_JJ_ Posted October 12, 2017 Share Posted October 12, 2017 German real estate asset manager. Write-up: https://drive.google.com/file/d/0BzNop10K0_rRWUZtX2cwTHo4ejQ/view CEO owns 49%, AUM at the end of H1 2017 was € 4B. End of year target is € 5.2B. Revenue structure: − Finders’ fee: 0.5% - 1.0% − Asset Management Fee: 0.6% - 1.0% − Promote Fee: 20%-25% on value add (Publity AG investor presentation) Market cap: € 220M Share price: € 36.50 2016 dividend: € 2.80 Link to comment Share on other sites More sharing options...
ActOfWill Posted October 12, 2017 Share Posted October 12, 2017 If you think the stock is money good, then you should buy the Publity 2020 convert first, as it's currently giving you the upside for free... https://drive.google.com/open?id=0B2LBRWeltj0nNG1kcUZONGhqV2M Link to comment Share on other sites More sharing options...
_JJ_ Posted October 12, 2017 Author Share Posted October 12, 2017 Sounds good, I don't think I can buy this on Interactive Brokers though. Do you know a good broker for this? I'm based in the Netherlands btw. Link to comment Share on other sites More sharing options...
ActOfWill Posted October 12, 2017 Share Posted October 12, 2017 IB does not do converts which is quite annoying indeed. You need a custody account and a broker with DMA or indirect access to the Frankfurt exchange. UBS etc. works otherwise there some small shops that can help you like City and Colonial, Southey Capital etc, which cater for smaller sizes. Last two are based in London. Link to comment Share on other sites More sharing options...
_JJ_ Posted October 12, 2017 Author Share Posted October 12, 2017 Thanks. Do you hold the converts yourself? I noticed Spanish value fund Valentum sold their shares in Publity AG for the following reason: "In Publity we decided to leave after being unable to solve some relevant doubts. What do we mean? In the results of 2016 there was a surprising increase in the accounts receivable that with the June results had not been corrected. This is a business in which there should be no relevant receivables and, if there are, there should be something temporary. The company told us that the semiannual results would be published in German and English, but they have not. We have tried to talk to the company repeatedly in recent months without success. In addition, a convertible bond of € 20mn was issued in June just before the dividend payment (about € 18mn). Both things (accounts receivable and bond issued without a specific destination before the dividend) along with the inability to speak with the company have begun to give warning signals. We do not know if our doubts are true or there is an explanation behind them, but our Rule # 1 is not to lose money, and we always say that we prefer to lose big investments rather than take risks of losing a lot. Publity has an easy-to-understand business and an overly cheap valuation that made it too interesting not to analyze and invest it. However, we are giving more and more importance to the quality of the management team, and this does not give us the confidence we need to be comfortable investing in value." (Google translation from their September report: http://www.valentum.es/wp-content/uploads/2017/10/VALENTUM-SEPTIEMBRE-2017.pdf) What do you think about this? Link to comment Share on other sites More sharing options...
ActOfWill Posted October 13, 2017 Share Posted October 13, 2017 Yes we do hold the convert ourselves In Publity we decided to leave after being unable to solve some relevant doubts. What do we mean? In the results of 2016 there was a surprising increase in the accounts receivable that with the June results had not been corrected. This is a business in which there should be no relevant receivables and, if there are, there should be something temporary. So this is a fast growing business. So that explains the uptick. The fact that there should be no receivables is wrong. Performance fees are billed upfront for example and collected later (at the point when property transactions consummate) - I confirmed this with IR - in fact they are billed only at periodic times in H2. I think similar happens for the lumpy NPL carried interest. So the persistency is a good thing as it means performance fees are being realised. I would be worried if the revenue 1y forward from the receivable balance would be lower - at the moment it puts a generous floor on cash coming in. The company told us that the semiannual results would be published in German and English, but they have not. We have tried to talk to the company repeatedly in recent months without success. Yes investor relations can be improved but remember this is a start-up on an OTC exchange that suddenly went mainstream - they are getting used to media attention and dealing with institutional shareholder inquiries (vs initial retail base). I use the following for translations - it works fine: https://www.onlinedoctranslator.com If you get through to IR though you will get to an English speaking person that has helped out quite a bit. The CEO speaks basic English, so you will not speak to him unless you put AUM down and you are doing DD on the company for that purpose. Clearly, this is one of the reasons that the company is cheap. I am happy to forward details of the IR person (who works on a contract basis BTW) if so required or make an intro. We established that Elliott invested with the firm - which is a huge positive on management. And then lastly, from an Anglo-Saxon/Mediterranean perspective, Germans can come across as weird and stand-offish... does not deter from the underlying business though. In addition, a convertible bond of € 20mn was issued in June just before the dividend payment (about € 18mn). Both things (accounts receivable and bond issued without a specific destination before the dividend) along with the inability to speak with the company have begun to give warning signals. We do not know if our doubts are true or there is an explanation behind them, but our Rule # 1 is not to lose money, and we always say that we prefer to lose big investments rather than take risks of losing a lot. Publity has an easy-to-understand business and an overly cheap valuation that made it too interesting not to analyze and invest it. However, we are giving more and more importance to the quality of the management team, and this does not give us the confidence we need to be comfortable investing in value." They don't publish a cash flow statement as German GAAP does not force you to do it. But if you try to infer the CF statement from the b/s movements you can see that roughly 12m of that 20m went to other co-invesments and the rest to working capital. Remember that they HAD to raise the convert to co-invest alongside Elliott. The extra 20m is no surprise as they were authorised for EUR 50m in the first place. The CEO has a strong dividend policy: however he can not pay out anything more than the statutory reserves (here is where German GAAP COST accounting helps you out quite a bit) and lastly, the convertible is fully dividend protected through several anti-dilution clauses. So raising a convert and then use part of that to pay out dividends gives pro-rated equity upside to the convert holders (even more so given the strike is very close to the current stock price). IN SUMMARY Nothing said here worries me and in fact strengthens the thesis by way of explanation of the undervaluation of the company. Fascinating to see where value investors throw in the towel... Link to comment Share on other sites More sharing options...
misterkrusty Posted October 14, 2017 Share Posted October 14, 2017 actofwill - are statutory reserves equal to reported equity? if not, how does one find this number? thanks M Link to comment Share on other sites More sharing options...
ActOfWill Posted October 16, 2017 Share Posted October 16, 2017 "German corporation law binds any distributions to owners to the existence of profits available for distribution in a company's individual accounts." See: https://www.ifk-cfs.de/fileadmin/downloads/publications/wp/03_16.pdf For H1 2017 its on page 29, EUR 7.7m under "Gewinnvortrag": http://www.publity.de/de/investor/investor-relations/finanzberichte/item/download/525_f50dce431c8f3d0d2ff3c1e594fbeaaf Link to comment Share on other sites More sharing options...
misterkrusty Posted October 16, 2017 Share Posted October 16, 2017 actofwill- thanks for your reply. So are you saying that Gewinnvortrag = statutory capital, and German law forbids the company from paying dividends in excess of this amount? Do you understand the difference between Gewinnvortrag and Kapitalrücklage (capital reserve)? I think I understand the other two components of equity - Gezeichnetes Kapital is the issued shares at par value of one euro each, while Jahresüberschuss is the profit for that period (though I'm not sure why this a seperate line item and not allocated to the Gewinnvortrag and/or Kapitalrücklage.) Lastly, I believe the dividend was paid in late June and therefore most of the 20m from the convert did actually go to pay the dividend in 1H17. (I calculate the dividend was 16.94m = 6.05m shares * 2.80 ... not 18m as claimed by Valentum.). I do see that they spent just over 12m on Sonstige Vermögensgegenstände (other current assets). Is this what you're calling "other co-investments"? If so, why? I see no detail on this line item in the notes. Thanks again, M Link to comment Share on other sites More sharing options...
misterkrusty Posted October 17, 2017 Share Posted October 17, 2017 One more thing: I can't seem to get the change in equity between periods to foot with net income and dividends paid. I'm not suggesting anything nefarious here - I'm probably just making a mistake somewhere. See the the bottom of the balance sheet on the attached excel file. Publity_for_cobf.xlsx Link to comment Share on other sites More sharing options...
Spekulatius Posted October 18, 2017 Share Posted October 18, 2017 One more thing: I can't seem to get the change in equity between periods to foot with net income and dividends paid. I'm not suggesting anything nefarious here - I'm probably just making a mistake somewhere. See the the bottom of the balance sheet on the attached excel file. It seems to me the the difference they you are seeing is simply due to capital raised by issuing stock. Link to comment Share on other sites More sharing options...
ActOfWill Posted October 18, 2017 Share Posted October 18, 2017 actofwill- thanks for your reply. So are you saying that Gewinnvortrag = statutory capital, and German law forbids the company from paying dividends in excess of this amount? Apologies – I see my wording across the posts is confusing and that’s because I am clearly not an expert. It’s the “Gewinnvortrag” + “Jahresüberschuss” only that can be paid out as dividend at the end of the year. So only profits earned in the past or the current year, basically. Do you understand the difference between Gewinnvortrag and Kapitalrücklage (capital reserve)? I think I understand the other two components of equity - Gezeichnetes Kapital is the issued shares at par value of one euro each, while Jahresüberschuss is the profit for that period (though I'm not sure why this a seperate line item and not allocated to the Gewinnvortrag and/or Kapitalrücklage.) Kapitalrücklage is the amount at which shares have been issued above par value (which is EUR 1) historically. That amount can not be paid out as dividend. Lastly, I believe the dividend was paid in late June and therefore most of the 20m from the convert did actually go to pay the dividend in 1H17. (I calculate the dividend was 16.94m = 6.05m shares * 2.80 ... not 18m as claimed by Valentum.). I do see that they spent just over 12m on Sonstige Vermögensgegenstände (other current assets). Is this what you're calling "other co-investments"? If so, why? I see no detail on this line item in the notes I understood this from IR as cash waiting to be co-invested. All properties have individual LuxCos. During bidding these LuxCos are loaded with cash so from memory this is cash dropped down into these LuxCos until transaction consummation. Given that only retained earnings can be paid out, technically the convert was raised to fund working capital (i.e. receivable balance) + co-investments of a fast growing business with a CEO committed to dividend pay outs. I see no issue with that given the statutory protection, seniority and full strike adjustment of the convertible. Receivables at Dec'16 should convert to cash by Dec' 2017 - if that does not happen I would start to get concerned. One more thing: I can't seem to get the change in equity between periods to foot with net income and dividends paid. I'm not suggesting anything nefarious here - I'm probably just making a mistake somewhere. See the the bottom of the balance sheet on the attached excel file. Agree with Spekulatius here – quick scan shows these are the years that capital was raised which I think is the only external event that can create this imbalance. Link to comment Share on other sites More sharing options...
misterkrusty Posted October 18, 2017 Share Posted October 18, 2017 thanks. and good catch to spekulatius Link to comment Share on other sites More sharing options...
ActOfWill Posted November 10, 2017 Share Posted November 10, 2017 Important Upcoming Bondholder Vote ** We recommend Publity AG convertible note holders to VOTE YES ON THE COUNTER MOTION submitted yesterday for the note holder vote taking place the 13th to 15th of November. ** On the 3rd of November Publity posted a resolution to amend the terms of the convertible. This initial proposal was quite drastic as it proposed to remove most important credit protections: the pari passu language, the negative pledge, the debt covenant and EUR 5m limit and the dividend stopper. Apart from the fact that under statutory protections bondholders can not be forced to vote in favor of “chopping off their own legs” the market reacted badly and the bond price dropped to low 90s. We ascertained that the vote in current form would be extremely likely to fail based on expected common sense behavior of bondholders and we decided to enter a dialogue with Publity to see what the story was. It seemed their intentions were quite modest compared to the initial amendment proposal posted - which could be ascribed to stuff being lost in translation between management and lawyers. In essence, we understood Publity would like to have more cash at hand for co-investments and other opportunities than that their current earnings can organically provide. We believe these opportunities to be genuine. Based upon this we negotiated a counter motion that: 1) would preserve all the protections for bond holders, 2) except for an increase of the additional debt limit from EUR 5 to EUR 30m (so max EUR 80m in total including the convert), and 3) the note holders would waive Publity having to cure an over payment of dividend that occurred for the year 2016 (note that this dividend payment already lowered the strike price of the convertible), and 4) in return the note holders would get a strike adjustment to EUR 39 (with existing anti dilution mechanisms preserved) from the current strike price of EUR 41.58, or 5) failing a strike adjustment (due to a failure to get shareholder authorisation, which is unlikely as management owns +50% of the stock) the coupon would be increased to 5% from 3.5% currently. This counter motion was subsequently endorsed by management and the bonds traded up to the 96-98 level. We think this counter motion represents a balanced approach where Publity can pursue more and quicker growth whilst convertible holders get a significant strike adjustment in return for the additional credit risk resulting from the extra leverage. We would encourage other bondholders to vote in favor of the counter motion as well, especially given that proposals needs 75% of voters to vote yes. The details of the vote can be found here: http://www.publity.de/en/investor/investorrelations/convertible-bonds Please be aware NOT to vote earlier than Monday the 13th of November, as any votes submitted too early will be invalid. We happy to discuss and help out with any questions. Link to comment Share on other sites More sharing options...
Pondside47 Posted November 10, 2017 Share Posted November 10, 2017 For people who holds the convertible bonds, any idea where to obtain the Prospectus? Or is there a Prospectus for these type of German convertible bondsd? The documents published on Publity websites do not satisfy the compliance requirement of Charles Schwab, and they will not be able to buy the bond for me without the Prospectus. The IR department of Publity has not responded to my email. Link to comment Share on other sites More sharing options...
ActOfWill Posted November 11, 2017 Share Posted November 11, 2017 Hi - if you click on the voting link you will find the latest prospectus - hopefully to be amended next week ... : http://www.publity.de/en/investor/investorrelations/convertible-bonds Link to comment Share on other sites More sharing options...
_JJ_ Posted November 21, 2017 Author Share Posted November 21, 2017 The quorum of 50% was not reached (47,6%), there will be a new vote where a 25% quorum will be enough. The vote is expected in the first two weeks of December. Link to comment Share on other sites More sharing options...
whiterose Posted November 24, 2017 Share Posted November 24, 2017 I researched the company almost a year or so ago, but was not impressed with the founder(-personality). Although I have no details about the current overall management team and their qualities. I don't really get the USP and the competitive landscape. If it is possible to achieve "above market" returns in this space, why isn't it more crowded? It does not seem too difficult to replicate the business, there is no real moat(?) How does the long term strategy look like? Just my two cents on the matter.. Link to comment Share on other sites More sharing options...
_JJ_ Posted November 27, 2017 Author Share Posted November 27, 2017 I just read the new invitation to vote. It seems they are trying to amend the terms as they originally proposed. No mention of the counter motion terms management agreed to. ActOfWill, will you submit the same counter motion again? Link to comment Share on other sites More sharing options...
ActOfWill Posted November 27, 2017 Share Posted November 27, 2017 Yes we will. Preparing docs shortly - probably be out in the next 1-2 days. Link to comment Share on other sites More sharing options...
_JJ_ Posted December 19, 2017 Author Share Posted December 19, 2017 Do you have the results of the vote? I can't find information on the Publity website, looks like they deleted all info on the most recent vote? Link to comment Share on other sites More sharing options...
ActOfWill Posted December 19, 2017 Share Posted December 19, 2017 None of the resolutions passed. The countermotion as I heard needed 5% more to pass at 75%. The quorum was met. The notary is exceptionally slow as per last time and Publity is waiting for a signed certificate to publish on their website. I told Publity that deleting documents from a website as they did without update is not a thing you do to inspire confidence. But apparently there is a technical issue with the website at the moment that they are trying to resolve. Next step is to speak to one dissenting voter and aim for a meeting in January... that hopefully will pass on the countermotion. Link to comment Share on other sites More sharing options...
JM Posted January 12, 2018 Share Posted January 12, 2018 The share is down to 32€. Is this just normal volatility or is there some new information affecting the valuation? Link to comment Share on other sites More sharing options...
_JJ_ Posted January 12, 2018 Author Share Posted January 12, 2018 I'm not aware of any news... Link to comment Share on other sites More sharing options...
ActOfWill Posted January 12, 2018 Share Posted January 12, 2018 Some one informed me that a Spanish fund "True Value" announced they had unwound their position 2 months ago. That news has caused some selling from some people that track their portfolio: https://www.rankia.com/foros/fondos-inversion/temas/2607169-true-value?page=281#respuesta_3781597 Nothing has changed fundamentally IMO. Link to comment Share on other sites More sharing options...
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