Vopak (AMS:VPK)

Intro

Vopak stores oil, gas as well as chemicals and operates a global network of terminals worldwide. Its end markets are from the energy, manufacturing or food and agriculture sectors.

The single biggest shareholder of Vopak is Hal Trust with 48.15%, a company also listed on Amsterdam’s stock market.

  

Valuation

From 2017 to 2021, the lowest adjusted EPS achieved by Vopak was EUR 2.25 (high at EUR 2.80) demonstrating a very robust business model. At current prices, this translates into a P/E of below 10x, which doesn’t seem expensive.

The company is paying a progressive dividend, which currently stands at EUR 1.25 per share, yielding 5.6%.

 

What’s next?

After a more than 50% drop from spring 2020, it seems the shareholders that wanted to get out of Vopak are out to a large degree. The question is, what’s in the mind of the majority shareholder Hal Trust? If they still like Vopak, they might be inclined to make an offer for the entire company. Alternatively, Vopak can initiate a share buyback at these levels – which they have also done in the past. Time will tell, but at these prices there is certainly a high degree of pessimism reflected in the price.

 

Current Price

€22.23 per share

 

Disclosure

The author is at the time of publishing not long VPK.

Agios Pharmaceuticals (NASDAQ:AGIO)

Intro

I have to warn you. Compared to almost all other companies mentioned on this blog, Agios is not generating any meaningful cash flow at the moment and, as you may have guessed, is in the “risky” biopharmaceutical business. Do I have any special knowledge in this sector? No. So why bother?

Without going into any details in terms of their products or clinical pipeline which consists of programs in alpha- and beta-thalassemia or sickle cell disease where I certainly cannot add any value, I will try to focus on what I better understand: its financial position.

At the end of 2020, Agios sold its oncology business for up to $2 billion plus royalties. The proceeds will and have been used to advance its pipeline and to buy back roughly $1.2 billion worth of its own shares.

 

Valuation

At the end of March 2022, Agios had cash and marketable securities worth almost $1.2 billion and pretty much no financial liabilities. There are currently 71 million shares outstanding which translates into a cash per share figure of almost $17 – just shy of the current trading price of $17.60. In other words, we can almost buy the company now at its cash value while giving no value to its pipeline and royalty position. Of course, there is a catch (as pretty much always): Agios is losing money which – in a worst case – yields no returns and doesn’t leave any cash left for shareholders.

 

What’s next?

Although being in a riskier sector than other companies, Agios shows a margin of safety through its cash balance and good optionality regarding its medical portfolio and later maybe its royalties on some products of the sold oncology business. Agios also states that the current cash balance enables to execute its operating plan through major catalysts and to cash flow positivity without the need to raise additional equity.

If “Mr. Market” leaves its manic-depressive characteristics towards the biopharmaceutical sector behind, chances are good that Agios will be getting credit not only for its cash position but also for its pipeline. Might be a good time to load up.

 

Current Price

$17.60 per share

 

Disclosure

As with most shares discussed on here, the author is long AGIO.

Update Gamestop (Sell Put Options)

In June 2021, this blog mentioned the possibility to sell put options – for example the Jan23 2P @$0.18 per option (or 18$ per option contract) – on Gamestop as underlying.

After a bit less than one year, the prices of the options above have come down significantly.

Though the position could still be kept open, it seems prudent to close the trade early and buy back the options sold @$0.18 per option for only @$0.06 per option. This results in a profit of $0.12 per option for only delivering margin!

Current Price

Jan23 2P @$0.06 per option (or $6 per option contract)

Fuchs Petrolub SE (ETR:FPE)

Intro

Fuchs Petrolub develops, produces and distributes lubricants and related specialties. The product program comprises more than 10,000 products and the company has more than 100,000 customers worldwide.

Founded in 1931 as a family business in Germany, the company employs almost 6,000 employees in 50 countries today and is the world's largest provider among the independent lubricant manufacturers.

Fuchs has two share classes: ordinary and preference shares. The preference share enjoys higher trading liquidity and some advantages regarding the dividend. The Fuchs family still owns 55% of the business through the ordinary shares with voting rights. In the following, we focus on the less liquid ordinary shares (yes, you got it, more bang for your buck!).

 

Valuation

In 2021, Fuchs showed an increase of revenues of 21% to €2.9bn and a net profit of approx. €250m. Compared with the current market cap of around €3.6bn, the P/E stands at around 14x. Due to geopolitical tensions, Fuchs adjusted its guidance for 2022 slightly to revenues above €3bn and profit numbers on similar levels as last year.

Fuchs has been consecutively increasing its dividend per share for the last 20 years and paid €1.02 per ordinary share for last year with a payout ratio of less than 60% for 2021. This translates into a dividend yield of more than 4.3%.

For the last ten years, Fuchs has always shown a net liquidity position giving the company ample of flexibility for acquisitions or other uses of cash.

 

What’s next?

There is a lot of pessimism around commodity driven stocks and also particularly Germany. As in the last 90 years, it can be estimated that Fuchs will again find a way to ‘solve’ the existing challenges this time and create value. Although being the largest independent lubricant manufacturer, there is still a big market share to capture from bigger players such as Shell, Exxon Mobil or BP. The current valuation coupled with the attractive growth profile seems to offer an exciting entry point.

Historically, the company also made use of share buybacks (in the years 2013 and 2014) and due to the very low leverage it might be on the table again (hopefully) at the prevailing low prices.

 

Current Price

€23.65 per ordinary share

 

Disclosure

As with most shares discussed on here, the author is long FPE.

Update Pizza Pizza Royalty Corp (TSE: PZA)

Over a bit more than two years ago, while the world was still “normal”, Pizza Pizza Royalty Corp was discussed on this blog. After a quick dip and the reduction of the dividend, the company has rebounded strongly.

Although generally higher recent volatility, Pizza Pizza’s stock price increased further, supported by good news to increase the dividend and solid operational progress.

The stock price has come close to fair value and especially due to the big drop of many other stocks, it seems like there may be better ways to deploy capital and this position can be reduced or sold altogether.

Compared to the stock price in January 2020, a capital gain of C$3.45 and dividends of C$1.47 per share resulted in a total gross return of 49%!

Current Price
C$13.42

Kyndryl Inc. (NYSE:KD)

Intro
Kyndryl is a leading technology services company and the largest infrastructure services provider in the world, serving as a partner to more than 4,000 blue-chip customers in over 100 countries. Prior to November 2021, Kyndryl was wholly owned by IBM, which retained 19.9% of the shares. IBM intends to dispose of any retained common stock in the year 2022.
Kyndryl is a world leader in designing, building, managing and modernizing mission-critical information systems spanning the digital transformation journey. Due to the separation, Kyndryl enjoys new freedom to invest for growth while expanding its ecosystem of strategic partners as well as service capabilities and enhancing customers' access to a wider range of technology solutions.
As a standalone company, Kyndryl is expected to generate around $19bn in annuity-like annual revenues with EBITDA margins of approx. 15%.

Valuation
In 2020, Kyndryl indicated its free cash flow to be around $0.7bn, which is a bit difficult to reproduce since it was still part of IBM.
For 2021, the company is guiding for around $2.8bn in adjusted EBITDA. Deducting approx. $0.9bn in CAPEX and $0.1bn for cash interest results in adjusted free cash flow before taxes of ~$1.8bn.
The balance sheet is rock solid as well and after the issuance of long-term debt in October, net debt stands at roughly $1.2bn without any material maturities in the years. With a market cap of $4.1bn, the enterprise value is $5.3bn – which is less than 2x EV/EBITDA!

What’s next?
As with every spin-off or separation, a lot of costs as well as non-recurring items incur, and the transaction has to be digested. Typically, the “fair” earnings power will only come to light after 2 to 3 years.
The strategy after the separation is first to stabilize and then growing revenues as well as expanding margins. As a separate company, Kyndryl can better invest into its own business and also look for potential acquisition opportunities.
This year will be of great interest, since IBM will likely dispose of its 19.9% stake which may offer very attractive prices to buy Kyndryl in the public market.
If Kyndryl will be able to focus on its own business, grow it from there and may add a few other companies to its portfolio, the current valuation should at least be double for such a stable and profitable business.

Current Price
$18.10 per share

Disclosure
As with most shares discussed on here, the author is long KD.