Value Ideas Blog
Vitec Software Group AB: Our best bet?

Intro

 

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Today, we want to introduce a company we found trough a stock screening process and which we found very interesting: The Vitec Software Group AB (STO:VIT-B) is a Swedish software designer specialized in comprehensive property and energy management systems for buildings, forecasting for energy companies (electricity, district heating and wind power), management systems for realtors and media distribution. Merely a warning in advance: historical annual reports are published exclusively in Swedish language, but the company has started to publish reports in English as well. That might also be the reason international investors start paying attention. We were already able to realize modest gains (we invested at about 135 SEK) but think there is still an upside. Some of you might remember that we pitched the idea in February at the EBS talk. Here is the full story.

 
P/E P/B P/S EV/EBITDA EV/S Div Yield
 26.7 6.9 2.7  13.6 x  3.45 x  1.12%

Data: Bloomberg and own calculations, Website: http://www.vitecsoftware.com/en/

 

Live Stock Chart:

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Here is a list of our earlier investment analyses. It will be updated on a regular basis.  
3U Holding AG (Part 1) (Part 2) Analysis
Banque Privee Edmond de Rothschild S.A. (Part 1) Analysis
CARMAT S.A. (Part 1) Quick Check
Dangote Cement PLC (Part 1) Quick Check
Hornbach Baumarkt AG (Part 1)(Part 2) Analysis
Kabel Deutschland AG (Part 1) Analysis
Sto SE & CoKGaA (Part 1)(Part 2) Analysis
Vetropack Holding AG (Part 1)(Part 2)(Part 3) Analysis
A link can be found in the side bar menu.
Since our last post some interesting things happened which we think are still not reflected in the share price of the Hornbach Baumarkt AG. Hornbach-Treppe   1. The representatives of Kingfisher, which had owned 25% of the common stocks of the holding and 5% of the Baumarkt shares have left the supervisory board and have sold the shares back to the family and the Baumarkt shares to institutional investors. Kingfisher is now entering the German market. But I think that was not the main reason why they sold their shares and here is a very good article of the FAZ over the reals reasons.   Kingfisher would like to target the “professional” market and not the retail sector. I think that Hornbach has a little stronger position in the professional market than in the retail sector, but in total we are not concerned about this development due to the fact that Kingfisher’s major markets are in UK and France. At the moment you can observe what happened to Tesco etc. when Aldi and Lidl entered the UK market due to the fact that the German retail market is one of the most brutal markets in the world; our players know how to play the game.   2. A few days ago Hornbach Baumarkt was announced to become a SDAX member, this will attract new investors for the share.   3. Hornbach announced incredibly good Q1 numbers. EBIT nearly doubled for the Baumarkt and same store sales increased by more than 15%, this development actually exceeds our own expectations and you can observe a really big “Schlecker effect”.   But a really interesting thing is the development and valuation gap between the holding and the Baumarkt shares. What you can observe is that the Holding nearly performed twice as good as the Baumarkt shares did. We think this is due to the fact that if a bigger fund would like to establish a position it prefers to buy into the more liquid Holding.   Hornbach   So what can be a potential catalyst to change this valuation gab? We heard some rumors from knowledgable persons that the midterm perspective of the Hornbach family, now after they solve the problem with Kingfisher, would like to merger the two companies back into one company with two different traded shares. This is a logical step for the family due to the fact that they can save the money and still hold the full control over the company. So in our opinion it is way better to hold the common shares of the Baumarkt like the family is doing it, because we think the bearer shares of the Holding AG will be switched to bearer shares in the Baumarkt AG. With this move the family will also increase the free float of the total company, with this Hornbach is a clear MDAX candidate and will enhance the stock price of the Baumarkt AG shares.   We think these facts, the development and the future potential show that our first target price of 41,2 € was quiet conservative and still implies an upside potential of around 25% for the Baumarkt Shares which would lead to the same performance which the Holding AG shares already showed. At the moment the operational performance of Hornbach also exceeds our best case scenario which results in a share price of around 50 €. All in all we are really happy with the outcome and we think that  the future which lies ahead of Hornbach is also bright.   Disclosure: Long Hornbach Baumarkt AG    
This will be the final summary of our Vetropack series. Here are links to the first two parts: http://frenzel-herzing.com/investment-analysis-vetropack-holding/ http://frenzel-herzing.com/vetropack-analysis-part-2/   We want to start by giving you the most recent numbers (http://www.vetropack.com/htm/presse_detail_3.htm?id=159). The revenue growth was in line with our expectations, just as the decrease in EBIT matched our prediction quite closely. As we have said before, we estimated an average 2.5% revenue growth in the short term. We need to add that all calculations have been done in reporting currency, which is CHF. Most profits occur in EUR though, as one of our great readers has remarked in a comment previously. But it is even more important how the cash is pooled. The CFO has told us that the cash pool that is used for investment is also kept in EUR. So we converted our DCF model. We have made the following assumptions, using the most current numbers:
  • Revenue growth of 2.5% in the short term, 2% in the long term
  • 10.1% CAPEX / revenue
  • 0.63 operating expenses / revenue
  • 0.17 average cost / revenue
  • 0.09 average depreciation, amortization / revenue
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This is the continuation of our analysis of the Vetropack Holding.   At first, we will show you the strategic positioning of the company by giving you a geographical overview including Vetropack’s and competing sites. Keep in mind that for most products the maximum transport distance is 150 km. We also added the total sales per country in mio pieces. It has become clearer that Vetropack is in good company at almost every production site. That explains why the management announced they were not able to push thru price adjustments, competition is strong enough in most regions.   MAP   Furthermore, as you probably know, political events in the Ukraine have influenced its currency risks and Ukraine may need a devaluation in order to pay its debt and re-establish its exports.   read more
Today I would like to present you a long post and the work of the team from the European Business School for the German CFA Research Challenge Final. The team members are Vincenzo La Banca, Yun Du, Attila Menyhàrt, Jan Werst and me.   We were one of four teams which reach it to the Final round, unfortunately we did not win (perhaps this was due to our low price target of around 63€ per Kabel Deutschland share (ca. 40% lower), but we still think that this price is much more reasonable than the takeover price of 87€ per share and it is not the first time taht vodafone paid to much for a german company(Mannesmann AG)). At the Moment the Valuation of Kabel Deutschland is at a staggering 51x Equity Value/FreeCashflow. Foodballfield   But let us now go into the details: read more

So, is there “a puff left” now?

In order to answer this question we need to take closer look into the structure of 3U Holding (3U). As the name suggests, 3U Holding holds a series of stakes in other companies. Benefits of this approach include synergies in terms of purchasing, facilities, legal, accounting and business administration, plus the possibility to add up profits and losses, and so save taxes. However, as blog readers have already commented rightly, the overhead costs for management and shared central functions are significant, i.e. roughly 3.5 million per year (0.10  Euro per share per year). read more
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