Value Ideas Blog
Why we blog and what we do – Happy New Year!
First of all a big thank you to all readers of the year 2013! We received many emails with questions about what we are doing and why, therefore we think that we should answer a few of them in public.   What is the goal of this blog? Our goal is to find quality businesses that earn high returns on capital and possess identifiable competitive advantages. We believe individual investors must use their advantage over institutional investors to take a long-term time horizon and be patient when markets are overvalued. We think of each share of a company’s equity as a part of the business itself; we feel like owners and strive to behave like an owner in our investment operation.   Which philosophy are we following? We try to follow a core value investing philosophy (Buffet/Munger, Seth A. Klarman). And we have started this blog to get feedback on our ideas, to improve our investment process, reflect what we have written and if this still holds. We think that keeping a written record of all our investments and our thinking process will help us to look back and hopefully help us to learn from our mistakes.   What does this blog promise? For this reason this blog promises to present independent investment ideas and track their development over time. Investing has been our true passion for years and we have enjoyed every minute to bring this art to perfection since we began. Therefore: Thanks again to everyone who has read this blog, provided feedback, and helped us making 2013 the most fun year we have had in our investing career. We hope that www.frenzel-herzing.com/blog/ will be at your reading list in 2014.   What do we hope to get from our readers? Because we are all human, we make mistakes in our everyday life and in investing as well, that’s why we hope that our readers help us to discover these mistakes and/or give us some insight in their findings. So please feel free to email us at info [AT] frenzel-herzing.com and share investment ideas or comments! We try to experience a lifetime of learning and look forward to sharing our ideas with you and improving our abilities through this blog! Stay tuned, because there are great things to come in the year 2014. Happy new year to all of our current followers, as well as those who might join next year!  
First off, our comment section is working again after we resolved a plugin conflict. We are very glad to get feedback and thoughts on our work and are happy to respond. Secondly and once again, we want to share some of the best articles that we have encountered over the last time with you:
  • On patterns of failure: A great blog post including key factors of failure and how to avoid them. It contains a Munger-quote that we highlighted in our last book review. You might also consider subscribing.
  • Some thoughts on the gravity of the market and how long term investors can use it
  • A post on safe assets and how to invest in times of fear.
And in case you are still in need of some lecture after Christmas, perhaps on value investing in general, please take a look at the book list we have published on our website, including:
  • Competition Demystified: A Radically Simplified Approach to Business Strategy, Bruce C. Greenwald & Judd Kahn
  • Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, Peter D. Kaufman
  • The Investment Checklist: The Art of In-Depth Research, Michael Shearn
  • The Outsiders: Eight Unconventional CEOs and Their Radially Rational Blueprint for Success, William N. Thorndike
  • Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor: Going Beyond Financial Myth-making, Seth A. Klarman
  • Value Investing: From Graham to Buffett and Beyond, Brunce C. N. Greenwald
  • Fooling Some of the People All of the Time: A Long Short Story, David Einhorn
  • Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports

Review

Today I would like to give you an update and final valuation of our Sto AG analysis. Last time we wrote that: “We can see that Sto AG is benefitting strongly from the trend towards renovating building facades with a view to saving energy and the new laws which implies new energy standards for houses. This is by far the most reliable and practical way to save fossil fuel – it does not require the wind to blow or the sun to shine.” And that the company has a long history of innovations which are driving out the great understanding of the market and the needs of the craftsmen at the construction site. This is also the root of the company’s direct sales approach to the craftsman and construction companies.  

Industry development

For this reasons we would like to show you how the industry itself has developed over the last years and if Sto has only profited by this development of the industry or if Sto is an outstanding player in the industry of heating insulation. In the following chart you can see the change of the market size of heating insulation in m². You can observe a high volatility in the chart, which is clearly linked to the construction boom of the late 90’s and the years after 2005. read more
Today we want to take a look at one of the latest books that we have read, namely “What’s behind the Numbers; A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in your Portfolio” which is written by John Del Vecchio and Tom Jacobs. The book is around 265 pages long, well written in a fairly American style and quite easy to understand. As a rating we would suggest 4 of 5 stars.   The book opens with the sentence: “Show me where I’m going to die, so I don’t go there” and that is actually what the book is about. The management of public companies faces enormous pressure to beat Wall Street guidance by a penny and make things look better than they are and therefore weaken their earning quality. “What’s behind the Numbers” tries to show how one can detect weak earning quality and where the management of a company most frequently tries to hide the information that shows their chicanery. read more
In the last few days we have seen a really interesting development for Hornbach which is one of our holdings. In our analysis we had written that we assume that Praktiker will go bankrupt and the Sales of the Praktiker stores will be divided (in three different scenarios) under the main competitors. At this time Max Bahr was not included in this calculation because of the fact that we have two different bidders who like to takeover all remaining MaxBahr stores. In the last two weeks both bidders cancelled their offers, now MaxBahr is also bankrupt and the different stores are sold store by store to different competitors. So far Hornbach only bought two stores of about 60 sold stores, each store is bigger than 11.500m² and again you see how observing this management is. We think this development is positive for our estimation and will slightly increase our margin of safety for Hornbach. You can find a daily updated list of all sold stores here.   Furthermore we have some weekly links and quotes for you:  
  • A very good article from Jeremy J. Siegel (Professor of finance at the University of Pennsylvania`s Wharton School) from 2009 on Efficient Market Theory and the Crisis. If you compare it to todays data and his implications you can paint your own picture. Here are some highlights from his article: The Shiller Home Price Index is up 13.29% over the last year vs. an increase of 1.0% of the consumer price index while median household income fell for the fifth straight year in 2012, to $51,017. That was the lowest annual income, adjusted for inflation, since 1995.
  • Very good blog from Phil Birnbaum, and one big key to take with you: “First, concentrate on eliminating bad decisions, not on making good decisions better.”
  As always, if you think you have something we should read or some own thoughts feel free to write us or leave us a comment!

Company Overview

Today we want to take a look on a company that meets our criteria in several approaches, as you will see soon. We are talking about the Vetropack Holding Ltd., one of Europe’s leading manufacturers of packaging glass. With a rich variety of glass packaging products to offer the beverages and food industry, as well as a broad spectrum of services, Vetropack truly delivers “tailor-made glass”. This motto describes Vetropack’s wide-ranging capabilities in designing and developing, together with their customers, glass packaging solutions which in formal and visual terms best embody the product idea and marketing strategy while also fully meeting the needs of consumers. Their services range from package design, production and just-in-time delivery to consulting and support services in the area of packaging analysis, bottling, conditioning, closure technology, decorative refinement and labeling. This end-to-end service is the fundamental reason for Vetropack’s position as market leader in its six home markets, namely Switzerland, Austria, the Czech Republic, Slovakia, Croatia and Ukraine. As part of its corporate strategy Vetropack targets its product ranges and services especially for each market. Since 1991 Vetropack has been investing consistently in the Eastern European market – a region which is becoming increasingly important for the international food and beverage industry. read more
For us, it is self-evident to share our knowledge about investing, because we have learned so much from people out there who shared their knowledge altruistically. For this reason we upload our investment theses and what we read in the process. So here are some links what we think is helpful for you and your thoughts:   A great blog with a post on the current stock market bubble:  http://csinvesting.org/2013/11/25/ding-ding-ding-the-bells-are-ringing-search/   An interesting article in The Economist on how uncertainty dulls investors: http://www.economist.com/news/finance-and-economics/21589859-how-economic-uncertainty-dulls-investment-holding-tomorrow. It is based on this scientific paper (in case you love economics): http://www.stanford.edu/~nbloom/roes_7923.pdf   read more

HORNBACH Baumarkt AG

Industry Overview

 
Today we want to take a look on a company that is in the retail business, which is normally a place where the competition between the several players really hard. We are talking about the Hornbach Baumarkt AG, one of Europe’s leading and Germany’s second biggest DIY-Stores operator. DIY stands for the Do-It-Yourself Industry. But where does the high competition come from? If you take a closer look at the DIY Industry in Germany, you will clearly see that you can find nearly always two or more DIY stores next to each other, and that is the case in nearly every bigger city in Germany. Until a few weeks ago there were 4 big competitors in the German market which have a market share greater than 10% each and furthermore there are numerous other players in the market. In the next chart you can see that OBI is the biggest player in the market with 24,2% of sales followed by Bauhaus 17,5%, Hornbach 12,3%, Praktiker 12%, Hagebau 10,5% and Globus 6%. Another interesting fact is that Praktiker lost over 9% of its market shares in only 5 years. (The sales numbers are out of a couple of sector magazines and annual reports, Hornbach itself says that they have a market share of about 10%, due to the fact, that they take also some companies into account, which are not clearly in the DIY industry). Furthermore you can find some regional brands. shares    read more
Sto AG is the leading manufacturer and distributor of products for heat insulation, constructing and products for the renovation of building facades. The company was founded in the year 1955 by Wilhelm Stotmeister and was the inventor of organic bonded render. The equity of the company is divided into 4.320.000 bearer shares and 2.538.000 preferred stocks. The founding family is still in charge of the company and holds all of the non-public traded voting equity. As an investor you can only invest into the preferred stocks of the company. The company divides itself in to three different segments, the first and biggest segment is face-systems. Under the roof of face-systems we can find the core business Wärmedämm-Verbundsysteme (WDVS) (in WDVS Sto is, up to its annual report, the leading producer) and vorgehängte Fassadensysteme (VHF) which represent 49.6% of the total revenue of the company. The second segment is surface coating which represents 24.5% of the revenue and in which the businesses around rendering and painting/coating are grouped. The last big segment is indoor products, render and colors for indoor usage, which represents 13.2% of sales. In addition Sto manufactures and distributes ground and floor lamination which represents 12.7% of total revenue. read more
We will publish public and/or restricted information in this area. Please use your member account to login and gain full access.