownership, attractive dividend yield and share repurchases make the stock attractive.

KSB Vz. (ISIN DE0006292030) 5%
Global market leader for pump systems. Typical German „Mittelstand“, meaning low debt, no goodwill and family owned. Produces among others pumps for power plants. Listed subsidiary in India.

Frosta (ISIN DE000606900) 5%
Family owned frozen food producer, who survived a crisis in the years 2000-2003. Famous in Germany for frozen meals without artificial condiments. Strong market position and brand name in Germany and Poland. Relatively cheap valuation.

EVN (ISIN AT0000741053) 5%
Austrian utility company with subsidiaries in the Balkans. Majority owned by the Austrian Government, another big chunk of the shares are held by German utility EnBW. EVN itself owns 11.5% of Verbund, another Austrian utility. Cheap valuation and constant dividend payments

Ensco (ISIN US29358Q1094)) 5%
US Offshore oil drilling oil service company. Almost no debt, currently depressed share price because of Deepwater Horizon accident. Also large position of David Einhorn’s Greenlight.

WestagGetalit Vz. (ISIN DE0007775231) 3%
Solid German building material company with cheap valuation, high dividend yield and consistent earnings.

Hornbach Baumarkt (ISIN DE0006084403) 3%

German Home improvement store chain with cheap valuation combined with reasonable profit growth.

OMV (ISIN AT0000743059) 3%
Austrian Gas and Oil company. Strong presence in Southern-Eastern Europe, especially Oil drilling in Romania.

Fortum (ISIN FI0009007132) 3%
Utility from Finland with high percentage of renewable and nuclear power generation. Within the European peer group extremely low Carbon emissions. Currently build up of capacity (natural gas) in Russia. Not really cheap but attractive as share price has suffered due to general problems in the utility sector.

Apogee Enterprises (ISIN US0375981091) 3%
Apogee designs and develops architectural glass and other building glass installations. Currently in the low of the business cycle as glass facades are completed at the end of an construction product, cpacity utilization at the moment only around ~50%. Apogee now concentrates on “value added” glass, especially insulation in order to save energy. Similar story as Sto Vz.

Tonnellerie Francois Freres (ISIN FR0000071904)) 3%
Global market leader for manufacturing oak barrels (Barrique). Vertically integrated business from the production of wood to recycling barrels into wooden chips. Cheap valuation, very stable margins.

Medtronic (ISIN US5850551061) 3%
Market leader for many types of medical products. Fundamentally not really cheap but cheap compared to historical valuations. High margins, benefits from demographic trend.

Einhell VZ(ISIN DE0005654933) 2%
Company produces low cost handyman and craftsmen tools. Distribution through all major discount chains and home improvement stores. Constant earnings and growth for a cheap price.

Tsakos Energy Navigation (ISIN BMG9108L1081) 2%
Family owned tanker fleet operator from Greece. Very cheap valuation, however difficult market and surprising capital increases make the stock risky.

WMF Vz. (ISIN DE0007803033) 2%
Traditional German manufacturer of silverware and other household wares. Through clever acquisitions, WMF succeeded to enter the market for professional coffee machines. WMF also operates its own retail stores.

Benetton SpA (ISIN IT0003106777) 2%
Former star performer with provocative marketing campaigns. After 10 years of share price declines, stock is fundamentally very cheap incl. a good dividend yield combined with low debt and low goodwill. Company has significant presence in BRIC markets, which could offset further decline in its home market Italy.

Ishares -Stoxx 600 Utilities (ISIN DE0006289457) 3%

Utilities were on average one of the most underperforming sectors. Cheap valuations, stron cash flows and high dividend yields however make the sector attractive. High goodwill and significant debt create risks as well as in some cases questionable investments into emerging markets projects.

=Sum Core Value 78%

The following titles represent the category “Opportunity”

Aire KGaa (ISIN DE0006344211) 3%
Former “AIG Real Estate”. A traded closed real estate investment fund. No direct links or exposures to AIG. Real estate portfolio consists of international projects around the globe. A lot of the investments are highly leveraged but have been written down substantially in some cases even completely. More than 50% of the remaining NAV is concentrated in one object in Bratislava where refinancing is due in 2011.

Degi International (ISIN DE0008007998) 3%
One of several open real estate investment trusts which had to be closed down due to overwhelming redemption request. Portfolio is relatively solid and fund is priced ~50% of NAV. Small chance for reopening until November 2011.

CS Euroreal (ISIN DE0009805002) 2%
temporarily closed open ended real estate fund with very high likelihood to reopen in 2011

IVG Convertible 2014/2017 (DE000A0LNA87) 3%
Non-rated Convertible bond issued by a large German real estate company, maturity 2107. No option value as exercise price is 10 times current share price. Bond holder have put right at par in 2014, yield at current prices ~11% p.a. which is significantly more than for corporate bonds with the same risk profile. 100k EUR min . notional.


HT1 Funding (ISIN DE000A0KAAA7 3%)
Officially default rated (“C”) Hybrid bond from Commerzbank who has already suffered a principal write down of about 15%. Specialty: Bond still pays coupon due to guarantee fram Allianz SE. Further risk for writedowns limited. If Commerzbank starts to pay dividends in 2012 as expected by equity analysts, bond will have to be written up to 10% before that.

Drägerwerk Participation Rights (ISIN DE0005550719) 3%
Classical capital structure “arbitrage”. Participation rights receive 10 times the dividends of the listed pref shares of Draeger but only costs twice as much. However some issues about dilution provisions exist. In 2011, significant cash out (dividend + compensation for capital increase of 2010) is expected.

Sum “Opportunity” = 15%

Sum Total = 93%