Credit Default Spreads (CDS): Portugal, Spain, Italy, China

DB Research has a very interesting Website on Credit Default Spreads, which you can find here.
It features CDS for most countries as well as a calculated annual probabilty of default (PD) rate. The datasets are frequently update and downloadable as .xls files (I had to rename the ending of the files to make them work).
The page also includes a graphic, which you can customize with your own recovery rate assumption to come up with the annual PD rate from 5Y CDS spreads.

This is the PD for Italy, Portugal and Spain with a 40% chance of recovery.

The recent impact on CDS by the actions of the ECB are quite strong, at least for now.


Here we see the Chinese against the US PD, again with 40% chance of recovery:

Interesting to me was the strong and clear downward trend in the Chinese spreads, depite (it even seems a bit contrarian) public worries about slowing growth and missmanagement of state run companies and districts/states and the huge media coverage.

For me the lesson is that its always better to double-check the influence/impact of media coverage on the hard economy, since CDS spreads are a reliable figure at least for me, since they signal that other parties are ready to give me insurance against the default of a specific company.

CDS spreads are esp. important  to contrarian investors, which might be looking for countries in a crises (=high CDS) with companies bearing a low domestic (=high foreign) revenue exposure.

Links of the week: Short MANU, Black Swans, Damodaran Valuation Class

1. Shorting Manchester United (MANU): Good write-up of reasons and risks in shorting MANU, in my opinion a good shorting target. High CapEx, combined with limited growth opportunities, bad track record of listed football clubs. However Soros Fund desclosed a stake in MANU after IPO, what makes me wonder.
2. Latest Oaktree Memo: On Uncertain Ground: 15 page memo on the sluggish recovery, longer term economic outlook and problems, black swans. Best to download as pdf-file.
3. The US fall semester started recently. Prof. Aswath Damodaran started his online valuation class again. There are different ways to follow him, via special learning platform Lore, Youtube, iTunes or his School website. I am taking his class too and its a pleasure to follow and learn. Currently we are in the 3rd lessons, so its still easy to begin and catch up! Contents will cover intrinsic (DCF)/relative/option valuation.

Quick Check on Beteiligungen im Baltikum AG (DE 0005204200)

Beteiligungen im Baltikum (BiB) AG is a Munich traded holding company, which invests into companies and real estates in Estonia, Latvia, Lithuania according to their purpose of company (Homepage).

Because of diversification purposes this company sounded interesting to me, additionally it might be a way to profit from GPD growth in the newer EU countries.

At the moment their 877.500 stocks are traded at 3,81 EUR, what makes up for a market capitalization of 3,34 Mio. EUR, a (very) small cap. Freefloat is close to 100%, no institutional shareholder, etc.

The latest NAV per share (30.06.2012) was at around 4,32 EUR, a discount of 13,5%. Trailing dividend yield is 5,5%.

When looking into the latest annual report for 2011 its stated that 55% of the "real total assets of the company" is invested in five companies. I suppose this real total assets are the financial assets.
Those five companies are the following:

	MaCap in Mio EUR	Dividend Yield	P/E	Country	Industry
TEO AB	511	8,8%	11,31	Litauen	Telecomm.
Tallink Grupp AS	475		6,91	Estland	Maritime Log
Gazprom ADR	189.360	5,4%	4	Russland	Gas/Oil
Lukoil ADR	52.520	7,1%	5,79	Russland	Oil
JSC MMC Norilsk Nickel ADR	22.970			Russland	Metals

Now the 55% of assets of the holding -including cash- are 1,87 Mio EUR, what is compared to the market capitalization of the companies they invest in not really much at all.

Despite the fact that 3 out of those 5 companies are Russian, one can doubt that the BiB AG has a lot of influence on its investments. Just by comparing their capital invested with the market capitalization of their investments. Since no influence on operation of the "holdings" is present i doubt the state purpose of the BiB AG.
As a active managed fund the expenses relative to income are (logically) much too high. The net margin 2011 was about 38,9%.
By comparison the UNIEM OSTEUROPA Fond has a TER of 1,87% or -put the other way- a "net margin" of (1-TER) 98,13%.
Consistently with my doubts the BiB AG is loosing substance since at least 2 years. However there is almost 1 Mio EUR cash left, so dividends can be handed out for at least 5 more years in the same height, as long as earnings from investments cover at least the expenses.

As a small individual investor i definitely would not want to buy shares here, and i cant stop to wonder who might have invested into this company.

However an interesting idea would be buying the company as whole, and liquidating it, since discount to NAV is a quite decent 13,5% and debt is almost non-existing. However for such an operation the discount would be too small, since you would have to buy all the shares on the market (moving price up). By then your margin of safety would be long gone.

BMW Preferred Shares: 2nd update; Spread shrinking

I update my database today and included the data from the 15.05.2012 until yesterday, 11.09.2012.
As one can clearly see, the spread between preferred and common stock is declining, two days ago even delcining below 40%, to the lowest level since 23.11.2011, so almost one year.

The price level of the stock was pretty much stagnating, declining a little bit over the period.
It seems like the spread increases, when the common stock breaks out and price rises, wheras the preferreds are lower too resond and dont increase all that much.
The leads me to the conclusion that momumentum is an important factor, probably also connected with the fact that the commons are representate in the DAX30, which often gets a lot of attention from day-traders and algo-trading. Since they adjust long/short positions very frequent sensitivity should be much higher than for the preffered.

______________
Here you can find the first two parts of the series on BMW/BMW3:
Part1 and Introduction
Part 2 - Follow Up

Analyst Recommendation and Stock Performance: Long-Term Study (Pt. 1)

Studies show that stock analysts often issue buy recommendations while sell recommendations are given in a lesser amount.
The significance of these buy/sell advices for an investor is disputed in literature (f.e. BJERRING/LAKONISHOK/VERMAELEN 1983). At least for downgrades some studies show abnormal negative returns for a short period of time (f.e. MARTINEZ 2010 for Brasil 1995-2003, Belcredi/Bozzi/Rigamonti 2003 for Italy 1998-2003). Interestingly Belcredi et. al show that abnormal returns are already present prior to the release of the analysts report.

Thinking that the idea of a basket of the worst rated stocks might be interesting, i decided to create my own long-term study on analyst recommendations.
I chose 12 of the worst/best rated stocks by different analysts and will compare the performance monthly.
The individual stocks wont get updated, f.e. if they receive a different recommendation (downgrade, etc.). This way the basket stays fixed and i can focus on the development of the stocks after the recommendations.

Now let me introduce my BEST-Basket:

• Andritz AG Inhaber-Aktien o.N.
• CeWe Color Holding AG Inhaber-Aktien o.N.
• Check Point Software Techs Ltd Registered Shares IS -,01
• Goldcorp Inc. Registered Shares Vtg o.N.
• Gran Tierra Energy Inc. Registered Shares DL -,001
• Las Vegas Sands Corp. Registered Shares DL -,001
• Lynas Corp. Ltd. Registered Shares o.N.
• Nuance Communications Inc. Registered Shares DL -,001
• QUALCOMM Inc. Registered Shares DL -,0001
• Schlumberger N.V. (Ltd.) New York Reg. Shares DL -,01
• TJX Companies Inc. Registered Shares DL 1
• Valéo S.A. Actions Port. EO 3

And my WORST-BASKET:

• Akzo Nobel N.V. Aandelen aan toonder EO 2
• centrotherm photovoltaics AG Inhaber-Aktien o.N.
• Commerzbank AG Inhaber-Aktien o.N.
• CRH PLC Registered Shares EO -,32
• Dendreon Corp. Registered Shares DL -,001
• First Solar Inc. Registered Shares DL -,001
• Gagfah S.A. Actions nom. EO 1,25
• Kon. KPN N.V. Aandelen aan toonder EO -,24
• Lilly & Co., Eli Registered Shares o.N.
• Novo-Nordisk AS Navne-Aktier B DK 1
• Randgold Resources Ltd. Reg. Shares (ADRs) DL -,05
• Sprint Nextel Corp. Reg. Shares FON Sr. 1 DL 2,-

The performance of the first month was the following:

• Total Best 12 Basket                                                367,52       0,8%     374,22
• Total Worst 12 Basket                                              328,45       6,6%     343,47
• DAX 30 Perf Index                                                  6.754,46    3,2%     6.970,79
• Dow Jones Industrial Average Index (Price) (USD)         12.878,88  1,6%     13.090,84

From 01.08.2012 until the 01.09.2012 the Worst 12 over performed the market as well as the Best 12 basket very very clearly. However this is due to the fact that the two photovoltaik stocks had each returns of around 30%, without them the performance would have been significantly lower at 3,5%, however still over market and best-basket!

Personally i find this interesting, however statistical not significance due to the very limited time period and samples.

I will continue to update the values each month and post them here, im very excited to see the future development.