The Oakmark International Small Cap Fund (OAKEX) has had a particularly strong past 10 years, with an average annual return of 11.78%. The last year was even better, with a 20.79% return. Leading the fund is guru David Herro, in partnership with Michael Manelli. The stocks that typically fit within the fund’s portfolio are small-cap companies – those with a market cap under $5 billion at the time of initial investment – domiciled outside the U.S.
As an overview, at March 31, 2013, Oakmark International Small Cap Fund’s top sector distributions were in industrials, information technology and consumer discretionary, and the top equity holdings were Julius Baer Group, Nifco and Atea. The three most-represented geographic allocations include Japan, the UK and Switzerland.
The managers of the fund haven’t released their official portfolio update for the second quarter yet, but they mentioned their two new holdings in their second-quarter letter: CGG (NYSE:CGG) from France and Hengdeli Holdings (HKG:3389) from Hong Kong.
Herro and Manelli describe CGG as “an operator and provider of seismic acquisition and data processing services.” The company’s services are primarily useful to the global oil and gas industry. It operates in three divisions: equipment, acquisition and geology, geophysics & reservoir.
CGG’s share-price has shown muted progress recently, declining 32% over the past five years. Shares cost $24.57 each Friday afternoon, after a 20% decrease year to date.
Five year financial results also disappointed with average annual decline rates of 5.2% for revenue per share, 12% for EBITDA per share, 23.6% for free cash flow per share and 14.9% for book value per share. It continued to generate ample free cash flow for the past decade.
CGG had several major developments in the first half of the year. First, on Jan. 28, it acquired Fugro Geoscience Division, creating “a new identity for the group, the transformation of CGG into a leading integrated geosciences group, a three-division organization and the creation of the joint venture ‘Seabed Geosolutions,’” according to the release.
Second, on April 16, it announced a joint venture with Louis Dreyfus Amateurs Group (LDA) to create a ship management company, GeofieLD Ship Management Services, with the objective of providing maritime ship management services to CGG’s high-capacity 3D seismic vessels.
The new acquisition was fully in place and operational by the time CGG announced its second quarter results May 3. The company reported group revenue increased 11% to $871 million. Net income was $79 million, up from a net loss last year of $3 million. It also ended the quarter with $2.09 billion in net debt compared to $1.51 billion the previous year.
For 2013, it is expecting a 25% increase in group revenue, EBIT margin improvement, positive free cash flow and a greater return on capital.
See its 10-year revenue, earnings and price history below:
The Peter Lynch chart calls the stock overvalued:
Hengdeli Holdings (HKG:3389)
Herro and Manelli describe Hengdeli as “the largest wholesaler and retailer of luxury watch brands in China.” The company’s stock has moved up just 1.17% in five years, and the price stands at 1.73 Hong Kong dollars Friday afternoon. Year to date it has slumped almost 32%.
Hengdeli reported its business results for the year ended Dec. 31, 2012 on March 2013. Group sales increased 6.6%, with retail sales in Mainland China growing 8% and retail sales in Hong Kong declining 1%. Its profit grew 3%.
In the press release, company chairman and CEO Zhang Yuping described a difficult year for luxury sales, and the company’s response that allowed it to achieve satisfactory results: adjusting its retail network expansion pace, reinforcing its position in first-tier cities and strengthening and expanding into second and third-tier cities, placing greater emphasis on the complementary middle-to-high-end retail network, and optimizing its outlet management.
See Hengdeli’s long-term price, revenue and net income history below:
Hengdeli’s P/B and P/S are both near their three-year low, at 1.04 and 0.62, respectively. It has a P/E of 8.
To see more holdings of the Oakmark International Small Cap fund, go here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Oakmark Intl Small Cap.
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