In the third quarter the portfolio lost
3.0% 2.8%¹. During the same period the benchmark dropped by 6.5%.
Largest contributors to portfolio performance were BHF Kleinwort Benson Group (+0.7%) and Miba (+0.5%) both being part of a corporate transaction. Largest detractors were Dundee Corp. (-1.0%), AGCO (-0.8%) and Lectra (-0.7%). Trading activity during the quarter was again relatively high. I acquired a position in AG Bad Neuenahr, Par Petroleum, Houston Wire & Cable Company and Rolls-Royce Holdings. I completed the acquisition of Bellevue Group and I added to my position in two Italian real estate funds. I started to sell Microwave Vision and fully completed the disposition of Steico, RealDolmen, Eredene Capital and Miba.
1) Edit 10/9/2015: In my original performance calculation I did not take into account AXA Immoselect’s dividend of EUR 0.5 per unit as of 7/30/2015.
The quarter was characterized by a number of takeover and tender offers for some of my holdings. I already wrote about Eredene Capital and Miba. In addition to that, BHF Kleinwort Benson received a EUR 5.1 per share takeover offer from Fosun.
In my last quarterly update I reported that shareholders and management have different opinions about the company’s strategy and that Fosun might take further steps to increase control. Other major shareholders seem to reject the offer as too low or are in the process of preparing a counter offer. Oddi & Cie. has been mentioned as a potential white Knight. Nevertheless, it seems that they do not have enough resources to lift a takeover of BHF Kleinwort Benson. To some extent, the same applies to Fosun which seems to run out of steam after a remarkable series of acquisitions over the last couple of years. On top of that, the offer is still subject to regulatory approval.
So there are many moving parts and I am tempted to sell the shares given that they are trading close to my estimate of intrinsic value trading in a range between EUR 5.3 and EUR 5.5 per share.
Dundee Corporation shares’ fell by a third over the quarter. The holding company combines everything what is currently hated or neglected by market participants. Dundee’s assets include oil exploration in frontier markets, Canadian real estate, Eastern European gold mining, farmland and hydropower in South America, organic cattle farms in British Columbia and a wealth management business in its infancy.
With emerging markets set to record the first net capital outflow since 1988, commodity prices falling off the cliff and inflation not picking up, Dundee’s strategic asset allocation is getting punished by the market. In addition, market participants seem to anticipate a write down of Dundee’s largest investment in Chad and I also see that coming over the next quarters.
However, even if one ascribes zero value to the African oil exploration asset, shares are trading at a 45% discount to NAV. Of course, some components of the portfolio are difficult to value. However, take for example Dundee’s exposure to Canadian real estate. Over the short term their property investments might face some headwinds. Still, the company owns a unique portfolio of Canadian properties with great value over the long term representing only 27% of NAV, but 66% of market cap. Moreover, the company uses a modest level of leverage with most of the debt obligations being structured as preferred shares or non-recourse to the company. In addition to that, the new management under David Goodman announced that they will be more transparent to minority shareholders and will focus on cash flow generation going forward.
Edit 10/7/2015: From today on I increase my position in Dundee Corp by 100 bps with a limit of CAD 8.5 per share.
Q3 2015 Portfolio
Q3 2015 transactions
As always you can find an overview of the quarterly transactions below:
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