There is always something to do…

Rising interest rates had a profound impact on some stocks. Contrary to expectation, even decent paying dividend stocks saw major losses in value during the last couple of months. A reallocation of the portfolio may be needed.

• Fuchs Petrolub: The company was mentioned on this blog in May 2022 and has increased from a stock price in the low twenties to almost €32 per share. The share buy-back will come to an end in spring 2024 and although the company is expected to show solid figures also in the future, it may make sense to switch into firms which are valued cheaper. Excluding the dividend payment, Fuchs trades approx. 34% higher than in May 2022.
• Organon: One of these companies seeing major corrections is Organon, which was initially mentioned on this blog in August 2021. Organon has been busy to become fully independent after the spin-off from Merck. Hence, we can expect that some one-off integration costs will disappear in due course. What’s currently missing is revenue (and profit) growth having inherited the portfolio from Merck. Although the company has still more than $8bn in debt, the valuation is compelling: A mid-term free cash flow of around $1bn per year, a P/E ration in the low single digit range, a dividend yield of more than 10% and a payout of roughly one third. Debt has to be amortized only after 2027 giving them the possibility to work on their strategy. The expectations for Organon could not be lower and the company will be looking different in 2 to 3 years.

Current Prices
$11.01 per Organon share
€31.75 per Fuchs Petrolub ordinary share

Taking some chips off the table (Vopak)

Last August, there was a lot of pessimism around Vopak in the markets. Since then, the company has performed very well and the share price increased from €22.23 to around €34.12, while collecting a dividend of €1.30 in between.

This leaves a performance in Euro of almost 60% incl. dividend and might be a good time to take some chips off the table. Congratulations if you have been holding Vopak in the last year!

RBG Holdings PLC (LON:RBGP)

Intro

RBG is a legal services firm based in the UK. Historically, the company had four divisions with a focus on: a) disputes, b) advisory services, c) sell-side corporate finance and d) litigation finance. RBG has shown a strong performance in the past years in the first two divisions, a decent but more volatile performance for the sell-side corporate finance boutique and a very weak performance in the litigation finanRBGce segment. Hence, the new management decided to exit litigation finance and was able to sell part of this segment in mid-July. Shortly thereafter, a further impairment was booked, the dividend suspended, and the focus is now on restructuring the existing business and paying down debt.

Due to the above challenges, the market cap has decreased from more than £150m in 2021 to approx. £17m.

 

Valuation

The legal services (disputes and advisory) and professional services (sell-side corporate finance) have shown revenue figures of £42m in 2021 and £50m in 2022 with a contribution of £20m and £25m, respectively. It’s evident that short-term the reported numbers will be distorted by the impairment and other one-off costs; however, the existing business will continue, has had a very solid track record and is worth more than the current market cap.

 

What’s next?

In two to three years, the world will – once again – be different again, especially for RGB. With the new management, the impairments etc. the company seems to be at a low point at the moment. If they will be able to execute on their plan and turn the current structure into a clean and lower volatility legal services company, attractive free cashflows will be generated and the dividend might be reinstated. In such a scenario, the share price should be at least double from the current levels.

Warning: this is a penny stock trading on the Alternative Investment Market in London and is certainly not suited for every investor due to less transparency, lower liquidity and small size of the company.

 

Current Price

£0.175 per share

 

Disclosure

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

Roche Holding (SWX:ROG)

Intro

Roche is a more than 125-year-old pharmaceutical and diagnostics company with its head office in Switzerland. The majority of the bearer shares is still in the hands of the heirs of the company’s founder. That being said, there are also non-voting equity securities (NES) outstanding (see ticker symbol above). Both share classes are listed with the NES showing significantly higher trading volume.

 

Valuation

Probably due to some disappointments in R&D, ceasing of Covid-related profits in the diagnostics segment and different capital structure due to purchase of Novartis’ stake in Roche in 2021, the price of the NSE has come down by around 30%. Let’s see if we can find some value in here after the price drop:

Core EPS (excluding for instance some global restructuring plans, amortization and impairment of goodwill and intangibles) has been around CHF 20 per security, which translates into a Core P/E of around 14x, which seems not very demanding for a high-quality business as Roche with its full pipeline.

With the announcement of its full year results this year, the company also reported its 36^th consecutive annual dividend increase – what a run! Current yield is around 3.4% and for 2023, Roche is guiding for a further increase in its dividend.

 

What’s next?

Roche has been a very steady and long-term oriented company. Although I cannot judge its pipeline, it seems to be quite interesting with further news flow expected in 2023. A company not to get rich with quickly, but a sound investment in a difficult market paying solid dividends and showing good potential.

 

Current Price

CHF 279.20 per non-voting equity security

 

Disclosure

The author is currently not long Roche; however, his close relatives have some exposure.