Martin Wirth
Founder and Member of the Board
Experienced in German equities:
Since 1986
Responsibilities:
Fund management and equities analysis (insurance companies, suppliers, chemical companies, pharmaceutical companies, telecommunications companies, aerospace)
Career:
· Credit Suisse Asset Management: Co-Head Asset Management
· Sal. Oppenheim jr. & Cie. KGaA: Research German Equities
· Bank Julius Bär (Deutschland) AG: Research German Equities
· Credit Suisse First Boston: Research German Equities
Awards:
Apart from numerous awards for the funds managed by him and Manfred Piontke, Martin Wirth has also received personal awards from Sauren Fonds-Research AG, Citywire and others.
Company founded in 2000.
Focus is German stock market.
No industry focus, no size limit, not looking for catalysts.
Aum of $550 million between our four funds.
Oldest fund up 140% since 01 vs. ~5% for the DAX.
Takkt AG
HQ: Stuttgart
Share Price (04/07/2011): € 11.10
Market Cap: € 728 m
EV FYE 2011: € 830 m
EV/EBIT 2011: 8
PE 2011: 11
Free Float: 30%
They do mail order for office furniture/business equipment.
Sales are purely business to business.
Customers: schools, hotels, governments, manufacturing and service industries, etc.
Sales based on catalogues, mails, web.
Sounds somewhat boring, and on top of that is cyclical.
Why do I nevertheless think it is an absolutely great company and a solid investment?
No write downs on merchandise since no fashionable good, plus a big part of sales proceeded directly from producer to user.
No selling outlets, they just have some warehouses.
Inventory turnover is good rate.
ROA is 40-50%
Low leverage to capital employed.
Net working capital 15% of sales, inventory turnover 15 times p.a.
Tangible Fixed Assets 10-12% of sales.
Huge Sales/employee (app. 500,000 €), so no risk from overcapacity on the personal side.
Equity ratio is 40-60%, when it reaches 60% there are buyback or extra dividends. Good allocators of capital.
Even during the crisis the company was able to achieve good margins.
Despite the low to average capital employed for a retailer/distributor, EBIT-ROS above 10% of sales for the group, in strong regions beyond 20%, delivering a return on tangible assets of 40-50%.
2,500 supplies, 50,000 customers.
Have same cataloguse for various countries, which saves a lot of money on design and print.
Low key items: Prices difficult to compare as products are not ordered on a regular basis by customers. Prices on the same level as for brick and mortar sellers
But: Saving the customers’ time and therefore money. The question is not: What does a pushcart or a mobile air conditioner cost, but where do I get it, and how quick is it being delivered? Service counts, not costs. Besides this, they give customers the feeling of competition having several catalogue brands.
Acting as a sales channel for many small suppliers, therefore saving them money.
Size obviously matters: In countries with a high market share, ROS turns out to be better.
Cost of change: In bigger companies, they are part of the internal supply chain.
High barriers to entry and low capital intensity are spread across the industry.
Despite the fact that Takkt knows the business well it takes them 3-5 years on average to break even in new markets. This means there is a moat, as other entrants would take years to break even.
The management is family and is honest and capable of running company.
In April 2009, made a large transaction, and bought back 10% of their shares.
2011 will be much better than '10, but still below the prior peak.
Company used to grow 7%, fair to assume 5% per year in the future.
They have been taking market share from brick and mortar retailers and sales rep for decades, despite a low marketing budget.
Since capex to sales is low, replacement capex is almost nothing.
Company can repay its debt very quickly.
The risks include: You can skip these investments in tough times, and wait it out a year or two.
Web based sales are 20% of total sales, could take more market share as time goes on.
Cannot reinvest money at same rate of return as they earn it, which Tom Russo mentioned in his speech.
They do not have the logistics compared to other competitors in Europe
Dividends are taxed, and the major shareholder wants to dividends not buybacks.
Second idea, this requires more research and is just a thought:
Commerzbank AG
HQ: Frankurt
Price (04/07/2011): € 3.10
Market Cap: € 16b n
MC/EBT 2012: 4
PE 2012: 5
Free Float: 75% (German Government 25%)
Warren Buffet bedrock principles: Buying cheap stocks, from my understanding having made a big part of his fortune by investing in bombed-out solid franchises. This MIGHT fall into this category.
Founded in 1871
Overcapacity, public sector banks, cheap funding via Govt guarantees for funding. These were obstacles faced in the past.
The biggest mistake the company made was taking over Dresdner at the eve of the financial crisis.
Balance sheet burdened from CRE, CDOs, CLOs, and ship financing (ship financing is more common in Germany than in the US).
The company has been issuing shares to raise capital.
There are 100 reasons not to own a bank; accounting opaque, regulation, loan quality, etc.
Possible trigger for price increase: consolidation in market.
Lloyds in the beginning of 1990 was in bad shape, and was an 8-bagger over next 10 years.
Consolidation has occurred, with many big banks bought out by Deutsche Bank, private equity, and Unicredit.
The savings banks are under stress. So that has taken out a lot of competition. Government guarantees for savings banks ran out in 2005.
Bank is now well capitalized with a Tier 1 ratio of 12% before returning guarantees, regards 7-8% as appropriate for their business which they would reach by now after repaying the government support.
Asset backed finance incl. mortgage portfolio and government funding still suffering, delivering losses, however, on a shrinking balance sheet total.
The bank has market leadership, it is focusing more on corporate customers for higher yields, export finance, etc.
Workout portfolio seems to be past the rapids, delivering some profits since 2010 following heavy write downs before.
They are a massive bank which reduces their costs. One-third of German exports/imports are handled by Commerzbank.
They have a good relationship with a lot of big customers; they also have a strong base of 11 million private clients.
Large customer deposit base (260 billion euros), which is used as a cheap source for funding.
Now, equity is scarce, and loans are priced based on the bank's CDS outstanding, giving them a significant additional profit over time if kept stable. In my case: Instead of government plus 75BP now government plus CDS plus 75BP.
If they rolled over their whole portfolio, they would get 1 - 2 billion profit.
Pre-tax profit of 4 billion euro estimate for 2012.
Targets concerning the cost base and loan losses seem to be achievable (from the current point of view easily).
Looking at the current run rate of earnings and adjusting for major cost savings post to the successful IT integration of Dresdner and Commerzbank as of Q2 2010 plus remaining closure of redundant branches, Commerzbank seems to be already quite close to their target.
If all goes well they would trade at 5x P/E.
Worst case scenario based on current run rate would be 6 - 7x P/E (barring a meltdown in the euro zone).
ROE is 16-17% pre-tax.
Price / Tangible book: 0.7.
If there is no system meltdown there should be 100% return over 3 years.
PIIGS exposure:
Greece (3.9b)
Ireland 3b (50% interbank)
Portugal (50% CRE)
Spain (4.8b CRE)
Italy 16.4b (9.7b owed to Government)
Disclosure: None
http://www.valuewalk.com/
Founder and Member of the Board
Experienced in German equities:
Since 1986
Responsibilities:
Fund management and equities analysis (insurance companies, suppliers, chemical companies, pharmaceutical companies, telecommunications companies, aerospace)
Career:
· Credit Suisse Asset Management: Co-Head Asset Management
· Sal. Oppenheim jr. & Cie. KGaA: Research German Equities
· Bank Julius Bär (Deutschland) AG: Research German Equities
· Credit Suisse First Boston: Research German Equities
Awards:
Apart from numerous awards for the funds managed by him and Manfred Piontke, Martin Wirth has also received personal awards from Sauren Fonds-Research AG, Citywire and others.
Company founded in 2000.
Focus is German stock market.
No industry focus, no size limit, not looking for catalysts.
Aum of $550 million between our four funds.
Oldest fund up 140% since 01 vs. ~5% for the DAX.
Takkt AG
HQ: Stuttgart
Share Price (04/07/2011): € 11.10
Market Cap: € 728 m
EV FYE 2011: € 830 m
EV/EBIT 2011: 8
PE 2011: 11
Free Float: 30%
They do mail order for office furniture/business equipment.
Sales are purely business to business.
Customers: schools, hotels, governments, manufacturing and service industries, etc.
Sales based on catalogues, mails, web.
Sounds somewhat boring, and on top of that is cyclical.
Why do I nevertheless think it is an absolutely great company and a solid investment?
No write downs on merchandise since no fashionable good, plus a big part of sales proceeded directly from producer to user.
No selling outlets, they just have some warehouses.
Inventory turnover is good rate.
ROA is 40-50%
Low leverage to capital employed.
Net working capital 15% of sales, inventory turnover 15 times p.a.
Tangible Fixed Assets 10-12% of sales.
Huge Sales/employee (app. 500,000 €), so no risk from overcapacity on the personal side.
Equity ratio is 40-60%, when it reaches 60% there are buyback or extra dividends. Good allocators of capital.
Even during the crisis the company was able to achieve good margins.
Despite the low to average capital employed for a retailer/distributor, EBIT-ROS above 10% of sales for the group, in strong regions beyond 20%, delivering a return on tangible assets of 40-50%.
2,500 supplies, 50,000 customers.
Have same cataloguse for various countries, which saves a lot of money on design and print.
Low key items: Prices difficult to compare as products are not ordered on a regular basis by customers. Prices on the same level as for brick and mortar sellers
But: Saving the customers’ time and therefore money. The question is not: What does a pushcart or a mobile air conditioner cost, but where do I get it, and how quick is it being delivered? Service counts, not costs. Besides this, they give customers the feeling of competition having several catalogue brands.
Acting as a sales channel for many small suppliers, therefore saving them money.
Size obviously matters: In countries with a high market share, ROS turns out to be better.
Cost of change: In bigger companies, they are part of the internal supply chain.
High barriers to entry and low capital intensity are spread across the industry.
Despite the fact that Takkt knows the business well it takes them 3-5 years on average to break even in new markets. This means there is a moat, as other entrants would take years to break even.
The management is family and is honest and capable of running company.
In April 2009, made a large transaction, and bought back 10% of their shares.
2011 will be much better than '10, but still below the prior peak.
Company used to grow 7%, fair to assume 5% per year in the future.
They have been taking market share from brick and mortar retailers and sales rep for decades, despite a low marketing budget.
Since capex to sales is low, replacement capex is almost nothing.
Company can repay its debt very quickly.
The risks include: You can skip these investments in tough times, and wait it out a year or two.
Web based sales are 20% of total sales, could take more market share as time goes on.
Cannot reinvest money at same rate of return as they earn it, which Tom Russo mentioned in his speech.
They do not have the logistics compared to other competitors in Europe
Dividends are taxed, and the major shareholder wants to dividends not buybacks.
Second idea, this requires more research and is just a thought:
Commerzbank AG
HQ: Frankurt
Price (04/07/2011): € 3.10
Market Cap: € 16b n
MC/EBT 2012: 4
PE 2012: 5
Free Float: 75% (German Government 25%)
Warren Buffet bedrock principles: Buying cheap stocks, from my understanding having made a big part of his fortune by investing in bombed-out solid franchises. This MIGHT fall into this category.
Founded in 1871
Overcapacity, public sector banks, cheap funding via Govt guarantees for funding. These were obstacles faced in the past.
The biggest mistake the company made was taking over Dresdner at the eve of the financial crisis.
Balance sheet burdened from CRE, CDOs, CLOs, and ship financing (ship financing is more common in Germany than in the US).
The company has been issuing shares to raise capital.
There are 100 reasons not to own a bank; accounting opaque, regulation, loan quality, etc.
Possible trigger for price increase: consolidation in market.
Lloyds in the beginning of 1990 was in bad shape, and was an 8-bagger over next 10 years.
Consolidation has occurred, with many big banks bought out by Deutsche Bank, private equity, and Unicredit.
The savings banks are under stress. So that has taken out a lot of competition. Government guarantees for savings banks ran out in 2005.
Bank is now well capitalized with a Tier 1 ratio of 12% before returning guarantees, regards 7-8% as appropriate for their business which they would reach by now after repaying the government support.
Asset backed finance incl. mortgage portfolio and government funding still suffering, delivering losses, however, on a shrinking balance sheet total.
The bank has market leadership, it is focusing more on corporate customers for higher yields, export finance, etc.
Workout portfolio seems to be past the rapids, delivering some profits since 2010 following heavy write downs before.
They are a massive bank which reduces their costs. One-third of German exports/imports are handled by Commerzbank.
They have a good relationship with a lot of big customers; they also have a strong base of 11 million private clients.
Large customer deposit base (260 billion euros), which is used as a cheap source for funding.
Now, equity is scarce, and loans are priced based on the bank's CDS outstanding, giving them a significant additional profit over time if kept stable. In my case: Instead of government plus 75BP now government plus CDS plus 75BP.
If they rolled over their whole portfolio, they would get 1 - 2 billion profit.
Pre-tax profit of 4 billion euro estimate for 2012.
Targets concerning the cost base and loan losses seem to be achievable (from the current point of view easily).
Looking at the current run rate of earnings and adjusting for major cost savings post to the successful IT integration of Dresdner and Commerzbank as of Q2 2010 plus remaining closure of redundant branches, Commerzbank seems to be already quite close to their target.
If all goes well they would trade at 5x P/E.
Worst case scenario based on current run rate would be 6 - 7x P/E (barring a meltdown in the euro zone).
ROE is 16-17% pre-tax.
Price / Tangible book: 0.7.
If there is no system meltdown there should be 100% return over 3 years.
PIIGS exposure:
Greece (3.9b)
Ireland 3b (50% interbank)
Portugal (50% CRE)
Spain (4.8b CRE)
Italy 16.4b (9.7b owed to Government)
Disclosure: None
http://www.valuewalk.com/
