Spanish and Portuguese stock specialist fund azValor Iberia FI (Trades, Portfolio) has revealed its first-quarter portfolio. Top trades include selling out of the fund's Indra Sistemas SA (XMAD:IDR, Financial) and ArcelorMittal SA (LUX:MTL, Financial) holdings, reductions in its Melia Hotels International SA (XMAD:MEL, Financial) and Altri SGPS SA (XLIS:ALTR, Financial) holdings and a new buy into Grifols SA (XMAD:GRF.P, Financial).
With several managers at the helm, the fund invests over three-quarters of its assets in Spanish and Portuguese companies listed on secondary markets, with Spanish shares capped at 90% of the fund. The fund managers seek undervalued companies with an easy-to-understand business, sustainable competitive advantages over time, high returns on capital and that are led by quality management teams. The overall goal is to obtain satisfactory and sustained returns over time.
Portfolio overview
At the end of the quarter, the portfolio contained 24 stocks with one new holding. It was valued at $46 million and has seen a turnover rate of 4%. Top holdings at the end of the quarter were Tubacex SA (XMAD:TUB), Tecnicas Reunidas SA (XMAD:TRE), Galp Energia SGPS SA (XLIS:GALP), Elecnor SA (XMAD:ENO) and Compania de Distribucion Integral Logista Holdings (XMAD:LOG).
By weight, the top three sectors represented are industrials (40.69%), basic materials (28.05%) and energy (13.02%).
Indra Sistemas
The first quarter saw managers sell out of the fund's Indra Sistemas (XMAD:IDR, Financial) holding again after it was re-established in 2020. The remaining 279,083 shares were sold during the quarter at an average price of 7.43 euros ($9.04). Overall, the sale had a 4.12% impact on the portfolio and GuruFocus estimates the total gain of the holding at 3.41%.
Indra Sistemas is a Spain-based provider of information technology offerings for finance, insurance, public administration, airports, defense, healthcare, media, telecom, security, energy and infrastructure end markets. Its product capabilities include analytics, cloud computing, enterprise resource planning, networks and communications, electoral processes, bus technology, subway technology and sustainability solutions. The company generates revenue in Europe, Africa, the Middle East, the Americas and Asia-Pacific.
On May 7, the stock was trading at 8.26 euros per share with a market cap of 1.45 billion euros ($1.76 billion). According to the GF Value Line, the shares are trading at a fair value rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 8 out of 10. There are currently two severe warning signs issued for days inventory building up and an Altman Z-Score of 1.08 indicating the company could be at a higher risk of bankruptcy. The company's cash-to-debt ratio of 0.7 ranks it lower than 75.55% of competitors as debt has increased consistently over the last several years.
Grifols
A new holding was established for the fund in Grifols (XMAD:GRF.P, Financial) with the purchase of 85,625 shares. During the first quarter, the shares traded at an average price of 14.37 euros. Since the holding was established, GuruFocus estimates the total gain at 4.87% and the trade had a 2.68% impact on the portfolio.
As a vertically integrated plasma derivative producer, Spain-based Grifols collects plasma and then manufactures and sells plasma-derived products globally. By acquiring Talecris in 2011, Grifols dramatically expanded its plasma-derived product portfolio, and the company's bioscience business contributed 78% of sales in 2019. Grifols also has smaller segments, including diagnostics, hospital supplies and biosupplies. Diagnostics is now roughly 14% of revenue following the Novartis and Hologic deals.
As of May 7, the stock was trading at 15.07 euros per share with a market cap of 13.77 billion euros. The GF Value Line shows the shares trading at a modestly undervalued rating that could entice investors.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 9 out of 10. There are currently four severe warning signs issued for the company, including declining operating and gross margins. Despite the warning signs, Grifols' operating margin of 18.26% ranks it better than 82.02% of competitors and a similarly strong net margin also contributes to its strong profitability rank.
ArcelorMittal
The fund's ArcelorMittal (LUX:MTL, Financial) holding was cut from the portfolio after a short life of only one year. The remaining 60,487 shares that made up the holding were sold during the first quarter at an average price of 20.27 euros per share. The sale had an overall impact of -2.42% on the portfolio and GuruFocus estimates the total gain of the holding at 7.35%.
ArcelorMittal is involved in the steel industry. The company's operating segments include NAFTA, Brazil, Europe, ACIS, Mining and others. It generates maximum revenue from the Europe segment. The Europe segment produces hot-rolled coil, cold-rolled coil, coated products, tinplate, plate and slab. These products are sold primarily to customers in the automotive, general and packaging sectors. The company also produces long products consisting of sections, wire rod, rebar, billets, blooms and wire drawing and tubular products. Geographically, it derives a majority of revenue from Brazil.
The stock was trading at 26.38 euros per share with a market cap of 28.01 billion euros. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 4 out of 10 and a valuation rank of 3 out of 10. There are currently two severe warning signs issued for declining revenue per share and an Altman Z-Score of 1.69 placing the company just inside of the distress column. The weighted average cost of capital for the company has consistently exceeded the return on invested capital, indicating the company has struggled with profitability.
Melia Hotels International
The fund's Melia Hotels International (XMAD:MEL, Financial) holding saw a large cut for the second quarter in a row. Fund managers sold off an additional 195,803 shares to slash the holding by 48.09%. During the quarter, the shares traded at an average price of 6.24 euros. The fund has lost an estimated 41.58% on the holding and the sale had a -2.37% impact on the portfolio.
Melia Hotels International is a Spanish owner and operator of hotels. The company operates midscale, upscale and premium hotels across several brands, including Sol Hotels & Resorts, Melia Hotels & Resorts and Gran Melia. Melia may either own or lease the hotels it operates, and hotel operation contributes the majority of company revenue. In addition, hotel owners may operate hotels under a Melia brand in a franchise agreement or can contract Melia's management services to operate the hotel on its behalf. The company generates approximately half of its revenue in Spain, and the rest from America and the EMEA region.
On May 7, the stock was trading at 6.90 euros per share with a market cap of 1.46 billion euros. The GF Value Line ranks the shares as significantly overvalued.
GuruFocus gives the company a financial strength rating of 2 out of 10 and a profitability rank of 6 out of 10. There are currently four severe warning signs ranging from poor financial strength to days sales outstanding building up. The company reached an overall high point for operating and free cash flow in 2018, but saw those numbers decrease significantly the year after.
Altri
Rounding out the fund's top five changes is a reduction in Altri (XLIS:ALTR, Financial) for the fourth quarter in a row. Mangers cut the holding by 39.84% with the sale of 183,296 shares. The shares traded at an average price of 5.63 euros throughout the first quarter. Overall, the sale had a -2% impact on the portfolio and GuruFocus estimates the total gain of the holding at 14.37%.
Altri manages forests and produces and sells pulp. The company owns and manages eucalyptus forests throughout Portugal and harvests timber. The timber is transported to the firm's mills, where it produces pulp for sale to paper manufacturers. Around half of the company's pulp is sold to tissue paper producers, while other main end products include writing and printing paper as well as soluble paste, which is used in the production of textiles. Altri also generates and sells electricity from biomass. The majority of revenue comes from Europe.
As of May 7, the stock was trading at 6.48 euros per share with a market cap of 1.33 billion euros. The GF Value Line shows the shares trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 1 out of 10. There are currently five severe warning signs issued for the company, including declining revenue per share and new long-term debt. In line with the warning signs, the company's revenue has tailed off over the last three years and net income slid to the lowest point seen since 2011.
Disclosure: Author owns no stocks mentioned.
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