Value Ideas Blog
Banque Privée Edmond de Rothschild

Intro

The overall banking business model is simple. Banks receive money from clients which are depositors and the capital markets and lend to other clients which are borrowers, therefore banks make a profit from the interest spread. If a bank borrows money from a depositor at 4 percent and lends it out at 6 percent, the bank has earned a 2 percent spread, which is called net interest income. Furthermore banks also earn money from basic fees, assets under management (AUM) and other services, which is usually referred to as income from fees and commissions or simply noninterest income. If we combine net interest income and noninterest income we end up with the net revenues of a bank or its top line. A further point which is less obvious is that consumers are actually paying for the liquidity services as well.

The center of banking is, due to my experience of working for a bank, one thing: risk management. Banks have to deal with three different types of risk: credit, liquidity also known as “Fristentransformation”, and the interest rate environment. Borrowers and lenders pay banks through interest or fees because they are unwilling to manage the risk on their own, or because banks can do it more cheaply. There are only a few other business in the world where you can take money from people and effectively charge them to take it off their hands. That’s the banking and insurance business model in a nutshell.

But there are many banks, asset managers and insurers out there, most of them in the same country and the same business segment and after all, financial products and services tend to be generic. Despite this fact most of the banks and the finance industry earn some decent returns for themselves and their investors, which is a first sign of a potential moat.

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Today we want to take a look at 3U Holding (ISN: DE0005167902, Symbol: UUU). It’s a small cap enterprise that caught our attention. The book value at the end of Q3/13 was about three times the current shares price, i.e. 1.29 EUR (by our calculations) vs. 0.42 EUR on Jan 10, 2014! In the chart below you can see that the company is today 80% equity financed, up from 36% in the year 2006. So, let’s take a closer look to find out if this is an investing opportunity from a value investing point of view or a potential value trap… (This is the first part of the analysis, keep in mind that you should do your own research and that this is not a selling or buying advice)    Equity development   read more

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

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
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