opportunities in portugal?

[ragnarisapirate]

All,

 

http://www.npr.org/2012/02/20/147158633/portugal-plays-by-the-rules-but-economy-slumps?sc=fb&cc=fp

 

It seems that with this much upheaval in Portugal, there may be opportunities for capital allocation. No?

 

Anybody been looking around there?

[oddballstocks]

Of course!!

 

I went through the Portuguese market A-Z about a year ago and it's probably worth going through again.  Portugal is an easy market to do this with, I think there are 65 stocks, so not a ton of work.

 

I ended up buying two (and selling one)

Corticeira Amorim - Cork company, they have a monopoly on cork products, a large market share in wine stoppers as well.  I bought on the thesis this is a company with a solid moat, nice ROE/ROA for a nice, EV/EBIT of 5x.  The company's since had a 40% run up, but earnings have driven it.  Still selling at about EV/EVIT of 5x or 6x.  85% of operations/sales are outside of Portugal, this got dragged in the mud undeservedly.

 

Novabase - A IT consulting company that was selling at EV/EBIT of 2 or 3 (don't remember exactly).  They had divested a money losing TV division which was clouding their previous results.  They were 75% domestic and 25% international.  I ended up selling because earnings dropped like a rock, margins shrunk and it the international expansion stalled out.  I misjudged demand, I had thought I was buying a company operating at trough demand, that wasn't the case.

 

Other interesting companies:

 

Brisa - Toll road operator, they're selling under book now with a 12% yield.  Tollroads are usually decent investments, traffic remains in decent range as long as there are no other roads competing.  If I remember BRISA had a monopoly on certain routes.  I was interested at €4.50 but the price was too high, now they're at €2.54 and I'll probably look again.

 

Conduril - Construction company that does most of their business in Algeria, Morocco, owned by the founding family.  I emailed back and forth with someone on the BOD for a while asking questions and trying to get more information.  I have their 2010 annual report if you want a copy, I'm not sure if they ever posted it on their website.

 

Weird thing with this stock, earnings were something like €15/share, shares were trading at €5.  Cash flow was weak, but shares still insanely cheap.  I tried for a while to get a order, very illiquid.  At one point bid €4.50 ask €85.  Looks like it's trading at €22 right now, might be worth looking into again.

 

This company has in the past published English statements, I was emailing the woman from the BOD in Portuguese.  I used Google Translate to build my email then ran it by a Brazilian friend.  He was amazed at Google Translate, most of the time just a few small corrections were needed.

 

Notes:  Here's what I did, I went to the Euronext Lisbon website and found the list of listed companies.  If you click on each one there are summary financials, a summary income statement and some balance sheet items.  I was looking for companies that were profitable and didn't have much debt.  I figured no debt would help weather the recession, and I didn't want a company losing money hand over fist (most were/are).

 

I will also note, a lot of company websites are in Portuguese only statements included.  Have no fear, almost all companies file with the CMVM (Portuguese SEC) in English.  Here's the website:http://www.cmvm.pt/en/Pages/default.aspx  The site is really clunky to navigate, but poking around I was able to get everything in English eventually, it wasn't obvious at first.

 

Here's the Corticeira Amorim Material Information page in English as an example: http://web3.cmvm.pt/english/sdi2004/emitentes/emit_fact.cfm?num_ent=%23%22%24OY%0A&ano=%24%23T%5F%5C%230%20%20%0A

 

Maybe others can post interesting Portuguese ideas in this thread?  I will do the same.

 

Nate

[racemize]

Is it easy to trade these stocks from the US?  So far, I've only dealt with US/ADR/Canadian.

[oddballstocks]

racemize - I know Fidelity lets you trade international (that's who I use).  It's as simple as typing in the quote and clicking trade, just like a US stock except the hours are different 3:30am-11:30am EST.  Portugal's commission is €19 a trade I think.

 

For anyone else here's the Euronext site I mentioned: http://www.euronext.com/trader/priceslists/priceslists-1800-EN.html?lan=EN&cha=1800&filter=1&mep=8628&economicGroupList=&belongsToList=market_EURLS&capitalizationList=&investmentList=&eligibilityList=

 

Clicking on a name, then Company Profile gets you to a brief description of the company, a list of shareholders, a summary income statement, and summary balance sheet.

[oddballstocks]

Here's the Fidelity International Trading information: https://scs.fidelity.com/accounts/services/international_trading_details.shtml.cvsr

 

 

[racemize]

ah, so it is.  Last time I looked, Fidelity had some net worth requirements that I hadn't quite gotten to.

[Arden]

Wow what a comment Nate! well done :)

 

Dunno about portugal but I have a few ideas in Europe-

 

RNO- Nate mentioned it in his blog- there is a discussion in the comments, basically renault holds 43 of Nissan, whose shares are also traded- and the market value of the share in nissan is worth more than RNO itself (about 14B vs 10B). on top of that - RNO owns a bank that's worth about 5B, part of autovaz and a part of volvo and daimler. RNO itself is currently making 400-500M on the auto business. Sum of the parts is about 30B ,RNO is trading for 10B.

 

ETI- A british pub company. 5000 pubs, 4.5B assets, Around 3B debt - 1.5B equity, 80-90m FCF, market cap- 250m. decline in the beer business in britain and a rise in beer tax made people dislike the industry which was loved back in 2007.The stock dropped more than 90%, while the Book value didn't really move- the assets are appraised yearly and the last appraisal was a 2-3 months ago, so you can trust the BV IMO. when inflation starts doing its job- real estate prices will rise with it- and even with a mild 2% inflation profits will double. The company is selling assets at BV and closing debt. I see it as being worth around BV in more normal times.

[ragnarisapirate]

Nate, I knew that you would have looked there. ;)

 

Good work.

[JEast]

Sonae would look very interesting below €40¢.  They are more of a conglomerate business model with several different footprints.  The main attraction is Sonae MC and is the market leader in Portugal for food retail (groceries) with dominates locations.

 

http://www.sonae.pt/en/

 

 

Cheers

JEast

[persistentone]

Of course!!

 

I went through the Portuguese market A-Z about a year ago and it's probably worth going through again.  Portugal is an easy market to do this with, I think there are 65 stocks, so not a ton of work.

 

I ended up buying two (and selling one)

Corticeira Amorim - Cork company, they have a monopoly on cork products, a large market share in wine stoppers as well.  I bought on the thesis this is a company with a solid moat, nice ROE/ROA for a nice, EV/EBIT of 5x.  The company's since had a 40% run up, but earnings have driven it.  Still selling at about EV/EVIT of 5x or 6x.  85% of operations/sales are outside of Portugal, this got dragged in the mud undeservedly.

 

Novabase - A IT consulting company that was selling at EV/EBIT of 2 or 3 (don't remember exactly).  They had divested a money losing TV division which was clouding their previous results.  They were 75% domestic and 25% international.  I ended up selling because earnings dropped like a rock, margins shrunk and it the international expansion stalled out.  I misjudged demand, I had thought I was buying a company operating at trough demand, that wasn't the case.

 

Great work Nate and thanks for putting out that list.

 

What I am looking for is a list of peripheral European stocks that get at least 50% of their profits from outside the periphery.    In other words I want to find strong exporters in the peripheral European countries.

 

My investment thesis is that when the periphery leaves the Euro - which I think is likely within three years - that these stocks will get crushed as these countries revert to historical currencies.  But if the earnings stream is largely exempted from the devaluation (i.e., 60% of the business is in dollars from North America) then those will be buying opportunities shortly after the devaluation occurs.

 

Can you think of any strong exporters in the periphery?

 

[PlanMaestro]

Can you think of any strong exporters in the periphery?

 

or large foreign operations.

[persistentone]

Sonae would look very interesting below €40¢.  They are more of a conglomerate business model with several different footprints.  The main attraction is Sonae MC and is the market leader in Portugal for food retail (groceries) with dominates locations.

 

http://www.sonae.pt/en/

 

 

My main problem with Sonae MC would be too much of earnings stream seems to come inside Portugal.  If you believe that Portugal will leave Euro, the resulting currency will be worth about 1/3rd of the Euro and aren't most of Sonae's new earning streams in that new devalued currency?

 

How much of the Sonae MR brand is being sold to North America, Asia, and Northern Europe?

[persistentone]

Can you think of any strong exporters in the periphery?

 

or large foreign operations.

 

Hey Plan.  Example of foreign operations might be Portugal Telecom's ownership of a Brazilian wireless vendor.    Not crazy about that particular subsidiary, but something along those lines.

 

This place looks better than Yahoo with all of its psychobabble. :)  My only complaint so far is the registration process makes a jail breakout from Alcatraz look easy by comparison.  But got past that nightmare...

 

[PlanMaestro]

This place looks better than Yahoo with all of its psychobabble. :)  My only complaint so far is the registration process makes a jail breakout from Alcatraz look easy by comparison.  But got past that nightmare...

 

Comes with the territory ... but we still have to suffer a few political trolls! Glad to see you around Persistentone.

[oddballstocks]

persistentone,

 

Funny you mention exporters... I've been working on putting together a blog post to detail some of this.  I have a similar thesis as you, in a country with a devaluation assets aren't worth much but a good export revenue stream is gold.

 

I'd recommend looking into Corticeira Amorim, almost all sales outside of Portugal.  Supply of raw materials is mostly local, so you get cheaper labor.  Other labor is worldwide so costs won't shrink as much but they were killed by associated.

 

I also was looking at FISIPE today, 99% export but supply is almost 100% external as well.  So they won't get killed purchasing abroad, where they really gain is that labor will suddenly be cheap.  Also they're highly indebted, they'll be able to use foreign cash to pay off local denominated debt.  They're slightly profitable, so this is really a devaluation play.  If they can float until debt becomes cheap and labor becomes cheap a possible win.

 

I have a position in COR, I'd buy them regardless of where they're located though, I like the company, Portugal is a nice little bonus. 

[AZ_Value]

Nate,

 

Just want to say that I really enjoyed your write-ups on COR on your blog a few months back:

 

http://www.oddballstocks.com/2011/07/looking-at-hidden-champion-corticeira.html

 

http://www.oddballstocks.com/2011/07/hidden-champion-corticeira-amorim-part.html

 

I don't have a position myself, mostly because at the time I think I was buying a few other names but one thing your blog posts did was make me buy that "Hidden Champions" book, and I think I really should have COR on my watch list. 

Another thing is your blog made me want to start my own blog, seems like it will force me to be more disciplined and write down my investment thesis on various stocks in a blog post format.

 

 

[persistentone]

persistentone,

 

Funny you mention exporters... I've been working on putting together a blog post to detail some of this.  I have a similar thesis as you, in a country with a devaluation assets aren't worth much but a good export revenue stream is gold.

 

I'd recommend looking into Corticeira Amorim, almost all sales outside of Portugal.  Supply of raw materials is mostly local, so you get cheaper labor.  Other labor is worldwide so costs won't shrink as much but they were killed by associated.

 

I also was looking at FISIPE today, 99% export but supply is almost 100% external as well.  So they won't get killed purchasing abroad, where they really gain is that labor will suddenly be cheap.  Also they're highly indebted, they'll be able to use foreign cash to pay off local denominated debt.  They're slightly profitable, so this is really a devaluation play.  If they can float until debt becomes cheap and labor becomes cheap a possible win.

 

I have a position in COR, I'd buy them regardless of where they're located though, I like the company, Portugal is a nice little bonus.

 

The Cork company is interesting and puts up decent numbers.  I added them to watchlists.    On a devaluation they would collapse and would be an interesting candidate to buy.

 

The textile company I don't like.  That'a a brutal business and hard to differentiate.  Their net income numbers are around 2%.   

[oddballstocks]

Ok, finally put some thoughts together on this: http://www.oddballstocks.com/2012/02/investment-strategies-for-devaluation.html

 

AZ_Value - Thanks for the compliment.  COR is good, but you'll probably do much better for yourself from having purchased the Hidden Champions book.  I just wish a lot more of those companies were public!  If I remember only 9% are listed.  I've gone through about 8-10 more that are listed in Austria and Germany the last few months.  Universally they're all fairly valued or even overvalued.

 

On blogging, this has been the biggest help to my investments this past year.  Having to sit down and record my thoughts helps me think things out better.  Often I'll do some research and think one thing, then as I try to type it up my mind changes because I'm able to flush out some detail or perspective I hadn't initially considered.

 

Let me know if you do start writing online, I'd love to read it.

 

Persistentone - I agree FISIPE is a crappy business, but the idea I had was that a devaluation would be a catalyst.  Debt could be reduced because it's in native currency with their export earnings stream.  Also their margins would grow as labor costs are lowered.

 

Of course the company has to survive until then, and not lose any customers in the process which could be difficult.  I think this is why some sort of moat/competitive advantage needs to exist.

 

I really like COR, earnings have been increasing.  I should really do a follow up post.  I've read up on a few French companies in a similar space, there might be some opportunity there as well.  Unfortunately I read French so slow and Google Translate is imperfect.  I will invest in a foreign company that I have to translate if it's a net-net and I have a nice margin of safety.  If it's a decent business I really want to understand what's going on, and Google Translate just doesn't cut it.

[persistentone]

Ok, finally put some thoughts together on this: http://www.oddballstocks.com/2012/02/investment-strategies-for-devaluation.html

 

AZ_Value - Thanks for the compliment.  COR is good, but you'll probably do much better for yourself from having purchased the Hidden Champions book.  I just wish a lot more of those companies were public!  If I remember only 9% are listed.  I've gone through about 8-10 more that are listed in Austria and Germany the last few months.  Universally they're all fairly valued or even overvalued.

 

On blogging, this has been the biggest help to my investments this past year.  Having to sit down and record my thoughts helps me think things out better.  Often I'll do some research and think one thing, then as I try to type it up my mind changes because I'm able to flush out some detail or perspective I hadn't initially considered.

 

Let me know if you do start writing online, I'd love to read it.

 

Persistentone - I agree FISIPE is a crappy business, but the idea I had was that a devaluation would be a catalyst.  Debt could be reduced because it's in native currency with their export earnings stream.  Also their margins would grow as labor costs are lowered.

 

Of course the company has to survive until then, and not lose any customers in the process which could be difficult.  I think this is why some sort of moat/competitive advantage needs to exist.

 

I really like COR, earnings have been increasing.  I should really do a follow up post.  I've read up on a few French companies in a similar space, there might be some opportunity there as well.  Unfortunately I read French so slow and Google Translate is imperfect.  I will invest in a foreign company that I have to translate if it's a net-net and I have a nice margin of safety.  If it's a decent business I really want to understand what's going on, and Google Translate just doesn't cut it.

 

Don't you feel some risk holding COR before a devaluation takes place?

 

I read your blog post and I think we are on the same page.  But I would go further and say you should LOVE heavily indebted companies if the debt is Euro denominated and you believe that the government will somehow succeed in mandating a conversion into a new and less valuable currency.  Somehow Argentina pulled that one off with its companies.    This is an area I don't understand well and maybe someone can illuminate it.  If a company located in Portugal finances with a bond denominated in Euros, what are the circumstances in which a country like Portugal would have an ability to Force Majeure convert those bonds into a different base currency?    The country would certainly do that with its own sovereign debt, and with the cash balances in bank accounts.    I am less clear on how Argentina managed to pull this off with corporate debt.  In the case of corporate debt you would think this involves a cross border transaction with a European bank, and in theory the law that controls the debt and its trust would be laws outside of the defaulting country.

 

Can you send me an email to persistentone AT spamarrest.com?

[oddballstocks]

I'm not sure about corporate debt, I believe companies would still be on the hook for that debt in Euros which would absolutely kill a lot of companies.

 

I mention local debt because it would be easier to pay off.  Most Portuguese companies I've seen use bank lending not bonds so the debt is with local banks who would presumably be using local currency going forward.

 

I sent you an email as well.

[PlanMaestro]

Portugal Telecom taken to the cleaners today. International 55% of revenues, 40% of EBITDA, 45% of CAPEX. $4.4B in net debt. $1.1B in EBITDA-CAPEX.

 

Other Portuguese stocks under pressure?

[jmaes]

Hi all,

 

did someone look at Sonae Capital, ticker SONC? The current price is 0.17 euro.

 

- It was spun off from Sonae SGPS in 2008.

- There's a write up on VIC at http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/3458

- Monish Pabrai owns 6.8% of the company, and probably bought at circa 4 times the current price. He spoke about the company in 2008 at the Value Investing Congress.

- The founding family owns 62.6% of the company. They are also the largest employer in Portugal.

- This year and last year they are buying back their own shares (but not a lot, the company now holds circa 0.169% of its share capital)

- Net debt of 273 million euro versus a market cap of 42.5 million euro.

- Real estate is valued by Cushman & Wakefield at 594.6 million euro (http://www.sonaecapital.pt/ResourcesUser/RelatorioC&W31122011ENG.pdf), furthermore the company has some significant shareholdings in real estate funds (not taken into account in the Cushman & Wakefield report) that had a combined value of 143 million euro at 31 December 2011 (http://www.sonaecapital.pt/ResourcesUser/SONCCOMUNICADOFY11ENG.pdf p.10).

- This gives a net value of 464 million euro or 1.85 euro per share, not taking into account any of the businesses.

- Half year report 2012 was bad. Some of the businesses were growing though.

[racemize]

Hi all,

 

did someone look at Sonae Capital, ticker SONC? The current price is 0.17 euro.

 

- It was spun off from Sonae SGPS in 2008.

- There's a write up on VIC at http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/3458

- Monish Pabrai owns 6.8% of the company, and probably bought at circa 4 times the current price. He spoke about the company in 2008 at the Value Investing Congress.

- The founding family owns 62.6% of the company. They are also the largest employer in Portugal.

- This year and last year they are buying back their own shares (but not a lot, the company now holds circa 0.169% of its share capital)

- Net debt of 273 million euro versus a market cap of 42.5 million euro.

- Real estate is valued by Cushman & Wakefield at 594.6 million euro (http://www.sonaecapital.pt/ResourcesUser/RelatorioC&W31122011ENG.pdf), furthermore the company has some significant shareholdings in real estate funds (not taken into account in the Cushman & Wakefield report) that had a combined value of 143 million euro at 31 December 2011 (http://www.sonaecapital.pt/ResourcesUser/SONCCOMUNICADOFY11ENG.pdf p.10).

- This gives a net value of 464 million euro or 1.85 euro per share, not taking into account any of the businesses.

- Half year report 2012 was bad. Some of the businesses were growing though.

 

I was going through one of Pabrai's presentations which had info on this company.  There's also this write-up:

http://seekingalpha.com/instablog/1666291-Martim-Macedo/1329061-Sonae-Capital-A-Portuguese-Company-In-Which-Pabrai-Invested

 

Anyone looked at it all?

[phil_Buffett]

Hi all,

 

did someone look at Sonae Capital, ticker SONC? The current price is 0.17 euro.

 

- It was spun off from Sonae SGPS in 2008.

- There's a write up on VIC at http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/3458

- Monish Pabrai owns 6.8% of the company, and probably bought at circa 4 times the current price. He spoke about the company in 2008 at the Value Investing Congress.

- The founding family owns 62.6% of the company. They are also the largest employer in Portugal.

- This year and last year they are buying back their own shares (but not a lot, the company now holds circa 0.169% of its share capital)

- Net debt of 273 million euro versus a market cap of 42.5 million euro.

- Real estate is valued by Cushman & Wakefield at 594.6 million euro (http://www.sonaecapital.pt/ResourcesUser/RelatorioC&W31122011ENG.pdf), furthermore the company has some significant shareholdings in real estate funds (not taken into account in the Cushman & Wakefield report) that had a combined value of 143 million euro at 31 December 2011 (http://www.sonaecapital.pt/ResourcesUser/SONCCOMUNICADOFY11ENG.pdf p.10).

- This gives a net value of 464 million euro or 1.85 euro per share, not taking into account any of the businesses.

- Half year report 2012 was bad. Some of the businesses were growing though.

 

I was going through one of Pabrai's presentations which had info on this company.  There's also this write-up:

http://seekingalpha.com/instablog/1666291-Martim-Macedo/1329061-Sonae-Capital-A-Portuguese-Company-In-Which-Pabrai-Invested

 

Anyone looked at it all?

 

in the comment section of the instablog they write that pabrai sold already

[John Hjorth]

My only complaint so far is the registration process makes a jail breakout from Alcatraz look easy by comparison.  But got past that nightmare...

Alcatraz? Isen't getting out of there basicly about your swimming capabilities? As long as you don't compare to getting a divorse, you haven't really had registration problems! ;)