Spain’s Francisco Garcia Parames embarked on his own venture in February, opening Cobas Funds, and this week, the value investor compared to Warren Buffett (Trades, Portfolio) disclosed his latest buys for the fledgling firm.
The second quarter is Parames’ second time reporting his stock holdings since leaving Bestinver in September 2014 after a 25-year tenure. During that time, he harvested 16% annual returns by investing in undervalued securities according to the tenets of value investing. He had to wait two years to open his own boutique asset manager, Cobas, due to a two-year non-compete agreement with his former employer. In his a personal message to investors, Parames said the fund would continue a project he formed in 1989.
“It is an ambitious and far-reaching venture with a long-term outlook that is fundamentally different to other funds currently operating in the market,” he said.
“Cobas Asset Management SGIIC SA is here precisely because other options have come up short, either by picking an excessively high volume of assets or by failing to adhere to the principles of value investing, which always seeks out undervalued securities rather than making predictions as to how the market will perform.”
Parames’ portfolio held 66 stocks with a value of $680 million at the end of the second quarter. Nineteen of them were new to the portfolio. Cobas will also manage five funds composed of Iberian, global and large-cap strategies.
True to his long-term focus, Parames also stated in his letter than of the 62 securities held in March, the core 23 had been held in his team’s previous portfolios.
Parames’ largest new positions to join the portfolio in the second quarter were: Dixons Carphone PLC (LSE:DC., Financial), Renault SA (XPAR:RNO, Financial), Sports Direct International PLC (LSE:SPD, Financial), Kroton Educacional SA (BSP:KROT3, Financial) and Gold Fields Ltd. (GFI, Financial).
Dixons Carphone PLC (LSE:DC., Financial)
Parames held 5,704,093 shares of Dixons Carphone PLC, accounting for 2.67% of the portfolio. The stock’s second-quarter share price averaged 3.19 pounds.
Dixons Carphone is one of Europe’s top electrical and communications retailer and services companies, concentrated primarily in U.K., Ireland and Nordic markets. The company’s share price declined steadily by 23% over the past year, to 2.70 pounds Thursday afternoon.
Its share price began a month-and-a-half-long tumble beginning May 24, the day the company reported fiscal fourth-quarter results. Dixons Carphone posted revenues up 6% across all regions year over year, with double digit growth in its Nordic, Southern Europe and Connected World Services segments. In the U.K., reported revenues fell 1% and increased 2% in same-store sales.
Dixons Carphone’s U.K and Ireland sales dipped as product issues, supply shortages and a shift to SIM only depressed its phone segment. It also suffered from a five-week delay in the release of the Samsung S8.
The company has a P/E ratio of 10.38. It also has a P/B ratio near a five-year low and P/S ratio near a 10-year low.
Renault SA (XPAR:RNO, Financial)
Parames bought 197,338 shares of Renault SA, accounting for 2.3% of the portfolio. The second-quarter share price of the company averaged 83 euro.
Renault is a French automaker whose biggest markets are France, Russia and Turkey. In the second quarter, it delivered 1.88 million vehicles, a 10.4% increase, for a half-year sales record. The company also has the largest share of the electric vehicles market in Europe at 26.8% of the market. It is seeing fast growth in China, where it sold 36,000 vehicles in the first half of 2017, compared to 9,771 in the first half of 2016.
Renault’s share price has increased 2% over the past year, trading at 75.90 euros on Monday afternoon. The company has a P/E ratio of 4.84, at a five-year low. Its P/B ratio is near a three-year low at 0.66, and its P/S ratio is near a two-year low of 0.41.
Sports Direct International PLC (LSE:SPD, Financial)
Parames bought 4,111,405 shares of Sports Direct International, accounting for 1.97% of the portfolio. The share price for the second quarter averaged 3 pounds.
Sports Direct is the largest sporting goods retailer in the U.K. and operates stores in Europe. Its stock rose sharply on the report of its full-year 2017 results. For fiscal year 2017, announced July 20, Sports Direct’s revenue climbed 11.7%, with U.K sports retail revenue up 6.3% (or 2.6% excluding acquisitions and a 53rd week of results). International sports retail revenue grew 38%, free cash flow totaled $173.7 million, and net debt increased to 182 pounds from 99.7 million pounds at the end of April.
EBITDA, however, sank 28.5% due to the devaluation of the pound against the U.S. dollar and erosions of its gross margin, as well as a requirement to increase its inventory and lease provisions.
Sports Direct said it has invested 300 million in property over the past year to open a new generation of stores to promote its third-party brand partners, where sales had exceeded expectations. The company also said it aimed to tailor international stores toward local markets.
In the past year, Sports Direct stock gained 38%. The company has a P/E ratio of 10.24 and P/S ratio of 0.72, both near their respective one-year highs. It has a P/B ratio of 1.76.
See Francisco Garcia Parames’ portfolio here.
