Time to say Goodbye?

Today, we are going to look back and talk about some potential changes in the stocks discussed since the beginning of 2020.

Due to the very benign stock market after the initial COVID-19 shock, most of the shares discussed on here have done rather well, some even extremely well. After such a huge recovery, it might be wise to quickly check the initial investment thesis and potentially make some changes where the stocks have reached the estimated intrinsic value.

Let’s go over the potential changes one-by-one:

-La Doria: Having hugely benefited from the crisis, it seems that the valuation is now closer to intrinsic value. Reminder: The price per share was below €9 when initially discussed on here and trades now at around €17. Although there is no doubt that the company will operate well in the months and years to come, it might be prudent to lock in some or all of the profits. All in all, the stock has advanced roughly 88% in local currency, not including dividends.

-K-Bro Linen: This story is similar to La Doria. Even though the company has survived the crisis alright, the hospitality segment is still facing bigger challenges where there seems to be some optimism already priced in. It’s possible that this recovers quickly, however, at initial discussion of the company the price per stock was slightly above $26 and now trades at more than $41. This amounts to a gain of almost 60%, not including dividends, and the price seems fair for the current situation and no meaningful margin of safety exists anymore.

-The Swatch Group: The investment thesis is still intact, but as above, the margin of safety has decreased and a position trimming might be a good move. Since the initial discussion on here, the stock price has increased almost 40%.

-Hunting: After big jumps in the oil price since the initial discussion on this blog, the stock price has advanced from £1.4 to more than £2.5. Business recovery has happened to a certain degree, however, not as much as it could or should have. This either takes some more time and might work out for the patient investor, however, locking in the decent profits of approx. 80% (not including dividends) seems to be a good alternative.

As always, do your own research and nothing on here is investment advice – happy investing!

Spice Private Equity (SWX: SPCE-USD)

Intro

Spice Private Equity is a Swiss stock market listed investment company focused on global private equity investments. The portfolio is split into the following categories/companies (‘fair market’ value as of end of 2020 in brackets):

1. Leon Restaurants ($33m) 
2. Bravo Brio ($26m) 
3. G2D Investments ($18m) 
4. Rimini Street ($13m) 
5. Legacy Portfolio ($12m) 
6. Cash and other current assets ($24m)

In sum, the portfolio is valued at ~$126m in the company’s books and with 5.4m shares outstanding this translates into a book value (NAV) of ~$23 per share since there is literally no debt in the company.

A word of caution for Spice Private Equity: trading liquidity is rather limited and might be too low for certain investors (largest shareholder holds around 60% of the shares). Further, although listed in Switzerland, the shares are trading in US dollars.

Valuation

The stock is currently trading at $9.25 – compared with an NAV of $23 at the end of 2020, a huge discount of more than 60% exists. It gets even better though, much better, after the company said in mid April that they signed an agreement to sell its biggest portfolio holding Leon Restaurants for approx. $46m, which is $13m above the book value at year end 2020. Although the sale is not completed yet (expected to close within the coming months), the buyer seems to be motivated and financially capable to fulfil its obligations. Due to the sale of Leon and further price advances of Rimini Street, the NAV per share should have further improved in the recent weeks.

This is a clear asset play, where the market cap of $50m will entirely be backed by the cash balance as soon as the Leon’s sale is completed: Consolidated cash balance last year was $24m as can be seen above, however, the parent company showed only $5m in cash (remainder must sit in their fully consolidated subsidiaries abroad). In a worst case though, we’ll have the $5m of the parent company and receive the $46m in proceeds which amounts to approx. $51m in net cash and hence is slightly above the market cap. In other words, new shareholders get the remaining portfolio for free.

What’s next?

After ‘cleaning up’ a big part of the portfolio, it seems like there are several ways now going forward with different catalysts: One might be to invest the cash proceeds into new investments or distribute the cash to the shareholders. Another one could be a bigger restructuring of the company with either a new focus or, alternatively, a potential buy-out from its largest shareholder – who wouldn’t buy the remaining ~40% of the company that is trading on cash levels? In any case, as long as the management doesn’t completely screw it, shareholders should benefit nicely in the time to come and a fair price may be closer to $15 per share.

Current Price

$9.25 per share

Basler Kantonalbank (SWX: BSKP)

Intro

Basler Kantonalbank is a mid-sized Swiss bank with deep roots in the Canton of Basel, where it was founded in 1899. The bank is fully owned by the Canton Basel City, however, has listed participation certificates listed on the Swiss stock market. The bank enjoys a very strong balance sheet with a total capital ratio of around 19% (vs. a minimum of 12%) and leverage ratio of above 10% (vs. a minimum of 3%).

Historically, Basler Kantonalbank was strongly focused on its own Canton, as is the case with almost all cantonal banks in Switzerland. For a few years however, the bank has been pushing the roll out of its ‘online-bank’ under a separate entity called Bank Cler, which is not tied to specific locations anymore and potentially shows good growth potential as more and more bank clients use easy to use apps on their smartphones.

 

Valuation

The capital of the owners is basically split into two categories: The first is the endowment capital, which is fully held by the Canton. The Canton provides the bank with a state guarantee, for which the bank has to reimburse the Canton. Additionally, the Canton receives a yearly a profit distribution for the endowment capital.

The second class are the participation certificates. Holders of the participation certificates don’t have voting power but the right for a dividend, if performance permits a distribution. The current distribution amounts to CHF 3.10 per certificate, reflecting a yield of almost 5%. The book value of a certificate as of end 2020 was almost CHF 80, which includes the effect of the endowment capital held by the Canton.

 

What’s next?

The price of the participation certificates touched CHF 140 in 2011 and has been in a steady decline since then. The bank also faced some issues with the US Department of Justice, which it settled in 2018 and reduced risk substantially. With further expected growing assets and profits, coupled with the solid dividend yield of almost 5%, the fair value might be closer to around CHF 100, which would reflect a premium of ~20-25% of the book value.

 

Current Price

CHF 65.80 per participation certificate