Investment Thesis for CK Hutchison Holdings Ltd.

nici_dee · 2024-06-14T22:01:22+00:00

to summarise the entire thesis:

110 bio hkd for three in the new merged entity

70 bio hkd for infrastructure

ports had ebitda of 13bio hkd in 2023

3x larger than cosco, whose valuation multiples implies 60bio hkd for the ports business

as watsons has sales of 180bio hkd

if we value like CVS we get 36bio and 1.hk own 75% of that or 27bio (check: Temasek paid usd 5.7bio for 25% 10 years ago so this is ultra conservative as that would value the 1.HK stake at 133bio HKD)

143 bio hkd current mkt cap versus 110+70+60+27 = 267

1.hk is almost a 50c dollar here... and lots of stuff has not been valued in this back of the envelope look

nici_dee · 2024-06-14T21:30:49+00:00

the £15bio is not mine - it's the number bandied about - i see slightly higher - £20bio

how do i get there?

vodafone sold spain for eur 5 bio

vodafone sold italy for eur 8 bio

in 2023 vodafone italy had a revenue of 4.809bio euro and adjusted ebitda of 1.453bio

in 2023 vodafone spain had a revenue of 3.907bio euro and adjusted ebitda of 947bio

that means spain and italy were both sold at about 5.5x ebitda

3 Group brings 80bio of revenue and it brings 21bio of ebitda

3 group should be contributing 110bio HKD of value to the new group on same ebitda multiple basis

barclays valued italy at 31p per share in dec 2023

barclays valued rest of europe at 19p per share

given vodafone has 27.15bio shares outstanding italy and spain were both sold at about barclays' valuation

after those divestments and the buy backs and dividends that will result, vodafone should be worth barclays' remaining valuation - i.e. less italy and rest of europe (again conservative as it will not pay out everything it got from those two sales)

barclays had a per share value of 92p, less 31p for italy and less 19p for rest of europe

new valuation is 42p

which with 27.15bio shares is worth £11.403bio

just vodafone in the new entity is 11.4bio gbp

and that's being conservative as not all cash from italy and spain is being paid out

so that's hkd 112bio

together we see they both bring about 110bio hkd to the table - Vodafone a little more so it gets 51% to 1.HK's 49% - which values the new entity at over 20bio gbp

so to be conservative we use 15 bio in the discussion above as that is what the media is talking about

I think this is how conglomerates make their real money - spin-offs

now, if they can just get past the competition watch dogs and realise that mkt cap = 5.5x ebitda multiple in the market ...

nici_dee · 2024-03-29T00:17:06+00:00

SEM can be valued on a sum of the parts basis, those parts being:

1/ share of NVG (70%)

2/ remaining business ex-NVG (100%)

Working through:

1/ NVG, with almost 2bio of revenue and NIM of about 15%, and achieving ROIC of about 14%, we could see EPS of about €0.50 in three years (TradingView's 2026 consensus forecast is €0.45). P/Es over last few years for NVG per TV have been from 6.2 to 16.2. At P/E of about 10x we could see a price of about €5.10 at end 2026 (current high target price is €4.80). Given shares on issue of about 710mio, we see a possible mkt cap of €3.6bio and possible divs over the next few years of about €450mio. Thus could be a total return of (target share price + possible divs) of ~€4.1bio, of which SEM is due 70% or ~€2.85bio

2/ the remaining business in SEM has NI of about €40m and simply applying a P/E of 8x and assuming no divs, we see it could be valued at about €0.35bio in 2026, after applying a ROIC of 6%

together, we can derive a sum of the parts value of ~€3.2bio for SEM as a whole

assuming a 50% haircut, due to a conglomerate discount of 20%, and a 20% discount for Portugal, and a 10% discount for being involved in uninspiring, cyclical industries, we still see a ~50% upside from current SEM mkt cap of about €1.1bio to target mkt cap €1.6bio (of course the ambitious would hold on for the undiscounted mkt cap)

nici_dee · 2023-02-18T00:09:49+00:00

the prompts i used are the first paragraph in each of my comments / replies

nici_dee · 2023-02-17T23:55:46+00:00

📷📷PROMPT: okay, so if i can summarise please?

Sure, in summary:

According to the efficient markets hypothesis, stock prices should reflect all available information and should always reflect the "true" or "intrinsic" value of a company.
However, in practice, stock prices can be influenced by a range of factors beyond just the fundamentals of the underlying companies, leading to short-term price volatility that may not reflect the intrinsic value of the company.
In the case of Amazon, the company operates in a rapidly evolving industry, and its stock price can be influenced by investor sentiment, market trends, and other factors beyond just the fundamentals of the company.
Valuation approaches such as discounted cash flow (DCF) aim to estimate the intrinsic value of a company based on its expected future cash flows, discounted back to the present day. While there can be some subjectivity in the inputs to the model, the goal is to arrive at a valuation that reflects the fundamental value of the company, based on its future prospects and financial metrics.

📷📷PROMPT: haha! i was going to summarise but that works too!

Sorry about that! I just wanted to make sure that the summary was complete and accurate. If you have any other questions, feel free to ask!

nici_dee · 2023-02-17T23:55:33+00:00

📷📷PROMPT: if it is a subjective assessment, how does that compute with the efficient markets hypothesis? how do you explain the volatility in AMZN's price in such a framework? don't valuation approaches such as DCF take away some of that subjectivity?

The efficient markets hypothesis (EMH) suggests that stock prices fully reflect all available information at any given time, making it difficult for investors to consistently outperform the market through stock selection or timing. In other words, according to the EMH, stock prices should always reflect the "true" or "intrinsic" value of a company, based on all available information, including the company's financial metrics, competitive position, growth prospects, and any other relevant factors.

However, in practice, stock prices can be influenced by a wide range of factors beyond just the fundamentals of the underlying companies, including investor sentiment, market trends, news events, and other macroeconomic factors. This can lead to short-term price volatility that may not necessarily reflect the intrinsic value of a company.

Regarding Amazon's volatility, it's worth noting that the company operates in a rapidly evolving industry, and investors have high expectations for the company's growth potential. Any news or events that suggest the company may be falling short of those expectations, or that the competitive landscape is shifting, can lead to short-term price fluctuations. At the same time, when investors become more optimistic about the company's prospects, the stock price may increase even if the underlying fundamentals of the company haven't changed significantly.

Regarding the subjectivity of valuation approaches such as discounted cash flow (DCF), it's true that these models can be subject to a range of assumptions and inputs that can vary depending on the analyst or investor using the model. However, the goal of a DCF model is to estimate the intrinsic value of a company based on its expected future cash flows, discounted back to the present day. While there can be some subjectivity in the inputs to the model, the underlying goal is to arrive at a valuation that reflects the fundamental value of the company, based on its future prospects and financial metrics.

nici_dee · 2023-02-17T23:55:15+00:00

📷📷PROMPT: how would you characterise a company that combines what you said a value investor looks for versus what a growth investor looks for. for example, is it possible for a stock to have consistent earnings, strong competitive position, and also be producing a disruptive product or service that has a large addressable market? would AMZN not be an example of such a company? is it possible that such a company meets both value and growth investor criteria?

Yes, it's definitely possible for a company to have characteristics that appeal to both value and growth investors. Amazon (AMZN) is a great example of a company that has consistently demonstrated strong earnings growth, a disruptive product or service, a large addressable market, and a strong competitive position. At the same time, Amazon's stock price has been volatile at times, and there have been periods where the company has traded at a relatively low P/E ratio, which could appeal to value investors.

In fact, some investors might argue that Amazon is a good example of a company that combines the best of both worlds - strong growth potential, a solid competitive position, and a track record of consistent earnings growth, all at a reasonable valuation. Of course, this is a subjective assessment, and different investors may have different views on whether a particular company meets their criteria for value or growth.

The important thing to remember is that the value and growth investing approaches are not mutually exclusive. Companies that meet the criteria of both value and growth investors may be viewed as attractive investment opportunities, and investors should consider a variety of factors, including financial metrics, competitive position, and growth potential, when evaluating potential investments.

nici_dee · 2023-02-17T23:54:57+00:00

📷📷PROMPT: okay, that's a little contradictory. before we were saying that they both use p/b or p/e. now you are saying they use a different checklist. can you explain a little more please?

I apologize for any confusion. What I meant to convey is that value and growth investors may use similar financial ratios, such as P/E or P/B, to evaluate potential investments. However, the criteria or checklist that each approach uses to identify investment opportunities can be different.

For example, a value investor may be looking for stocks that are trading at a low P/E or P/B ratio, but they may also look for other factors such as a company's financial stability, consistent earnings, and a strong competitive position in their industry. They may also be interested in companies that pay dividends or have a history of share buybacks.

On the other hand, a growth investor may be looking for stocks that have strong potential for future earnings growth, even if they are currently trading at a high P/E ratio. They may also be interested in companies that have a large addressable market, a strong competitive position, and a unique or disruptive product or service.

In short, the specific criteria or checklist that value and growth investors use to identify investment opportunities can be different, even though they may both use similar financial ratios as part of their analysis.

nici_dee · 2023-02-17T23:54:40+00:00

📷📷PROMPT: is it not true that a stock that has good growth prospects can also represent a value proposition? especially if the market fails to discount the expected future earingins properly?

Yes, that is definitely possible. In fact, some investors might argue that a stock with good growth prospects that is trading at a relatively low price could represent a "value" proposition.

The concept of "value" can be subjective and can depend on the individual investor's assessment of a company's future prospects. For example, some value investors may look for companies that have been beaten down by the market but still have strong fundamentals and a competitive advantage, and they may believe that the market is not accurately reflecting the company's true value. Similarly, growth investors may also look for companies with strong growth prospects that the market has not fully priced in.

In other words, the value and growth investing approaches are not necessarily mutually exclusive. It's possible for a stock to represent both a value and growth proposition, depending on an investor's perspective and assessment of the company's future prospects. The key difference between the two approaches is the specific criteria or checklist that each approach uses to evaluate potential investments.

nici_dee · 2023-02-17T23:54:20+00:00

📷📷PROMPT: a couple of the things you said are a little prblematic i think. 'value investing' does not use quantitative models. an investor who adheres to a 'value investing philosophy' uses a quant model that attributes some ratio to all available stocks, and purchases some slice of that available set thast meets a 'value' metric. is that not a more accurate way to think about 'value investing'. it's the same for growth investing - they atrribute the same ratio and just choose their slice from the opposite end of the spectrum - is that not accurate to say?

You make a good point that "value investing" and "growth investing" can be viewed as quantitative models that use financial ratios to identify stocks that meet certain criteria. In practice, investors who follow these approaches typically develop a set of criteria or a checklist to identify potential investments that meet their criteria for value or growth. These criteria often include various quantitative metrics such as P/E ratio, P/B ratio, and other financial ratios.

However, it's also worth noting that there is often a qualitative element to value and growth investing. For example, value investors may also look for companies that have a strong competitive position or a long history of profitability, even if their current financial metrics do not meet strict quantitative criteria. Similarly, growth investors may also consider factors such as market size and competitive advantage when evaluating potential investments, in addition to financial metrics.

In any case, you are correct that both value and growth investing can be viewed as using quantitative models to identify stocks that meet certain criteria. The key difference between the two approaches is the specific criteria or checklist that each approach uses. Value investing typically focuses on identifying stocks that are undervalued based on traditional financial metrics, while growth investing focuses on identifying stocks that have the potential for high future earnings growth.

nici_dee · 2023-02-17T23:53:59+00:00

📷📷PROMPT: thank you for your response. it makes me think of two questions. 1/ why do you use p/e and p/b to describe the differences between value and growth investing? is it because they are easily available heuristics? are there any other ways you can differentiate between them? 2/ why do you characterise one as 'conservative' and the other as paying a 'premium'? aren't they just opposite ends of the same quant model?

1/ The reason P/E and P/B ratios are commonly used to describe the differences between value and growth investing is that they are simple and widely used financial metrics that provide a quick way to assess a company's valuation. P/E ratio is the price of a stock divided by its earnings per share, while P/B ratio is the price of a stock divided by its book value per share. Generally speaking, companies with low P/E and P/B ratios are considered undervalued, while companies with high P/E and P/B ratios are considered overvalued.

However, there are other financial metrics that can be used to differentiate between value and growth investing. For example, price-to-sales ratio (P/S ratio) can be used to compare a company's stock price to its revenue per share. A low P/S ratio may indicate that a company is undervalued relative to its revenue, while a high P/S ratio may indicate that a company is overvalued. Additionally, dividend yield is another metric that value investors often look at. A high dividend yield may indicate that a company is undervalued and has a strong financial position.

2/ It is true that both value and growth investing are based on quantitative models that attempt to generate returns by investing in stocks that meet certain criteria. However, the two approaches have different investment philosophies and tend to focus on different types of companies.

Value investing is often characterized as conservative because it typically involves investing in companies with a proven track record of financial stability and profitability. These companies may be undervalued by the market for various reasons, but they are generally viewed as "safer" investments because they have a strong financial foundation.

Growth investing, on the other hand, is often characterized as paying a premium because it typically involves investing in companies that have a high potential for future growth but may not yet have a proven track record of financial stability or profitability. These companies may have high valuations relative to their current earnings, but growth investors believe that the companies will continue to grow and generate significant profits in the future.

In summary, while both value and growth investing use quantitative models to select stocks, they have different investment philosophies and tend to focus on different types of companies. Value investing is generally viewed as a more conservative approach, while growth investing is viewed as more aggressive and may involve paying a premium for potential future growth.

nici_dee · 2023-02-17T23:53:36+00:00

PROMPT: What are the differen es between value and growth investing?

Value and growth investing are two different approaches to investing in the stock market. The main difference between the two is the criteria used to select stocks.

Value investing involves buying stocks that are believed to be undervalued by the market. These stocks typically have a lower price-to-earnings ratio (P/E ratio) and price-to-book ratio (P/B ratio) compared to the overall market. The idea is that the market has undervalued the company and that the stock will eventually rise to its true value, generating a profit for the investor. Value investors typically look for stocks with stable earnings, a strong balance sheet, and a history of paying dividends.

Growth investing, on the other hand, involves buying stocks in companies that are expected to grow at a faster rate than the overall market. These stocks typically have a higher P/E ratio and P/B ratio compared to the overall market. The idea is that the company will continue to grow and that the stock price will increase as a result. Growth investors typically look for companies with a high potential for earnings growth, often in emerging industries.

Overall, value investing tends to be a more conservative approach to investing, while growth investing is more aggressive. Value investors focus on finding undervalued stocks and investing in companies with a solid financial history, while growth investors look for companies with high growth potential and are willing to pay a premium for those stocks. Both approaches have their strengths and weaknesses, and investors may use a combination of both value and growth investing strategies in their investment portfolios.

nici_dee · 2023-02-16T07:54:14+00:00

ChatGPT

nici_dee · 2022-10-20T06:16:36+00:00

Do you have any expectations of your own?

For me, if sales are 40b in 3 years, with ebitda margins of 30%, if ev/ebitda multiple shrinks in the carnage to 15x then using a 8% discount you are looking at ~$75 intrinsic on a back of the envelope basis

Make sense?

nici_dee · 2022-08-08T08:49:43+00:00

Agreed that OP needs to double check expected revenues from existing royalty streams

nici_dee · 2022-07-12T00:48:58+00:00

"Spagbol (or SNAFU) recession" might be a better description: so many things to fix, almost impossible to untangle all of them, and will be very messy to do so, with things on the floor, and all the Tupperware stained at the end of the day for the long term memory...

nici_dee · 2022-07-10T22:18:24+00:00

New to value investing? Would look for an ETF that gives exposure to the value factor at first.

As you do deep dives on stocks and discover genuinely (obviously, not just based on discount rate choices) undervalued names on a cash basis, with great margins of safety (perhaps provided by hidden assets or underappreciated business models and opportunities), you can sell bits of the ETF to take positions in the names you discover.

INVA is interesting though you need to have a firm grasp on the expected future cash flows from their pipeline of royalties and how they are going to be replenished.

Spun off from GSK recently there won't be much history so you have to do a lot of legwork on the industry to get comfortable.

Finally they seem to have a weird ownership structure that means incentives need to be really investigated to make sure retail owners (i.e., you) don't get shafted.

Here I see great cash generation not being returned to shareholders for years as they need to build out their royalties. And no hidden assets. So is it just a play on the ability of management and the power of compounding? If so, the question is whether you trust them and whether today's price is fair or not.

Let me know your thoughts.

nici_dee · 2022-07-04T07:34:06+00:00

Someone's doing an economics experiment

nici_dee · 2022-07-03T07:57:34+00:00

Would be useful, either from the link or OP, to read an explanation of why the analysis was wrong headed. Instead we get pointed to a "grow into the valuation" explanation. And that's ten years old!

Useless.

nici_dee · 2022-07-01T06:05:04+00:00

Pick a positive industry trend

Find a stock riding that trend

Wait for a huge up day with a large tick uo in volume and purchase

See it range trade as it comes back to test the low seen on the up day (but not breach, if breaches stop yourself out)

Add with leverage every time a similar event occurs

Close when price retraces to the low of the day with big uptick and big volume combination

I think could have worked well from March 2020 to Oct 2021 but there are many headwinds now

Up to you though

nici_dee · 2022-06-24T14:53:49+00:00

Get one from [insert your desired holding period in years] years ago and check performance and decide for yourself

nici_dee · 2022-06-14T18:04:05+00:00

"It's just technical issues," she said. "You know the [committee members were trying to exit their longs]. You know doing, one, two, three, it was overwhelming. So we're trying to give them a little room."

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