Value Ideas Blog
Nils’ Investment Philosophy & some houskeeping notes

I know, it has been a while but trust me, I didn’t stop doing value investing, I just cannot speak about it that open anymore and generally, I have less time for the stuff which I’m allowed to do. Additionally, some things have changed in the last year so that I now put more emphasis on time with my family.


Some housekeeping notes:

In the future, I will only speak about companies which are not listed in the Noridcs or DACH region. Additionally, I will start publishing all articles under (The side is currently in the making, so excuse me if it is far from perfect).


Founding another start-up:

Furthermore, two friends of mine (Oliver Rolle – already a successful IT startup founder and responsible for the development of the IT platform & Tim Klauke – future CEO, industry expert and the guy with whom I developed the initial idea on a nice evening before a long kite-surfing weekend) and I are currently starting another company which is not related to investing at all (we are developing a software platform for the management and total cost of ownership analysis of special purpose vehicles). Currently, we are considering to start a VLog to document our journey and, as two of us have already founded a company, share some advice. But the main purpose would be that we document our decision-making and are accountable for it. So if you like the idea of a VLog or have some general comments write me via email or leave a comment.


but now back to the original topic of this blog:


The Investment philosophy of Nils Herzing

(This is an “executive summary” of my investment philosophy which I wrote more than a year ago.)


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After the success of our last presentations we are happy to announce one new presentation about Value & Activist Investing. It will be held by us at the 09.11.2016 19 on the TU Campus in Darmstadt in room 123 of the old main building S103. The presentation will be presented in german and will deal with an introduction to Value Investing and two case studies. The Case studies will be interactive and contain a long pitch which we have not yet presented on the blog. You are kindly invited to the presentations but as place is scarce you have to quickly fill out the form below with you name and the number of guest first so that we can plan. We would be glad to host many visitors.




Please enter your name into this form to join here Thanks.

Disclaimer: This is not an investment advice, please do your own research and don’t follow anyone blindly. Furthermore, it has to be mentioned that the author has a position in MicroWave Vision, so do affiliated parties. Thus they participate if the share price increases. Additionally, the author and related parties may sell their shares without further notice.


Nearly 2 years ago we stumbled for the first time upon the small French company Microwave Vision, since then we followed them closely and bought in at around 7 Euro per share. As we see the fair share price around 15 Euro which could now be reached due to the ongoing catalyst in form of a new CFO, we would like to share our thoughts  with you and are looking forward to your comments. (Ben from WertArt covered Microwave in April 2015 and bought in and sold out within the year, here you can find what he has written back than.)




Business Description

Microwave Vision (“MVG”) is a French company active in the niche market of antenna testing equipment (“AMS”).

The main segment AMS stands for 85% of Sales, 11,5% EBIT-Margin and is a decent business with a moat coming from high R&D spending (10% of Sales) in a small market niche (Total market size is around 320 Mio. USD) where MVG has more than double the size of its next competitor and with 30%, a high proportion of after sales. The products of MVG measure and display electromagnetic waves of all kinds of antennas. The equipment is used during all stages of a product’s life cycle, including product development, pre-production qualification, production testing and product maintenance. Typical companies using MVGs products are in the telecom, smartphone, satellite, automotive and aerospace/defence industry. Customers of MVG are Airbus, VW, Foxconn, Apple, Google and many more.

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Dear readers,

for those of you actively following Vitec, there were some news last week: the Q1 report as well as the annual general meeting. Firstly regarding the AGM:

  • Dividend has been proposed at SEK 0.90 per share, resulting at a dividend yield of 1.38%
  • All board members and the president were discharged from liability for 2015, balance sheet and income statement were approved
  • Christer Stjernfelt was re-elected chairman of the board, 4 board members were also re-elected, PricewaterhouseCoopers AB remains the auditor

Perhaps more importantly, the Q1 numbers have been published with a less-than-spectacular market reaction (but already some recovery today):



  • Net sales SEK 157 M (143)
  • Profit before tax SEK 18,0 M (21,6)
  • Operating margin 12,4 % (16,1)
  • Earnings per share before dilution SEK 0,48 (0,59)
  • Cash flow from operations SEK 84,0 M (73,5)
  • New managers in BA Real Estate and Health

The major development here that likely hit the market was the lower operating margin. The CEO Lars Stenlund highlights the ‘anticipated reduction in volume of business are Estate Agent in Sweden’, weakening NOK and new business managers that have been appointed to Real Estate and Health, leaving the outgoing managers inside the firm to focus on ‘exploration, acquisition and group interaction’. This is accompanied by the loss of 2 of their largest customers; something that has been known before. The large drag on operating profitability was justified by development and delivery of the cloud based systems for the Health sector  (but really also all other areas, e.g. Vitec Express etc.) which increased recurring revenue to impressive 85%. This development has also pushed cash flows, on the other hand, as illustrated below. They see the sales decrease in Real Estate Agent as a positive development for the overall product mix, since no area now makes up more than 30% of total sales. I have to admit that although this naturally reduces exposure to this sector, it is not the way I would see a strong growth business think about diversification. However, the firm does enjoy a low natural correlation among their segments. 




Lars Stenlund describes the financial position and preparedness for future acquisition as good: In fact, the Cash and Equivalents position now amounts to 218m SEK (likely due to an about equal drop in receivables) which gives a lot of space for acquisitions this year. The increase of subscription type services was significant: licences fell from 4.6m SEK to 3.5m SEK while recurring revenues increased from 111.2m SEK to 123. 0m SEK. The struggling Real Estate area is supposedly limited in growth due to the need of training services for integration. The important and necessary development of shifting from traditional licensing to cloud based subscription model will set up the company for the future of software licensing.


First quarter sales have shifted in proportion from Sweden (52%, now 45%) to Denmark (13%, now 18%) and Norway (23%, now 25.8%).  In absolute terms, first quarter sales have increased in every region except for Finland where they are just slightly below the last level. The weakening of the NOK has caused a significant slowdown in the Norwegian property market. The number of properties for sale decreased and the number of transactions benefiting Vitec decreased accordingly. This explains a decline is the Estate Agent business area by 14%.


In summary, we think that the short term costs faced in the Health business are a very natural part of Vitec’s strategy that has worked out well historically. In terms of the financial position we think there is now good opportunity for continued acquisition growth and in terms of market readiness of the business model great organic growth prospects. The loss of two large customers in combination with the slowdown of the Norwegian property market given the ongoing switch to ‘Software as a Service’ is definitely a ‘bump on the road’, but it does not change the long term view, nor long-term margin projections. We will not sell the position for anything below 82 SEK which is in line with our pre-stock-split valuation.


Disclaimer: This is not an investment advice, please do your own research and don’t follow anyone blindly. Furthermore, it has to be mentioned that the author don’t have a position in Hargreaves but affiliated parties may have. Thus they participate if the share price increases. Additionally, the author and related parties may sell their shares without further notice.


We wrote about Hargreaves two times in the past, since then the stock price tanked another 50%. Here you can find the first and the second writeup about the company. In the meantime, we visited the company in the UK and more recently, Hargreaves published a trading update in which it basically revealed all cash which can potentially be realised within the next 5 years. After this update the share price rose ~20% within a couple of days.

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Disclaimer: This is not an investment advice, please do your own research and don’t follow anyone blindly. Furthermore, it has to be mentioned that the author and related parties are long-term shareholders of S&T AG for many years now. Thus they participate if the share price increases. Additionally, the author and related parties may sell their shares without further notice.


On March 30th 2016, S&T published their annual report 2015. You can find our old write-up here. Since than the share price is up nearly 50%. Back than we wrote:

If we put those two values together, we end up with a fair value of 7,68 Euro per share which doesn’t account for the potential of further revenue growth of the Security Appliances Segment which could get a really big project from Boeing (S&T already received money for a feasibility study and currently they are negotiating the contract with Boeing). If we factor in the growth of the appliances segment the fair value could easily reach 10 Euros per share, due to favorable economics.


Thus, I would like to present an update on my valuation and thoughts today. But lets start with the annual report. The revenue figures where already published before but now we also have the underlying Cash-Flow etc. the key highlights for me are:

  1. Operating Cashflow exceeds EBITA and Net Income by a wide margin and is up +29%
  2. EBITA increased by 23%
  3. EPS increased to 36 Cents (+12,5%), EPS before PPA rose to 42 Cents (+13,5%) vs. an increase of + 25,7% in Net Profit – This is not really nice as we had some dilution
  4. Order Backlog up to 181 Mio. (+ 16%) / Project Pipeline (Mainly Smart energy) up to 701 Mio. (+8,7%)
  5. Plan for 2016: Over 500 Mio. in revenues (Q4 2015: 165 Mio. / 468 Mio. FY 2015)
  6. Sold three pilots for an “End-to-End Smart-Metering Solution” to Electrica, Romania, which shows the good potential in Romania and Poland. According to my Knowledge, S&T is currently the only provider which is able to supply a one-stop solution like this in eastern Europe. Furthermore, if we look in the new tender documents, we can see, that they are on OSGP now. Which means that the Pilots where so good, that S&T now has nearly won the big tender as they are the only major player with OSGP and own the license!
  7. S&T invested 5,2% or 24,6 Mio. of their revenues into R&D. Of this 4 Mio. are for a big new Internet of Things security project which can be used in both, Secruity Appliances & Smart Energy but is fully charged on the Secruity Appliances segment. Which confirms, in my opinion, the margin potential of up to 20% in this segment.
  8. EBIT-Margins in the different segments:
    1. Service DACH: 0,25% vs. -0,7% in 2014
    2. Services EE: 2,4% vs. 3,3% in 2014
    3. Security Appliances: 11,74% vs. 11,84% in 2014
    4. Smart Energy -0,5% vs 0,4% in 2014
  9. Free Cash Flow of 17 Mio. in line with Net income


Another really interesting thing in my opinion was the option scheme, which you can find below. What astonished me was that every top-manager was rewarded with more options than the year before, despite one, Hannes Niederhasuer the CEO himself. When I have asked him about this fact, he told me, that he only has a certain amount of options which he can contribute among his employees and as he already owns enough shares and is incentivized enough he believes that it is better to give the options to his managers. This again underlines what a great CEO he is, remember he is paying himself only 450 Euro a month. He still holds more than 10% of all outstanding shares (5% directly and 5% via his family).





A further point of interest was the disposal of the international assets of NES (Smart Energy). Basically, S&T has sold the non strategical parts of NES which will reduce the revenues in the Smart Energy segment by 10 Mio. The new guidance is a revenue of 70 Mio. in 2016 ( +70% without NES US). Furthermore, the Smart Energy segment should be profitable for the first time as they can focus on the eastern European and  DACH-area. This refocus has already brought the Smart Energy segment to a breakeven in Q4 2015 and should yield in profits from 2016 onwards. Additionally,  an earn-out of 3 Mio. over the next 3 years exists. The Earn-out is based on the EBITDA-margin of the Smart Energy Segment of S&T. If they come over 5-6% EBIDTA Margins, S&T has to pay nothing. If they approach 15% they have to pay 3 Mio. over 4 years. Thus the disposal of the non-strategic NES segments make sense.


if we now look on my old valuation and update the numbers, the SOTP looks like this:

  1. Services is basically an IT-System house which generates 350 Mio. Euro revenue in 2016:
    1. 4% sustainable EBIT-Margin
    2. = ~14 Mio. EBIT
    3. * (1-tc(25%))
    4. = 10,5 Mio. OE
    5. Discount rate of 10%
    6. = ~105 Mio. Euro OE


  1. Security Appliances for niche markets generate 90 Mio. Euro revenue in 2016:
    1. 20% sustainable EBIT-Margin
    2. = ~18 Mio. EBIT
    3. * (1-tc(25%))
    4. = 13,5 Mio. OE
    5. Discount rate of 10%
    6. = 135 Mio. Euro OE


If we put those two segments together, we end up with a value, without any further growth, of 240 Mio. Euro + 9,4 Mio. Net Debt – 11 Mio. Minority interest = 238 Mio. Euro / 43,8 Mio. Shares outstanding = 5,44 Euro per share

  1. Smart-Energy Real Option:
    1. Detail period of 9 years where revenue grows from 65 to 235 and falls back to 90 Mio.
    2. 9% WACC in detail period
    3. 10% WACC afterwards
    4. 3% Perpetual growth rate after 2024
    5. Marginal Tax rate of 25%
      1. Sum of DFCFs = 60,7 Mio.
      2. PV of TV= 94,6 Mio.
    6. Firm Value = 155,4
    7. FV/43,8 Mio. Shares = 3,59 Euro per share

Thus the fair share price for S&T in 2016, according to my STOP valuation, is 9,03 EUR.


A further catalyst to realize the value should be the fact that they could enter into the TechDAX by September 2016. This is really important for S&T as Deutsche Bank and ETF will and can invest into S&T.  Furthermore, S&T had two roadshow in UK and it seems like S&T now gets a lot of attention from the investors there. Additionally, Warburg started to cover the stock as well which brings the number of analysts up to 3 now.  Another driver could be, that Berenberg could start to cover them soon, as they have a big conference  in Lisbon, where S&T will be presented as one of the best 25 European companies.


What I didn’t like was that S&T paid interest of 2,9 Mio. which is added to the Operating CashFlow which I typically don’t like as it inflates the Operating Cash-Flow! Furthermore, the Received Interest of 300k EUR is booked into Investment activities, which I find really strange. Than Paid interest is than subtracted in the Financing CashFlow. I have never seen something like this before… But I will find out what happend there…

Please don’t buy or sell stocks on recommendations of anyone especially not via phone and through a “cold call”. This post is just for education and the authors don’t have a position (long/short) in the stock. We are only trying to state the obvious facts. Always do your own research.


In this (somewhat unusual) entry, we want to tell an interesting story that is still relevant. A couple of months ago, a friend of us informed us about the company HQ Life, asking  if we knew anything about it. After a short look we told him that we have never heard of the company before. As we were very busy at this time, we didn’t ask him for more information. Than after a while, he told us that he himself bought some shares and that his father would have some insights. When I met him, I asked him about the insights and he told me that his father was called several times and he was told where the stock would trade at point x and point y and like a wonder, the stock price ended up at exactly that price. The guy on the phone told him he would only earn money if he would send him 5% of the return after his father had sold his shares. This would happen on a trust basis and if his father would not do it, he would be not informed by the company (BAH Consulting) anymore.


After a while, his father invested a huge amount into the stock and BAH-Consulting told him that he could get “bonus shares”. The only thing which his father would have to do would be to sign an NDA (Non Disclosure Agreement) and with this inform the biggest shareholder (MCT Consulting & Controlling AG) about the number of stocks he held.


When we heard that, we told our friend to directly sell all shares and informed him, that this is a fraud & scam with a 99% probability.


After we returned home that night, we directly start to investigate the case. The first thing that hit us was the chart. Have you ever seen something like this?


Price chart HQ Life AG

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You can find the Key-Highlights for the financial year 2015 below:


Net Sales                                                            618,4 Mio. SEK (+25,6%) We expected 622 Mio. and Brokers expected 585 Mio. SEK for 2015 and 626 Mio. for 2017

Operating Cash flow Margin reached           22,5%.

EBIT-Margin                                                    16% (+2%)

EBT                                                                      15%

EPS                                                                      2,66 (+65%) Brokers estimated 2,3

% of Recurring Revenue                                      78%


The really good thing in our opinion is, that the CEO clearly states, that they would like to continue to acquire more companies (Vitec has over 100 on the short list and are in direct contact with them) and has enough founding (+130 Mio. SEK) to do so. Furthermore, they have provided the EBIT-Margins of the different Segments. Here our Key Takeaway was that the only mature and fully rolled SaaS product (Energy) achieved an EBIT-Margin of 37%. The other segments achieved Margins, which ranged from 14-23%. Our personal favorite, the Healthcare business achieved a margin of only 9%. Here it has to be said, that they have recently sold their biggest single contract ever, the Diacor contract which is worth~15 Mio SEK over 36 months, which will be rolled out until the end of 2016 and is fully SaaS. With this, we should see an increase in margin, which should bring us easily above 20% in this business.

The Diacor deal brings 5 Mio. I revenue each year and should be pure EBIT!


We will update our valuation and come back with our findings shortly, but we clearly think, that Vitec is a position to hold on.

Today, I would like to present you one of our top picks for the next years:

Judges Scientific plc.


Judges is an AIM listed company which is specialised in the design and manufacturing of scientific instruments. Why is it one of our top picks? It has some wonderful characteristics which we are normally searching for:


  1. High return on invested capital
  2. A moat which protects the returns
  3. A lot of room for further growth where the earned money can be reinvested
  4. A capable, honest management which has excellent capital allocation skills and with which we love to team up

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On October 12, 2004 Yasser Arafat, the 75 year old leader of the Palestine Liberation Organization, became severely ill with vomiting and abdominal pain. Over the next three weeks his condition worsened. On October 29, he was flown to a hospital in France where he fell into a coma. On November 11, 2004 Yasser Arafat, who survived several Israely attempts on his life, died. What killed him was uncertain. But even before he died there was speculation that he had been poisoned.


In 2012 researchers at the Lausanne University announced that they had tested some if Arafat’s belongings and discovered unnaturally high level of polonium-210, the same radioactive element that was found in the body of Alexander Litvinenko in 2006.


In August 2012, Arafat’s widow gave the permission for his body to be exhumed and tested by two separate agencies, in Switzerland and France.


Now the question which you have to answer before you continue:


Will either the French or the Swiss inquiries find elevated levels of polonium in the remains of Yasser Arafat’s body?

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