Some thoughts on companies mentioned earlier.

After staying away for a while, I was encouraged by my friend (EmergingValue) to provide an update. Sorry for being absent for so long but life has been busy and markets were full of uncertainty – not that we have more certainty now, but at least valuations have come down a little.

ADM: Still on my watch. Share price didn’t do much since I sold but this is actually pretty good considering the current market (“Time in the market beats timing the market”). It’s a high-quality business, a dividend aristocrat and the industry the company is in should do better in an inflationary environment. For my taste it’s not cheap enough being a cyclical company.

Asseco Poland: One of my lucky trades this year by selling TAG Immobilien and buying Asseco Poland. Asseco is an asset light business. Main clients are public sector and financial industry – two sectors which shouldn’t suffer too much in the current environment. The company offers a solid dividend. Additionally, there is massive immigration into Poland now which should support the economy.

Berentzen: To me this is a lower risk/ value investment (someone looking for an easy 10 bagger better passes this). Much depends on the success of the investments into marketing this year and how the company will be impacted by higher energy costs. A few things I noted when I was in Germany this summer was that their “success” product Mio Mio appeared not well placed in supermarkets and I saw some bottles being dusty. That’s just simple field observation. I have no idea about the real trend in the market apart from Aperol Spritz being hip summer 2022. Generally, Berentzens revenue should do good benefitting strongly from Covid re-opening. It looks like that management anticipated this and adjusted their salary in line with growth targets. It turns out that management will earn much better than pre-covid 2019, at times when the company generated more revenue and profit. That’s something I really don’t like to see as a shareholder and I hope the supervisory board does their job and keeps an eye on it. At least some stock compensation rather than cash would create more trust. Other than that, the company just raised guidance again and management is also being cautious about input price inflation – so everything seems under control. Management did a great job during covid, and I trust that they will also manage the current crisis. Preliminary figures Q3 scheduled for 25.10.2022.

China mobile: I bought them with the proceeds from the ADM sale and they did a bit better. Mainly due to the high dividend. The company generates strong cash and has a rock-solid balance sheet. Main risk is the political situation.

Eckert & Ziegler: Was very timely with selling most E&Z. Still holding a tiny position. Solid company, good products and good management. Share price went down a lot but I haven’t bought it back yet.

Fresenius: On a short-term basis it’s my biggest mistake last and this year. I absolutely underestimated the power of high debt and high capex. I’m still holding my position but would have sold it if I needed tax loss harvesting – tax is very personal and the impact on total return is something not to be underestimated. I see some risks ahead with the inflationary environment: Cost increases putting pressure on margins. Management might be forced to increase salaries at higher rates than they can pass on. Same for energy bills for hospitals in Germany. I’m not an industry expert and I might overemphasize these two factors since there was no profit warning from the company yet. Having spoken to people who manage nursing homes in Germany they said that they would need to close some from a cost aspect since they would be loss making this winter and there was no political solution at the time. Food for thought. At least some politicians woke up and are talking now about financial support for hospitals – I assume that there will be some kind of support given a social/green government leading Germany. In the meantime, we have some news with the company having a new CEO and the famous investor Paul Singer initiated a position which feeds break up speculation – interesting times ahead. The company appears very cheap on valuation measures.

Shell: Sold (and replaced with SU, WCP and CVE). Reasoning weak management performance and transformation into green energy. To transform such a big company comes always with a risk. There will be massive costs to turn an oil company into a green energy company. Long term the company could benefit from these steps, but I thought holding it and taking the risk of possible poor capital allocation is an opportunity costs I wouldn’t want to bear in the middle of an energy bull market. The share price didn’t do much since despite these massive developments in the energy market. Not following anymore.

TAG Immobilien: Selling them was very fortunate as the share price cratered shortly after. The property market was very hot in Germany and inflation risk with rising interest rates let the balloon pop. I would have never expected the share price fall that much, especially in such a short period of time. Property leverage works in both ways. I experienced this as an observer moving to Ireland when the property market went down, and it got very ugly. There seems to be extreme fear about the sector, and I couldn’t resist to initiate a small starting position again since I think assets are there, the management does a good job and there is opportunity with the expansion into Poland. The company raised some capital still at a good time – so cash is there and some insider purchases started. Probably I’m too early but the position makes it easier for me to keep an eye on TAG.

Some links in German language:

Here is an article about the industry:

Very interesting podcast in finanz-szene with Rolf Elgeti (Chair Supervisor board TAG and former CEO) where he said that his residential property exposure has been reduced to literally zero – reasoning inflation, political environment and growing interest rates.

Thanks for reading! Please share your thoughts in the comments below.

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