segunda-feira, outubro 22, 2012

2007 MIT Remarks by Seth A. Klarman

Great text by Seth Klarmann. A smaller, more concise edition of "Margin Of Safety" in the begginings of the financial crisis.

Link

segunda-feira, junho 18, 2012

Michael Porters’ Five Forces Examined



About this theme I would also recommend the book "Competition Demystified - A radically simplified approach to business strategy" from Bruce Greenwald.

quinta-feira, março 01, 2012

Sonae SGPS (SON PL)

Sonae SGPS is a family conglomerate from Portugal that owns:
- the largest chain of hypermarkets and supermarkets (Food Retail) and retail outlets (Specialised Retail) in Portugal, with an international expansion strategy,
- a 50% interest in Sonae Sierra, a company dedicated to the management and promotion of shopping centers.
- a stake of 53% in Sonaecom, a national telecommunications company.

Holding company controlled by the Azevedo Family (53%). The bulk of the family’s wealth is tied to the company. Sonae SGPS is the biggest portuguese private employer (40.000+ employees).

THESIS

Food Retail business (their biggest business):
- Has a 25% market share and growing even in an awful consumer confidence environment. Stable business.
- They have a very loyal and stable customer base. 85%+ of sales are associated with loyalty card.
- They were the first food retailing company in Portugal with most of their hypermarkets located in city centers.
- All of their hypermarkets and supermarkets are in shopping centers which gives them traffic from shoppers from other stores in the malls. People in Portugal go to shopping malls for all their shopping and they are open until Midnight.
- Its wider variety of products makes it the first choice for one stop shoppers (70.000+ SKU’s).
- 29% of sales in own label products.
- They have the biggest logistic operations in Portugal with more than one distribution plant, unlike competitors, which makes them more cost efficient.
- Their margins are higher than peers compared to well run local competitors, such as Jerónimo Martins and DIA; 6,3%, 4,3 %, and 1,9 % respectively.
- 78%+ of stores (real estate) owned (Retail Properties). Asset monetization strategy defined: important future source of capital to the company’s investments through sale & lease back transactions.
- 3,2x Net Debt to EBITDA.

Sonae Sierra:
- 50% owned joint venture with Grosvenor. Owns and develops shopping centers (49 shopping centres with openmarket value of approx. 6.4 billion euros).
- International diversification: the Portuguese business component represents 45% of its business.
- Strong presence in Brazil (20%), Spain (14%), Germany (13%) and Italy (6%).
- IPO of Sonae Sierra Brazil in 1H2011, raising €200M for future developments in the region.
- GROWING, despite the dramatic crisis, both in Sales and Income.
- Conservative Loan-to-Value: 43%.
- Occupancy rate: 96,8%.
- Returns close to 20% in the last several years.
- Sonae SGPS's earnings where very penalized after the downturn in 2008 mainly because of its participation in SonaeSierra and the devaluation of its properties since then. NAV has come down to €1.188M from €1.713M. These losses appear to be stabilizing.
- Current Market Value of Sonae SGPS participation: 1.187,63M (NAV at 30-09-2011) x 50% = €593,82M.

Sonae.com:
- Third telecom operator in Portugal, with a 21,1% market share.
- Stable/growing standalone mobile business.
- France Telecom has a 20% stake which they want to divest.
- Long dated talks of possible merger with Portugal’s biggest cable operator – Zon Multimedia. Sonae.com’s management have for some time pointed this solution has the best one for the creation a bigger, more profitable operator. Zon Multimedia has recently removed statutory limits making this possibility more credible.
- 1,5x Net Debt to EBITDA.
- Current Market Value of Sonae SGPS participation: €464,03M x 53,16% = €246,68M.

Current market values per share of Sonae SGPS core partnerships (Sonae Sierra and Sonae.com), and excluding its main core businesses, is about 0,436 cents or almost current share price for the total company of 0,46.

Debt and dividends:
- Total net debt amounted to €2.958M, translating a cumulative reduction of €479M over the last two years. Total debt is expected do drop significantly during the next 6 years. Retail Units Net Debt to EBITDA stands at 3,2x.
- Significant portion of debt tied to retail properties: €1.000M.
- Growth efforts by leveraging on cash flow generated by market leader stable operations in Portugal.
- Dividend per share 0,0331 or 7.2%. Payout ratio of 39%.

VALUATION (Sum of Parts)

- Average Estimated Cycle Net Income for Retail operations (food and specialised) and retail properties: €95,43M
- Sonae.com Estimated 2011 Net Income: €59,47M
- Current NAV Sonae Sierra: €1.187,63M
- Shares Out: 2.000M
- Current stock price: 0,45€


Value (Sum of Parts): Between 0,9€ and 1,34€.

EURO RISK - The risk of Portugal leaving the EU

It is in the interest of the euro zone and of the leading countries (Germany and France), that these solvency issues by several country members are resolved soon and their economies recover. That would allow the leading countries to strengthen their growth and protect their financial sector as its institutions were the ones that lent money to Greece, Ireland, Portugal and Spain.

Portugal has already a restructuring program designed to reduced budget deficits and total debt as well as to make the economy more flexible and increase productivity, concentrating on export activities.

The program was designed by the EU, ECB and IMF to bailout the country after it could not finance itself. Portugal will have a couple of years with slow GDP, but structural changes being made will reduce the government involvement in the economy and reduce unproductive businesses activities like building and construction. Odds are the country will eventually emerge stronger.

Portugal did not have a recent housing bubble like UK or Ireland. It also doesn’t have has much public debt as Greece, Italy or Belgium. Hence, the Portuguese problem rests on competitive issues that are being address.

We think the risks of Portugal leaving the euro are low. Ultimately if it did happen, the margin of safety of the ideas presented is so huge that it would protect the investment even in that worst case scenario.

sexta-feira, fevereiro 10, 2012

quarta-feira, janeiro 25, 2012

F. Ramada (RAM PL)

F. Ramada Investimentos is the parent company of a group of companies that, together, develop two business activities:

i) industrial, which includes the activity of steels, from where it stands out the subsegment of steel for molds, and the activity of storage systems, and
ii) property, aimed at managing real estate assets in Portugal.

The activity of steels with a leading position in domestic market, is performed by two companies: F. Ramada Universal Steels and afire. Its clients are international big car manufacturers (like Autoeuropa from Volkswagen) who export almost its entire production.

The activity of Storage Systems is accomplished by four companies: F. Ramada Structures (the largest manufacturer of storage systems in Portugal, which concentrates all production of the group), Storax Equipements based in France, based in Storax Racking UK and Benelux Storax based in Belgium. International activity composes 76% of sales.

90% of total income from real estate assets in Portugal come from long-term rentals of forest land. Total investments are 85.8 million (M) euros, corresponding to leased land to third parties under operating leases, through contracts with an average duration of 20 years. There is about 70M euros of mortage loans related to these assets (info from Investor Relations). Net asset value of about 25.8M euros of these investments alone is far superior than the company's market cap (15.38M). Value per share is 1.01. And they are making an aditional 0.79M anualized net income return. But there's more. A lot more.

Industrial Unit

Sales growth of 25,9% in first 9 months of 2011 and net income for the last 4 quarters of 5.577M euros. A current PE of 2.76.

Lets look at Balance Sheet (3Q2011) without real estate assets and its associated liabilities:

Cash & Near Cash Items: 19.32
Accounts Receivable: 30.14
Inventories: 25.60
Other Current Assets: 10.00
Total Current Assets: 85.05
Net Fixed Assets: 4.93
Other Long Term Assets: 7.26
Total LT Assets (1): 12.19
Total Assets: 97.24
Accounts Payable: 15.01
Short-Term Borrowings: 43.77
Other ST Liabilities (2): 15.77
Total Liabilities (2): 74.55
Total Equity (3): 22.69

(1) Removing from LT Assets 85.81 of real estate assets.
(2) Removing from Other ST Liabilities and LT Borrowings about 60M euros of mortage loans related to real estate assets.
(3) Total Assets - Total Liabilities.

So we have an Industry Unit whose book value is about double the current market cap. Book value of unit is 0.885 and PB is 0.68. Current ROE of 25.45%.

Valuation

Having in mind that this is a microcap but also that it is currently very profitable and that its balance sheet is simple and also strong, I think that book value is a conservative enough valuation.

Real estate assets: 1.01
Industrial Unit: 0.88
Value per share: 1.89, or a 215% potencial from current price of 0.60.

Risks

- The industrial unit is evidently tied to the economic cycle. But I should add than even in dificult years of 2008 and 2009 the company was profitable with earning of 2.723M and 1.850M euros.

- The risk of Portugal leaving the EU. It is in the interest of the euro zone and of the leading countries (Germany and France), that these solvency issues by several country members are resolved soon and their economies recover. That would allow the leading countries to strengthen their growth and protect their financial sector as its institutions were the ones that lent money to Greece, Ireland, Portugal and Spain.

Portugal has already a restructuring program designed to reduced budget deficits and total debt as well as to make the economy more flexible and increase productivity, concentrating on export activities.

The program was designed by the EU, ECB and IMF to bailout the country after it could not finance itself. Portugal will have a couple of years with slow GDP, but structural changes being made will reduce the government involvement in the economy and reduce unproductive businesses activities like building and construction. Odds are the country will eventually emerge stronger.

Portugal did not have a recent housing bubble like UK or Ireland. It also doesn’t have has much public debt as Greece, Italy or Belgium. Hence, the Portuguese problem rests on competitive issues that are being address.

We think the risks of Portugal leaving the euro are low. Ultimately if it did happen, the margin of safety of the ideas presented is so huge that it would protect the investment even in that worst case scenario.

Dividend

Current dividend is 0.07 cents or a 11.67% dividend yield. Payout Ratio is 32.26%.

Shareholders

F. Ramada Investimentos is majorly owned by its managers (+40%). Bestiver Gestion, the great spanish value investors, own 8.92% of the company.

Hugo Roque

quinta-feira, janeiro 19, 2012

What Johnson & Johnson Does With Its Cash

We can learn a lot from analysing what a company does with its cash.

Article

segunda-feira, janeiro 09, 2012

O que a Microsoft faz com o seu dinheiro...

O exemplo de uma excelente empresa que remunera convenientemente o accionista.

Artigo