Value Ideas Blog
Weekly links and Banque Privee Edmonde de Rothschild
Hello readers, we are sorry for the recent slowdown in blogging activities which are mainly due to time constraints and restrictions on what we can and would like to publish, but the good news is that we will publish two new company analyses in the near future. As I’m recently working on quantitative value portfolios, their backtesting and possible improvements I would like to share two helpful ideas with you.   First: The use of the Piotroski-F score seems to increase the returns of nearly all quant portfolios.   Second: So called dual momentum seems to work as a protection against high absolute drawdowns Both strategies are nicely described by Tim of the quant-investing blog.   Third: magicdiligence has written about the potential to increase the returns of Earning yield stocks by adding a FCF-Yield, which is on the first view quite similar but seems to effect the overall return positive.  According to the author, the earnings yield screening led to a better outcome (most of the times), as it accounts for minority interest effects, and “smooths out” lump sum businesses for a better idea of ongoing earnings power. Therefore the FCF-Yield is a good verification that the earnings are real earnings to the owner. If the Earnings Yield and FCF-Yield are widely divergent, perhaps the business isn’t as attractive as it initially appeared in the screener.   The fundooprofessor has written in interesting article the Coal CAPEX in India and who will benefit from it. As the next stock which will be presented will be a coal stock this was a good read, but it also helps to think about other input costs and their influence on the outcome of a company. The key takeaways are, that the Effects of low/high commodity prices are temporary and lead to big cycles in the producers earnings. But the real money is mad somewhere else: In the businesses which will benefit from this huge capex – businesses which facilitate the capex or benefit from that capex. There are two different levels of companies:
  1. upstream (businesses that benefit from supplying goods and services to facilitate the capex that is coming) For example SMT Scharf (Where the CEO stepped down today)
  2. downstream (businesses that benefit from cheap energy – a cost benefit they will be able to retain because they have a moat).
What we are looking for are businesses which have very high energy costs, but when those costs go down they can retain a significant part of that benefit for themselves without suffering any loss of business volume or market share. Those two things — protection of business volume and market share — are terribly important. Examples for this are Coca-Cola, Starbucks, Apple etc.   Last but not least I would highlight the latest news from Banque Privée Edmond de Rothschild or from now on only Edmond de Rothschild S.A.. Recently they appointed a new Chief Risk Officer, Manuel Leuthold in the same time will step down from his position. Interestingly after the announcement the share price started to rise at, for BPE astonishingly high volumes. Today Rothschild is trading at 17.500 CHF and we are happily waiting for everything what comes next.   Have a good week!  

2 Comments

  • Did you look at https://www.vpbank.lu/ compared to Rothschild? At first I was interested in the recent tender (the spread has narrowed since), but as always I look at the underlying company, too. This bank to me seems safe and underlevered. I am not too much interested in banks, but if the tender is way oversubscribed with current price lower than intrinsic value, I would’nt mind holding it.

    • Hey Martin,

      thanks for the interesting opportunity, at the moment I look more in small growing software companies all over Europe and due to my work into coal companies. I will try to take a deeper look at VPBank, at which I had looked when I prepared my research for Rothschild.

      Cheers Nils

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