In its portfolio for the final quarter of 2019, azValor Iberia FI (Trades, Portfolio), which is part of Spanish investment firm azValor Asset Management, disclosed it entered one new position and exited another.
Managed by Alvaro Guzman de Lazaro and Fernando Bernad, the fund takes long-term positions in undervalued Spanish and Portuguese companies that have good business models, are easy to understand, have sustainable competitive advantages and competent management teams.
Based on these criteria, the fund established a position in Distribuidora Internacional De Alimentacion SA (XMAD:DIA, Financial) and sold out of Duro Felguera SA (XMAD:MDF, Financial) during the quarter.
Distribuidora Internacional De Alimentacion
The fund invested in 1.53 million shares of Distribuidora Internacional De Alimentacion, allocating 0.19% of the equity portfolio to the stake. The stock traded for an average price of 0.23 euros (25 cents) per share during the quarter.
The Spanish supermarket chain has a market cap of 668.34 million euros; its shares closed at 0.10 euros on Tuesday with a price-sales ratio of 0.01, which GuruFocus notes are at a 10-year low.
The median price-sales chart shows the stock is trading slightly above its historical value, suggesting it is overpriced.
GuruFocus rated Distribuidora Internacional’s financial strength 3 out of 10 on the back of weak debt ratios and a low Altman Z-Score of 1.19, which warns the company is in financial distress and could be at risk of going bankrupt.
The company’s profitability rank fared better, scoring a 6 out of 10 rating despite having negative margins and returns that underperform a majority of competitors. As a result of recording a decline in revenue per share over the past three years, Distribuidora Internacional’s business predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
The fund holds 0.21% of the company’s outstanding shares.
Duro Felguera
AzValor divested of its 2.19 million remaining shares of Duro Felguera, impacting the equity portfolio by -0.63. During the quarter, the stock traded for an average price of 0.35 euros per share.
GuruFocus estimates the fund lost nearly 83% on the investment since the third quarter of 2018.
The construction engineering company, which primarily services the energy and industrial sectors, has a market cap of 32.24 million euros; its shares closed at 0.34 euros on Tuesday with a price-earnings ratio of 0.15, a price-book ratio of 0.83 and a price-sales ratio of 0.1.
According to the Peter Lynch chart, the stock is undervalued.
Duro Felguera’s financial strength was rated 2 out of 10 by GuruFocus. Despite having good interest coverag, the company’s Sloan ratio indicates it has poor earnings quality. The Altman Z-Score of 1.87 cautions it could be in danger of going bankrupt as its revenue per share has been declining for the past five years.
The company’s profitability scored a 4 out of 10 rating, driven by margins and returns that outperform a majority of industry peers. Duro also has a moderate Piotroski F-Score of 5, which indicates operating conditions are stable, and a one-star business predictability rank.
There are currently no other gurus invested in the stock.
Additional trades and portfolio composition
During the quarter, the azValor also added to its holdings of ENCE Energia y Celulosa SA (XMAD:ENC, Financial) and Applus Services SA (XMAD:APPS, Financial) and curbed several other positions, including Acerinox SA (XMAD:ACX, Financial), Tubacex SA (XMAD:TUB), Elecnor SA (XMAD:ENO) and Galp Energia SGPS SA (XLIS:GALP).
Over half of the fund’s $81 million equity portfolio, which is composed of 24 stocks, is invested in the industrials and basic materials sectors.
According to azValor’s website, Iberia FI returned around 1.85% in 2019.
Disclosure: No position.
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