Invesco European Growth Fund Adds to Sabanci Stake

Company has strong financials and is trading well below its intrinsic value

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Jul 27, 2016
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Invesco European Growth Fund (Trades, Portfolio) added 1,328,978 shares to its stake in Haci Omer Sabanci Holding (IST:SAHOL, Financial) in the second quarter.

The trade had a 0.33% impact on the fund’s portfolio. It now owns 11,153,719 shares in the company.

Sabanci Holding is a financial conglomerate Turkish holding company that began its operations in 1967. The company conducts its business in banking, energy, cement, retail, insurance and industrial products. It also engages in segments like Technology, Distribution and Tourism.

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Sabanci Holding has a market cap of t_-B4Kl3dm5P6CXEs5ntTQAUnNDup7NvsC2NqOgH0KGsROCfj3qYxP6aIzDr-NKxYVGz3INVxp_hXJFOFZhJY9dnHnBTWBTvu2cL6QGeYWAtHOBGzTJC-9ei29JWnqX6buU0dKnB17.45 billion, an enterprise value of t_-B4Kl3dm5P6CXEs5ntTQAUnNDup7NvsC2NqOgH0KGsROCfj3qYxP6aIzDr-NKxYVGz3INVxp_hXJFOFZhJY9dnHnBTWBTvu2cL6QGeYWAtHOBGzTJC-9ei29JWnqX6buU0dKnB66.45 billion, a P/E ratio of 2.03 and a P/B ratio of 0.80.

The Invesco European Growth Fund (Trades, Portfolio) seeks long-term growth of capital through investing in a diversified portfolio of reasonably priced, quality companies in the European region, with strong fundamentals and sustainable earnings growth.

The Invesco European Value Fund commented on Sabanci Holding on May 18.

"Haci Omer Sabanci Holding AS (IST:SAHOL), a Turkish holding company, was the fund’s top individual contributor for the quarter. The stock recovered sharply in the first quarter as economic, commodity and political concerns proved to be overly negative and sentiment toward Turkey, and emerging markets in general improved. We continue to believe Sabanci’s strategic assets are highly attractive with the stock trading at a deep discount to NAV and having a healthy balance sheet."

Additionally, Sabanci Holding has multiple good signs, according to GuruFocus, which may have influenced the Invesco European Growth Fund (Trades, Portfolio) to add to its stake.

The company is trading well below its Graham number

Sabanci Holding has a Graham number of t_-B4Kl3dm5P6CXEs5ntTQAUnNDup7NvsC2NqOgH0KGsROCfj3qYxP6aIzDr-NKxYVGz3INVxp_hXJFOFZhJY9dnHnBTWBTvu2cL6QGeYWAtHOBGzTJC-9ei29JWnqX6buU0dKnB36.07 according to GuruFocus.The Graham number is a figure that measures a stock’s fundamental value by taking into account the company’s earnings per share and book value per share. In theory, any stock that falls below the Graham number is worth investing in. However, there is still a degree of variance that is associated with any investment. Just because a company is trading well below its Graham number does not guarantee that the security will rise in price, although it increases the chances that it will in the future.

The company is trading below its intrinsic value

According to the DCF calculator Sabanci Holding has an intrinsic value of t_-B4Kl3dm5P6CXEs5ntTQAUnNDup7NvsC2NqOgH0KGsROCfj3qYxP6aIzDr-NKxYVGz3INVxp_hXJFOFZhJY9dnHnBTWBTvu2cL6QGeYWAtHOBGzTJC-9ei29JWnqX6buU0dKnB64.32, which provides an 86.71% margin of safety.

The company’s dividend yield is close to a three-year high

The trailing dividend yield forvSabanci Holding is 1.74%.

Despite the fact that Sabanci Holding has multiple good signs, the Invesco Growth Fund has lost an estimated -8% since the fourth quarter of 2013. This shows that just because a company has strong financials doesn’t guarantee a company will rise in price in the short term. Value investing for the long term requires patience and discipline.

Below is a chart of the Invesco European Growth Fund quarterly transactions in Sabanci Holdings over the previous five years.

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Cheers to your investment success.

Disclosure: Author does not own any shares in this company.

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