HYUD - Hyundai preferred

[yadayada]

Ok so i just found out I can buy Hyundai preferred on the London exchange thx to bizaro. Basicly it is trading at a 4x PE. But after cash and minority interests on the balance sheet it is more like a PE of 2x. Which seems completely absurd. It trades to about a 50% discount to common. And the only downside is limited voting rights, which is not relevant anyway.

 

Fiat trades at a 9x PE, and GM is even more expensive.

 

Any reason to like 2nd and 3rd preferred better?

 

HYUD is 1st preferred right? And HYU is the common?

 

http://solothink.wordpress.com/2013/11/27/50-cents-on-the-dollar-hyundai-motors-preferred-stock/

[steph]

I am not sure I agree with the fact that Hyundai pref is extremely cheap. The normal Hyundai shares trade at 10 to 11 times earnings. The discount of the preferred shares has always been there. So what if the discount is still there in 2020? The discount has historically been somewhat smaller, but it has also been larger. The Hyundai pref have actually already very strongly outperformed the regular shares the last year.

 

[bizaro86]

I am not sure I agree with the fact that Hyundai pref is extremely cheap. The normal Hyundai shares trade at 10 to 11 times earnings. The discount of the preferred shares has always been there. So what if the discount is still there in 2020? The discount has historically been somewhat smaller, but it has also been larger. The Hyundai pref have actually already very strongly outperformed the regular shares the last year.

 

While I happen to think the discount will close if/when Korea begins to open its capital markets, the thesis doesn't depend on that, imo. Hyundai Motor is a company I'd own anyway, as I think it has the biggest growth runway of any of the automakers, and its cheap. Buying it at 50% off is a good deal as it effectively doubles the dividend you receive even if the price gap never closes. If the price gap does close, you get a bonus double.

[yadayada]

Catalyst should be v high dividends?

 

Interesting is their minority stakes

 

If you add up all their net profit and multiply it by % owned, you get about 2.6 trillion Won. Most of it is a stake in Kia and Hyuandai bejing.

 

Is this already in their profit statements?

 

It seems they dont generate much cash. But if they would start paying out like half their earnings in dividends, then you would get 10% dividends, which should translate in a nice gain of like 100-200%. The preferred would then yield like 4% after a 200% gain.

 

But im not sure if this will happen. Their finance department lags in cash flow obviously. And it seems all these asian stocks trade on dividends anyway?

 

edit: seems main reason this is cheap is the lack of cash flow. They have 9 trillion in profit, and no free cash flow, and pay only 600 billion in dividends.

 

I see this with a lot of car company's. Is there some kind of cash harvest mode these company's go through? Otherwhise those earnings seem kind of meaningless.

[bizaro86]

Their market share has been increasing significantly in recent years, I wonder if the lack of free cash flow is due to investments in increasing capacity?

 

 

_____________________

Will add my previous post for those interested (from another thread):

 

Yes the London shares are the preferred. At least according to: http://worldwide.hyundai.com/WW/Corporate/InvestorRelations/IRActivities/IRFAQs/index.html

 

which states:

 

Hyundai Motor Company shares are listed in Seoul(Common share, Preferred share), Luxemburg(GDR Common share), and London (GDR Preferred share).

 

 

 

[Packer16]

The discount for more "open" markets is 5 to 10% for voting vs. non-voting stock.  I think part of the discount may be for liquidity also.  I think over time the discount should approach 10%.  The good 12 month performance is due to the discount closing.

 

Packer

[steph]

I like Hyundai very much, but since it is a favourite stock of almost everybody I try to be cautious and critical. When looking at my Bloomberg screen I see a stock trading at 11 - 12 times earnings, 6-7 times EV/ebitda and 7-8% free cash flow yield. Sales have been stagnant since 2011. The KRW has gained 30% in 2 years against the JPY. The weak KRW was part of the explanation why korean companies have beaten their japanese competitors in the last years. Will this continue with the KRW strengthening against all currencies? The prefereds are trading with a 33% discount. This is historically low. Since the end of 2011 the prefereds shares have doubled while the normal shares haven't done anything!!! This idea is so popular that I am just afraid that those entering the party today are a bit late.

[yadayada]

you need to look at fundamentals. a 4pe is ridicilous ofcourse.

 

But what i see is that these stocks trade on dividend yields. A lot of asian stocks do. What do you think their free cash flow will look like in the next years packer?

[bizaro86]

I like Hyundai very much, but since it is a favourite stock of almost everybody I try to be cautious and critical. When looking at my Bloomberg screen I see a stock trading at 11 - 12 times earnings, 6-7 times EV/ebitda and 7-8% free cash flow yield. Sales have been stagnant since 2011. The KRW has gained 30% in 2 years against the JPY. The weak KRW was part of the explanation why korean companies have beaten their japanese competitors in the last years. Will this continue with the KRW strengthening against all currencies? The prefereds are trading with a 33% discount. This is historically low. Since the end of 2011 the prefereds shares have doubled while the normal shares haven't done anything!!! This idea is so popular that I am just afraid that those entering the party today are a bit late.

 

I would say the stock is only a favourite of those in the deep value community. It's not like you're buying Tesla here.

 

The quality of their product has also improved dramatically, and the company is now starting to get mentioned in the same breath as Toyota and Honda by consumers. I'm biased, because I really like my Sante Fe, and will probably buy another one in a few years. Incidentally, when I bought it in 2008 it was dramatically cheaper than the Toyota/Honda equivalents (at least in my local area). While that price gap has mostly closed, their sales haven't fallen off a cliff, which is an extremely good sign. Essentially, they're now able to sell cars on brand not only price.

 

Anyway, I don't have a huge position, but I've filed this under the "buy good cheap companies and good things will happen" heading.

[phil_Buffett]

http://www.weisskoreaopportunityfund.com/documents/FG/weiss/docs/188742_Weiss_Korea_Annual_Report_Dec_2013_FINAL_unsigned.pdf

 

interesting comments on hyundai. from mr weiss from the weiss opportunity fund

 

 

 

 

[bizaro86]

http://www.weisskoreaopportunityfund.com/documents/FG/weiss/docs/188742_Weiss_Korea_Annual_Report_Dec_2013_FINAL_unsigned.pdf

 

interesting comments on hyundai. from mr weiss from the weiss opportunity fund

 

Thanks for posting this! I really agree with his thesis that Hyundai is undervalued, and probably would have been willing to buy the common. The thesis here doesn't depend completely on the discount closing, imo, that just provides additional margin of safety.

 

Fair use excerpt from the above link:

 

We believe that Hyundai is a much more valuable company than it appears from a cursory look at its financial statements. Hyundai is incredibly asset rich relative to many other automotive companies, with substantial holdings of cash, short term financial instruments, and shares in both private and publicly traded companies. Hyundai uses the equity method for accounting, so most of its publicly traded holdings, such as its 34% stake in Kia Motors Corporation (ticker: 000270 KS), are carried on Hyundai’s balance sheet at period end book (not market) value. In addition, Hyundai’s interest in its 50% Chinese joint venture is carried on Hyundai’s balance sheet at what appears to be substantially below its intrinsic value. The carrying value implies only a 1.9x price to annualized earnings ratio – for a joint venture that has been growing revenue at more than 15% per year.5 Analysts estimate that Hyundai sold 1 million cars in China in 2013.

[Kiltacular]

Gangham style:  http://www.bloomberg.com/news/2014-09-18/hyundai-motor-group-to-buy-kepco-site-for-10-55-trillion-won.html?cmpid=yhoo

 

[skanjete]

Gangham style:  http://www.bloomberg.com/news/2014-09-18/hyundai-motor-group-to-buy-kepco-site-for-10-55-trillion-won.html?cmpid=yhoo

 

Incredible.

Megalomaniacs!!!

[muscleman]

Gangham style:  http://www.bloomberg.com/news/2014-09-18/hyundai-motor-group-to-buy-kepco-site-for-10-55-trillion-won.html?cmpid=yhoo

 

Incredible.

Megalomaniacs!!!

 

Wow.......I don't know what to say. ::)

[phil_Buffett]

Gangham style:  http://www.bloomberg.com/news/2014-09-18/hyundai-motor-group-to-buy-kepco-site-for-10-55-trillion-won.html?cmpid=yhoo

 

Incredible.

Megalomaniacs!!!

 

Wow.......I don't know what to say. ::)

me to!

 

what a poor capital allocation. very sad. great Discount on the preferreds before, but things like this give me a clear sign not to buy more.

[muscleman]

 

what a poor capital allocation. very sad. great Discount on the preferreds before, but things like this give me a clear sign not to buy more.

 

Not sure if I should sell. I have a 10% position on this. It had a great run up this year and then a big tank. I am still thinking it is probably too cheap right now to sell. ::)

I think the key question is whether a 3.9 PE justifies holding this, with the poor management.

[phil_Buffett]

 

what a poor capital allocation. very sad. great Discount on the preferreds before, but things like this give me a clear sign not to buy more.

 

Not sure if I should sell. I have a 10% position on this. It had a great run up this year and then a big tank. I am still thinking it is probably too cheap right now to sell. ::)

I think the key question is whether a 3.9 PE justifies holding this, with the poor management.

 

i will hold my preferred stake but not will buy more. it was big undervalued before this poor deal. so i will now hold it and wait that preferred appreciate in Price to reach common Price Level or around 80-90% of it.

[Picasso]

Of course this was one of Whitney Tilson's larger positions.  I refuse to invest in anything that guy is involved with.

[muscleman]

Of course this was one of Whitney Tilson's larger positions.  I refuse to invest in anything that guy is involved with.

 

Does that include AIG and BRK? ;D

[Picasso]

Of course this was one of Whitney Tilson's larger positions.  I refuse to invest in anything that guy is involved with.

 

Does that include AIG and BRK? ;D

 

I guess I mean securities that are off the beaten path.  Not to say his involvement in AIG or BRK will not give me pause.  Just a natural instinct of mine before I realize even Tilson can not screw up the fortune of something like BRK.

 

Other securities, beware...  ;D

[thelads]

this is very disappointing to be sure. One thing I am curious about is that nothing has been released on how they will finance the purchase. I mean I assume like everyone else has thus far that they will pay cash. But if they were to finance with Non-recourse debt at an aggressive LTV it wouldnt be a disaster. Far from it. But thats probably clutching at straws.

[peter1234]

this is very disappointing to be sure. One thing I am curious about is that nothing has been released on how they will finance the purchase. I mean I assume like everyone else has thus far that they will pay cash. But if they were to finance with Non-recourse debt at an aggressive LTV it wouldnt be a disaster. Far from it. But thats probably clutching at straws.

 

Good points.

 

My concerns are:

 

They overpaid (maybe 3x).

 

Their biz is making cars and not being a real estate developer.

 

They want to build themselves flashy new headquarters.

 

;)

 

[misterkrusty]

Of course this was one of Whitney Tilson's larger positions.  I refuse to invest in anything that guy is involved with.

 

Does that include AIG and BRK? ;D

 

according to his investor letter he only made it a 2% position.  I really doubt this ever became one of his largest, even if it had appreciated somewhat since purchase

[peter1234]

Of course this was one of Whitney Tilson's larger positions.  I refuse to invest in anything that guy is involved with.

 

Does that include AIG and BRK? ;D

 

according to his investor letter he only made it a 2% position.  I really doubt this ever became one of his largest, even if it had appreciated somewhat since purchase

 

I think you are right.

 

It is part of his Korean basket (Samsung, Hyundai, Hankook, Nexen).

 

;)

 

[Picasso]

Of course this was one of Whitney Tilson's larger positions.  I refuse to invest in anything that guy is involved with.

 

Does that include AIG and BRK? ;D

 

according to his investor letter he only made it a 2% position.  I really doubt this ever became one of his largest, even if it had appreciated somewhat since purchase

 

I think you are right.

 

It is part of his Korean basket (Samsung, Hyundai, Hankook, Nexen).

 

;)

 

He said it was a 3 percent position but I think it misses the point. Tilson has a lot of positions so 3 percent is a lot for him. The guy has no balls to put on a 15 percent position.

 

I was just saying this left field outcome in these Hyundai preferred are par for the course in a Tilson holding. 

 

I was looking closely at TFG before I found out Tilson was also touting it. Needless to say I threw that idea out the window.