opportunities in portugal?

[ragnarisapirate]

All,

http://www.npr.org/2012/02/20/147158633/portugal-plays-by-the-rules-but-economy-slumps?sc=fb&cc=fp

It seems that with this much upheaval in Portugal, there may be opportunities for capital allocation. No?

Anybody been looking around there?

[oddballstocks]

Of course!!

I went through the Portuguese market A-Z about a year ago and it's probably worth going through again.  Portugal is an easy market to do this with, I think there are 65 stocks, so not a ton of work.

I ended up buying two (and selling one)
Corticeira Amorim - Cork company, they have a monopoly on cork products, a large market share in wine stoppers as well.  I bought on the thesis this is a company with a solid moat, nice ROE/ROA for a nice, EV/EBIT of 5x.  The company's since had a 40% run up, but earnings have driven it.  Still selling at about EV/EVIT of 5x or 6x.  85% of operations/sales are outside of Portugal, this got dragged in the mud undeservedly.

Novabase - A IT consulting company that was selling at EV/EBIT of 2 or 3 (don't remember exactly).  They had divested a money losing TV division which was clouding their previous results.  They were 75% domestic and 25% international.  I ended up selling because earnings dropped like a rock, margins shrunk and it the international expansion stalled out.  I misjudged demand, I had thought I was buying a company operating at trough demand, that wasn't the case.

Other interesting companies:

Brisa - Toll road operator, they're selling under book now with a 12% yield.  Tollroads are usually decent investments, traffic remains in decent range as long as there are no other roads competing.  If I remember BRISA had a monopoly on certain routes.  I was interested at €4.50 but the price was too high, now they're at €2.54 and I'll probably look again.

Conduril - Construction company that does most of their business in Algeria, Morocco, owned by the founding family.  I emailed back and forth with someone on the BOD for a while asking questions and trying to get more information.  I have their 2010 annual report if you want a copy, I'm not sure if they ever posted it on their website.

Weird thing with this stock, earnings were something like €15/share, shares were trading at €5.  Cash flow was weak, but shares still insanely cheap.  I tried for a while to get a order, very illiquid.  At one point bid €4.50 ask €85.  Looks like it's trading at €22 right now, might be worth looking into again.

This company has in the past published English statements, I was emailing the woman from the BOD in Portuguese.  I used Google Translate to build my email then ran it by a Brazilian friend.  He was amazed at Google Translate, most of the time just a few small corrections were needed.

Notes:  Here's what I did, I went to the Euronext Lisbon website and found the list of listed companies.  If you click on each one there are summary financials, a summary income statement and some balance sheet items.  I was looking for companies that were profitable and didn't have much debt.  I figured no debt would help weather the recession, and I didn't want a company losing money hand over fist (most were/are).

I will also note, a lot of company websites are in Portuguese only statements included.  Have no fear, almost all companies file with the CMVM (Portuguese SEC) in English.  Here's the website:http://www.cmvm.pt/en/Pages/default.aspx  The site is really clunky to navigate, but poking around I was able to get everything in English eventually, it wasn't obvious at first.

Here's the Corticeira Amorim Material Information page in English as an example: http://web3.cmvm.pt/english/sdi2004/emitentes/emit_fact.cfm?num_ent=%23%22%24OY%0A&ano=%24%23T%5F%5C%230%20%20%0A

Maybe others can post interesting Portuguese ideas in this thread?  I will do the same.

Nate

[racemize]

Is it easy to trade these stocks from the US?  So far, I've only dealt with US/ADR/Canadian.

[oddballstocks]

racemize - I know Fidelity lets you trade international (that's who I use).  It's as simple as typing in the quote and clicking trade, just like a US stock except the hours are different 3:30am-11:30am EST.  Portugal's commission is €19 a trade I think.

For anyone else here's the Euronext site I mentioned: http://www.euronext.com/trader/priceslists/priceslists-1800-EN.html?lan=EN&cha=1800&filter=1&mep=8628&economicGroupList=&belongsToList=market_EURLS&capitalizationList=&investmentList=&eligibilityList=

Clicking on a name, then Company Profile gets you to a brief description of the company, a list of shareholders, a summary income statement, and summary balance sheet.

[oddballstocks]

Here's the Fidelity International Trading information: https://scs.fidelity.com/accounts/services/international_trading_details.shtml.cvsr

[racemize]

ah, so it is.  Last time I looked, Fidelity had some net worth requirements that I hadn't quite gotten to.

[Arden]

Wow what a comment Nate! well done

Dunno about portugal but I have a few ideas in Europe-

RNO- Nate mentioned it in his blog- there is a discussion in the comments, basically renault holds 43 of Nissan, whose shares are also traded- and the market value of the share in nissan is worth more than RNO itself (about 14B vs 10B). on top of that - RNO owns a bank that's worth about 5B, part of autovaz and a part of volvo and daimler. RNO itself is currently making 400-500M on the auto business. Sum of the parts is about 30B ,RNO is trading for 10B.

ETI- A british pub company. 5000 pubs, 4.5B assets, Around 3B debt - 1.5B equity, 80-90m FCF, market cap- 250m. decline in the beer business in britain and a rise in beer tax made people dislike the industry which was loved back in 2007.The stock dropped more than 90%, while the Book value didn't really move- the assets are appraised yearly and the last appraisal was a 2-3 months ago, so you can trust the BV IMO. when inflation starts doing its job- real estate prices will rise with it- and even with a mild 2% inflation profits will double. The company is selling assets at BV and closing debt. I see it as being worth around BV in more normal times.

[ragnarisapirate]

Nate, I knew that you would have looked there.

Good work.

[JEast]

Sonae would look very interesting below €40¢.  They are more of a conglomerate business model with several different footprints.  The main attraction is Sonae MC and is the market leader in Portugal for food retail (groceries) with dominates locations.

http://www.sonae.pt/en/


Cheers
JEast

[persistentone]

Of course!!

I went through the Portuguese market A-Z about a year ago and it's probably worth going through again.  Portugal is an easy market to do this with, I think there are 65 stocks, so not a ton of work.

I ended up buying two (and selling one)
Corticeira Amorim - Cork company, they have a monopoly on cork products, a large market share in wine stoppers as well.  I bought on the thesis this is a company with a solid moat, nice ROE/ROA for a nice, EV/EBIT of 5x.  The company's since had a 40% run up, but earnings have driven it.  Still selling at about EV/EVIT of 5x or 6x.  85% of operations/sales are outside of Portugal, this got dragged in the mud undeservedly.

Novabase - A IT consulting company that was selling at EV/EBIT of 2 or 3 (don't remember exactly).  They had divested a money losing TV division which was clouding their previous results.  They were 75% domestic and 25% international.  I ended up selling because earnings dropped like a rock, margins shrunk and it the international expansion stalled out.  I misjudged demand, I had thought I was buying a company operating at trough demand, that wasn't the case.

Great work Nate and thanks for putting out that list.

What I am looking for is a list of peripheral European stocks that get at least 50% of their profits from outside the periphery.     In other words I want to find strong exporters in the peripheral European countries.

My investment thesis is that when the periphery leaves the Euro - which I think is likely within three years - that these stocks will get crushed as these countries revert to historical currencies.   But if the earnings stream is largely exempted from the devaluation (i.e., 60% of the business is in dollars from North America) then those will be buying opportunities shortly after the devaluation occurs.

Can you think of any strong exporters in the periphery?