Ori Eyal on Hilan Tech, Emet Computing, and Investing in Israel

October 13, 2018 in Equities, Europe, European Investing Summit, European Investing Summit 2018, Ideas, Information Technology, Small Cap

Ori Eyal of Emerging Value Capital Management updated his investment thesis on Hilan Tech (Israel: HLAN), shared a new thesis on Emet Computing (Israel: EMCO), and discussed investing in Israel at European Investing Summit 2018.

Thesis Summary:

Emet Computing is an Israel-based IT services company. It sells, integrates, and supports computing infrastructure solutions and related products and services, including public and private cloud solutions and cybersecurity solutions.

The company should continue to experience rapid growth as businesses need to scale and expand their IT infrastructure, both on-site and in the cloud. Ori projects revenue doubling every five years and earnings more than doubling as profit margins increase toward peer levels due to scale efficiencies.

Assuming a constant EV/EBIT multiple of 10x, investors may earn 20+% IRR. Meanwhile, the shares offer a 4.5% dividend yield.

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About the instructor:

Ori Eyal, with 17 years of global value investing experience, is Founder and Portfolio Manager of Emerging Value Capital Management, a long-short global value fund. The firm’s in-depth research explores the merits of each investment in the context of a global market. Ori worked at Deutsche Bank Asset Management, Deephaven Capital Management and Aquamarine Fund. He holds an MBA from the University of Chicago Booth School of Business and an MSc. in Computer Science from the Open University of Israel. Born in Israel and raised in various places, Ori has a strong understanding of how to invest in both developed and emerging markets. In addition to investing, economics and emerging markets, his interests include logic games & puzzles, artificial intelligence, strategy/ game theory, science/ physics/ astronomy and the upcoming technological singularity.

HolidayCheck: Top Package Holiday Review Site to Unlock Earning Power

October 13, 2018 in Communication Services, Equities, Europe, European Investing Summit, European Investing Summit 2018, Ideas, Micro Cap

Mustafa Hidir of Ehrke & Lübberstedt Management presented his in-depth investment thesis on HolidayCheck (Germany: HOC) at European Investing Summit 2018.

Thesis Summary:

HolidayCheck: The former Tomorrow Focus AG was a “ragbag” of various online businesses without a clear strategy. A few years ago, the company started a transformation process by divesting almost all subsidiaries in order to focus on its previously quite profitable and growing package holiday business.

HolidayCheck is the largest German website for package holiday reviews, with almost eight million verified entries and the most active userbase. ~70% of German vacationers who book their package holiday online visit holidaycheck.de during the booking process. However, too few of the website visitors appear to be aware that they can also book their vacation on the website.

New management has taken the necessary measures to monetize the platform more aggressively going forward. In addition to corporate simplification and ongoing cultural changes, the company has invested significantly into skilled personnel.

Most importantly, the entire IT system has been updated, while the booking process has been simplified. After a multi-year turnaround and unprofitable operations, HolidayCheck should unlock its earning power in the coming years.

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About the instructor:

Mustafa Hidir works as an Investment Analyst at Ehrke & Lübberstedt, focused on publicly listed small- and mid-caps in Germany. Prior to Ehrke & Lübberstedt, Mustafa worked as an Investment Professional in Private Equity. He studied Commercial Law and Finance & Accounting.

Radisson Hospitality: Attractive Special Situation due to New Majority Owner

October 13, 2018 in Consumer Discretionary, Equities, Europe, European Investing Summit, European Investing Summit 2018, Ideas, Small Cap

Brad Hathaway of Far View Capital Management presented his in-depth investment thesis on Radisson Hospitality (Sweden: RADH) at European Investing Summit 2018.

Thesis Summary:

Radisson Hospitality is an operator, manager, and franchisor of Radisson-branded hotels in Europe, Middle East, and Africa. The stock suffered from a significant overhang as a result of the financial troubles of its 70%-owner, distressed Chinese conglomerate HNA.

In August, HNA agreed to sell its 70% stake to Jin Jiang, a Chinese company that is the fifth-largest hotel company in the world. As a result of the sale, Jin Jiang is obligated under Swedish law to bid for the remaining 30% public ownership at a price of at least SEK 35 per share.

However, for Jin Jiang to take the remainder of RADH private, they will likely have to offer a much higher price in order to achieve the 90% threshold required to squeeze out the remaining minority owners.

At 8-9x EBITDA, which Brad believes remains a discount to fair value, Brad estimates RADH to be worth ~SEK 50-57 per share. Jin Jiang’s acquisition of European hotel chain Groupe Du Louvre took place at 12+x EBITDA, implying a stock price of more than SEK 77 per share.

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About the instructor:

Brad Hathaway is the Managing Partner of Far View Capital Management. Before founding Far View Capital Management in 2011, Mr. Hathaway worked for four years at J. Goldman & Company, a New York City-based hedge fund. At J. Goldman, Mr. Hathaway worked as an analyst and a portfolio manager on the firm’s value team. His role there included sourcing and analyzing investment opportunities and managing a portfolio comprised of global securities from multiple asset classes with a focus on US publicly-traded equities. Prior to J. Goldman, Mr. Hathaway worked for three years as an analyst at Tocqueville Asset Management where he discovered and researched global long and short equity investments for the International Value mutual fund and the Global Partners hedge fund. Mr. Hathaway graduated with a B.A. in Political Science from Yale University.

OMV Petrom: Project Optionality at Romanian Sub of Austria’s OMV

October 13, 2018 in Energy, Equities, Europe, European Investing Summit, European Investing Summit 2018, Ideas, Mid Cap

Dominic Fisher of Thistledown Investment Management presented his in-depth investment thesis on OMV Petrom (UK: PETB) at European Investing Summit 2018.

Thesis Summary:

OMV Petrom is the largest integrated oil company in Romania. Listed in Bucharest and in London, it is controlled by OMV of Austria.

Since its privatization, the company has undergone a significant restructuring of its upstream and downstream operations. This has left a well-positioned business with attractive returns on capital, a strong balance sheet, and options to increase production significantly in the Black Sea in combination with ExxonMobil.

The recent low rating and generous dividend should provide protection if this politically significant project does not succeed. Meanwhile, the shares offer a 4.5% dividend yield.

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About the instructor:

Dominic Fisher has been investing since 1988 working at a number of London based firms. He founded Thistledown Investment Management in 2009. He is the largest investor in the VT Thistledown Income Fund which follows a value discipline. He heads the investment committee of the Royal Hospital Chelsea, a director of Aberforth Split Level Investment Trust and Trustee of the Clinical Human Factors Group.

Vonovia: Largest Listed Property Fund in Germany, with Earnings Levers

October 13, 2018 in Equities, Europe, European Investing Summit, European Investing Summit 2018, Financials, Ideas, Large Cap

Oliver Sherman of Northern Trust presented his in-depth investment thesis on Vonovia (Germany: VNA) at European Investing Summit 2018.

Thesis Summary:

Vonovia is the largest listed property fund in Germany. The business has been performing well post-crisis, with much of the net asset value (and related share price performance) driven by external macroeconomic factors that Oliver believes are set to continue over the coming years. Principally, this is a “lower for longer” interest rates environment in the Eurozone.

Apart from a low-rates macro play, Oliver sees the ability of Vonovia to leverage scale as a homebuilder and landlord via the provision of peripheral goods and services as a long-term, quality earnings stream that is not adequately reflected in the valuation, which recent stood at a small premium to (conservatively calculated) NAV per share.

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About the instructor:

Oliver Sherman works as a sector generalist within the stock selection and publication process for the Research Team, with a focus on European Financials. He is ACA qualified and experienced in Financial Statements Analysis. Prior to joining Aviate Global in November 2012 he held multiple roles in a Bank, a multi-billion dollar Family Office and latterly as an Equity Analyst in a UK Long/Short Hedge Fund with Octopus Investments. Oliver has obtained a BSc in Mathematics from The University of Edinburgh, trained as a Chartered Accountant with KPMG and is a CFA Charterholder.

Broadcast TV Industry: European Players Likely Undervalued as TV Not Dead

October 13, 2018 in Equities, Europe, European Investing Summit, European Investing Summit 2018, Ideas

Gregor Rudolph-Dengel of Allianz Global Investors shared his investment thesis on the European broadcast TV industry at European Investing Summit 2018.

Thesis Summary:

Broadcast TV Industry: There appears to a negative structural trend for TV, due to a decline in linear viewing.

Gregor believes the market might have taken a too cautious view, based on recent valuations, on the future prospects of the theme in Europe. This applies for affected companies, such as free-to-air (FTA) broadcasters and satellite operators. Many negative factors are probably more temporary than structural, as the decline in viewing is likely to be only moderate.

There are challenges and they require the companies to improve their business models. Still, Gregor believes they have a good chance to be sustainable. They should be able to make their businesses less dependent on linear TV over time but still keep them as solid underlying cash cows.

Headlines suggest that linear viewing continues to decline should support investments into the theme at low valuations.

Read Gregor’s related article, “What if TV is actually not dead?”

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About the instructor:

Gregor Rudolph-Dengel joined Allianz Global Investors in September 2007 through the graduate programme. Having completed the programme in April 2009, he joined the European Equity team within the Investment Style Team Value. He recently took over responsibility for Allianz European Value. He has been a member of the Dividend team since January 2013 and became the Co-PM of the Allianz European Equity Dividend about two years ago. Before his career at Allianz Global Investor, he graduated with a combined Diploma and Bachelor’s degree in European business (Diplom-Betriebswirt) from the European School of Business in Reutlingen and Dublin City University in 2007. He has also been a CFA charter holder since 2011.

Norwegian Finans: Attractively Valued, Competitively Advantaged Compounder

October 13, 2018 in Equities, Europe, European Investing Summit, European Investing Summit 2018, Financials, Ideas, Micro Cap

Gokul Ponnuraj of Bavaria Industries Group presented his in-depth investment thesis on Norwegian Finans Holding (Norway: NOFI) at European Investing Summit 2018.

Thesis Summary:

Norwegian Finans Holding is a well-run digital unsecured consumer lender available at an attractive valuation. While the risks of investing in an unsecured lender at a late stage of the economic cycle are self-evident, the recent price provides an attractive entry point into a well-run fintech company with structural growth opportunities from market share gains and new product launches.

The shares recently traded at 10.5x trailing earnings and 2.9x price to book, while the business generates ROA of 4+% and ROE of ~30%. A key risk is the weak financial position of the parent airline. Though there is no direct contingent liability and the contract terms with the airline have been extended for ten years, the strength of the brand and origination platform depends on the dominance of the airline.

Bank Norwegian started operations in 2007 and offers consumer loans, credit cards, and deposit accounts to retail customer, distributed through the Internet in the Nordic market. The credit cards are linked to the rewards scheme of the parent, Norwegian Air. The bank entered Sweden in 2013 and Denmark and Finland in 2015. The bank recently had more than one million credit card customers, 190,000 installment loans, and 190,000 deposit customers. It has built up from scratch a loan and deposit book of BOK 37 billion over a decade with a pioneering online distribution model. The efficient operation has a ratio of cost to income (excluding marketing) of less than 10%, enabling the bank to gain share from incumbents.

The business model, with app-based distribution, is scalable, as can be seen from a net interest income CAGR of ~30% over the last five years, with an employee base of fewer than seventy people.

The balance sheet is strong and liquid, with debt to equity of 6x and liquid assets at 24% of balance sheet assets. The liability franchise is strong, with a deposit-to-loan ratio of 1.06. The company has fully funded loan growth over the years through the retail deposit base (not via wholesale liabilities). The spreads have been sticky, and the core differentiator is origination strength. Management has executed in a disciplined manner in terms of managing credit risks through risk selection, provisioning, and bad loan sales.

Gokul’s variant perception centers around the market’s concern around higher competitive intensity, growth tapering off, increased credit costs, and regulatory scrutiny. The market appears to be overlooking the segmental profit mix, recurring revenue base, scale advantages, provision cover, creditor powers in the Nordics, a high-engagement distribution platform, credit card stickiness, seasoning of the portfolio, cross-selling opportunities, and embedded growth optionality.

The recent share price offers an opportunity to enter into a long-term compounder at an undemanding valuation, tilting the risk-reward in favor of the investor.

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About the instructor:

Gokul Ponnuraj is a value investor with a focus on small- and mid-cap spinoffs and compounders. He has been investing in the Indian markets for more than ten years and in global markets for the last two years. Gokul manages the public equities portfolio at Bavaria Industries Group. The firm uses its balance sheet assets (permanent capital) to invest in opportunities with an attractive risk-reward tradeoff. Gokul holds a Master in Finance degree from London Business School.

Akka Technologies: Management Plan for 2022 Ambitious But Achievable

October 13, 2018 in Equities, Europe, European Investing Summit, European Investing Summit 2018, Ideas, Small Cap, Transcripts

Santiago Domingo Cebrian of Solventis SGIIC SA presented his in-depth investment thesis on Akka Technologies (France: AKA) at European Investing Summit 2018.

Thesis Summary:

Akka Technologies is an engineering and technology consulting company that provides services to automakers, aircraft manufacturers, and other companies.

The industry grows ~12% annually and is fragmented, generating M&A opportunities. Talent is key due to a lack of qualified engineers. Akka’s strategy is based on getting the most innovative contracts in order to attract young engineers.

After completing its latest strategic plan, Akka disclosed a new plan with targets for the year 2022. The targets include doubling sales to €2.5 billion, achieving an EBIT margin of 10% (as compared to 7% recently), and FCF of €150 million. A review of those projections suggests they are viable because of management’s track record, the success of the last strategic plan, and the feasibility of the targets set by management.

Applying a multiple of 15x to adjusted FCF of €140 million suggests fair value of €2.1 billion, as compared to a recent market cap of €1.3 billion.

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About the instructor:

Santiago Domingo is a portfolio manager at Solventis Asset Management. He is the co-investment manager of Solventis EOS fund since February 2017. Solventis EOS is a long only European equity fund founded in 2006, and focused on investing in companies with sustainable competitive advantages and that are undervalued by the market. Prior to Solventis, Santiago worked as an analyst for a start-up called OralSurgeryTube and in the Endesa´s financial department. Santiago holds a Bachelor´s degree in Finance and Accounting from University of Zaragoza and a Master´s degree in Institutions and Financial Markets from CUNEF.

Josh Shores of Southeastern on Exor and Value Investing in Europe

October 13, 2018 in Audio, Equities, Europe, European Investing Summit 2018, European Investing Summit 2018 Featured, Financials, Ideas, Large Cap

Josh Shores of Southeastern Asset Management shared his wisdom and insights into value investing in Europe during a keynote Q&A session at European Investing Summit 2018.

Josh discussed some of Southeastern’s non-U.S. holdings, including Exor (Italy: EXO). He also talked about Southeastern’s focus on partnering with great owner-operators and highlighted several such CEOs.

No slide presentation accompanies this session.

Replay this LIVE session:

audio recording

Watch our interview with Josh Shores about Southeastern’s investment philosophy.

About the instructor:

Josh Shores is a co-portfolio manager for Longleaf Partners International Fund and a member of Southeastern Asset Management’s Executive Committee. After seven years in Southeastern’s London office, Josh is now based in Memphis and focuses on Non-US investments. He joined Southeastern in 2007 after working at Smith, Salley & Associates in Greensboro, NC and Franklin Street Partners in Chapel Hill, NC. A University of North Carolina graduate, Josh holds bachelor’s degrees in Philosophy and Religious Studies. He received his CFA designation in 2006.

Crest Nicholson: Debt-Free, Undervalued UK Homebuilder

October 13, 2018 in Audio, Consumer Discretionary, Equities, Europe, European Investing Summit 2018, European Investing Summit 2018 Featured, Ideas, Large Cap, Transcripts

Daniel Gladis of Vltava Fund presented his in-depth investment thesis on Crest Nicholson (UK: CRST) at European Investing Summit 2018.

Thesis summary:

Crest Nicholson is an established UK house builder with 50+ years of business history. It operates in an industry where long-term positives (housing shortage) is fighting medium-term headwinds (house prices and affordability, questions regarding government support) and short-term uncertainties (Brexit).

The business itself is rather simple and understandable, generating high returns on capital and high free cash flow.

With the dividend yield a lot higher than PE it seems to be priced for a recession. The company is debt-free and the balance sheet structure provides reasonable long-term downward protection.

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About the instructor:

Daniel Gladis, based in the Czech Republic, has amassed a market-beating track record since starting VLTAVA Fund in 2004. VLTAVA Fund is a value-oriented, research-driven investment fund focused on investing in good companies run by quality management. Previously, Daniel was Director and Chairman of the Board of Directors of ABN AMRO Asset Management (Czech) from 1999–2004. He was also Director and founder of Atlantik finanční trhy, a.s., a member of the Prague Stock Exchange. Daniel is a graduate of VUT Brno and has authored the best-selling books Naučte se investovat (Learn to Invest) and Akciové investice (Stock Investments).

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