AerCap

AerCap (AER) is the world's largest aircraft leasing company after acquiring International Lease Finance Corp. in 2014.^[2][3] It is headquartered in the Netherlands.

(...)On December 16, 2013, AerCap agreed to buy International Lease Finance Corporation (ILFC) with value around $5.4 billion, $3 billion is paid by cash and the rest with AerCap common shares newly issued. The deal gives AerCap $41 billion in total assets and a fleet of over 1,300 aircraft compared to GE Capital Aviation Services with a fleet of 1,800+ aircraft. It is subject to approval of AerCap's shareholders and regulatory approval which were expected to be finished in Q2 2014. (Wikipedia)

Efter AIGs problem i samband med finanskrisen bestämde sig AIG för att sälja sin leasing verksamhet. AerCap bestämde sig för att göra ett gigantiskt förvärv av AIGs leasing del och kunde köpa deras flygplansflotta relativt billigt, därav har AerCap inte dragit på sig någon större goodwill position. På sikt hoppas AerCap kunna sälja av delar av sin flygplansflotta över bokfört värde och sedan investera i nya plan. En förvånansvärt stor del av AerCaps verksamhet är inriktad mot köp och sälj av plan.

Extrapoleras de senaste 3 kvartalens vinster till fyra kvartal värderas AerCap till p/e 7,36 vid en kurs om 43 dollar per aktie (diluted).

Extrapoleras de senaste 3 kvartalens "justerade" vinster till fyra kvartal värderas Aercap till drygt p/e 6,7. Man bör förstås se med viss skepsis på "justerade vinster".

Värdedrivare:

• Låg värdering 

Uppvärderas AerCap till p/e 11 eller p/e 12 är uppsidan 50% till 65%

Uppvärderas AerCap till p/e 11 eller p/e 12 (justerad vinst) är uppsidan 65% till 80%

• Management har öppnat upp för buybacks vid ett framtida datum, men jag hade föredragit om kapitalet istället behållits.
• Sälja delar av ILFCs flotta över det bokförda värde

Några intressanta tankar från David Einhorns presentation under Grants konferens:

Einhorn om AerCaps förvärv av ILFC

Einhorn om AerCaps ledning

Jag har länge sökt efter negativa åsikter om AerCap men jag har haft svårt att finna några. Detta är förstås irriterande för det skulle underlätta analysen och förhoppningsvis öppna upp tankarna för risker. Som det ser ut nu får jag hitta på något själv:

Största riskerna:

• AerCap klarade finanskrisen förhållandevis väl, men sedan förvärvet har AerCaps verksamhet förändrats och hur skulle de hantera en större nedgång idag.
• Centralbankerna håller på med sin lekstuga och sitt globala valutakrig. Vad händer om FED börjar aktivt försöka minska värdet på dollarn?

• AerCap skuldsättning är hög och åtagandena är stora.
• Är AerCaps marginaler uthålliga över tid?

Förvärvet har till viss del förändrat AerCaps verksamhet:

"Fitch believes that the acquisition has resulted in a significant shift to AerCap's current business strategy. The size of the fleet has increased dramatically to approximately 1,200 aircraft from 238 as of March 31, 2014; and its average age has increased by roughly two years, to over seven years from 5.6 years as of March 31, 2014. Historically, AerCap's strategy focused on newer aircraft, a modest fleet size and a moderate order book supported by a predominantly secured funding profile."(http://www.businesswire.com/news/home/20140811005947/en/Fitch-Affirms-Aircraft-Lessors-Peer-Review)

Som Fitch påpekar ovan har AerCap förändrats i grunden och det är troligt att AerCap inte hanterar en global kris lika bra idag som de gjorde under finanskrisen. Dels har AerCap dragit på sig stora skulder och dels har AerCaps position på marknaden förändrats.

Centralbankerna håller fortsatt på med sin lekstuga och det globala valutakriget fortgår. 

Jag tvivlar på att FED kan höja räntorna substantiellt i en miljö där alla andra centralbanker för ett valutakrig. Eller som Bob Rodriguez beskrev det för ett år sedan (min festil):

"Within two or three years, I expect that it will be obvious that QE policies will have failed miserably. Stunted economic growth, with elevated unemployment or under employment, will force the hand of many countries. How to stimulate economic growth when fiscal policy reform is off the table and QE has failed? I would argue that the last arrow available in the quiver of economic stimulation is currency policy. A general competitive devaluation of a country’s currency will be all that remains. Both Japan and Europe are proceeding down this pathway. Should they be successful in their currency devaluations, this will force the hands of other countries. In the last two major international currency episodes, 1980-1985 and 1998-2001, the dollar proved to be the currency shock absorber. A review of the US Dollar Index graph will demonstrate this. Unlike these previous episodes, I don’t believe a similar outcome is possible since this country has far more systemic imbalances, when compared to those prior periods, and thus, a smaller rise in the dollar’s value will elicit a more immediate negative response. So my recommendation to you is to keep a very close watch on the currency markets over the next few years." (Bob Rodriguez, 30 oktober 2014, Tal finnes här)

Som jag ser det bör man inte bli förvånad om FED byter riktning inom sinom tid och då finns det en risk att en stor del av dollaruppgången utraderas. I extremfallet (osannolikt) utraderas hela uppgången och man förlorar 25% på valutakursförändringarna. Förmodligen utraderas bara delar av uppgången.

AerCaps skuldsättning?
AerCaps skuldsättning och bolaget förmåga att rulla över lånen är kanske den största faran i investeringen. AerCaps verksamhet bygger på att stora tillgångsinnehav kan finansieras med stora lån och att dessa lån i stor utsträckning kan rullas över. Om kreditmarknaden försämras kan långivarna dra tillbaka på krediterna. AerCaps ledning söker minska skuldsättningen, men ledningen planerar att börja med buybacks när skuldsättningen sänkts.

Under perioden 2010-2013 låg AerCaps soliditet kring 25% och nu har soliditeten sjunkit till drygt 19% (Q3 2015). Skuldsättningen är alltså inte katastrofal givet att det verkliga egna kapitalet är större än det bokförda, men faktum kvarstår att AerCap är väldigt beroende av goda relationer till långivarna. Kan inte AerCap få tillgång till kapital från långivarna påverkas AerCap mycket negativt.

Skuldsituationen skulle vara mer hanterbar om inte AerCap åtagit sig ILFC orderbok. Denna orderbok medför potential till vinsttillväxt, men försvårar även skuldbilden. Nedanstående åtagande kommer behöva finansieras genom kassaflödet från verksamheten, försäljning av delar av flygplansflottan, nya lån och att rulla över skulder. Detta är ingen omöjlig uppgift, men det finns risker. Om det blir rejäl deflation bör man se över sin exponering mot banksektorn, försäkringsbolag och AerCap.

från årsredovisning 2014

"With the acquisition of ILFC, AerCap has become the owner of one of the largest order books in the industry. Fitch recognizes that ILFC's orders represent some of the most in-demand aircraft in the market and were placed at attractive prices and delivery slots. However, the long-term nature of the commitments creates a liability that may need to be funded at a time when capital is not readily available. Furthermore, given the cyclical nature of the aviation market and continual technological advances, the contracted purchase price of the aircraft could potentially exceed the market value on the delivery date." (http://www.businesswire.com/news/home/20140811005947/en/Fitch-Affirms-Aircraft-Lessors-Peer-Review)

Är AerCaps lönsamhet uthållig? Det är oerhört svårt att besvara denna frågan, men avkastningen på eget kapital framstår som någorlunda rimlig. Man bör också beakta att AerCaps eget kapital förmodligen är större än det bokförda, vilket medför att ROE 2014 och 2015 i själva verket är lägre. AerCap sålde ett "dotterbolag" 2011 och om man beaktar detta ser inte vinstmarginalen (net income/revenue) ansträngd ut.

AerCap ser intressant ut och är ett förhållandevis stabilt bolag. Man bör framförallt se över sitt innehav om något plötsligt sker med lönsamheten. Framförallt bör man hålla koll på AerCaps förmåga att rulla över skuldsättningen och skulle bankerna dra tillbaka på krediterna kan det bli problem.

(Som vanligt är kritiska tankar och rättelser önskade)

Hela Einhorns presentation (Grants konferens) finnes här och AerCap behandlas mellan slide 34-55

Presentationen från AerCaps investerardag ger en överblick över AerCaps verksamhet

Närstående oljeuppgång?

Som man kan se nedan har det skett en "boom" i den amerikansk oljeindustri. Man kan också se ett litet fall i oljeproduktionen i slutet av 2015 (nedan). Det är svårt att bedöma hur mycket den amerikanska produktionen behöver falla för att nå ett substantiellt högre pris på olja, men det känns troligt att produktionen behöver komma ner.

2014 juni -- oljepriset "toppar" och då var oljeproduktionen i USA 8400-8500 thousand barrels per day.
2015 juni -- Amerikansk oljeproduktion ser ut att ha "toppat" kring 9600 thousand barrels per day.
2015 november -- Amerikansk oljeproduktion ligger kring 9100-9150 thousand barrels per day.

OPEC ser ut att ha förvärrat efterfråge/utbuds situationen ytterligare i och med att OPEC har fortsatt öka sin produktion sedan kollapsen inleddes.

http://marketrealist.com/2015/08/opecs-record-production-continues-despite-crude-oil-prices/

OPECs produktion har ökat kraftigt, vilket motverkar den nedgången som skett i USA. Hade OPEC minskat produktionen hade situationen klarats upp snabbare.

https://ycharts.com/indicators/opec_crude_oil_production

Potentiellt högre efterfråga kan kanske rädda situationen och "höja" priset på olja, men prognoser förblir icke tillförlitliga. Kan inte ekonomer förutspå recessioner lär de inte kunna förutspå efterfrågan på olja med någon större säkerhet. PÅ sikt är jag helt övertygad om att oljepriset kommer nå betydligt högre nivåer, men det känns som att "på sikt" ligger en bra bit in i framtiden. Mitt resonemang bygger på varför kollapsen skedde:

Om kollapsen uppstod tillföljd av en överproduktion bör det krävas en reducering av produktionen eller ökad efterfråga för att återställa ett högre pris. Ovanstående är bara min gissning om den fortsatta prisutvecklingen och att avgöra exakt var efterfrågan respektive utbudet bör befinna sig är omöjligt. Ytterst marginella förändringar i utbud och efterfrågan kan driva stora prissvängningar, vilket gör alla uppskattningar extremt osäkra.

Det framstår som att de flesta marknadsaktörer är övertygade om att oljan snart kommer stå på 100 dollar igen. Jag kan bara säga att jag inte vet och att säkerhetsmarginal bland de flesta oljebolagen är låg om oljan förblir låg under en längre period. Det ser ut som att USA produktion av olja minskar och denna faktorn rör sig i rätt riktning. Faktorer såsom framtida efterfråga, OPEC och Iran förblir svåra att säga något om. 

Nedan följer ett fåtal grafer på ett fåtal av bolagen som jag är intresserad av i oljesektorn. Det framstår som att börsen är så framåtblickande att den prisar in en uppgång i oljepriset innan denna uppgång skett och marknaden är med andra ord väldigt framåtblickande.

(Olja 18 månader)

Chevron (18 månader)

Och TGS förblir opåverkad

Rekommenderad läsning består av utdrag från Bauposts senaste brev där medarbetaren Brian Spector skrivit om värdeinvestering:

http://uk.businessinsider.com/brian-spector-leaving-baupost-letter-2015-11?r=US&IR=T

Tur att man har Draghi

Det finns inga som helst tecken på att denna börsen är överhettad eller spekulativ. Det finns inga som helst tecken på att börsen är ohälsosamt beroende av centralbanker. Komedin fortsätter:

Draghi tyckte uppenbarligen inte att EURO stod tillräckligt lågt, utan bestämde sig för att sänka valutan ytterligare på bekostnad av omgivningen (USA).

Det är tur att Yellen och Draghi tar hand om marknaden, för tänk om Yellen skulle gör någoting börsen inte gilla. Det är tur att vi har centralbankirer som fokuserar på marknadernas välmående. 

Gissningar om oljans utveckling.

Det är av uppenbara skäl oerhört svårt att säga något deterministiskt kring oljans framtida pris. Olja påverkas av OPEC, Iran, prospekteringsnivån och efterfrågan. Vad man på sin höjd kan konstatera är om någon av dessa faktorer rör sig i rätt riktning, givet att man vill se högre priser på olja.

"I USA har antalet oljeriggar som borrar efter olja minskat kraftigt, men produktionen av olja fortsätter att öka. Det kommer ta ett tag innan kollapsen i antalet riggar slår igenom på produktionsnivåerna i USA. Borras det efter mindre olja kommer förr eller senare äldre brunnar ta slut, vilket leder till att utbudet minskar. Riskerna är att justeringen i utbudet inte kan motverka den allt mer uppenbara globala inbromsningen. Viss exponering mot oljeindustrin kan vara önskvärt, men tålamod krävs och man bör ta höjd för fortsatta fall vid eventuella inköp." (inlägg den 28 juni)

Den amerikanska oljeproduktionen ser ut att ha börjat falla och detta kommer verka positivt på oljepriset förr eller senare. Fallet i antalet riggar har börjat märkas av, men produktionen har en bra bit kvar att falla. Av en händelse sammanföll inlägget den 28 juni med ett fall i oljeproduktionen och man får se om detta fortgår.

Graf över oljeproduktionen i USA

BULL!
Förvaltarna på FPA Capital Fund tror att oljan ska upp på grund av att marginalkostnaden ligger över dagens pris och att Capex har kollapsat.

"The marginal cost of oil production is around $80/barrel The marginal cost of oil production is the total cost to find and extract the last barrel of oil from the ground to satisfy the demand for that last barrel. The mid-cycle marginal cost of oil production is around $80 per barrel (although current marginal cost levels may be below $80/bbl simply because of temporary service company price reductions due to the downturn).

(...) Between 1999 and 2014, global upstream capex only fell twice; in 2002 when it fell by 5%, and 2009 when it fell by 16%.4 In 2015, upstream capex is expected to be down 23%, the largest decline in 20 years, and is expected to be down in excess of 10% again in 2016 if Brent oil is below $60/bbl. Within North America specifically, capex is expected to fall by 40% in 2015 and more than 20% in 2016. We have already started experiencing the impact of lower spending in the U.S., where total crude production is down over half a million barrels per day as of September 2015 after hitting 9.6mm in early June. We expect these declines to continue as the U.S. companies started cutting expenditures earlier this year in earnest.

(...) Decline rates persist whether oil prices are high or low. It is unavoidable that supply capacity will shrink without ongoing investment. Global decline rates were pegged at somewhere between 4.5% and 6.7% back in 2008. Note that those rates were determined before the rise of shale oil, which has drastically higher decline rates." (http://www.fpafunds.com/docs/hc_capital/2015-q3-fpa-cap-commentary.pdf?sfvrsn=2)

Det har kommit ut några "domedags rubriker" på sistone och jag föredrar denna rubriksättning framför mer positiva rubriker. Tidigare i år fanns det en viljan att spekulera oljeprisuppgångar och denna vilja verkar också ha minskat. Jag tycker viss exponering mot olja/gas kan vara intressant, men man bör hålla exponeringen låg och "smart".

BEARISH!
Jim Chanos lägger fram en betydligt mer negativ bild än förvaltarna på FPA Capital och han är särskilt negativt inställd till "shale" industrin i USA. I sin presentation (här) påpekar han att oljeproduktionen inte fallit särskilt mycket, trots den stora nedgången i antalet amerikanska riggar.  Jim Chanos påpekar också att produktionsfallen inte kommer bli särskilt stora den kommande tiden, vilket står i konflikt till vad FPA Capitals förvaltar påpeka ovan.

Produktionen skulle förmodligen fallit kraftigare om marknaden inte varit doppad med låga räntor, som lett till att kapital sökt sig till "high yield" obligationer. Det är denna tillströmningen av kapital som bidragit till att hålla många bolag flytande. Det börjar dock uppstå påfrestningar här, eftersom spekulanter börjar dra tillbaka sitt kapital och produktionen faller extremt snabbt i "shale" sektorn.

Fallet i antalet riggar är nu så extremt att man kan fråga sig hur länge produktionen kan upprätthållas. Det verkar dock som att de stora obalanserna som uppstått i oljesektorn kan komma att ta lång tid att räta ut, men såvida inte efterfrågan faller kraftigt bör förr eller senare priset stiga.

Inbromsning?

Kina står för drygt 12% av oljekonsumtionen (min beräkning). Kina kan alltså påverka priset på olja, men det är inte Kina som enskilt bestämmer hur priset på olja kommer utvecklas. Kinas bubbla är baserad på kreditexpansion, spekulation och överbyggnation, men inte en överdriven oljekonsumtion.  Går Kina åt helvetet går mycket annat åt helvetet och dessa spridningseffekter kan ha betydande påverkan på oljeefterfrågan.

Riskerna för en recession i USA har ökat och det är troligt att världsekonomin saktar in. Om inbromsning blir stor eller bara resulterar i några kvartal med sämre tillväxt är omöjligt att veta.

"Det är troligt att centralbankerna börjar intervenera på marknaderna och man får helt enkelt se om marknaden kan återfå riskviljan igen. Redan nu har ECB och FED ledamöter börjat intervenera verbalt. FED ledamöter talar om att skjuta fram räntehöjningen i september och ECB ledamöter öppnar upp för nya stimulanser. Om dessa "verbala" interventioner kommer omsättas i handling eller endast är prat från enstaka individer är svårt att veta." (Tidigare inlägg den 30 augusti, Länk)

Föga förvånande valde FED att intervenera genom att skjuta upp räntehöjningen igen. Den uteblivna räntehöjningen tillsammans med "lagom" dålig statistik ledde till att placerare började ta positioner på börsen igen. Det har skett en viss lageruppbyggnad i amerikansk ekonomi och givet att lagerhållningen blivit allt mer effektivare har siffran stigit rejält.

(Länk)

Samtidigt tror jag inte att man bör dra alltför långt gående slutsatser utifrån detta. Recessioner är extremt oförutsägbara när det gäller timing och storlek. Hur vet man om det kommer bli en recession eller bara svagare positiv tillväxt i några kvartal?

 Nedanstående graf illustrerar svårigheterna med att säga något definitivt om kommande recessioner. Under 2012 var USA riktigt nära att få en recession, men det blev ej så och därför bör man inte dra för långtgående slutsatser. Man kan också fråga sig en om en liten recession med en nedgång i BNP om ringa -0,2 % är särskilt katastrofal.

(Länk)

Om man är intresserad av oljesektorn rekommenderar jag att man läser nedanstående. Jag tycker Vito Maidas sätt att investera i oljesektorn är väldigt sunt och märk hur Vito Maida tagit höjd för de flesta scenarion som kan inträffa genom de bolag han väljer att köpa.

"So much for peak oil!

Peak oil refers to the theory that oil prices would rise ever higher because of increasing demand and diminishing supplies. Furthermore, it was argued that finding new sources of oil was becoming more and more expensive. The per barrel cost of finding and developing oil in frontier areas such as the Arctic and other very remote locations would raise the price of oil to $200 per barrel in the near future. Of course this view was at its most popular as energy prices were on an upward trend and near their peaks.

As the graph below from SeekingAlpha.com indicates, peak oil seems to have been turned upside down. The price of oil has fallen from just over $100 per barrel in early 2014 to approximately $50 at the end of the year.

This dramatic decline should remind all of us that no matter how attractive, eloquent and interesting the people and the arguments may be; a healthy dose of skepticism is in order when explanations are put forth to justify rising prices. The fact of the matter is that the “invisible hand” of Adam Smith’s market forces always ensure that reversion to the mean prevails!

The fall in oil prices has resulted in a corresponding drop in the share prices of energy related businesses. As you would expect we have spent a considerable amount of time rummaging through the rubble. Fortunately, we have found some gems amongst the ruins and deployed some of our capital to energy companies that we believe are well capitalized industry leaders and that provide the potential for substantial returns.

Some portfolio managers believe that commodity companies are not attractive businesses and therefore should always be avoided. While we would agree that for the most part commodity companies are low return businesses we believe that under the right circumstances they can provide an excellent rate of return over a five year holding period. We look for several important factors before we purchase a commodity related business:

√ A long life and high quality resource base

√ Low cost operations

√ A very strong balance sheet

√ Conservative and experienced management

√ Shares trading at a substantial discount to our estimated net asset value

It is important to note that we calculate our net asset value based on the long term inflation adjusted price of the commodity in question. There are no peak oil like theories at PCM! Our process leads us to invest in companies that can sustain a prolonged period of low commodity prices and that we purchase them at prices trading below our estimated net asset value. Our investment philosophy also ensures that we sell above net asset value and realize our profit." (Patient Capital Management, newsletter 2014-12)

Bauposts (Klarmans) investeringar den 17 december 1999

"Currently, a number of spinoffs are truly orphaned securities trading at giveaway prices. For example, we have recently purchased shares of both of the recently separated subsidiaries of Tenneco, Inc. The larger company, Pactiv Corporation, manufactures Baggies brand food storage bags and Hefty brand trash bags, and has leading market shares in a myriad of other plastic packaging products. Due to indiscriminate post-spinoff selling pressure, the shares have slumped to around 10 times currently depressed after-tax earnings and about 5.5 times pretax cash flow. The earnings should grow from a combination of cost reductions, asset redeployments, bolt-on acquisitions, volume growth, and expected lower raw materials prices. Management recently received significant stock options as part of a new incentive plan to better align their interests with those of shareholders. They have also been buying stock personally. It has been many years since a branded consumer products business fell through the cracks to trade at such a compelling valuation.

We are also buying shares of the Tenneco Automotive spinoff; this company manufactures Monroe shock absorbers and Walker mufflers, and is the market share leader in nearly all of its products and markets. It currently trades at approximately four times after-tax earnings. It's shares have been particularly brutalized as a result of its deletion from the S&P 500 Index. Tenneco pre-spinoff traded at a market capitalization of several billion dollars; the highly leveraged Tenneco Automotive spinoff, still under extreme selling pressure, trades at a market capitalization barely above $200 million. Selling pressure has turned this market leader into a micro-capitalization stock, forcing many holders to exit because it no longer meets their size criteria. In effect, there is now a class of shareholders who must sell a stock simply because it trades at a depressed market valuation.

Harcourt General recently spun off most of its interest in Neiman Marcus, allowing it to become a pure play in the publishing and computer-based learning and training businesses. In the current turbulent market, we believe investors have failed to focus on the low valuation and highquality, strongly growing businesses within Harcourt. Currently, trading at a several year low, the shares trade for under 12 times cash earnings (earnings plus goodwill amortization) and for roughly half of our estimate of the company's asset value. The company is expected to grow earnings 12 - 15% annually, and recently reported strong quarterly results. Harcourt's management has most of their net worths invested in the company (which they control) and has committed to take additional actions as warranted to cause the company's share price to more fully reflect underlying business value.

Chemfirst, a specialty chemical company, came public several years ago as a spinoff. Despite the company's strong position in the fast growing electronics chemicals market, the shares trade at around five times estimated cash flow. Business results are strong, and the company's management owns a substantial interest in the company. In addition, the company is actively repurchasing its shares. We believe the company will eventually be acquired in the chemical industry's consolidation. We own several investments in the real estate area including shares in LNR Corporation, a spinoff a few years ago from a respected homebuilding company. This company is essentially an opportunistic investor in a variety of real estate assets, with a bias toward purchasing underperforming or out of favor properties, turning them around and selling them. They have achieved consistently strong returns over time, and the underlying value of the company's assets is close to twice the current market price of the shares. We expect underlying value to grow at a healthy rate for the foreseeable future. Management owns approximately 30% of the company's shares, and the company has been repurchasing substantial amounts of its own stock at the current price.

Octel was spun-off from Great Lakes Chemical Corporation in 1998 and has not succeeded in attracting investor interest. It is the world's dominant producer and marketer of worldwide TEL, a fuel additive that makes gasoline "leaded." This has been called a "sunset industry" because leaded gasoline is being phased out all over the world. In the meantime, however, it is a high margin business that requires almost no ongoing investment. Octel has recently consolidated its position and now controls in excess of 90% of the worldwide TEL market. The company is currently buying back around 10% of its stock per year. There are two primary risks - that the phase-out goes much more quickly than the 15-20% annual decline that management anticipates or that the company's abundant cash flow is squandered on foolish acquisitions rather than being used to pay down debt and buy back stock. At three times current after-tax earnings, valuation more than compensates for these risks.

We have recently become more active investors in thrift conversions. Thrifts at one time had a large dedicated community of investors, but after a period of overvaluation and poor stock performance, this is no longer true. While there are generally no short-term catalysts for value realization in this area, stock repurchases are accretive to shareholder value and industry consolidation seems likely to continue at a healthy pace. In short, the opportunity to buy significantly overcapitalized, conservatively managed thrifts between 50% and 75% of book value and at reasonable earnings multiples offer a low-risk investment with significant return potential.

We own shares in Stewart Enterprises, a funeral home and cemetery company which currently trades at approximately six times after-tax earnings per share. The death care industry has come under pressure as a result of overpriced acquisitions, excessive levels of debt, a recent, temporary decline in the death rate, and increased competition in some regional markets. All of the public companies in this industry are trading at extremely depressed levels. Stewart has some of the best properties in the industry; the company has recently repurchased its stock around current levels, and insiders have added to their holdings. A new management team is expected to reorient the company to maximize free cash flow generation.

Ucar is the world's leading manufacturer of graphite electrodes which are used in steel production. The company came under a cloud a few years ago when the industry admitted to price fixing. Results were then adversely affected by the Asian crisis last year. Management announced a sweeping cost cutting plan, which has been implemented faster than expected. Earnings are expected to grow strongly over the next few years as a result of lower expense levels, stronger demand, and possible price increases from currently depressed levels. The company also has announced a potentially lucrative product development and supply agreement with Ballard Power Systems, developers of a new fuel cell technology. Despite the company's excellent prospects and strong market position, the shares trade at roughly eight times estimated 2000 earnings.

Chargeurs is a French company which processes and trades in wool and produces fabrics, interlinings, and protective films. It is the market leader in virtually every segment in which it operates, generating substantial free cash flow from operations. Management is proactive in taking measures to maximize shareholder value including a securitization program to reduce volatility and risk in the trading business and the repurchase of a large number of shares. Some segments of the business have suffered as a result of the Asian crisis and are only now beginning to recover. Even on depressed results, however, the market values the company at approximately seven times earnings. Small capitalization companies in mundane businesses are out of favor in France, too.

Lambert Fenchurch is a publicly traded insurance broker in the U.K. Small in scale and in an industry that was out of favor amongst British investors, the company was unable to get a reasonable valuation from the stock market. Trading around 80 pence, the shares languished at six times earnings. Last month, after a long strategic review, the company accepted a takeover offer at 145 pence per share. The deal went unconditional on December 16.

Saab is a Swedish defense company primarily focused on aircraft, space and training systems which is valued at about seven times earnings. This valuation does not take into account growth opportunities available from the expansion of Saab's fighter aircraft program into the export market; the company recently received its first export order, validating our investment thesis. Management is also pursuing value creation through the monetization of the company's civilian aircraft lease portfolio. Last month, Saab agreed to purchase Celsius, another Swedish defense contractor, in a deal that enhances value by about 20% after cost-saving and revenue synergies. Although the European defense market is undergoing rapid consolidation, Saab, as one of the smallest remaining independent players, is below the radar screen of most investors.

We continue to have exposure to several investments whose outcome is totally independent of the level of the stock market. One such holding is Trustor Corporation, which is in liquidation. The company's assets are cash and legal claims against a former executive who committed embezzlement. Cash on hand exceeds the share price and a substantial liquidating distribution is expected shortly. Another such investment is in the debt of Maxwell Communications, which is also in liquidation. This company continues to make good progress selling off its assets and resolving legal claims at better-than-expected levels. Another liquidating distribution from Maxwell is expected in late December."

Carl Icahn utfärdar varning i ny video

Scrolla ner på hemsidan så finner ni videon "Danger ahead".  Saknar man specialintresse för amerikansk skattepolitik bör man hoppa över 02.00- 05.40 (rekommenderas för majoriteten). 

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Denna länken rekommenderas för de individer som tror att "bubblor" är osynliga.

Vikten av att göra ingenting, Vito Maidas brev genom åren

(Det har väl gått snart 7-9 månader sedan jag gick igenom samtliga brev från Vito Maida och sammanställde lite utdrag. Kanske kan dessa utdrag vara av intresse. Inlägget skulle lagts upp för x antal månader sedan, men det blev ej så.)

Inkommande gigantiskt inlägg. 

Inför millennieskiftet jobbade Vito Maida på ett större förvaltningsbolag och han vägrade att spekulera i teknikaktier under IT-manin i Kanada. Istället för att spekulera i IT-manin köpte han kanadensiska råvarubolag och lite guld. Vito Maida fick sluta på grund av sin positionering och startade upp Patient Capital Management (PCM). Kort efter uppstarten av PCM sprack IT-bubblan och guld sköt upp. Maida identifierar tidigt möjligheter och är en av de unikare placerarna jag funnit. Inför finanskrisen blankade PCM Wachovia, Bear Stearns och Lehman Brothers efter att han fått tillåtes att göra detta av en av sina klienter, men det är ett avsteg från hans normala metodik.

Nedan finns utdrag från Maidas brev till investerare från uppstarten av Patient Capital Management (PCM) fram till idag med fokus på perioden inför finanskrisen. PCMs resultat säger en del om vikten av att kunna göra absolut ingenting och inte sänka sitt avkastningskrav. Det är ganska otroligt hur man de senaste 15 åren kunnat kraftigt överprestera index genom att konstant ha en betydande kassa. PCMs kassa var som lägst under djupet av finanskrisen och uppgick då till drygt 30%.

Vito Maida är en exceptionellt skicklig kapitalplacerare och den goda avkastningen trots stora kassa positioner kan hänföras till detta. Är man disciplinerad och svingar bara när risk/reward är extremt bra behöver man inte vara fullt investerad någon gång för att slå index, såvida man kontinuerligt letar efter investeringar och bara håller en kassa när det inte finns bättre alternativ. Det är väldigt viktigt att poängtera att storleken på PCMs kassa beror på vilka investeringsmöjligheter som existerar.

PCMs (Patient Capital Managements) historiska avkastning finnes här.

Avkastningen är i många avseende imponerande, men avgifter är ej medräknade. Avkastningen blir väldigt imponerande när man justerar för risken förvaltarna på Patient Capital Management tagit. Alla Vito Maidas brev finnes här. Vito Maida köper helst lågt värderade större kvalitetsbolag och vill ha drygt 20 bolag i portföljen. Förvaltarna på PCM har förstås fel från och till, men ofta har de fått någorlunda rätt.

Jag börjar med ett utdrag från ett "brev" 2007-03 och därefter följer utdrag från utvalda brev från Vito Maida mellan 2000-2011 i kronologisk ordning. Grön färg indikerar en någorlunda positiv ton i Vito Maidas brev om aktier. Fokus har lagts på perioden fram till och strax efter finanskrisen. Fokus har även lagts på hans mentalitet kring bubblor, centralbanker, värdering och kassapositionering.

Det är förståeligt om TVn framstår som mer attraktiv än Vito Maidas brev och det är ett gott tecken på att man är psykiskt stabil. Om man inte gillar att kolla på TV kan man alltid skriva något narcissistiskt inlägg på Facebook om vad som skedde under dagen eller vad man åt till frukost.

"However, we believe that there is one enduring competitive advantage. The ability and desire of an investment organization or individual to stay true to a value based investment philosophy. A philosophy that requires behaviour that is contrary to human nature and holding unpopular beliefs and principles in the face of unrelenting pressures. These traits are a matter of temperament and character; they cannot be taught or bought. As Warren Buffett says, “you either have it or you don’t.”

This is the very reason why over a long period of time only true value investors have produced superior returns. Very few people can actually buy when others are selling and sell when others are buying. Only a very few are comfortable going against the crowd for a sustained period of time."  (Vito Maida, 2007-03)

2000-09
Our objective is to provide a compound annual return of 5% per year above the S&P 500
and TSE 300 over a long period of time. We will always sacrifice short-term returns in
order to meet our long-term goal. This means that in some years our returns may not meet
our objective. So be it! I will not speculate or risk your capital and ours to meet some
annual benchmark. Long term investing is a marathon not a sprint! Our focus is also on
the preservation of capital. As Warren Buffet has stated: “The first rule of investing is not
to lose money. The second and third rules are not forgetting the first one.”

2002-03
Some prospective investors view our cash positions as a deterrent to committing their money to us. They question as some of you have, the validity of paying a management fee for managing cash. At PCM we employ a disciplined philosophy and process. The portfolio is a result of that philosophy and process. The work that we do is no different in a market where opportunities are few and far between than in a market where ample bargains exist. It just so happens that currently our process is leading to very few quality companies at reasonable prices. Even though our high cash position has made it harder to gather new assets from prospective clients, we are not willing to risk your capital and ours by investing in stocks that we believe are still significantly over-valued. Because of this disciplined philosophy, in the last two years we have managed to provide positive returns in negative markets, while giving clients the comfort of significantly less risk than the overall market.

2003-09
The bull is back!

It’s true. Just ask your local broker. Listen to the cheery business commentators on the
television and radio. Better still ask your boy genius fund manager; he too believes that it’s
true. Listen closely … all you will hear is bull.

Even though GDP growth for the third quarter was reported to be an astounding 7.2% we
at PCM aren’t buying into the bullishness. We believe that such a torrid pace is
unsustainable and has been fuelled by unprecedented monetary and fiscal stimulus, tax
rebates, and mortgage refinancing

 (...)Market participants are once again abandoning any fear of risk in light of all this
bullishness. Ever the contrarians, we believe that it is at times such as these that it is
prudent to focus on risk.

2003-12

2005-03
Despite the challenging investment climate over the past five year period and our difficulty
in finding investments that meet our very strict criteria we have managed to outperform all
of the major North American equity indices. It is important to note that we have achieved
this performance with cash balances that have averaged approximately eighty per cent
over the past five years.

(...)While we are pleased with our performance we are disappointed that we haven’t been able to find more investment opportunities that meet our very high standards for quality, safety and value. When we have found these investment opportunities they have performed very well. Over the past five years our equity investments for our taxable and non-taxable portfolios have returned 25.53% and 39.70% respectively.

2005-12
These expensive valuations will inevitably lead to the “worst of times.” Excessive
valuations always lead to substantial losses. History tells us that this outcome is a certainty;
the only uncertainty is the timing of such losses.

These are also the “worst of times” for many value investors.

(...)Mr. Greenspan has been lauded as perhaps the greatest Federal Reserve Chairman ever.
Many would argue that under his leadership we have experienced the best of economic
times.

We view his tenure somewhat differently. In our opinion, Mr. Greenspan allowed several
investment bubbles to grow to dangerous levels and then aggressively liquefied the
financial system to avoid serious economic consequences once the bubbles burst. In turn,
this excessive monetary stimulus has lead to a broad based inflation in virtually every asset
class; the current housing bubble being the most dangerous. Perhaps, more importantly
Mr. Greenspan’s bailouts conditioned investors to believe that the consideration of risk is
of secondary importance when making investment decisions.

2006-12
As we enter 2007 we are again witnessing a period when investors are greedily buying. The
absence of fear and complacency towards risk truly astounds us. As is usually the case, the
cause for optimism and complacency is rooted in sharply rising short term security prices.

(...)Market participants believe that the Federal Reserve has engineered a “soft landing” for
2007; a perfect economy. Growth is expected to moderate to sustainable levels while
interest rates and inflation are forecast to fall. In addition, this perfect scenario envisages
corporate profitability that is expected to continue growing at a double digit rates and
remain at record levels as a percentage of GDP.

(...)In our view, this optimism is premature; significant risks are being overlooked. Both the
housing and automotive sectors are experiencing serious declines. Companies in both
industries are reporting steep declines in activity and profits. Historically a steep drop in
these important drivers of economic activity has foreshadowed a significant slowdown in
GDP growth.

(...)In times like this it is understandable that people get excited. The feeling of optimism is reinforced by the “crowd.” It is easy to believe that trees do grow to the sky and that the
sun always shines. But the history of financial markets shows us that it is precisely during
these times that caution should prevail. Mr. Market always seems to show us that risk does
exist; especially when it is least expected.

2007-03
Today this equity overvaluation is gaining momentum and is on the cusp of turning into a
bubble. Unlike the tech mania of 2000 or the Japanese stock market frenzy of 1989
virtually every asset class is overvalued today. As legendary value investor Jeremy
Grantham says: “Everything is in a bubble.” From real estate to junk bonds to art to
cyclical companies all assets are overvalued around the globe. In our view, there are very
few investments where investors are being rewarded for the risk assumed. To paraphrase
the academics “the risk premium is very low.” As stewards of your capital we say: “the
potential to permanently lose a substantial amount of capital is very real and very high! “

(...)Mortgage companies and sub-prime lenders are also reporting higher loan losses and delinquencies. The highly levered U.S. consumer is starting to show the strain of too much debt in the face of declining home values and a continuing negative savings rate. Should this condition spread to a wider number of Americans a slowdown will surely follow. Because the U.S. has been the engine of global growth the slowdown could turn into a global recession. Again, look out below!

(...) However, we believe that there is one enduring competitive advantage. The ability and
desire of an investment organization or individual to stay true to a value based investment
philosophy. A philosophy that requires behaviour that is contrary to human nature and
holding unpopular beliefs and principles in the face of unrelenting pressures. These traits
are a matter of temperament and character; they cannot be taught or bought. As Warren
Buffett says, “you either have it or you don’t.”

This is the very reason why over a long period of time only true value investors have
produced superior returns. Very few people can actually buy when others are selling and
sell when others are buying. Only a very few are comfortable going against the crowd for a
sustained period of time."

2008-03 (läs 2005-12 igen om Greenspan)

"The root of the current problems lay in the loose monetary policies put in place earlier in the century by then Federal Reserve Chairman Alan Greenspan. He dropped interest rates far to low and kept them there far to long in response to a mild economic slowdown following the bursting of the internet bubble and the terrorist attacks. The result of these low rates was to encourage excess borrowing in all areas of the economy. Most importantly consumers went on a borrowing binge; using the rising values of their homes as ATM machines.

(...)In contrast to our cautious view, many market participants believe that the worst of the
turmoil has passed. They argue that the aggressive interest rate cuts mentioned above,
government bailouts of troubled financial institutions and increased fiscal stimulus will
result in a resumption of growth in the latter half of this year. Equity investors appear to
share this view. The Dow Jones Industrial Average has increased by approximately eleven
per cent since its low point in mid March.

We strongly disagree with this view. In fact we strongly believe that there is more trouble
to come. Historically, there has never been a time when real estate values have declined
dramatically without serious economic fallout."

2008-12
At PCM we have traveled down a road not taken by many for a long time. Steadfast in our
unshakeable beliefs that risk and reward eventually balance out, that valuation is the key
determinant of long term returns and that the prudent and steady ultimately win the race we
stayed the course..

(...)There is no doubt that the current situation is disconcerting. Several financial institutions around the world are in a state of crisis, global economies are now in recession, unemployment is rising and newspaper headlines are quite scary. Conditions are likely to get worse before they get better. So we are buying! We have turned greedy when others have turned fearful. We are once again on the road less traveled. For the long term investor, shares of many high quality businesses are now priced to offer an acceptable return.

2009-12
While the above facts are sobering what is most important to us is the level of equity
valuations. In essence do valuations reflect the risk of the current environment and do
they provide an acceptable rate of return given those risks? In our estimation, current
aggregate equity prices have run far ahead of economic fundamentals.

(...)The very good news is that we are approximately sixty per cent invested; the highest that
we have ever been in our High Net Worth client portfolios. Most importantly, our
investments are still trading at a discount to their estimated intrinsic value and many
provide high dividends with the potential to increase over time.

2010-12
At the root of this enthusiasm in financial markets is the old adage; don’t fight the Fed. This approach essentially says that as long as the Federal Reserve is pursuing loose monetary policies money will flow into financial markets driving prices upward. This belief coupled with the view that government authorities will bail out financial markets in the event of trouble has once again resulted in excess valuations across several asset classes. Not only are most broad based equity indices overvalued but fixed income markets, commodity prices, emerging market equity and bond markets are all severely overvalued.

We believe that relying on Central Bankers to pump up and/or bail out financial markets is SPECULATION! Current policies implemented by the Federal Reserve create speculative rallies resulting in boom and bust cycles. There is ample historical evidence that these situations end badly. The substantial loses in Japanese equities in 1989, the technology bubble in 2000 and the financial meltdown in 2008 all had their roots in low interest rates and the strong belief that monetary authorities would prevent problems in financial markets.

2011-03
“It’s like déjà vu all over again.”
Yogi Berra

It has happened again!

Global central banks have created another bubble! The easy monetary policies and near
zero interest rates of the past two years have increased the appetite for risk. The lack of
interest income has pushed many investors to attempt to replace this income with capital
gains. In addition, low interest rates have encouraged speculators to borrow money and
invest the proceeds in the hope of making an interest rate spread or earning capital gains.
As we have seen in the past, these situations can only end badly.

2011-09 (greklandskrisen)
“Buy when there’s blood in the streets!’
Baron Rothschild

Equity markets have been extremely volatile lately and we love it!

(...)We welcome volatility! Our approach has worked quite effectively for many years and
through all sorts of tumultuous periods. Quality, value and most importantly time and
patience are the key ingredients to successful and low risk long term returns. These pillars
are the foundation of our philosophy and process and give us the confidence to buy when
others are fearful and sell when others are greedy. We could not implement our strategy
without your confidence and support. Thank you!

 2014-06

 2014-09