BT Group plc – british Telco at a discount?

What makes more sense than writing about a business under investigations after writing a post about management qualities? Maybe the market has overreacted here?

British Telco BT Group had a … lets say issue with accounting in Italy.

The good progress we’re making across most of the business has unfortunately been overshadowed by the results of our investigation into our Italian operations and our outlook. We’ve undertaken extensive investigations into our Italian business, including an independent review by KPMG, and I am deeply disappointed with the unacceptable practices by some that we’ve found.

The stock price have dropped from 380 GB pence to around 300 GB pence, destroying around GBP 7 bn in shareholder value.

Some links: Gates, WB, Fundsmith and more

The bromance continues: Bill Gates and Warren Buffett at Columbia 27th Jan 2017

The funniest part is this comment from warren about bing (link)

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thisismoney.co.uk about Bestinvest’s top 10 list (Fonds)

Fundsmith adopts a Warren Buffet-style approach to investing. Picking out consumer brands and companies that have the power to maintain and raise prices and deliver returns over time, with the aim being to hold them for the long-term and have very little turnover in shares.

How to spot a honest and competent management?

“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.” -Warren Buffett

The part about “honest and competent” management of Warren Buffetts criteria is something that is often missed in a stock-analysis, often followed by this Quote: “I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.” from Warren. Analysts are more numbers-peoples who avoid to looking at soft-skills. I think this is a mistake and I will try to look more at characteristics of the management of companies in the future – I want to get better at analysing them.

Vernon Silver and Elisa Martinuzzi wrote this very interesting and eye-opening article about how “How Deutsche Bank Made a $462 Million Loss Disappear” at Banca Monte dei Paschi in 2008. I recommend it highly. bloomberg- how-deutsche-bank-made-367-million-disappear

Some links / Quality Sources

basehitinvesting on the importance-of-knowing-your-investment-boundaries

About the circle of competence, the ability to say no, Sears, Retail and Sum of Parts in Retail …

Everyone talks about circles of competence, but one of the greatest skills Buffett and Munger have is their ability to say “no” to ideas that are too difficult. Their ability to successfully stay within their boundaries (most of the time) comes from their unique combination of incredible brain power and unusual humility. Most people who are smart and ultra-driven (character traits of most successful people) have a hard time saying “no” to challenging new ideas.

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alphavulture blog had a fantastic 2016 performance

Some very unusual holdings – the success speaks for itself

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Conservativeincomeinvestor liked (Nov. 2016) CVS Health at 81$

Price have not moved much since then = maybe still nice?

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I have actualized the Quality Sources section of Valuetradeblog. There are now more European “Gurus” like:

• Evermore Global (Fund Commentary)
• Squad European Convictions (Fondsinfo)
• Ennismore European Smaller Companies Fund – (link)

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Bringing together Essilor and Luxottica: EssilorLuxottica

With this agreement my dream to create a major global player in the eyewear industry, fully integrated and excellent in all its parts, comes finally true. – Leonardo Del Vecchio, Chairman of Delfin and Executive Chairman of Luxottica Group

French EuroSTOXX50 Lens company Essilor and Italian company Luxottica (RayBan, Oakley) are planing to merger.  The news from the source (Essilor)

Together, Luxottica and Essilor would have, based on the companies’ 2015 results, the posted combined net revenues of more than €15 billion and combined net EBITDA of approximately €3.5 billion. Based on a preliminary analysis, the combined group is expected to progressively generate revenue and cost synergies ranging from €400 million to €600 million in the medium term and accelerating over the long term.

Luxottica’s Executive Chairman, Leonardo Del Vecchio, would serve as Executive Chairman and CEO of EssilorLuxottica. Delfin – the Luxembourg based holding company of the Del Vecchio Family – would own between 31% and 38% of the shares of EssilorLuxottica so they cleary have “skin in the game”.

Closing expected in H2 2017. The new company name will be EssilorLuxottica.

 

Quick and dirty valuation of EssilorLuxottica

Both companies look high quality to me so lets look what both of them could look like

I assumed growth rates like in 2016 and cost synergies in the lower range.

Essilor has a market cap. of 24.7 bn €
Luxottia have a market cap. of 26.1 bn €
That would be 50.8 bn € combined (if it would be that easy)
With an assumed Net Income of 2.1 bn in 2017 that would be a PE-ratio of ~24 not that cheap.

 

The transaction looks quite complicated:

The transaction would entail a strategic combination of Essilor’s and Luxottica’s businesses consisting of (i) Delfin contributing its entire stake in Luxottica (approx. 62%) to Essilor in return for newly-issued Essilor shares to be approved by the Essilor shareholders meeting, on the basis of the Exchange Ratio of 0.461 Essilor shares for 1 Luxottica share, and (ii) Essilor subsequently making a mandatory public exchange offer, in accordance with the provisions of Italian Law, to acquire all of the remaining issued and outstanding shares of Luxottica pursuant to the same Exchange Ratio and with a view to delist Luxottica’s shares.

I will look at it tomorow again, maybe there is some trick in it?

 

 

Sources:

Luxottia

Luxottia multi year numbers

Essilor

Essilor Invetors page

Essilor 2015 Results

Some links

A nice, not so old Interview with Warren Buffett in which he:
– says Wacovia, Fannie & Freddy were dead
– admires JP Morgan & Jamie Dimon
-admires the management of Coca-Cola

A nice, old speech (from 1995, quality 1970) of Warren in which he explains his investing process (link)

Bronte Capital with a nice exercise about valuing a Company (link)

Neil Woodford (UK) on 2016 and his 2017 outlook (link)

Spot the red flag – Valeant 2015

Tell me where I’m going to die, that is, so I don’t go there.
– Charlie Munger

I’m planning to make this a series*. I hope looking at the “graveyard of capital” will make my actions more cautious. This should makes me a better Investor, as we know, rule no. 1 is not to loose money.
It’s always easier in hindsight but would you invest in this company based on this report?

*Btw. other companies I later want to look at are: Enron, Banca Monte dei Paschi di Siena, Saipem, Lehman Brothers …

 

But let’s begin with this: Valeant in Feb 2015

Valeant 2014 Annual Report (link)

Report Date: February 25, 2015

Price then 190 US-$

Bolloré – sum of parts

We believe the company’s stock is extremely undervalued trading at more than a 60% discount to our estimate of its intrinsic value.
– Evermore Global / semi-annual report / June 30, 2016,

 

Valuation / sum of parts

I used market value for Havas & Vivendi (and of course their Portfolio)

I derived Value of Transport & Logistic from MuddyWaters & Evermore reports – and tried not to be to aggressive/positive here.

I used the latest Debt numbers I could find (maybe they financed their last buy of 5% vivendi – from 15% to 20% – partly with debt), I have not calculated cash.

I used a conglomerate discount of 20%. As I see the holding structure with Vincent Bolloré as value-creating, I put back 16% for his capital allocation skills (~Vincent Bolloré CARG).

The market capitalisation is according to consorsbank now at 10,4 bn €.

Bolloré – a special french conglomerate

Mr. Bolloré is an outstanding capital allocator, and has grown the share price and book value of BOL over the past 20 years, respectively, by 1,213% and 1,953%.
– MuddyWatersResearch

Let’s start with the first valuation of my 2017 To-Do list: French conglomerate Bolloré

As ebdem wrote in the comments, Bolloré is maybe a good choice. MuddyWaters valued it at 8.5€ in February 2015 … the stock is now around 3.50€. One point MuddyWatres made are the cross holdings which virtually reduce the shares outstanding.

If the stock really was that undervalued a share buyback (maybe in the form of more cross holdings) would definitely make sense. I will look out for that – of course there is a good chance that Mr. Bolloré knows better how to allocate capital than me 😉
Vincent Bolloré was is often named The Carl Icahn of France because of his active investment approach. Looking at the capital structure with a lot of listed subsidiaries reminds me a bit of John Malone/Liberty.

The operating business, which is very Africa, Logistics and Energy focused, did not have a good year in 2016 (3Q numbers are out). Turnover was down 10%.