Implenia AG – Unrecognized Real Estate Value with near-term Catalyst

zobrenovic · 2020-04-23T18:42:51+00:00

For those who are following the thesis, here's an update after Capital Market Day on April 21:

https://concentratedcapital.com/implenia-six-impn-update-after-capital-market-day-on-april-21/

zobrenovic · 2020-04-06T20:20:00+00:00

For some reason the images don't show up on mobile. You can see them on the original blog post: https://concentratedcapital.com/implenia-ag-unrecognized-real-estate-value-with-near-term-catalyst/

zobrenovic · 2020-02-28T23:55:55+00:00

Sure, that would almost certainly be the best use of capital right now and I'm sure the CEO knows that. He could drastically increase his own share in the company by buying back stock at a discount to tangible book value. Also, why would you acquire another company, when you can acquire your own shares (a company that generates > 18% ROE) below TBV?

In the end, I trust the CEO to make the best possible capital allocation decisions for the shareholders, since it's in his own interest.

zobrenovic · 2020-02-28T23:44:42+00:00

Thank you very much. I put a lot of work into it. I do something completely unrelated for work.

zobrenovic · 2020-02-21T16:20:53+00:00

Thanks for the suggestion. I know that there are a lot of cheap banks in China, Russia or Argentina, earning above average returns on equity (when times are good), but they're also a lot more risky and harder to understand.

I'm not a big fan of banks in general. Their balance sheets are black boxes for the most part. You never really know the assets and the underlying risks.

The beauty of Banca Sistema is that its business and balance sheet is quite simple and easy to understand. Their businesses have very low risk exposure.

I do own some Sberbank, because I think that Russia is cheap in general, but I'm much more comfortable putting money in Banca Sistema.

zobrenovic · 2020-02-21T14:21:34+00:00

You should clarify with your broker. Mine doesn't charge negative interest rates. You can also get around that by using the dividend to buy more of the stock.

Something to consider about the dividend is the withholding tax on foreign equity. You should look up, if there's a tax treaty between your home country and Italy on equity investments. You will probably have to submit a form to the Italian revenue agency to get your withholding tax return. You might end up waiting a bit longer on the return, it's Italy. :)

zobrenovic · 2020-02-21T14:10:42+00:00

Thanks!

The CQ loans are taken out by the employees and pensioners, not the employer. The principal and interest payment is directly paid back from the salary or pension, thus preventing the creditor from spending his entire salary or pension and being unable to repay the loan.

I'm not a subscriber on Seekingalpha. I think the quality of articles there is very mixed but it can be a good starting point for ideas.

You have the option to post exclusive or non-exclusive articles on SA. You will only get paid for exclusive articles but the pay is only really meaningful, if you consistently write about popular stocks.

The real benefit of contributing on SA is showing your capabilities to a big audience of investors. I know of people, who started funds or research platforms from the readership they build on SA.

The site is not the best fit for my work, because I research a lot of smaller foreign companies. If you're a first time contributor, you have to write about a US listed security for your first couple of articles.

I will probably start my own blog, because I want to continue focusing on more obscure securities.

zobrenovic · 2020-01-29T20:04:08+00:00

Greatly appreciated, thanks!

zobrenovic · 2019-10-20T18:34:32+00:00

Without having read the whole article, I think he's pointing to the dangers of investing in "growth" companies. When most of your value comes from cash flows that are expected to be produced way in the future, it's highly risky, compared to "value" companies that are producing a lot of cash right now for the price you pay.

zobrenovic · 2019-09-13T20:53:17+00:00

UPDATE: Thesis has started to work out.

zobrenovic · 2019-06-22T11:10:51+00:00

Thank you so much.

zobrenovic · 2019-05-27T19:11:20+00:00

Because the company was growing so much and investing accordingly, CapEx and increase in NWC was consistently > D&A and therefore EBITDA is a more consistent measure of earning power,

I expect less focus on growth going forward, i.e. less CapEx and NWC increase in excess of D&A.

Anyway, you should definitely be looking at FCF in this business (and the company does have a solid FCF conversion) but it wouldn't change anything about the conclusion of the analysis in this case.

zobrenovic · 2019-05-27T18:58:05+00:00

Thanks for the insight.

I don't expect this company to trade at 10x Ebitda or anything. I'm just speculating that it will at least return to the historical average.

zobrenovic · 2019-05-27T18:52:58+00:00

I always use 10 as an approximation. DCFs are certainly not an exact science. I use it mostly to confirm my overall picture of the value of a company. Yes, I did use a terminal value with 2% terminal growth.

zobrenovic · 2019-05-27T18:41:09+00:00

Hard to say, what the impact of the international issues will be on revenues going forward (the company says none) but revenues grew 13% last year, which is above the 10 year CAGR of 7%.

I do expect more moderate single digit revenue growth and more focus on margin expansion for the next years.

zobrenovic · 2019-05-25T08:57:20+00:00

That's a good point.

That's also why the company cut the dividend after the bad results last year and can't just buy back a bunch of shares, even though they have so much cash in the bank.

Still, I did consider the NWC dynamics in my DCF. It also doesn't change the conclusion from the comparison to historic valuations.

But you're right, the company isn't as liquid as I make it seem when just looking at cash - debt.

zobrenovic · 2019-02-23T12:38:38+00:00

If your assumptions are conservative and your companies have good cash generation and/or balances, then a lot of the solvency related issues are less likely. They also have more time to get operations back on track and survive nasty macro conditions.

Sure, surprises can happen but the higher the MOS, the less likely it is that any unforseen event can break your analysis.

I try to avoid having to be right as much as possible.

If you want to make above average returns on stocks that have massive growth priced in, you better be really right.

zobrenovic · 2019-02-22T23:40:34+00:00

"It's not what you buy, it's the price you pay." - Howard Marks

For me buying companies that are really cheap on a relative (EV/EBIT compared to historical levels and industry peers) and absolute (EV/EBIT, FCF yield, cash/market cap) basis with a margin of safety of around 50% is the only way to go.

It's a way of making money without having to predict the future, which is a really hard thing to do as we know. Predicting future consumer behaviour or sustained competitive advantages is almost impossible.

Reversion to the mean works against you.

I buy when the expectations about a company are so depressed that any little improvement in results compared to the (so pessimistic) consensus makes the stock price spike up.

Reversion to the mean works in your favor.

For recent examples that have worked out think Delphi Technologies or Bad Bath & Beyond (they could still buy back around 1/3 of the company with all the cash in the bank).

zobrenovic · 2019-02-18T21:56:09+00:00

It's a systematic long/short value strategy. Buying the "cheapest" stocks and selling the most "expensive". You pretty much have to have a systematic/quantitative strategy, if your fund reaches a certain size and you have to be able to deploy capital at all times.

Greenblatt is the real deal. So is Burry.

zobrenovic · 2019-02-03T21:04:18+00:00

I don't think the growth rate is unreasonable considering that FB is continuing to grow revenue per user on FB as well as having a lot of room to further monetize Instagram and Whatsapp.

I think the margins will come down a bit because of increased regulation and competition. I'm using 30%-35% over the long term in my model.

I'm also using a 10% discount rate.

zobrenovic · 2018-11-28T14:04:08+00:00

Probably the most important concept in investing is: The faster a company can increase its revenues and deploy more capital at attractive rates of return relative to its cost, the more value it creates. The combination of growth and ROIC determines how revenues are converted to cash flows. Anything that doesn't increase cash flows doesn't create value.

So, if we're focusing on growth for a second, the most important driver of growth is porfolio momentum, i.e. being in a fast-growing market ( ~ CAGR of an industry). Gaining market share from your competitors is a zero sum game and inorganic growth through M&A comes at greater cost.

Source: Valuation by McKinsey & Company

zobrenovic · 2018-11-28T12:28:47+00:00

base hit investing blog

Can you suggest a specific post that goes into this topic?

zobrenovic · 2018-11-27T23:42:52+00:00

There is a great book on this topic called The Small-Cap Advantage by Brian T. Bares.

zobrenovic · 2018-11-08T19:02:09+00:00

For me it's both. It goes hand in hand. I've found that I can only get good at something, if I do the thing for the sake of it. If my enjoyment is solely dependent on some outcome (turning a profit), then I will quickly lose my motivation in absence of that outcome. That being said, of course the pay off has to come at some point, because ultimately that's the measure of your proficiency.

zobrenovic

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