Stock Trading contest in Handelsblatt

German newspaper "Handelsblatt" starts again this years stock trading contest together with some major banks.

It will begin on the 14.05.2012 and last for 3 months. You can win several prices, a car for the overall best performance, and there will be prices for the weeks best performer.
They also have special categories for pupils (complete classes) or students.

Trading is real time, starting with 20.000 EUR. You can trade stocks, bonds, fonds, ETFs, certificates, etc..
So perfect chance to test out all crazy, risky strategies.
However, there will be some 10 rules (max. single trade 10% of depot, leverage max. 10%, min. holding period 10 minutes, max. 10 Trades/day).

Here is the link for registration and information: Link
Its in German and for free.

P.S.: With a registration you are eligible for a free 3 months subscription of Handelsblatt!

Repsol YPF and the nationalisation of YPF – priced in?

Dear readers,

When we read commentaries on recent market movements we can often hear analysts’ comments like “the xxx-risk is already priced in” and such. Despite my confusion on how those analysts can determine exactly what is “priced in” by “the market” and what is not, and why they always come up with that after things happened, I want to try today to reconstruct the happenings at Respol and see if and to what extend the governmental takeover has been incorporated into the market price of Repsols shares.

Also in this recent case analysts were fast with their comments that the nationalization is already priced in (Nomura on 18.04: On current stock price level worst case scenario almost already priced in).

Since I wanted to write this article since a long time, it’s quite retro perspective now, however I think it might contain valuable lessons for similar cases. The question whether the market is overreacting quickly or rather slow in pricing in is especially interesting to me.

For the valuation I will use a rather simplistic approach: The uncompensated loss of YPF for Repsol will be priced in, when the market capitalization of Repsol will be reduced by the amount lost due to the nationalization of YPF.

To determine this amount lost there are several approaches.

·         Since YPF was a publicly listed company, one could multiply the prices previous the nationalization with the numbers of shares lost by Repsol

·         Repsol claimed compensation for his majority stake from the Argentinian government, amounting to 10, 5 billion USD, i.e. around 8 billion EUR.

·          Previous to the nationalization Repsol was in talks with Chinese investors –reportedly Sinopec- wanting to take over the majority holding for about 10 billion USD (7, 6 billion EUR). Here we have two willing parties, behaving rational and also the premium for the majority holding is priced into the transaction.

For this study I am going to use the third approach, which is close to a recent transaction comparison. Actually it’s even better, since the companies being compared are not only similar, but one and the same. Therefore I will take the market price that both parties agreed on as the fair value of the YPF stake.

On the following graphic I tried to follow the events and record the loss of market capitalization, starting from the 11.04.2012 as t=0. [Data from Bloomberg, lowest price/day].

So as we can see, so far there is only a loss of around 5 billion till today that is (mostly) attributable to the nationalization.

So if we consider the estimates above of 7, 6/8 billion we can see that the loss is still not fully incorporated.

This is a reminder to keep a cool head, and calculate first before considering a buy.

To me analysts’ estimates at around 20 EUR seem quite high, however there are a few pessimistic voices (25/04: JPM 15, 5 Neutral).

Continuing the time line beyond the 02.05.2012 would probably not make much since, since we have seen a sharp decline in oil price from then on (120 USD/Barrel to 113,4 closing price on the 04.05.). It would be very difficult to distinguish between the “pricing in of the nationalization” and the “pricing in of lower spot prices”.

Edit 16.02.2014:
The final sum agreed on by Argentinian gvmt and Repsol is according to reports 5 bn. EUR. Original compensation sought by Repsol was 10.5 bn. EUR.
The 5 bn. EUR was priced in on the 02.05.2012, so in less than a month, on undiscounted basis.

BMW preferred shares – should investors prefer?

Finally, after a long lazy time I motivated myself to write something.

So today I want to show you something what might (!) be a result of inefficiency of markets, a topic that always fascinates me.

This might-be anomaly is about the German car-manufacturer BMW (“Bayerische Motoren Werke AG”), a group with almost 70 Billion in Revenue in 2011.

In general I’m not very bullish about the automotive industry, but this, I think, is worth one or two looks in depth.

Its 602 Mio. common stocks (Bloomberg: BMW) are being traded internationally in greats volumes, thereby being highly liquid. Additionally the commons are listed in several indexes, among them the German blue-chip index DAX or the EURO-STOXX.

Additionally there are preferred shares (BMW3) around, some 52,2 Mio, what makes when compared to the commons quite a tiny proportion. Accordingly Volume traded is much lower.

In the week of 05.03.2012-09.03.2012 there were 18,2 Mio. Pref. shares traded, with an average of 3,6 Mio/day. In my opinion that makes still quite a lot and should be suffice for a market to function and build an appropriate price. During the same time volume of commons was 261,5 Mio, with an average of 52,3M/day.

Due to the strong link between common shares and indices, Beta should be higher with the commons, as indeed it is. During the last year BMWs Beta (DAX) was 1,15 over the past 5 years 1,11. BMW3 has had a Beta of 0,99 and 1,05 accordingly. 

Same reason will probably explain the reduced volatility, last year commons had a volatility of 40,7%, whilst BMW3 had some 36,1%. Interestingly the spread seems to increase in the more recent time, for 5 years the spread was some 0,1%, during the last month it went up to 7%.

On Image 1 and 2 you can see screenshots with the data mentioned above.

Now let’s go on to the core this: The price.

On the following Diagram you will see:

a) The daily adjusted closing price of the common stocks (in blue, labeled Stamm, left Scale, in EUR)

b) The daily adjusted closing price of the preferred shares (in pink, labeled VZ, left Scale, in EUR)

c) The daily spread between those two stocks (in read, labeled spread, right Scale, in percentage)

From The raw data was taken from yahoo finance and processed by myself.

As you can see, right now the Spread between the two shares is quite high again, however far from historic height in late 2009. Median Spread is 28,23%, average is 32,88%, correlation 0,8697.

Now let’s see the dividend of each type of share:

As you can see, difference is quite small, only 0,02 EUR, what might have been something in 2000, when there was only 0,46 EUR/Share to be given, but with 2,30 (proposed) for 2011, this 2 cents don’t make much of a difference. Also consider that you will give up your voting rights for this 2 cents.

So naturally there must be a discount for preferred shares, however some 55% are quite a lot.

This is the estimated dividend yield with closing prices from the 16.03.2012: 3,2% common, 4,9% preferred.

So to come to an end, in my opinion the preferred shares are a much better pick right now since the discount a discount of 45% is too much. Ownership is stable, there are no roomers of major shareholder trying to gather up common stocks (=voting rights) and thereby trying to take control over. The last buyback program was in 2006 (3% of commons), and I doubt there it will be renewed.

All in all, I see chances here by going long on BMW3.

About me

Dear readers,

its been quite a time since the last time i posted something here.

To some extent this was due to me relocating from my university, which i finished, to Berlin, where i am currently doing an intern for several month.
So with all the trouble of moving, finding a suitable place to live, etc. i was a bit busy. However most blame goes to myself, i have just been too lazy to write and maybe i was also lacking topics.
But Berlin is very nice and refreshing, so im positive to continue the blog soon again.

Meanwhile there is a bit of statistics: I had a total of 52 pagesviews up to now, of which 7 were in August, 13 in September and a peak with 21 in Oktober. This months 11 losts souls stumbled over my blog, certainly this downfall was due to the inactivity of myself and the fading of public interesting in the topics i covered.

Soo the topics: definitely most of you readers were interested in the special on the G36 in Libya, which had a meager 11 pageviews, followed by the article about the SA-7 (5) and the overview about different western handguns in Libya with 2 views. I have no idea, where all the other visitors went.

All of my readers were guided here by google, respectively the national google pages, which doesnt surprise too much, since this is a google-sponsered blog.

Nationalities were very mixed, most came from Germany (28), followed by the USA (8) and Netherlands (3).

Thats it for now, i will come back!

Update: G36 in Libya

A few days after my post mentioning the G36 among others being found in Libya, this topic gained widespread attention in German media.
According to this article in German newspaper "Die Zeit" affidavit by a witness, claiming that the weapons are marked with the German coat of arms (the eagle) as well as the mark from the weapon testing center in Ulm, Germany. There every gun has to be test fired and get approved by being marked with a stamp before they get into trading. This is required by federal law and the testing centers are run by the state.
Furthermore the witness claims to have investigated into involvement of the German agency BND into the dealings. However he said he couldnt find prove for this allegations.
Yet in my opinion there must have been involvement by some official authority, since an export of such weapons by H&K alone is not possible to think of. HK is know for acting on the borderline, like this export of G36 into Mexicos troubled areas, but illegal arms trading without government backing would be deadly for the enterprise and therefore unlikely.
Defense minister de Maizière said regarding the question whether Germany has to be troubled about weapon-trading with Libya: "After all what I know: No". This is somehow a evading statement.
I expect media to keep pressure on this subjects, additionally various law suits have been filed, one by HK himself, other by anti-gun-movements.

The guns themselves seem to come from Gaddafis residence in Tripolis, where they have been discovered by the rebels after storming the compound. It remains unclear, whether they were actually in combat.
The weapon seems to be a G36KV, former G36KE, also G36KurzVariante, i.e. short variant, being produced for export.

Chinese stocks - German listing

There are a number of stocks from Chinese originated enterprises being primary listed on German stock markets, usually on Frankfurt stock exchange.

Allow me to introduce some of them:

Asian Bamboo AG:
Incorporated in Hamburg, functions as a holding for different Chinese enterprise, following a integrated business model. Forestry, harvesting, processing is all done by subsidies.
IPO in Frankfurt Prime Standard 2007, another private placement following in 2009. Now 43% free float.
Main products by the leased plantations are bamboo timber as well as fresh and processed bamboo shoots. Domestic demand accounts for most of the revenue. Also they are starting up a bamboo fabric production, competing with cotton and synthetic (petroleum) fabric.
They also experimented with the production of paper, somehow this business got "moved" in 2011 to another company, in which they since 2010 hold a 20% stake. This is a bit mysterious to me.

United Power:
IPO June 2011, Prime Standard Frankfurt, 18,45% free float.
Pre-IPO Investors Lockup: 6 months, Founding and Controlling Shareholders: 12 months.
Manufactures engine-driven power equipment, like generators, engines, etc.
Follows a strategy of both ODM business for third parties and own brand products with competitive pricing.

 KINGHERO AG:
  IPO in August 2010, Frankfurt Entry Standard. 12 months lock-up for existing shareholders. Mai 2011 secondary offering. Free float on August, 19th was 37,9%.
Designs, manufactures and sells primarily casual wear under its own brand. Their sales network cover 30 cities in whole China.

All of those enterprises have something in common: They are all valued very very low.
I will dig into the financials of some of these enterprises at a later time!

SA-7 aka. Strela-2 sprouting up in Libya

Probably a much more troubling development than the vast collection of different handguns (see my post here) is the increasing number of MANPADS creeping out of Qaddafi numerous weapon caches.

The soviet infrared-guided surface-to-air missile SA-7 can for example be seen in action in this picture or this one.
Especially alarming to me was this picture of a warehouse, clearly showing dozens of SA-7s ready to take.

The SA-7 is cold-war tech, introduced in the late 1960s, so nowadays its kind of outdated. It will have a hard time against combat jets, the infrared will get easily confused by so called flares, being emitted by the targeted aircraft. Those flares basically consist of magnesium stripes, who will burn at very high temperature when ignited. This way the signature of the aircrafts engine exhaust will be covered from the infrared-guided missile.
Additionally those missiles only have a limited time-frame before they expire, depending on the storage - there electronic is quite sensitive.
I have not been able to seek out how old those weaponry could be, yet i guess the arsenals got stocked up from time to time, whenever Qaddafi got the chance to acquire some.
Another point is that training is necessary, those missiles are not easy to handle. But apparently there is enough material for practice.

While there performance is poor against combat jets, they still are deadly to civil airplanes as well as helicopters. There have been attacks by al Qaeda in this style. With the rebels to be said having jihadists in there lines, they might spread this tools towards the global terror hot-spots.
This article is about Libyan SA-7 reaching the black market in Mali and also talks about a (key-) weapon buyback program.