Happy New Year to everyone!
Below you can find an overview of the current portfolio as of December 31, 2013:
|#||Investment||Currency||Purchase Price||Current Price||Gain/Loss1||Portfolio Share|
|8||City of London||GBP||239||237||0.2%||3.0%|
1) Performance in EUR inc. dividends/interest
The best performers during the quarter have been Lectra and RealDolmen. The worst performer, Fairfax Financial, underperformed mainly due to the weakness of the Canadian dollar against the euro.
Trading volume in Passat’s shares is very low and it took almost three months to establish the current position. Nevertheless, I am still targeting a 2% position for this investment. I just started to accumulate shares of Magix after publishing my post about the company on December 16, 2013, targeting a 2% position.
RHJI announced that BlackRock withdrew from the consortium which plans to acquire BHF Bank. In case of a successful acquisition, BHF Bank will be part of Kleinwort Benson Group (KBG). It is now planned that after a capital increase RHJI’s share in KBG will be 65% while the balance of 35% will be split among the three remaining co-investors. KBG will then hold 91% of BHF-Bank. In addition, RHJI will pay for the remaining 9% stake in BHF Bank by issuing RHJI shares to the seller Deutsche Bank. Hence, RHJI will then have a 9% direct interest in BHF Bank and approx. 59% will be held indirectly through KBG.
Given the high discount to NAV a capital increase is detrimental to shareholders interests. So I do not really like the amended deal structure. Apart from that, it is unclear whether Deutsche Bank wants to become a long term shareholder in RHJI. So there might be increasing sales pressure on RHJI’s share price in the future when Deutsche Bank wants to get rid of their holding in RHJI (though there might be some type of lock up period).
Edit 4/5/2014: RHJI issued the shares at a price of EUR 5.56 to Deutsche Bank which is substantially above the current share price and therefore positive for shareholders.
At the same time, the total purchase price consideration for BHF Bank decreased from EUR 384 m to EUR 354 m which is positive.
BaFin’s approval for this transaction is still pending. The company announced that they expect the result of the regulatory review on February 27, 2014.
Management reiterated that in case the transaction does not get through, they will consider a capital return to shareholders.
KBG, which is currently 100% owned by RHJI, shows some progress in operating performance. Nevertheless, RHJI is still burning too much cash. During the three months from June to September 2013 they spent EUR 11.6 m for holding company operating expenses, lease costs and their loss-making merchant banking. This is clearly alarming and not in line with management’s announcement to reduce costs.
While I believe that a successful acquisition of BHF Bank or a return of cash to investors can narrow the discount to NAV, one has to keep a close eye on the management’s ability to handle their expenses.
RealDolmen presented good numbers for the first six month of their fiscal year which ends in March 2014. The company returned to profitability and management is targeting an operating profit at mid-single digit margins for 2013/2014. This roughly translates into an operating profit estimate of EUR 11 m. Based on this assumption, the market is currently valuing the company with an 11 times EV/EBIT multiple. In the past, free cash flow was more or less in line with operating profit. So we might get a 9% FCFF/EV yield, which is attractive.
On December 27, 2013, volume in shares of Retail Holdings skyrocketed. In total, 1.03 m shares were traded on that day representing approx. 20% of shares outstanding. The company announced that “the bulk of the trading was between two long-term shareholders with an ongoing relationship”. So far, I could not find additional information about this.
The management of Broedrene A&O Johansen expects a full year pre-tax operating profit of DKK 125 m. Assuming a 25% tax rate this translates into a net profit of DKK 94 m and a return on equity of 12.7%. With the share price trading below book value, I will increase the allocation to the portfolio to a 3% position keeping the limit at DKK 1,350.
My investment style focuses on small cap equities but does not completely exclude mid/large cap equities.
Most of the companies I invest in are located in Europe. Though I do also invest in the UK, most of the indices which include the UK give a relatively high weight to this market. From my perspective, the British market is more efficient than most of the other European markets. As a consequence, I expect to find less investment opportunities in the UK (despite the large size of the market) than in other European markets.
Apart from that, to a smaller degree I do also invest in the rest of the world.
As a consequence, I decided that the following two indices provide the best consistency with my investment style:
- Euromoney Smaller Europe (Exc. UK) Total Return (Weight 70%)
- Euromoney Smaller World Total Return (Weight 30%)
The goal is to beat this benchmark over a full market cycle.
For instance, the benchmark leads to the following geographic allocation (as of October 2013):
|Country||Smaller Europe (Exc UK)||Smaller World||Benchmark Weight|
The current cash balance stands at 78%. I expect it to further decrease over the next couple of months. I do not expect that the current low volatility in the markets will continue for an extended period of time. So I will remain patient and will wait for the market to offer attractive investment opportunities.
Portfolio Transactions in Q4 2013
Just for your information, below you can find the quarterly portfolio transactions for the virtual portfolio:
|Item||Date||Cash in EUR||Acquisition in EUR|
|Passat||10/8/2013 to 12/31/2013||-139,037|
|RHJI||10/11/2013 to 10/19/2013||-300,000|
|Real Dolmen||10/21/2013 to 10/29/2013||-200,000|
|Retail Holdings||11/4/2013 to 12/27/2013||-300,000|
|Broedrene A&O||11/13/2013 to 12/13/2013||-200,000|
|City of London||12/9/2013 to 12/19/2013||-300,000|
|Magix||12/16/2013 to 12/30/2013||-30,185|
|Interest on cash||10/1/2013 to 12/31/2013||22,288|
The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always do your own research!