SCHO.CPH - Schouw & Co. A/S

[John Hjorth]

This a former languishing paper and cardboard factory, that through this century has morphed into an industrial conclomerate - so far, a very successful one, [speaking very short!]

 

You might ask: "A Danish stock? - and "under the radar?"" and I don't know what.

 

Link for non-Scandinavian investors: here.

 

Link for Scandinavian investors: here.

 

Please take a look - if you are interested - at the latest aquisition done by the company, based on 2016Q3 reporting, on the website, compared to the attached.

 

I have spend quite some time studying this thing. Please feel free to ask questions in this topic.

offentliggorelse_GPV_International_2015-16.pdf

offentliggorelse_GPV_Internaional_2014-15.pdf

[rb]

Interesting. Do you know why they had that stock price collapse in 2008?

[Alex.N.B]

any thoughts on valuation?

[John Hjorth]

Interesting. Do you know why they had that stock price collapse in 2008?

 

The company betted hard - very hard - on getting one of the predecessors of Vestas Wind Systems A/S [VWS.CPH] [NEG Micon] to get it out of its daire straits, and was paid for that - dearly.

[John Hjorth]

any thoughts on valuation?

 

Alex,

 

Point taken - somehow. You can make your calculations. Most likely, You will be surprised what will be hapening going forwards. So will I. As I have already been.

 

Edit:

 

Trying here to give a more constructive answer to Alex.

 

I think a valuation method could be sum of the parts for the subsidiaries plus net assets ex shares in subsidiaries for the holding company, deducted an estimated net present value of costs at the holding company level.

 

The subsidiary BioMar is a major part of this conglomerate, and I have tried to find the major competitors and see if they were listed to get some kind of perception of the value of BioMar. Unfortunately I haven't been able to idetify them. [As I understand things, BioMar is the worlds third largest producer of fish food.]

 

The company is right now sitting on a cash pile in the area of DKK 1.5 B after the sale of the shares in Kramp. What really matters here also is what the company will do with that cash. My guess is that it will be big - really big - perhaps in the range of DKK 2 - 3 B and involving leverage in the aquisition. Something that is Danish, and right now privately held. [Perhaps a big chunk or the whole of a small well run Danish regional bank? - I really don't know - The company has done crazy stuff before.]

 

The CEO Jens Bjerg Sørensen has proved him self to be a skilled operator and capital allocator under his 15 year long tenure, and his runway will likely be 10 years more before his retirement, unless something bad happens along the way.

 

The "problem" [sort of a good one, if a problem even can be a good one] is also with regard to valuation: How do you calculate a value of a strong cash flow combined with proven capital allocation skills for the management.

 

Seems to be like doing a sort of sum of the parts valuation on BRK in 1980 or the like without adding some component related to the value of the BRK cash flow combined with the capital allocation skills of Mr. Buffett and Mr. Munger.

[DooDiligence]

Mr. Sorensen mentioned an interest in opening a GPV facility in Mexico to gain access to US markets.

 

Given the Donalds hostile posture do you think they'll hold off on Mexico or will it not make a difference?

 

I noticed that Fibretex added a US based biz by acquiring Non Woven Solutions a few years ago.

 

What kind of investments has Incuba made & are they active managers?

 

Wikipedia lists the three major manufacturers of fish feeds for aquaculture as Biomar, EWOS (owned by Cargill) and Skretting (Skretting claims to be the largest producer.)

 

http://mobile.feednavigator.com/Manufacturers/Biomar-Skretting-and-Cargill-look-to-ways-to-push-novel-oils-into-the-salmon-feed-supply-chain

 

This seems a very interesting conglomerate to be trading at barely over book (very little intangibles & lots of depreciation of PPE - is there additional hidden value?)

 

Why did they sell Kramp?

 

I'll keep reading...

[John Hjorth]

Thank you very much for the help with the BioMar competitors here, DooDiligence. I need to do some more work to understand this industry, that BioMar is in, and perhaps later post some more about it here.

 

Kramp:

 

Company annoucement about the sale of the Kramp shares of September 9 2016. Schouw want - and requires - control, which the company could not get here. So the company walked away with the money leaving the company to the investment partner, to now go somewhere else to invest the proceeds.

 

Incuba:

 

Incuba is held by Schouw through an intermediate holding company called Incuba Invest A/S.

 

The shareholders of Incuba Invest A/S are:

 

Schouw - 49.02%

Aarhus University Research Foundation - 32.21% Link.

NRGi a.m.b.a. - 18.77% [it's a Danish Power Utility - principally oprating in the middle and Nordthern part of Jutland].

 

The shareholders of Incuba A/S are:

 

Incuba Invest A/S - 45%

Aarhus University Research Foundation - 55%

 

From the Incuba AS report, p.6, translated to English:

 

"INCUBA's purpose is to establish and operate firmbased science that supports especially smaller business innovation and growth. Science parks are operated at 3 locations, each with its own professional fulcrum: IT Katrinebjerg, health Skejby and cleantech at Navitas"

 

So basically Incuba is mainly a real estate company, providing housing to a range of small melting pots.

 

I have family in Aarhus. I think I will take look at the buildings etc. next time I visit my elder brother and his family.

 

The 2015 financials for Incuba Invest A/S and Incuba A/S are attached [unfortunately only available in Danish].

offentliggorelse_Incuba_Invest_AS_2015.pdf

offentliggorelse_Incuba_AS_2015.pdf

[DooDiligence]

Good Morning John (I hope you & your wife are enjoying a beautiful orange Danish day today!)

 

The list of Incuba companies / industries is very wide & includes some well known multi nationals like Furuno, Honeywell, Amerisource Bergen World Courier, Wise Consulting.

 

I started Googling each & quickly got overwhelmed but noticed a large percentage with English language sites which seems to show global ambitions for many of the businesses / tenants at Incuba.

 

This seems like a great knowledge hub & I'd be curious about the atmosphere (co-mingling opportunities between businesses through shared facilities...)

 

Are some of these companies like Robotic Ultrasound actually manufacturing here?

 

Are there facilities for the bio techs to do hard science?

 

For my own selfish reasons, I notice that Novo Nordisk is conspicuously absent?!?

 

It seems like this facility may not actually be a huge driver of revenues for the company now but I'll bet the activities going on there have & will lead to opportunities for the company & the nation.

 

Is it normal for a company like Schouw to be trading marginally above book or am I reading the numbers wrong?

 

Fair warning; Aarhus sounds like a wonderful place to visit!

[DooDiligence]

Oops; I started Googling before reading their Nov 2016 report which is answering a lot of my questions...

 

Management seems extremely candid.

[John Hjorth]

DooDiligence,

 

Thanks, bad weather today - also in the morning - I would say: as almost always on this time of the year here.

 

Yes, with regard to the three locations owned and run by Incuba A/S, I imagine it's like three beehives, filled with incredible smart, busy and diligent people working around the clock for their own dream to come true. [Which also make me think they [the beehives] must be gold plated or something like that, with a book value of ~DKK 900 M!] Most likely not production facilities, but rather offices and labs. [When the startups either fails by running out out cash and lack of access to further funding, or they enter to the startup of the production phase, they move out by closing shop, or move somewhere else to start production for real.

 

A more or less constant in- and outflux of tennants in the buildings over time - A real nightmare to manage, by the way!

 

There is a good write-up about Incuba in the 2001 financials [it's still with access on the website]. At the foundation of Incuba Schouw held 40%, and company called Dansk Kapitalanlæg A/S also held 40%.

 

Dansk Kapitalanlæg A/S was a fairly large venture capital and private equity company, owned by major Danish banks and insurance companies. At some time that company was set in run-off mode, and is now liquidated not so long ago. The CEO of that company was the Schouw board member Niels Kristian Agner. He also joined the Schouw board in  1988. So the shift in strategy for Schouw at that time to the conglomerate setup and the Incuba investment I do consider far from coincidental.

 

The University Foundation is an enormous sucker with an enormous book equity, due to it's ownership of Cheminova during many years and the dividends from Cheminova, followed by the sale of Cheminova to FMC Corporation in 2014 for DKK 8.5 B, and appearently the Foundation wanted to do more and more of this Incuba stuff, so things ended up as is now, with Schouw holding only a minor stake in the beehives and Dansk Kapitalanlæg A/S out.

 

So, what this is for Schouw now is actually an investment pipeline where actually the Foundation has the most capital commited to keeping it running- for Schouw to pick up investments in startups with good prospects.

 

A few years back I was with the Lady of the House at a Sushi restaurant in London. It was a quite special restaurant. No tables in the middle of the room - lots of free space there - for a reason: Along the walls was a small conveyer system running eternally in a circle - out through the kicthen, so one just picked some food on a small dish at your own choice while it  passed you, without even beeing served by anyone - only staff in kitchen to make the food and one person taking care of your payment.

 

The original Incuba A/S is now Incuba Invest A/S, and the beehives are now put in the associate Incuba A/S. Schouw makes there picks among the startups in Incuba Invest A/S, where it doesen't have to share profits with the Foundation at the same rate, because the Foundation has a lot capital committed directly in Incuba A/S.

 

So Jens Bjerg Sørensen is not sitting waiting for the phone to call, like Mr. Buffet. In stead, he is calling a staff member at Incuba A/S: "Any new tennants that I have not heard about?" [Perhaps quarterly or semi-anually]. If any, he jumps in his car when he has the time for it, all three bee hives are within 15 minutes driving distance from Schouw HQ, to go on a visit of courtesy - and certainly also curiousity, presenting him self as a small co-owner of the actual bee hive in mention, and the chat starts : "Please tell me a bit about what you're doing?", and he listens, and after the chat ends, it's one of two alternatives:

 

a. Thank you for the talk - it sounds very interesting! - Good luck with it! - Nice meeting you - goodbye.

b. Thank you for the talk - it sounds very interesting! - Good luck with it! - Here is my business card, please give me a call, if you need more capital, and we can discuss. - Nice meeting you - goodbye.

 

Incuba Invest divests shares in Scandinavian Micro Biodevices [August 11, 2016] [at a gain of DKK 60 M]

 

I consider this a tiny and brilliant nebengeschäft aside all the long term conglomerate investment stuff involving the big bucks.

[DooDiligence]

I really like this business & thank you for pointing it out.

 

The SUWCF foreign shares are kind of thinly traded but there seems to be a little arbitrage (don't know if I could take advantage through my Fidelity account.)

 

I'm going to get signed up for foreign equity trading & will continue reading & if I buy then I'll probably opt for the direct purchase for better liquidity.

 

It looks like their Chilean feed revenue problems were made up elsewhere & they did a good job of collecting on receivables.

 

Overall very interesting (Incuba could be a nice side business indeed!)

 

BTW I ate at a similarly designed sushi spot in Amsterdam a while back & thought it was a brilliant idea (the different colored plates / pricing was neat...)

 

-----

 

Maybe Novo Nordisk isn't a tenant but they're still hanging around

 

http://incuba.dk/en/whats-up/events/event-presentation/?AjrDcmntId=1589

[DooDiligence]

I just looked up all the Skejby businesses & it appears that many are ongoing concerns (maybe I'm being fooled by the nice websites.)

 

Pipeline Biotech kind of stands out to me.

 

My point is that this seems an impressive business development center & your comments concerning Mr. Sørensen's active investigations seem plausible.

 

It would be cool to see Schouw start a life sciences division & maybe take full ownership of companies like Scandinavian Micro Biodevices instead of letting someone else enjoy the long term value.

 

I got distracted by Incuba & need to start reading more about Schouw...

[DooDiligence]

BioMar may have missed out on a nice adjacency when Zoetis bought Pharmaq...

 

https://www.pharmaq.no/products/

[John Hjorth]

... Is it normal for a company like Schouw to be trading marginally above book or am I reading the numbers wrong? ...

 

DooDiligence,

 

Thank you for your questions about SCHO.CPH! They really help me to get an understanding of this company, because your questions are all relevant.

 

I still think it is relatively cheap, despite the runup lately. I'm comparing with the P/E's of industrial peers among the constituents of NasdaqOMX C20CAP.

 

I'm still thinking about why it is so, and trying to contemplate why it is so.

 

So far reasoning that I see:

 

1. "Dull" stock - basically no investors  are talking about it.

2. "Dull" stock - almost no analyst coverage. Link . Only Claus Almer from Carnegie and Bruce Diesen from Fearnleys were asking questions under the last conference call. Link - only available on Danish part of website - partly in Danish, partly in English. To me, if you have the time listening to it, certainly worth your time listening to it..

3. Quite complicated investment because of all the moving parts - by definition - as beeing a conglomerate - and by that alone trading at a conglomerate discount. I think that excludes quite some Danish investors getting interested because of the time you have to allocate to studying the company to get some kind of understading of this investment, and thereby some degree of basis of your conviction.

 

I have looked at many small listed Danish companies within the last years, mostly - for me - to no avail, because the companies I've been looking at does not fit my temper, or I've seen issues [from a shareholder and investment perspective], that simply made me walk away. I'm calling it "kissing frogs".

 

This investment fits my temper, somehow.

 

I'm trying to get some structure on my work on this thing, and my list, by priority, - right now - is:

 

1. Shareholder structure,

2. liquidity of the stock etc.

3. Obtaining further understanding of the conditions under which BioMar is doing business, because it constitutes a large part of the conglomerate,

4. List of cons/dislikes - already in progress - more might be added

4a. The size of the BioMar investment in relation to the size of the conglomerate, related to my position sizing,

4b. SCHO.CPH HQ building is to me flamboyant. Mr. Buffett should work from such thing. [Minor - perhaps I should get my envy in control]

4c. Commercial real estate stubs from prior ventures [Minor, relatively speaking, but somehow very annoying. -Fix it, get it over with, and move on!]

4d. Management option programme.

 

I'll post more - along the way.

[DooDiligence]

Thanks for the dialog regarding this sexy looking frog & I hope I'm adding something here instead of just being a nuisance.

 

Here's an interesting report on protein food sources & their ability to sustain us from a human & industrial standpoint...

 

https://www.forumforthefuture.org/sites/default/files/The_Protein_Challenge_2040_Summary_Report.pdf

 

-----

 

It seems like sustainability in aquaculture, increasing yields & improving the ability to exploit entire catches are the driving force among forward thinking feedstock producers & fishermen (whether this translates into success in competition between farms & fisheries, dunno? But I believe it will be a factor for BioMar & their competitors...)

 

http://www.aquafeed.com/news/headline-news-article/7050/Norway-funds-business-innovation-project-to-investigate-

 

-----

 

Interesting how the algae bloom problem in Chile reduced fish & feed volumes & then increased profits for Chilean farmers & subsequently improved the company's collection of receivables (management states they expect payment on an insurance claim for lost business.)

 

Margins look fairly consistent so maybe no extraordinary supplier pricing power or buyer power.

 

A new factory online in Turkey & another opening up in China in 2017.

 

Threat of substitutes, new entrants & rivalry's (I'll have to read some more...)

 

-----

 

Schouw has run up a bit but still looks cheap on a sum of the parts valuation & as liquidation is not a factor, I'd think that the limit on a higher valuation would be as you said "obscurity."

 

I think they're in a great industry with a very long runway (if all participants stay rational with regards to pricing then it seems like there's profit to be made by all.)

 

That last statement was opinion & I'll read a bit more to see if the biggest producers are in fact being rational.

 

I like Incuba a lot, especially if management can fit the better ideas into the conglomerate.

 

BTW do you know if they do the Buffet thing where they buy a company with management in place & then leave them alone (for example, did they change the top guys at Non Woven Solutions when Fibertex bought control?)

 

I may be overthinking things here with that last question & it may even be irrelevant...

 

The fibers business seems like something that'd get sold but maybe that's just me (can't get excited about raw materials for Maxi Pads & such.)

 

I'd like to see more adjacencies to aquaculture (if I were an owner) but then I tend to like focused businesses...

 

-----

 

rb chimed in earlier & it sure would be nice to read his thoughts (I hope he's a fish & chips lover!)

[John Hjorth]

...BTW do you know if they do the Buffet thing where they buy a company with management in place & then leave them alone (for example, did they change the top guys at Non Woven Solutions when Fibertex bought control?)

 

I may be overthinking things here with that last question & it may even be irrelevant...

 

DooDiligence,

 

Thank you for the links to reports! I haven't had the time to read them all in full - I will read them in the weekend. I'm sure - from what I've already read- that it  covers some of my concerns.

 

Now with regards to the business model for SCHO.CPH:

 

Berkshire style: "Hands off" - About "total autonomy" to the CEO of the eternal operational sub, ref. Mr. Munger earlier. To me, it seems totally exaggerated, but not with regard to Mr. Buffett and Mr. Munger.

 

What I'm quite sure is happening is Mr. Hamburg is doing all the follow up and asking all the relevant questions. And if he is loosing confidence in a BRK operational sub CEO, he is approacing Mr. Buffett with a question like this - just starting a discussion topic : "Warren, when you have the time for it, whe should sit down and talk to each other about this."

 

Or it pops like an appointment in Outlook from the Exchange Server, perhaps put in there by Mr.  Hamburg, his secretary handling and mentioning  things under a daliy morning meeting, Mr. Buffett replying: "Oh no, not again!..."

 

SCHO.CPH:

 

This guy [the group CEO] - and the controlling shareholders - are - not at all - the same, compared to BRK.

 

It's all about:

 

Buy low - trim the damn thing - sell it high [in the long run] - doing it all over again, again and again - and again.

 

ShaperDingaan on this board is the spokesman of this technigue: Rinse, repeat!

 

[John Hjorth]

Attached are the 2015 financials for BioMar. Unfortunately they are only available in Danish. I think it should be possible to read the management discussion on page 5 - 9 using cut and paste and giving it a spin in Google Translate.

offentliggorelse_BioMar_Group_AS_2015.pdf

[DooDiligence]

I really like this but the cheapskate in me wants to see if a market correction will bring it down below historical book average (I know this is trying to time in & there'll be a lot of polite tsk, tsks but aren't we all reluctant market timers?)

 

Plus it'll give more time for studying / thumb sucking...

[John Hjorth]

Thanks for the dialog regarding this sexy looking frog & I hope I'm adding something here instead of just being a nuisance.

 

Here's an interesting report on protein food sources & their ability to sustain us from a human & industrial standpoint...

 

https://www.forumforthefuture.org/sites/default/files/The_Protein_Challenge_2040_Summary_Report.pdf ...

 

DooDiligence,

 

Great summary report - thank you! I read it last night. Reading it actually made me more confortable - much more - with regard to BioMar beeing a such large part of the conglomerate.

 

I see a lot of growth for BioMar going forward long term, based on the report, if the course is the middle of the road - running the company in a sustainable and responsible, yet still efficient, way.

 

About this issue with kissing frogs: I have been wondering about what this attraction of mine is about with this thing? Is it a read head?, is it it a blonde? - Or is it a brunette? If it is brunette, is it from Brazil or Thailand? I found out that it is a brunette, and Danish - and with huge .... stock positions! [At holding company level, that is].

 

- - - o 0 o - - -

 

I have tried to pick up some more the last couple of days [Thursday and Friday] below 500, but to no avail - it's running up, up. up. Enormous trade Friday, that I have to look at.

[DooDiligence]

A Danish brunette sounds lovely!

 

-----

 

As to Schouw's aquaculture business & major competitors:

 

Skretting is privately owned & Wikipedia claims they produced 2 million tons of fish feed in 2016

 

https://en.m.wikipedia.org/wiki/Skretting

 

Here's a mildly informative US link to their operations

 

http://www.skretting.com/en-US/our-story/

 

and another to their Norwegian web presence

 

http://www.skretting.com/nb-no/

 

-----

 

Cargill is also private & does a lot besides aquaculture (Wikipedia says they're HUGE!)

 

https://en.m.wikipedia.org/wiki/Cargill

 

Here's a link to their aquaculture page

 

http://www.cargill.com/feed/species/aquaculture/index.jsp

 

-----

 

It would be nice to compare financials with these guys but...

[John Hjorth]

DooDiligence,

 

I think I can get the financials for Schouw's Norwegian competitors at Brønnøysundregistera. [You may ask: Why up the in Brønnøysund, about mid between Oslo and the Polar Circle? - Well that's just where the Norwegian registration and oversight body for Norwegian companies and firms is located. Otherwise, most likely no citizen in the small town wouldn't have much to do - other than shoveling snow...].

[DooDiligence]

DooDiligence,

 

I think I can get the financials for Schouw's Norwegian competitors at Brønnøysundregistera. [You may ask: Why up the in Brønnøysund, about mid between Oslo and the Polar Circle? - Well that's just where the Norwegian registration and oversight body for Norwegian companies and firms is located. Otherwise, most likely no citizen in the small town wouldn't have much to do - other than shoveling snow...].

 

Shoveling snow or plowing Danish brunettes (hmmmmmmm...)

[John Hjorth]

Next:

 

Shareholder structure - part 1:

 

The major shareholder of SCHO is: Givesco A/S, a privately held Danish company.

 

The only shareholder of Givesco A/S is a foundation : [name translated to english] "Jens Eskildsen and wife Mary Antonie Eskildsens Memorial Foundation".

 

Attached are the 2015 financials of both entities.

 

- - - o 0 o - - -

 

Some supplementary comments:

 

The foundation:

 

The foundation was founded 7. May 1984 by the father of Mr. Erling Eskildsen, Mr. Jens Eskildsen. The first generation of this empire made their money on bakery. Later diversified into snacks and confectionery.

 

Mr. Jens Eskildsen died around the end of 2005/the beginning of 2006, and his son, Mr. Erling Eskildsen, took over the baton, both in the family foundation and in  the holding company, and have so far done very well since.

 

- - - o 0 o - - -

 

Mr. Erling Eskildsen is quite press shy [ as I have already mentioned on this board about well-off and hard working Danes]- this a about the only article that I have been able to find about the second generation Mr. Eskildsen.

offentliggorelse_JENS_ESKILDSEN_OG_HUSTRU_MARY_ANTONIE_ESKILDSENS_MINDEFOND_2015.pdf

offentliggorelse_Givesco_2015.pdf

[John Hjorth]

Schouw & Co. yesterday announced to investors with e-mail subscriptions, that it is moving to another leage on NASDAQ OMX CPH - from NASDAQ OMX CPH Mid Cap to NASDAQ OMX CPH Large Cap, effective beginning 1st January 2017.

 

To me, "Under the radar period" is over now.

Schouw_and_Co_AS__-_E-mail_notification_-_Moving_from_NASDAQ_OMX_CPH_Mid_Cap_to_NASDAQ_OMX_CPH_Large_Cap_-_20161219.docx

[John Hjorth]

SCHO is on its way up from below the radar, as already mentioned by me : Jyllandsposten 12^th January 2017: Success conglomerate behind fish food and baby diapers hunting yet another business leg. [unfortunately subscription protected].