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Greenlight's David Einhorn Buys International Stocks in First Quarter

Anwiti Bahugana, Ph.D. Senior

Holly LaFon

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In the first quarter, David Einhorn (Trades, Portfolio)’s Greenlight Capital purchased four news stocks, of which two hailed from outside the U.S. In a rising price environment, the price-conscious investor is increasingly going abroad for good values. He revealed in his first quarter letter that one of his fund’s top five positions is a Greek company, Alpha Bank AE (ATH:ALPHA), and also mentioned that he owned other Greek banks. The two new international stocks he bought in quarter one are: Resona Holdings (TSE:8308) and Altice S.A. (XAMS:ATC).

Resona Holdings (TSE:8308)

Resona Holdings is the holding company for three banks: Resona Bank Ltd., the fifth largest bank in Japan, as well as Saitama Resona Bank Ltd. and The Kinki Osaka Bank Ltd. Einhorn opened the position at the share price of ¥547, with valuations of 0.8x book value and 8x earnings. The company’s share price in the past year lost 1.68%, and it trades around ¥527 on Thursday.

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Einhorn notes that the bank formed in 2002 and 2003 through a merger and recapitalization of three local banks around Tokyo and Osaka, in which the Japanese government bought a stake worth ¥3.128 trillion. In May 2013, the company launched a plan to fully repay the government’s investment by fiscal year-end 2017. Partially through the introduction of new investment trusts and insurance and loan products, the company in December 2013 revised upward its net income forecast for full-year fiscal 2013 from ¥145.0 billion to ¥185.0 billion.

As of Feb. 3, Resona has repaid ¥2.772 trillion of the public funds borrowed, with a remaining ¥356 billion left to repay.

For fiscal third quarter 2013, Resona announced a ¥55.1 billion year-over-year decline in net income at ¥173.6 billion, though it would have increased by ¥34.6 billion if a one-time gain were not adjusted in the year-ago quarter. Income increased by 17.8% year over year to ¥637.2 billion. ROE came to 10.94%, from the 13% last year, which Einhorn mentions in his letter.

Resona’s 10-year revenue and earnings history:

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Einhorn also notes in his letter, “With the more volatile international Japanese banks trading at 9x EPS, and its peer regionals at 13x EPS, Resona is cheap on both an absolute and relative basis.” Currently the bank trades with a P/E of 6.2 and P/B of 0.52, which is close to a one-year low. Its P/S of 1.68 is near a three-year high.

Altice S.A. (XAMS:ATC)

Einhorn also purchased Altice S.A., a multinational cable and telecom company based in France with operations in Europe, Israel, the West Indies and Dominican Republic. It went public in January, and has been growing in recent years through a number of acquisitions, namely of Dominican Republic-based mobile operators Tricom in March, and Orange Dominicana in April.

Einhorn wrote about the company’s ability to achieve growth through both acquisitions and organic business improvement in his letter:

“ATC’s business is very stable and grows organically at a healthy clip. ATC’s management owns a lot of stock and has an excellent track record in both operations and capital allocation. We see substantial upside given management’s ability to improve core margins while making strategic acquisitions and disposals across ATC’s portfolio.”

Altice’s key business deal currently involves its subsidiary Numericable (EPA:NUM)’s acquisition of the second largest telecom operator in France, Vivdendi’s SFR. Altice already owns 40% of the company after purchasing 12.4 additional shares in it in February, and made an offer for the entire company in March. Einhorn commented that the acquisition would “create significant synergies from consolidating the French market.”

“Presuming most of those synergies, we purchased ATC for less than 6x estimated 2016 EBITDA and a greater than 15% free cash flow yield to the equity,” he added.

The specific growth rate Einhorn expects for the company after 2016 is 10% per year for EBITDA. Last year, the company boosted EBITDA by 26.7% over the previous year, to €441 million from €349 million.

For its year ended Dec. 31, 2013, Altice announced a 0.7% increase in consolidated revenue to €3.2 billion, with its EBITDA margin up by 2.1% points to 42.2%.

Einhorn acquired his position in Altice at an average price of €28.47. Since its initial public offering the company’s shares are up 52% to €43.49.

See more of David Einhorn (Trades, Portfolio)’s holdings in his portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here!


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