Author Topic: ETR:PBY - Publity AG  (Read 4078 times)

_JJ_

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ETR:PBY - Publity AG
« on: October 11, 2017, 08:31:09 PM »
German real estate asset manager. Write-up: https://drive.google.com/file/d/0BzNop10K0_rRWUZtX2cwTHo4ejQ/view

CEO owns 49%, AUM at the end of H1 2017 was € 4B. End of year target is € 5.2B.

Revenue structure:
− Finders’ fee: 0.5% - 1.0%
− Asset Management Fee: 0.6% - 1.0%
− Promote Fee: 20%-25% on value add
(Publity AG investor presentation)

Market cap:  € 220M
Share price: € 36.50
2016 dividend: € 2.80


ActOfWill

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Re: ETR:PBY - Publity AG
« Reply #1 on: October 12, 2017, 03:55:21 AM »
If you think the stock is money good, then you should buy the Publity 2020 convert first, as it's currently giving you the upside for free...

https://drive.google.com/open?id=0B2LBRWeltj0nNG1kcUZONGhqV2M







_JJ_

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Re: ETR:PBY - Publity AG
« Reply #2 on: October 12, 2017, 05:32:09 AM »
Sounds good, I don't think I can buy this on Interactive Brokers though. Do you know a good broker for this? I'm based in the Netherlands btw.

ActOfWill

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Re: ETR:PBY - Publity AG
« Reply #3 on: October 12, 2017, 06:00:11 AM »
IB does not do converts which is quite annoying indeed. You need a custody account and a broker with DMA or indirect access to the Frankfurt exchange. UBS etc. works otherwise there some small shops that can help you like City and Colonial, Southey Capital etc, which cater for smaller sizes. Last two are based in London.

_JJ_

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Re: ETR:PBY - Publity AG
« Reply #4 on: October 12, 2017, 10:58:39 AM »
Thanks. Do you hold the converts yourself?

I noticed Spanish value fund Valentum sold their shares in Publity AG for the following reason:

"In Publity we decided to leave after being unable to solve some relevant doubts. What do we mean? In the results of 2016 there was a surprising increase in the accounts receivable that with the June results had not been corrected. This is a business in which there should be no relevant receivables and, if there are, there should be something temporary. The company told us that the semiannual results would be published in German and English, but they have not. We have tried to talk to the company repeatedly in recent months without success. In addition, a convertible bond of € 20mn was issued in June just before the dividend payment (about € 18mn). Both things (accounts receivable and bond issued without a specific destination before the dividend) along with the inability to speak with the company have begun to give warning signals. We do not know if our doubts are true or there is an explanation behind them, but our Rule # 1 is not to lose money, and we always say that we prefer to lose big investments rather than take risks of losing a lot. Publity has an easy-to-understand business and an overly cheap valuation that made it too interesting not to analyze and invest it. However, we are giving more and more importance to the quality of the management team, and this does not give us the confidence we need to be comfortable investing in value."
(Google translation from their September report: http://www.valentum.es/wp-content/uploads/2017/10/VALENTUM-SEPTIEMBRE-2017.pdf)

What do you think about this?

ActOfWill

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Re: ETR:PBY - Publity AG
« Reply #5 on: October 13, 2017, 01:49:06 AM »
Yes we do hold the convert ourselves

In Publity we decided to leave after being unable to solve some relevant doubts. What do we mean? In the results of 2016 there was a surprising increase in the accounts receivable that with the June results had not been corrected. This is a business in which there should be no relevant receivables and, if there are, there should be something temporary.

So this is a fast growing business. So that explains the uptick. The fact that there should be no receivables is wrong. Performance fees are billed upfront for example and collected later  (at the point when property transactions consummate) - I confirmed this with IR - in fact they are billed only at periodic times in H2. I think similar happens for the lumpy NPL carried interest.

So the persistency is a good thing as it means performance fees are being realised. I would be worried if the revenue 1y forward from the receivable balance would be lower - at the moment it puts a generous floor on cash coming in.

The company told us that the semiannual results would be published in German and English, but they have not. We have tried to talk to the company repeatedly in recent months without success.

Yes investor relations can be improved but remember this is a start-up on an OTC exchange that suddenly went mainstream - they are getting used to media attention and dealing with institutional shareholder inquiries (vs initial retail base).

I use the following for translations  - it works fine:

https://www.onlinedoctranslator.com

If you get through to IR though you will get to an English speaking person that has helped out quite a bit. The CEO speaks basic English, so you will not speak to him unless you put AUM down and you are doing DD on the company for that purpose. Clearly, this is one of the reasons that the company is cheap. I am happy to forward details of the IR person (who works on a contract basis BTW) if so required or make an intro. We established that Elliott invested with the firm - which is a huge positive on management. And then lastly, from an Anglo-Saxon/Mediterranean perspective, Germans can come across as weird and stand-offish... does not deter from the underlying business though.

In addition, a convertible bond of € 20mn was issued in June just before the dividend payment (about € 18mn). Both things (accounts receivable and bond issued without a specific destination before the dividend) along with the inability to speak with the company have begun to give warning signals. We do not know if our doubts are true or there is an explanation behind them, but our Rule # 1 is not to lose money, and we always say that we prefer to lose big investments rather than take risks of losing a lot. Publity has an easy-to-understand business and an overly cheap valuation that made it too interesting not to analyze and invest it. However, we are giving more and more importance to the quality of the management team, and this does not give us the confidence we need to be comfortable investing in value."

They don't publish a cash flow statement as German GAAP does not force you to do it. But if you try to infer the CF statement from the b/s movements you can see that roughly 12m of that 20m went to other co-invesments and the rest to working capital. Remember that they HAD to raise the convert to co-invest alongside Elliott. The extra 20m is no surprise as they were authorised for EUR 50m in the first place.

The CEO has a strong dividend policy: however he can not pay out anything more than the statutory reserves (here is where German GAAP COST accounting helps you out quite a bit) and lastly, the convertible is fully dividend protected through several anti-dilution clauses. So raising a convert and then use part of that to pay out dividends gives pro-rated equity upside to the convert holders (even more so given the strike is very close to the current stock price).

IN SUMMARY

Nothing said here worries me and in fact strengthens the thesis by way of explanation of the undervaluation of the company. Fascinating to see where value investors throw in the towel...

misterkrusty

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Re: ETR:PBY - Publity AG
« Reply #6 on: October 14, 2017, 04:57:15 PM »
actofwill - are statutory reserves equal to reported equity?  if not, how does one find this number?  thanks

M

ActOfWill

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Re: ETR:PBY - Publity AG
« Reply #7 on: October 16, 2017, 02:15:35 AM »
"German corporation law binds any distributions to owners to the existence of profits available for distribution in a company's individual accounts."

See:
https://www.ifk-cfs.de/fileadmin/downloads/publications/wp/03_16.pdf

For H1 2017 its on page 29,  EUR 7.7m under "Gewinnvortrag":

http://www.publity.de/de/investor/investor-relations/finanzberichte/item/download/525_f50dce431c8f3d0d2ff3c1e594fbeaaf



misterkrusty

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Re: ETR:PBY - Publity AG
« Reply #8 on: October 16, 2017, 02:23:46 PM »
actofwill-  thanks for your reply.  So are you saying that Gewinnvortrag = statutory capital, and German law forbids the company from paying dividends in excess of this amount? 

Do you understand the difference between Gewinnvortrag and Kapitalrücklage (capital reserve)?  I think I understand the other two components of equity - Gezeichnetes Kapital is the issued shares at par value of one euro each, while Jahresüberschuss is the profit for that period (though I'm not sure why this a seperate line item and not allocated to the Gewinnvortrag and/or Kapitalrücklage.)

Lastly, I believe the dividend was paid in late June and therefore most of the 20m from the convert did actually go to pay the dividend in 1H17.   (I calculate the dividend was 16.94m = 6.05m shares * 2.80 ... not 18m as claimed by Valentum.).  I do see that they spent just over 12m on Sonstige Vermögensgegenstände (other current assets).  Is this what you're calling "other co-investments"?  If so, why?  I see no detail on this line item in the notes.

Thanks again,
M

misterkrusty

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Re: ETR:PBY - Publity AG
« Reply #9 on: October 17, 2017, 02:16:23 PM »
One more thing:  I can't seem to get the change in equity between periods to foot with net income and dividends paid.  I'm not suggesting anything nefarious here - I'm probably just making a mistake somewhere.  See the the bottom of the balance sheet on the attached excel file.