Broker comdirect: Offer of trading during holiday via OTC

Today i received an offer from my online broker, comdirect.

Their special promotion was that now clients can also trade during certain holidays using the live trading function. This is basically OTC trading with another financial institution. Often that done is with institutes such as Commerzbank, Lang&Schwarz or Tradegate.

Now im not saying that this function is bad, on the contrary it can be extremely useful and I used it time and again.

However I advise to caution in certain situations:

                -Trading in the after-hours, when normal exchanges are closed.

                -Even more so for those “holiday specials”

                -Illiquid securities

One can observe a rising bid-ask spread as soon as regular stock exchanges close, especially when there is only one institution offering an OTC exchange.

Usually I favor OTC when the stocks are primarily traded on foreign exchanges (outside of Germany) but still highly liquid.

Let’s look at Vivendi SA for example:

LiveTrading                     Geld      Brief      Datum                    Zeit   Gestellte Kurse

LT Commerzbank            12,669   12,726   11.05.12               22:01     3.395

LT Tradegate                   12,705   12,754   11.05.12               21:59     153

LT Lang & Schw..           12,569   12,685   13.05.12               19:03     27

Börse                     Aktuell     Datum                  Zeit       Tages.-Vol.     Anzahl Kurse

Xetra                      12,72     11.05.12               17:13     193.239,27          25

Frankfurt                 12,75     11.05.12               18:24     212.268,49          16

Stuttgart                  12,66     11.05.12               19:58     78.011,95            8

NYSE Euronext      12,78     11.05.12               17:36     --                         10.901

So as we can see, on LT Commerzbank in total 3.395 quotes were offered, which is quite a lot when compared to the home exchange Euronext with 10.901 prices and even more so when compared with the generally most active German exchange XETRA with only 25.

So when trading this stock on XETRA one would probably get a unfavorable quote, while with OTC I get a decent priced quote with less transaction costs (no foreign exchange, less cost than a traditional German exchange).

All in all a good and handy feature, however don’t forget to check quotes and spreads with OTC trading as well.

Check-up on KHD Humbold Wedag AG

Last year I already did a quick check on KHD (here, German), a cologne-based company engaged in building cement plants around the globe.

Now the cement industry is a highly cyclical one, this is most likely reflected on the share price.

I put together a quick overview of the major financial data:

In Mio EUR	2011	2010	2009
Revenue	234,58	286,89	360,30
Amortization/Depreciation	1,68	1,25	1,09
EBIT	17,62	24,95	49,71
Net profit	13,51	15,80	37,17
Goodwill	5,16	2,13	2,13
Total Equity	233,53	148,56	169,73
Non-current Liab	53,07	49,16	46,22
Current Liab	145,32	215,62	213,94
Cash and equiv, unrestr.	287,68	293,06	225,84
Cash restricted	12,64	13,73	661,00
Debt/Equity ratio	22,7%	33,1%	27,2%
Cash to assets	67%	71%	53%

Here I want to highlight a few points:

-De facto debt-free, non-current liabilities are mainly provisions, pensions (with 20M quite high, however old and discontinued program) and deferred tax

-Hugh pile of cash 67% of all assets consisted of pure cash

-Low goodwill, which is good in my opinion, since chance of failure (-impairment-) is often significant

-Steady declining revenue/EBIT/profit, see following performance ratios:

in Mio EUR		2011		2010		2009
EBIT Margin	7,5%		8,7%		13,8%
Profit Margin	5,8%		5,5%		10,3%
Effec. Group tax rate	34,7%		39,3%		30,7%
ROCE by EBIT	6,1%		12,6%		23,0%
ROCE by NOPAT	4,7%		8,0%		17,2%
Capital turnover	81,8%		145,1%		166,8%
CapEmp	286,599		197,714		215,951
CapEx	2,70		2,37		0,73
Net CapEx	1,03		1,13		-0,36
Asset turnover	54,3%		69,4%		83,8%
ROA	3,1%		3,8%		8,6%
ROE	5,8%		10,6%		21,9%

As we can see, all performance indicators decline. It’s doubtful that even cost of capital could have been earned in 2011.

2009 figues in general seem very strong, considering the industry KHD is operating in. However, until March 2010 KHD was part of a Canadian holding, which also operated in the mining business (now: Terra Nova Royalty Corporation). Cost structure before early 2010 might not be that accurate, esp. in overhead.

Let’s have a look at the cash flows:

in Mio EUR		2011		2010		2009
CF from op	-65,79		50,48		-4,46
CF from inv	-4,25		66,32		21,29
FCF	-70,04		116,79		16,83
CF from fin	81,36		-63,16		5,39
Change in cash	11,32		53,63		22,21

-Fin CF 2011: In 2011 there was a equity offering, during which a Chinese government-owned company acquired a 20% stake

-Neg. FCF 2011:

-Structure of receivables: +4 Mio to total of 7 Mio Allowances on trade receivables (mainly for “North Africa, Middle East, India”)

-Actually utilized allowances was 0,5 Mio in 2011 and 0,2 Mio in 2010, so might be very prudent approach and the political turmoil.

-Non impaired, more than 60 days overdue: +3,7 Mio to total of 10 M, thereof 4 Mio more than 120 days.

-High outflows for Income tax paid (-33Mio) and this is something I can’t quite understand. The income statement showed a 7,2 Mio income tax expense, the balance sheet a reduction of -17 Mio income tax liabilities related to a tax audit for the period of 2005-2007, so maybe cash outflow was for this. Other that would only make up for 24,2 Mio.

Now let’s have a look at the market valuation (current price: 5,3 EUR, 11/05/2012)

P/B	1,13
P/E	19,5
MarCap	263,4
Enterprise Value	28,8
EV/EBIT	1,6
EV/EBITDA	1,5

As expected Enterprise value multiples are extremely low, due to high cash assets (which get deducted [EV=MaCap + Debt - Cash]). I used only unrestricted cash for the multiples.

Positive: 

-Cash, market capitalization is lower than unrestricted cash, at 5,8 EUR/stock there is breaking-                     even.

             -If economic conditions pick up, margins might improve

             -World-wide operations, diversified

Negative:

-Cash:   Might be wasted in stupid acquisitions. There is an article talking about a major acquisition of 75 Mio (here). However, he wants to used the cash “slowly”

Also pressure on management for effective use of assets is low (comfortable cash buffer, no debt investors, no big activist investor, however 2 smaller ones [5,7% IAT Reinsurance Group; 5% Sterling Strategic Value]).

                -Weak and declining performance in earnings/return indicators

                -Income tax expanses I outlined above (maybe I just don’t understand or miss something)

                -Strongly cyclical industry.

All in all a difficult decision, soon the Q1 2012 results will be published, this might help in decision making.




UPDATE1:  As I just saw on KHD's Invester Relation Page they postponed on the 27/04/2012 the annual general meeting to an undisclosed date due to "an agenda item which has not been decided upon yet".
This sounds very interesting, might be an opportunity (buyout offer?), but as well bad news.
I wonder... 

 

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.