Here is a list of new positions and. sales since the year has started. I tend to have a lot of lines or weak convictions sometimes. This is because the stock market is huge and there is always a potential better idea, yet few ideas are perfect.
So I make some changes when the management disappoints or when my thesis was proven wrong. Be ready for a long update.
Here is my update originally posted in French and translated now:
Sale> WHOLE EARTH BRANDS INC. I'm just not too comfortable with a company that is a little upscale in the US market and adored in the twitter sphere. A company that is in debt, management that makes promises, it goes or it breaks. Since I have no shortage of opportunities, the line is small, out. PV
Sale> BEIJING ENTERPRISES WATER. Strong debt and strong growth business model is a bit hot, although quite sustainable. Without other opportunities I would have kept it and will probably perform well, but, better opportunities without debt. PV
Sale> GAZPROM NEFT. Correct business, well managed and inexpensive, but does not react too much to the rise in oil, can stagnate for a long time. best opportunities. PV
Small Reinforcements:
Increased convictions on Grupo Bimbo, Fraser and Neave, Shanghai Pharma and Kri-Kri Milk to increase them to 1.5% Each.
It's not huge, that's for sure, but as they are expected to grow, it will gain at least in absolute value.
Purchases of two positions in Hong Kong of 1.3% each:
Very inexpensive and diverse.
Pax Global - Chinese Ingenico
Modern Dental Group
Modern Dental produces dental crowns and sells all over the world, making it a global business. Is affected by the Covid but remains profitable, it is a company with high margins. Grows through acquisitions and organically. Chinese market very under-equipped, and strong possibilities for expansion through acquisitions in developed countries. P/E 2019 below 10. I think it's a Jewel too.
I looked a bit at the Polish market, there are some jewels there like Ambra which sells sparkling wine and drinks or PBKM which makes Stem Cell bank, but which is expensive, and probably others. There is often the language problem on Polish sites.
In Spain I found Prim and Faes Farma interesting that I would follow.
I looked at Portugal, Hungary, the desert.
What you find in Hong Kong by comparison is pretty amazing in terms of growth, ramp-up, and price. On the other hand, I could never make a 50% Hong Kong portfolio, I need a minimum balance, and I diversify.Some extra comments:
Modern Dental Group was analysed by this investor that I really like: http://www.globalstockpicking.com/2018/12/16/dental-industry-part-3-modern-dental-group-3600-hk/
I think that it is Cheap, I am expecting Covid fears to subside soon with treatments and Vaccines.
Pax Global : Detailled analysis here https://www.slideshare.net/GabrielCastr … aseupdated, comments Analysis here by Oliv21 (translate) https://www.devenir-rentier.fr/t26260
I saw this stock being discussed a lot by value investors. Despite working in the industry I never bought it because Tech is a fiddly business, especially hardware tech. Even insiders do not fully understand Tech and Payments landscape because it is complex. But the valuation is low, the growth rate is high, and the analysis is thorough, showing a good product. I may just sell it after an appropriate rerating, which I consider a 25 P/E ratio., if at that stage I have not developed a full understanding of the market, I will not hold.
Other porfolio Changes
Exited Transocean on the share spike: May be undervalued, but does not correspond to my redefined defensive investment style. An error and loss made when I started investing.
Switched Ambev for Ab Inbev and reinforced it: on one Side Ambev is not indebted and is in markets that do not lock down a lot, on the other side Ab Inbev is cheaper in a Free cash flow basis (2019) and the Euro/USD fixed debt is a plus in this time of money printing, it could benefit from currency devaluation or slow growth in these zones. I like it as a future portfolio Pilar at these prices. Sure a few quarters may be bumpy, but by the end of the year consumption should grow again.
Switched BP for Petrobras: BP is investing a lot in renewables. Thats great but they do not expect any kind of return on these billions spent until 2030? What kind of company is this? That will be without me. And not raising the dividend long term? Uk management of non family owned companies is often terrible and this shows it again. Petrobras has growing production, reduces leverage and focus on their core business.
Sold PZ Cussons on the nice run since I bought it, thanks to increased sales of liquid soap. Again, a UK management team whose only track record is divesting some Brands and reducing the dividend when profit increased 20%, with no real plans of growing. Non family owned businesses can really be disappointing in terms of strategy, they just follow the wind, as we say in French.
Interesting geographical mix, but sub par brands. At this price, there is simply better value out there.
Sold Imperial Brands at a loss. I made a mistake on this one, the combustible business is doing ok, as I understood but the geographical mix is a bit too heavy on western Europe. The problem is the new reduced mixed category (Vapour, Heated Tobacco). As a smaller player in the tobacco space, they have less capital to invest to launch their products and brands, so less ambition, so they condemn themselves to be a third or fourth player, simply because they do not invest a lot to manage their short term EPS. If they had ambition they would compete hard on these categories in order to win, or raise funds with a listing of the new category business to compete hard. But it seems that they will just be limping along for a while. Looks like short term dead money until they can show some progress.
It was too cheap to sell, but I bought something equally cheap with the proceeds, therefore this adverse anti selling Bias is kind of countered in my mind. I will be watching and could return if they gain good traction here in a year or so. There is value there, but we need to see some new category business contributing to the bottom line in their core markets to defend the core against Iqos and others.
So what did I buy with the proceeds? A diversified basket of Cheap EM high quality, defensive stocks. I see no need for portfolio concentration when opportunities are numerous. If that was not the case, I would concentrate. Diversifying is the only thing that allows me to buy stocks exposed to Turkey, Bangladesh, South Africa, Poland while sleeping very very well at night. There is no need to think much! 10 PE, currency undervalued versus my Euros from a struggling economic zone, organic growth, defensive business, BUUUUUUUY!
First I reinforced Fresenius SE. Ok this one is not an EM stock, despite some exposure.
Healthcare services
Hospitals
Dialysis
Dividend aristocrat,
Growth story.
Normalised P/E of 10
The company has warned that there may be be less patients because they are scared of covid or they are dying of covid. They have not looked at demographic statistics in depth.
We have the vaccines coming up, and my research tells me that there are cheap drugs that work wonders and are soon to be approved in more countries than just India, making this risk a non event soon, and also new drugs in development constantly. It should rerate to its normal P/E of 20. A no brainer.
Telefonica Brasil:
I usually avoid Telcos in Europe because pricing tends to be flat to down, and demography too. But in Brasil or Africa, it is totally different on the demography side. No debt, about 10 P/E and P/FCF of 8, growing in Fiber to home. Buying assets of the competitor that was bankrupt (earnings gains coming). Sold towers (some earnings loss coming). Interestingly will start new tech business using their massive customer base and touchpoints. Should be good in the end. Excellent protection from commodity cycles.
Ambra (Poland): Since I bought it the stock is a bit down! Ah, timing! So, we have this polish maker and importer and distributor of Wines, Sparklings, and Spirits. It grows organically and by acquisitions (Czech Republic, Romania), and Wine and Fancy Sparkling Wine consumption in these countries are very low, and steadily growing.
Why? Incomes rising, trend for more sophisticated drinking, drinking tastes evolving. PE ratio? about 13, but could be 10 or 15 depending on the Q4 earnings. The earnings are cyclical based on the trimester, more drinks are sold in Q4, maybe this quarter will disappoint, I do not know. I know that when covid restrictions are lifted, wether its Q4 or Q3 or Q78, the bottles will pop! The company seems very good at bringing new drinks to customers due to their scale in the market.
A no brainer.
Beximco Pharma (Bangladesh): Price/Value: This stock has been mentioned by value investors in the past, and I ignored it. I remember what was my bias: it was presented as an arbitrage between the Bangladesh and the UK stock market, and to me, that is not how I invest. This is some trader's activity, and I failed to look deeper. What I missed is that it is really a consumer growth story, at a cheap valuation despite a run-up, because earnings grew, the stock is still cheap in London. the Vaccine distribution roll out (despite Astrazeneca questionable efficacy on some variants) , the acquisition of Sanofi Bangladesh, and the hidden jewel, the production of the Generic covid killer Ivermectin, will make earnings grow. It is not a no brainer, but still defensive.
Remgro (South Africa): I have been following this company for a long time. Remgro is a mini Berkshire with top class management, with the difference that the Finance division is equity holdings, it is the holding of Johan Rupert. the holding has roughly an equal exposure to Finance, Healthcare, Consumer goods, Infrastructure, and Industrials.
And not just any assets:
RMI: insurance: Johan Rupert is involved since nearly its creation in 1985. 30% controlled.
Mediclinic: high-quality hospital services on a cost effective basis in Southern Africa, the United Arab Emirates, Switzerland and the United Kingdom.
Distell: EM Beer and liquors and wines, as well as other food companies.
Industrials: Local subsidiaries of Air Product and Total!
CIVH. 30000km of fiber assets in SA, 57.7% revenue increase last year.
It is trading at about a 10 P/E based on 2019 earnings, while having a division that is loss making because they are building out Fiber infrastructure, so not managing short terms earnings but long term profits. Of course, the economy needs to reopen for earnings to return fully.
Nearly a no brainer, because we have to believe a bit in South Africa.
MLP Care (Turkey): Private hospitals, acquisition led growth, synergies of costs and services, some medical tourism, P/FCF of about 10, healthcare sector will grow in Turkey, more people get private insurance, Istanbul is prestigious and has a massive attractive power for millions of Muslims and also Eastern Europeans medical tourists. Another no brainer.
For Ambra, and MLP Care, I cannot lay the company growth thesis better than the companies themselves, so if you are interested, check their IR presentation.
Do not expect new updates to bring many new stocks like this one, this was a very unusual trading time.
There are not many stocks I watch that I plan to buy, I plan to reinvest incoming dividends into portfolio positions.
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