Azvalor Internacional FI (Trades, Portfolio) has revealed its portfolio for the third quarter of 2021 which ended on Sept. 30. Major trades include additions to the fund’s Canadian Natural Resources Ltd. (CNQ, Financial), Gold Fields Ltd. (GFI, Financial) and Bonanza Creek Energy Inc. (BCEI, Financial) holdings alongside selling out of its Coterra Energy Inc. (CTRA, Financial) and Galp Energia SGPS SA (XLIS:GALP, Financial) positions.
Azvalor Internacional FI (Trades, Portfolio) is a fund designed to be invested entirely in undervalued equity assets listed on the global markets for investors with a long-term investment horizon. The fund seeks to buy shares of companies at a price below their intrinsic value and create long-term holdings. Its portfolio mainly comprises European companies listed on secondary markets, individually selected, without preference toward company size, sector or country.
Portfolio overview
At the end of the quarter, the fund’s portfolio contained 63 stocks with two new holdings in Chesapeake Energy Corp. (CHK, Financial) and Aurizon Holdings Ltd. (ASX:AZJ, Financial). It was valued at $911 million and has seen a turnover rate of 10%. Top holding includes Consol Energy Inc. (CEIX, Financial), Tullow Oil PLC (LSE:TLW, Financial), Arch Resources Inc. (ARCH, Financial), Whitehaven Coal Ltd. (ASX:WHC, Financial) and Nov Inc. (NOV, Financial).
The top sectors represented in the portfolio are energy (60.88%), basic materials (29.54%) and industrials (5.34%).
Canadian Natural Resources
The fund’s largest trade of the quarter was an addition to its holding of Canadian Natural Resources (CNQ, Financial). Managers of the fund boosted the holding by 97.03% with the purchase of 441,603 shares. The shares traded at an average price of $33.69 during the quarter. Overall, the purchase had a 1.52% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 60.15%.
Canadian Natural Resources is one of the largest oil and natural gas producers in western Canada, supplemented by operations in the North Sea and Offshore Africa. The company's portfolio includes light and medium oil, heavy oil, bitumen, synthetic oil, natural gas liquids and natural gas. Production averaged 1.16 million barrels of oil equivalent per day in 2020, and the company estimates that it holds over 11.5 billion boe of proven and probable crude oil and natural gas reserves.
On Nov. 1, the stock was trading at $43.24 per share with a market cap of $51.24 billion. According to the GF Value Line, the stock is trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 5 out of 10. There is currently one severe warning sign issued for declining revenue per share. The company has struggled to find a balance with its weighted average cost of capital, which consistently exceeds its return on invested capital, indicating capital efficiency issues.
Other top guru shareholders in Canadian Natural Resources (CNQ, Financial) include Yacktman Asset Management (Trades, Portfolio), the Yacktman Fund (Trades, Portfolio), the Yacktman Focused Fund (Trades, Portfolio), Pioneer Investments and Steven Cohen (Trades, Portfolio).
Coterra Energy
Coterra Energy (CTRA, Financial) was cut from the fund’s portfolio. The remaining 919,183 shares were sold at an average price of $17.17 during the quarter. The holding had a total estimated gain of 4.27% and the sale had an overall impact of -1.51% on the equity portfolio.
Coterra Energy is a company engaged in hydrocarbon exploration. It is organized in Delaware and is based in Houston. As of Dec. 31, 2020, the company had 13.672 trillion cubic feet equivalent of proven reserves, all of which was natural gas and all of which was in the Marcellus Shale, where the company controls approximately 175,000 net acres.
As of Nov. 1, the stock was trading at $21.44 per share with a market cap of $17.52 billion. It is trading at a significantly undervalued rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 6 out of 10. There is one severe warning sign issued for declining revenue per share. In line with the warning sign, the company’s revenue has decreased since 2018 and net income took a hit in 2020.
Primecap Management, Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer Investments, Richard Snow (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) also maintain positions in Coterra Energy (CTRA, Financial).
Galp Energia
The fund also cut ties with its Galp Energia (XLIS:GALP, Financial) holding, selling the 1.10 million shares it held. The shares, boosted by a 55.8% addition in the previous quarter, were sold throughout the quarter at an average price of 8.62 euros ($10). The sale had a -1.13% impact on the equity portfolio and GuruFocus estimates the total loss of the holding at 23.73%.
Galp Energia is an integrated operator with business lines spanning from exploration and production to refining and marketing of oil products. Galp operates a multitude of offshore production and exploration facilities in Europe, South America, Africa and Southeast Asia. Processing is done by a group of refineries in Portugal that distributes refined products, primarily in the Iberian Peninsula but also in Africa. Gas and power sales consist of supply, distribution and marketing of natural gas, along with multi-generation and sale of electricity.
The stock was trading at 8.99 euros per share with a market cap of 10.65 billion euros. A modestly undervalued rating is given to the stock by the GF Value Line.
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 a declining gross margin and declining revenue per share. The company’s cash-to-debt ratio of 0.28 ranks the company worse than 59.75% of competitors and has pulled the Altman Z-Score toward the distress column.
Galp Energia (XLIS:GALP, Financial) shares are also owned by Bestinfond (Trades, Portfolio) and Azvalor Blue Chips FI (Trades, Portfolio).
Gold Fields
The fund’s Gold Fields (GFI, Financial) holding saw a boost during the quarter after it was re-established at the beginning of the year. Managers purchased 1.2 million shares to grow the holding by 80.41%. The shares were purchased during the quarter at an average price of $8.96. Overall, the purchase had a 0.92% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 17.65%.
Gold Fields is a globally diversified gold miner and producer with eight operating mines in Australia, Ghana, Peru and South Africa. The majority of group revenue is generated in the Australian mines, largely the St. Ives and Granny Smith sites, with Ghana the second- largest contributor of revenue. The company is involved in underground and surface gold and copper mining and related activities, including exploration, development, extraction, processing and smelting. In Peru, the company also produces copper, and it has other precious metal exploration interests in Africa, Eurasia, Australasia and the Americas.
On Nov. 1, the stock was trading at $9.26 per share with a market cap of $8.4 billion. According to the GF Value Line, the stock is trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 4 out of 10. There are currently no severe warning signs issued for the company. Strong operating and net margins beat at least 82.02% of industry competitors and contribute to the company’s above-average profitability rank.
Other top guru shareholders in Gold Fields (GFI, Financial) include Simons' firm, Donald Smith & Co., Pioneer Investments, Chuck Royce (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).
Bonanza Creek Energy
Rounding out the fund’s top five trades was an addition to its position in Bonanza Creek Energy (BCEI, Financial). Managers boosted the position by 45.52% with the purchase of 198,220 shares. The shares traded throughout the quarter at an average price of $41.06 and the fund has a total estimated gain of 37.77% on the position. Overall, the purchase had a 0.90% impact on the equity portfolio.
Denver-based Bonanza Creek Energy is an exploration and production company focused on the extraction of oil and associated liquids-rich natural gas in the United States. Its operations are focused in the DJ Basin of Colorado. The low risk and stable production profile of these assets provides a strong cash flow base from which to develop the Niobrara and Codell formations in Colorado, the growth engine of the company.
As of Nov. 1, the stock was trading at $56.04 per share with a market cap of $1.73 billion. The stock is trading at a modestly overvalued rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rank of 4 out of 10. There is one severe warning sign issued for a Beneish M-Score indicating the company may manipulate its financials. The company’s cash flows have been inconsistent at best with 2020 being the first time in the last decade that the company has reported positive free cash flow.
Donald Smith & Co., Hotchkis & Wiley, Diamond Hill Capital (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also own Bonanza Creek Energy (BCEI, Financial) shares.
