L’occitane (973 HK) – Call to action

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Disclaimer: Global Stock Picking uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. You are advised to discuss your investment options with your financial advisers and to understand whether any investment is suitable for your specific needs. From time to time, I may have positions in the securities covered in the articles on this website. Full disclosure: I do hold a position in L’occitane when publishing this article. Note that this is a disclosure and not a recommendation to buy or sell.

This is a quick note discussing the buyout offer of L’occitane by it’s majority shareholder Reinold Geiger and Blackstone/Goldman who are advising/backing him in this deal.

Also for this note I will assume you are familiar with the company and the brands they carry. If you are not I would direct you towards fund manager Butler Hall Capital’s open letter to L’occitane. In his letter he was worried about exactly the situation that is currently happening, a low ball offer for the company at 34 HKD per share. Here is the letter and an excellent PowerPoint making the case for the value in the company: Butler Hall Capital LLC has issued an open letter to L’Occitane’s board of directors regarding the opportunity to maximize shareholder value through a relisting.

Details of the basic offer:

  • HK$34/per share offer.
  • Condition per HK-take over code: 90% acceptance of “disinterested shareholders” a.k.a. minorities. To be extra clear this means all shareholders who have no part in the buyout. The last 10% will be squeezed out if 90% is reached.
  • 27.36% of shares are held by minorities and 90% need to accept = 90%*27.36%=24.624% need to accept.
  • Some larger shareholders have already committed to irrevocably accept the cash offer and other have provided letters of support. If we add all of their shares together it is: 9.6%
  • If 15.04% (24.624-9.6) of the other shareholders accept, the deal is done and there is nothing further to discuss.
  • Timeline is to decide by 20th of May with a grace period (if company allows it) to 10th of June.

The twist in the offer:

I would speculate that Butler Hall’s letter and probably comments given privately from other shareholder (stock was halted for 3 weeks) the company has added an extra clause in the offer:

  • If by 15th of May, 10% or more of disinterested shareholders, meaning 2.736% of shareholders (minorities) send a physical letter to the company, expressing their interest in an alternative to hold “rollover securities” the company will at their sole discretion release the details of such rollover share offer.
  • This offer will only be valid up to 5% of shareholders
  • Since there is 15.04% of share left to accept either the HK$34/per share or this offer (if it will be available), roughly a third of the remaining shareholders has the chance to receive rollover shares instead.

Rollover shares – what is it?

Well basically they don’t say what it is. Which in itself is a highly unusual strategy to say the least. They basically say, we offer HK$34/share but instead of declining the offer we may have another offer for you.

The name already implies that its a temporary share, anything else does not make sense anyway, why would you accept to get a share in an unlisted company for all eternity? Would be very few public investors that are interested in that, so then we have to go back to what Butler Capital was voicing out and other rumors we can find online.

I came across this article which also heard rumors’ about a listing of Sol de Janeiro: Vogue March 2024

What makes sense?

To me what makes most sense, and to maximize value for Blackrock/GS stakes in this deal. This means to separately list Sol de Janeiro in the US. Just like Butler Hall is saying, the clear peer company is US listed elf Beauty with ticker ELF. Both companies have very similar growth trajectories. And as the Vogue article linked above also says, SdJ near term growth prospects looks great with launching a whole new product line in sun screen.

Borrowing Butler Hall’s valuation comparison with ELF:

Currently ELFs Enterprise Value is slightly higher than when Butler wrote his pitch (now US$9,019m) but basically in in-line. If we assume that Sol can be listed at the mid-point of the two Butler estimates it gives us US$8.3bn just in value for SdJ, or HK$36.4/share (L’occitane holds 83% of the SdJ holding and 13% if held by founder Heela Yang), higher than the cash offer.

To make the estimate fully complete we have to take in the information given after Butler’s letter where SdJ founder Heela Yang was given 7% more of the SdJ shares as a call option. At a non-listed strike price cost of US$88.5m for that 7%. When this was announced the announcement is also hinting at that one of the options is listing the shares:

“in connection with (but conditional upon) completion of an initial public offering of Intermediate Holding Company, or a direct or indirect change in control of the Company, Parent Subsidiary may, at its discretion, require Connected Shareholder to sell all (but not some) of the Total Interest then-held by Connected Shareholder, provided that if the call option is exercised in connection with an initial public offering, then the call option exercise price per share shall match the public offer price per share of the initial public offering. “

What is the rest then worth?

The rest is basically L’occitane + Elemis and what will happen to those entities? Again, just a wild guess. But based on other conversations that Geiger wants to make a mark in the French “high society” my again pure speculation is that these entities will be listed in Paris.

Elemis has been doing well lately, growing at 12% on constant rates. One way to conservatively estimate its value would be the 900m EUR L’occitane paid for it, this is very conservative given that the brand has done quite well since.

L’occitane itself has been struggling, it’s very hard to use the latest trailing EBITs as the company decided to allocate an extra 100m EUR in marketing spend on the brand. Perhaps they have under-invested in the past but it also seems extremely well timed to sink profits significantly with huge extra costs and then start a take-over process.  The L’occitane brand in my view clearly has the capacity to deliver over 100m EUR in Operating Profit and Butler agrees (who has estimates even higher, see their pres). I would put a conservative EBITDA estimate for 2026 at 150m EUR, if you add another 50m EUR for Elemis or choose to value it separately does not matter too much. I will be using a 17x EBITDA multiple in-line with a developed market listed major cosmetics brand but far below the top portfolio companies like Estee Lauder and L’oreal (they are above 20x multiple).

This gives that L’occitane is worth conservatively 2,550m EUR and Elemis 850m, added together 3,400m EUR. After some quick maths this converts to HK$19.28/share.

All together

So Butler is claiming L’occitane is worth at least HK$45/share but with my calculation I would say even that is very conservative now that we are in a sharp situation of being bought out. I would say a fairly conservative IPO estimate is 36.4+19.3 = HK$55.7/share if you are allowed to get the potential roll over shares, wait the 6-9 months for this process to finish and then sell your allocations in SdJ in USA and the rest of the company in Paris.

That is an additional upside of 64% from the current cash offer.

Call to action

Clearly all shareholder who care and can hold an unlisted entity waiting for it to be listed again, should at minimum send a physical mail to L’occitane telling them you are interested in this option. This comes with no commitment its just to get the company to release the details of this offer.

What happens now?

Well I’m just a small personal investor, I hope that Butler Hall and the likes will opt for the roll-over option, or at minimum ask for what the details are before deciding, if nobody asks, we will not know.

Also I believe that the bidding group is allowed to buy shares in the open market now that the offer has been made. If they are buying, they could be soaking up many of the shares that are part of that 15% of free-float which has not committed to anything yet. In the past two trading days 35 million shares have traded hands, that’s 2.4% of outstanding shares. They need very few investors to accept the cash offer to just close this deal on HK$34 and never even need to open this Pandora’s box of rollover shares. But given the large turnover, that also means there is an opportunity for someone running a larger fund to in the open market to buy a 2.8% position and force the option of rollover shares.

If this option opens up, this could also mean that the value of the shares are not capped at HK$34 but the allocation one can get in rollover shares and the confidence one has in that this will yield a much higher value. Potentially this could start a bidding war for the shares still trading, very interesting in deed. For now I’m holding hard in my few shares and perhaps I will even send a letter of interest, even if my shares unfortunately will not move the needle.

 

 

I promised a fresh start and something new

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Beginning of this year I posted that I had done my last performance review and promised a fresh start – something new. Well it took a while to move my ideas into a new product, but today it’s time to reveal what it is!

Before the reveal, give me a few minutes to explain how I ended up where I did. Afterwards I will also try to explain what it means for the longevity of this blog (which is getting pretty old by now – 8 years, yikes).

Starting GlobalStockPicking.com was really from the start planned as a long development & investment journey for myself. Although I did not spell out all the goals in a post but this was my thinking 8 years ago:

  1. Run with your passion for investing, do your best to become better and see if it’s enough to beat index/benchmark investing.
  2. Run a fully transparent investment process where internet will help you stay accountable for all your investment decisions.
  3. Record all your investments in a (by now mega) Excel spreadsheet and calculate a weekly NAV which you can use to evaluate yourself.
  4. Evaluate yourself under a long enough time frame so you have seen a bull & bear market cycle and how you cope in different investing environments.
  5. Use the journey to become a better investor, critically evaluate yourself, have a lot of fun and hopefully connect with other likeminded people.

On all of the above I can say CHECK! So given that I succeeded in all of the above, its time for GlobalStockPicking to change format. Stop evaluating my performance publicly and focus on something else. My next question then was, what should I do now? I want to become a bit more personal and share a little bit of what got me here (except the blog).

Journey within a journey

My actual investing investing journey started 20 years ago when I with shaky hands from my student dorm room bought my first stock.  For the first 10 years this was the hobby investor journey and my focus on investing shifted up and down, depending on other life events or job workload. Towards the end of those 10 years I added a CFA to my existing Msc quant math background. The second half of my investment journey started with that I became a FoF portfolio manager for 2 years. I had the fantastic opportunity to spend two years meeting some of the best long only managers in the world. Get a glimpse into how they and their teams operated and sometimes discuss with them the stock ideas I myself had. This was incredibly rewarding and spurred me to start my blog 8 years ago. I classify the last 10 years as my more “professional” and structured investing journey, although it of course has been more of a sliding scale of becoming more mature/better investor.

What am I good at?

So sitting contemplating what to do next, I went through the thought process of what am I actually good at (investing wise). Well I have knack for finding ideas at infliction points for sure, quite often my stocks either take off or dump straight down after I bought them. I find it slightly harder to define how to exploit this if I’m not going to become an options trader. Since I don’t want to sit and trade options my mind wandered onwards to the next thing.

Which markets do I know well? I sharpened my teeth particularly in some markets and one market above all others  – my new home – Hong Kong. After struggling for many years to invest here and making plenty of mistakes, I feel I’m actually pretty decent at investing in Hong Kong now. My first investment on the HK exchange I did 2012, so it was a long journey but I think I got there! Also coming from the Nordic region I feel very comfortable investing in Nordic stocks. These two pools are my home base and I try to expand my circle of competence by investing in places like Poland and Japan, I still feel more like a novice in these markets.

Thirdly I thought about what I feel most excited to do research about, it does vary but looking back many of the cases was related to Healthcare. I then dug a bit further and realized not only was it a sector I enjoyed digging deeply into but indeed I also had some of my best stock ideas and returns from this sector.

Healthcare?

I went through my 8 year GSP investment record of healthcare related ideas/write-ups which had clearly outperformed my broader strategy. Some of the better examples which all have solid write-ups here on the blog:

Name Story at the time First Purchase Peak price I sold at Today Price Still holding?
Modern Dental (3600.HK) Dental lab turnaround 1.29 9.4 4.7 Yes
Valneva (VLA.PA) Vaccine producer (potentially benefit from Covid) 2.57 14.9 3.69 No
ZimVie (ZIMV) Spin-off with misunderstood dental / spine assets 8.33 / added 6.55 18.1 15.4 Yes
RaySearch (RAY-B.ST) World leading software for cancer radiation, turnaround. 46 80.4 116 No

New blog – Healthy Stock Picks

All this led me to the idea to start a new blog – a Substack this time – focused on the Healthcare sector. The reasons I came to this conclusion was:

  1. I really enjoy learning about Healthcare related products how they function or not function. There is something in the complexity of the topic that makes me want to dig deeper into a Journal publishing test results or just understand what is the key factors that is important for a spine disc replacement or eye procedure.
  2. I had and have persons around me in my life who are very good and knowledgeable about everything Healthcare.
  3. The two market pools, the Nordic region and Hong Kong are very rich pools of Healthcare stocks, if you add to that USA and Japan you have enough to dig into for a lifetime.
  4. There are so many highly skilled investors on Twitter, Substacks etc, but the Healthcare sector seems to be a bit of a white spot, I would love to be part of filling out that spot.
  5. It feels exciting to start a new investing journey, of becoming not only a good general investor, but really an expert within a specific field. I think I already came a decently long way in the Healthcare related write-ups in the past, but with more focus on the sector I want to bring it to the next level.
  6. This product I’m launching feels much more possible to in the future monetize. I’m dreaming about doing investments full-time and I then need to find a model where I can make some income from what I do, this could be one way forward (depending on how it succeeds).

So without further ado here is the link to the new blog:

https://healthystockpicks.substack.com/

It has so far only one write-up. It had to be one my oldest and currently largest holdings Modern Dental Group! The format I’m writing is focuses on the Slide deck which I’m attaching, heavily inspired by Asian Century Stocks. Many thanks to Michael who kindly let me use his disclaimers and given plenty of feedback in my process from everything of choosing a logo to the slide deck format. Others have also helped me a lot to deliver something I feel is a very high quality research product, I hope you will feel the same!

How about GlobalStockPicking?

Well time is limited, but I imagine from time to time I will still want to look at other things outside of Healthcare, my idea is to write much more informal posts here in the future. Probably no more full write-ups but shorter investment ideas are often as good as full write-ups. You should do your own due diligence anyways! Let’s see what I have time for, but I’m not retiring this page yet, although it costs me a bit of money to keep it running.

One final note, you are now 879 wonderful people who subscribed to this blog. I will give you a few weeks if you want to un-subscribe now, otherwise I will send you a link to add you as subscribers to my new substack also, I hope you will follow in my journey also there!

And like I said, this page will still publish non Healthcare ideas from time to time.

Thanks for this amazing 8 year journey!

Year of the Dragon – HK stock picking

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We are quickly approaching the year of the dragon, a special year for Chinese people. In the past birth rates would go up as its extra lucky to be born during a dragon year. Given how extreme the Hong Kong market underperformed the rest of the world in the past 3 years, I just have to talk about the opportunities it presents. In this post I will present 8 stock pitches of what I believe are excellent companies selling at rock bottom valuations – take your pick!

There are probably a number of investors that are, contrarian in nature and know that opportunities like these is when you are supposed to pounce, but haven’t spent enough time on HK listed stocks. This is your introductory guide to do further work in the pockets of the market that speak to you. Let’s dive straight into it.

Risks with investing in Hong Kong

The Hong Kong stock market is broad with many different types of companies, depending on what risks one wants to avoid one can look at different pockets of the market. One should clearly stay very skeptical before investing in Hong Kong but there is also a limit to how cheap something can be. In my view at these valuations it makes sense to have some HK risk in your portfolio. One can dream up very bad tail events, for example given what happened with investments in Russia. But even with such a negative scenarios I believe in some HK listed stocks you won’t be more hurt than investing in for example Apple. Be skeptical but not paranoid is my view on this. This categorization I myself use to understand what risks am I exposing myself to with a HK investment.

First categorization – Who owns it

Chinese state owned enterprises (SOE)

The main benefit of these companies would be that you are aligned with the CCP. These companies enjoy preferential treatment by the banks and the government. They can for example get deals other companies do not have access to. Quite often the valuations are very low and the stocks are more a dividend play than a play on revenue growth and some type of payout far far in the future. It’s almost like a long duration corporate bond position betting on that China won’t withdraw fully from the world financial markets.

Chinese family owned

This is a very common category among HK listed companies, you find that many companies are lead by one family and nobody else will ever make the decisions on how the company is run. Investing with the family then to a large degree becomes about looking at that families track record and how have they in the past rewarded minority shareholders? Obviously you here also run geopolitical risks if you are based outside of China.

Non-Chinese family owned

That a non-Chinese family would decide to list their company on the HK exchange is much more rare, but there are still quite a few examples and some of them are very interesting. This category is also what potentially could be closest to babies that have been thrown out with the bearish bath water. As even if worst case scenarios happened, since the family owner is not Chinese, the company would most likely just re-list elsewhere (if it’s not feasible to be listed in HK anymore). Probably a painful process depending on what has happened in the world but at least not impossible.

No majority owner

This is also a decently common category, quite often there is still some family involved but for whatever reason they did not manage to maintain total control over the company. There are of course companies with just funds etc as largest owners, but this is not nearly as common as it is in the western developed markets, at least not among better run companies.

Second categorization – Where do they sell

Companies mainly selling into China and/or Hong Kong

Many HK listed stocks is a Chinese business, selling products mainly in China. With these companies one has to have both some understanding of the market, but also some belief in that the Chinese economy won’t totally crash. This is hard for many investors to get a grip on, me included although I lived in Hong Kong for over 10 years.

Companies selling globally

This category is much more comfortable to many, me included. Here the products can perhaps even be found in your home market and you can perhaps even have an edge over Asian investors if you can inspect the products at your local Home depot, Walmart or whatever the product may be selling.

Third categorization – Dividend Payout / Buybacks

This is tackling the risk from another perspective. Something can stay cheap for a long time, but if you get paid a high dividend to wait, it is much less painful to wait for the revaluation.

Here I will divide it into three categories. Companies with:

  • Low dividends and/or buybacks (0-3%)
  • Medium dividends and/or buybacks (3-6%)
  • High dividends and/or buybacks. (6-10%+)

Drawing the line what is investable

So some people will draw the line and say I don’t invest in SOEs. Others actually go the other way around as say, well at SOEs I at least will get my dividend, they won’t go bust no matter what. Others won’t trust Chinese family owned companies in fear of never seeing any of the cash flow generated making it back to their pocket. In the same way some people feel comfortable over the whole spectrum of where the sales happen in China or outside. The good thing is that no matter how skeptical you are, there are still some pockets that should not seem un-investable to you. With all that out of the way, let’s look at companies in these different categories, how cheap they now are. Press Read more to see all specific stock ideas..

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Summary 2023 & changes on the horizon

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After two years with around zero returns (but a lot of volatility), like many others the GSP portfolio sprinted towards year end managed to eke out a return of +13% for 2023. This compares poorly to MSCI World at 25%, in-line with MSCI World ex USA and quite favorably versus Hang Seng at -14% (what an insane spread). I’m still quite far off my ATH which was set back in May 2021.

2023 Returns

Returns since blog start:

Thoughts about the past year

The start of 2023 was the middle/end of the massive Hong Kong stock rebound due to China reversing it’s Zero Covid policy and literally overnight removing all Covid restrictions. The bulls were out and it the big re-opening revenge spending was anticipated. I was fully loaded on HK stocks, having further increased my positioning in the 2022 autumn crash, using mainly my Swedish Match buyout proceeds. I knew I took some risk increasing my position so heavily to HK stocks, but the sell-off was just too brutal and quick, there had to be a bounce. Luckily for me it came and when it had run it’s course I reduced my HK positions again and have continuously over the year had as a rule for every increase in HK stocks I had to make an equivalent decrease in other HK stocks. This basically saved my year as Hong Kong continued it’s brutal slide after a bounce which only lasted until end of January.

Portfolio composition beginning and end of the year

The main reason Hong Kong is still such a significant weight is spelled Modern Dental Group (3600.HK), which is up an amazing 78% in 2023 in a market where the Hong Kong small cap index was -23%, just incredible. Due to the meteoric rise of ZimVie at the year end snap, it was only my second largest position but after some profit taking the last week in ZimVie, Modern Dental is back on top and remains my highest conviction idea.

2023 the year of bad portfolio calls

So if selling Hong Kong stocks (but keeping the MDG that bucked the trend) into the January rally was a master stroke a lot of other portfolio changes was rather the opposite. I prided myself in the past with how my portfolio changes added to my returns and so far almost every year my portfolio changes have been accreditive (something I evaluated quite thoroughly). If we disregard from the “HK moves”, 2023 was the first year I failed miserably at this, basically selling huge winners and adding to losers. Let’s have a look:

Synektik – I had done a full write-up on Synektik the Polish healthcare company in the past (company installing Da Vinci robots, servicing and production of other contrast fluids). My case was built on that the upside would come from the cardiotracer and as that did not materialize as I had hoped, I disregarded how well the rest of the company was doing and sold my shares at 35 PLN per share. Synektik today trades at 91 PLN per share.

GreatView – I could not take more pain in GreatView Aseptic, I company I held and covered closely for years when the majority shareholder sold their shares to Yili. Their major customer Mengniu got upset with the competitor having influence over the company. I almost bottom ticked my final sell at 1.65 HKD, there would have been plenty of opportunity to get out above 2 HKD if I just kept my cool. What Jardine Group did here I will never forget and I will never touch anything which is under their influence ever again. As a small side note, the Yili/Mengniu conflict seems to have been resolved with a share issuance to Mengniu.

RaySearch – I had spent considerable time researching this company (full write-up done). But the question was if there was trouble on the accounting side, I felt decently comfortable, until the new CFO (again) was fired from the company. I could not believe it and decided I lost my trust in the CEO, I sold all my shares (I had built this up to one of my largest holdings at the time). Again I more or less bottom ticked the stock for the whole year, selling at 57 SEK. The share trades today at 90 SEK. This one was the most bitter of all, due to the high conviction I had in the companies products (but not enough conviction on management). The market later choose to focus on the results, which was really good the rest of the year (after I sold) and stock marched steadily up from where I sold it.

Other noteworthy stocks

CNOOC – The exception from my “rule” of no increase of HK holdings, was CNOOC. This was a short term play on picking up two dividend payments in less than 4-5 months time. CNOOC paid out 0.75+0.59 HKD per share over the summer period. So I picked up shares end of April in anticipation of this for 12.3 HKD per share. With some luck the oil price went up, so not only did I get my dividend but also managed to sell my shares (in two tranches) at 12.8 HKD per share. Even in a shitty HK stock market sentiment you can find good trades. If one want’s oil exposure as a high dividend play, this is still one of the best ways globally to get that.

PAX Global – This has been one of my top holdings, a high conviction position that I fairly “suddenly” changed my mind about. First I reduced my position during the January bounce and still sold some shares into Feb and March. End of August I exited my position fully, I just felt that I had given the management the chance to further improve dividend payout ratio, but they didn’t really, at a time when it was really needed. On top of that I had this fear that due to trade wars, USA would go out and ban payment machines made in China. This is wild speculation on my side and rather a black swan event but I believe it could happen, in this market PAX would be down 50-60-70% on such a day. I couldn’t live with that tail risk as there were other safer ideas that I really liked. In a better environment for HK stocks with less geopolitical overhang, even if PAX management is not the best in terms of capital allocation I still think this is a very interesting company, go anywhere in the developed world and you bump into PAX payment machines, its pretty amazing.

L’Occitane – Someone on Twitter made me aware of how L’Occitane’s latest purchase Sol de Janeiro was performing really well. Since I followed this stock for years it was quite easy for me to pick up the threads and just read about on the SdJ brand, which was new to me. To more I read and listened to influencers etc, I realized they had striked gold with SdJ. I bought a medium size position just before the market started to reprice the stock on a rumour of a buy out from the majority shareholder. Long story short, a really strange turn of events happened – again! Kind of a theme in stocks I’m in unfortunately, so the deal was on the table and then the majority owner turned around and changed his mind. I thought the buyout made ton of sense, apparently he didn’t. I would have liked to book a win in a tough market, instead I get a chance to own a company with a really fast growing product. I tried to benchmark how popular SdJ is on social media etc, to me it looks like it’s hitting very high basically among top 10-15 cosmetics brands worldwide. I expect monster sales from SdJ in the next report and I hope the majority owner regrets not buying out the company on the cheap.

Marimekko – In my rotation away from HK I have tried to find new good ideas. The one that worked out so far and I still believe in long term is Finnish designer brand Marimekko. I think this is a typical example where someone like me, with a Nordic background living in Asia can spot something before most people do. I believe Marimekko as a niche brand has a very strong market position among the small group of people that are drawn to their type of design. The brand is extremely popular in Japan and trying to replicate this in the rest of Asia. They are doing clever cooperation and cross-overs with larger brands, most recently Uniqlo. It’s always hard to guess fashion trends and Marimekko is not a super cheap stock here but I do think they will succeed decently well at minimum with their Asia expansion. So far I’m up some 30% on my position so market also seems to agree. What I like with these smaller fashion stocks is that you have kind of an imbedded call option if the brand really hits a craze. For example Swedish company Fenix Outdoor did such a journey 10-15 years ago with their Fjällräven backpacks. This was a brand we Swedes knew since we grew up, but they took that heritage and managed to push the brand worldwide and again especially in Asia. Marimekko has a similar strong brand for Finnish people but the brand is almost unknown outside Finland. If Marimekko manages half of what Fjällräven did I will do really well.

Thought’s about this blog and it’s future

For the long time reader, one would have noticed how the pace of writing has decreased the past few years. This has partly been due to not fully finding the same motivation to write but also some health problems, which now are finally fixed! In 2023 I only did 5 posts, a record low! On the other hand the last two stock pitches has turned out really really well (so far). I have spent quite a lot of time thinking about how and in what way I should continue this journey.

The blog has been a bit unusual in the sense that I have given very high transparency on my positioning and trades done. For a few years you could even search and see each trade done in my portfolio through a small database on a specific tab. The purpose of me starting this blog, was to evaluate if I could beat index investing, have fun and hopefully learn a lot along the way. The blog kept me honest and accountable for what I did. I also had to do the work properly as I could not post a semi finished thought or stock idea, I needed to cover all bases. This has been incredibly rewarding for myself. I look back at my posts from my first few years and feel I developed a lot. I had good intentions back then and I think I put good structures in place. I also got a few big things right, the call on EVs 2016 was great but I did not really have the experience to capitalize fully on it. Avoiding traps and really doing the work on a company was not there back in 2016. That’s something I’m confident I can do now, if I just have the time. Buying into ZimVie late 2022 around 8-9 USD getting a small quick gain and then getting hit with a -40% day, that’s not something I would have had the confidence to handle well 2016. Today I can keep my cool, it’s not my first rodeo losing 40% on a day in a stock. I can think it through rationally and decide. As in this case I decided I’m right and the market is wrong and I will double down at 6 USD per share. I recently took my first profit at 18 USD per share in ZimVie, this decision alone saved my year up 13% instead of another year close to flat returns.

Basically I have fulfilled the purposes I set out back in 2016, now close to 8 years later I’m a significantly better investor and although I invested close to half of my money on the Hong Kong exchange, I have beat the MSCI World (although barely). I have crushed the Hang Seng Index, or just World stocks ex USA for that matter. Ok enough of bragging, I’m still quite unsatisfied with my returns, as I know it could have been so much better with less focus on Hong Kong. So with this in mind it’s time for something new and different. I’m not sure if it will sadden you or not but I will not do anymore portfolio reviews. No more posting of all my holdings. The focus will shift to just discussing ideas, like thematic stuff I posted in the past and specific stock pitches of course. In what format I would do that I have not fully decided, but it will most likely not be in the shape of only as GlobalStockPicking anymore. This blog has been here to document my investment journey and my full portfolio, a fresh start will probably be better for a new format. I will take 2024 to set out a new path and let’s see what I come up with in the future. Stay tuned 🙂

OssDsign – USA bone regeneration pureplay

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Introduction

Neck and spine problems will be on the rise in the future. We stare down into our smartphones all day and spend too many hours sitting (with bad posture) in front of our computers (old post for more on this link). OssDsign has a very interesting product, in a small but important niche of this market. The product has high gross margins and is used in spinal fusions.

In short:

Market Cap: 630 MSEK / US$60m

Explosive Growth: Newly launched bone graft product (My estimate 100 MSEK run-rate in sales)

High margin: Gross margins should be 80%+

Large total market: Total market estimated above 1.25bn USD for USA only.

In this same spine space, I have taken a position in Zimmer Biomet spinoff ZimVie, which is targeting the newer technology of disc replacement. OssDsign is trying to bring innovation to the old and current gold standard of care, spinal fusion. OssDsign believe so much in their newly launched product that they are willing to close their previous main business line and fully focus on the new. At the same time, in a poor market environment for micro caps, the company managed to raise a substantial amount of cash from investors. Even more impressive was that this direct share issue was done around the current share price, so dilution happened at quite “fair” levels for existing investors. The product has 80-90% gross margins and has potential to be used in a large number of surgeries. All-in-all this is a high risk, high reward case where the odds of bringing this product to market is much higher than for Pharmaceutical products as there is no need for Phase 1/2/3 studies to launch the product.

Spinal fusion

Spinal fusion patients are usually in tremendous pain and have often suffered for many years before a surgery is decided as the last option. Fortunately like many medical procedures, spinal fusions success rates have increased tremendously over the past 30-40 years and evolved from one of few bad options to the gold standard of care. Due to poor results of this procedure in the (far) past, it still has a quite bad reputation. The Spinal fusion procedure can simplisticly be explained as to remove the disc between two bone segments and then trigger the two bone segments to grow together (fuse) into one solid segment. Except the surgeons expertise in performing the steps of surgery, the most crucial component for the success of a fusion is to get as high confidence as possible that the full fusion will happen. Although outcomes have improved a lot over the years, that the fusions does not happen or partially happens, is still the weakest link of this surgery.

This is what OssDsign is trying to solve with their Catalyst bone graft material, where the idea is that the graft fills the void of the disc and triggers bone growth. The product sells at an ASP of about 2500 USD and depending on surgery different volumes of the product is needed. Together with two main competitors OssDsign have a bit of a first mover advantage here in a new generation of products coming to market increasing the interest from doctors to move to a synthetic solution instead of the other options available to them.

Although hard to exactly estimate, around 500 000 spinal fusion surgeries (lumbar and cervical) are done each year in the US. So with some quick math’s of 2500 USD of OssDsign product per surgery the market size OssDsign is competing for is about 1.25bn USD. With an aging, obese population the number of surgeries just keeps growing. Given the rapid increase of spinal fusions, a both efficient and cost effective solution for creating stable fusions of the bone is highly desired by surgeons. As a small company out of Sweden, it might seem far fetched that they would win the US market. But together with 2 other players (where one is also a small company) they are the only ones seeing FDA approvals and all indications so far seems positive towards a chance to win a decent market share in this segment. The upside for OssDsign even at 5-10% market share is very substantial as this is a high margin product. Let’s try to dive deeper into this topic.

History

OssDsign listed in 2019 for 27.5 SEK per share and today it trades around 6 SEK per share, not a great outcome. What the company has done historically is unusually irrelevant though. The company you are purchasing as of today, is vastly different to what was listed in 2019. How come the company has changed it strategy so drastically and quickly? OssDsign listed as a 3d printed cranium implant company with a titanium-reinforced calcium phosphate plate. I don’t think the company necessarily done anything wrong in launching this product into the market, the problem, I believe, is that its just too niche. Yearly sales have roughly doubled since pre-IPO from some 20 to 40 MSEK. Although it could probably scale further, there is not enough patients in need of these type of cranium implants to really deliver shareholder value from this one product. In the hot “free money” era, OssDsign then decided to expand its produce range by an acquisition. OssDsign recently announced that they will abandon (in best case find a buyer) the cranium business and fully focus on their spinal fusion product Catalyst (which was the acquisition they made). Below is a timeline of the Catalyst product. Press read more..

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ZimVie – Undervalued MedTech spinoff

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Background

ZimVie completed it’s spinoff from 29bn USD MCAP Zimmer Biomet (ZBH) in March 2022 and traded around a 800-700m MCAP + some 600m USD of debt after spinoff. The MCAP has since then shrunk to around below 150m USD and lately rebounded to 350m USD. The company is active in two segments: Dental (main product teeth implants) and Spine (main products spinal fusion and disc replacement).

Zimmer Biomet comes from a long history of spinoffs, mergers and acquisitions. Zimmer was spun off from Bristol-Myers Squibb in early 2000’s. Including in the spinoff was the dental business which back then was a main segment within Zimmer (now part of ZimVie). In 2016 Zimmer Bio acquires LDR Holding for about 1bn USD, with the flagship product being Mobi-C artificial disc, which now belongs to ZimVie (current EV of ZimVie less than the Mobi-C purchase).

For industry background I made two post about the dental sector back in 2018: Dental Industry Part 1, Dental Industry Part 2 and one post in 2020 about how our spine health has worsened due to smartphone usage, strengthening the case for young people needing neck surgery: Smartphone usage – ticking time bomb.

ZimVie is a small company holding unique assets and in a unique position. To establish products on a global scale like ZimVie’s has you need a massive sales network, this is something normally only large companies have the muscles to do. ZimVie coming from large Zimmer Bio has the benefit of being a small company but with that reach pre-established by a large company. Now the question is they can right size their business and leverage the advantaged they have. Press More to read the full story

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My high conviction Hong Kong holdings

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I promised in my “Summary 2022” to comment on the holdings that contributed most positively/negatively in 2022, they happen all to be Hong Kong stocks and among my largest positions.

Best stocks in 2022 – PAX Global and Vinda

Worst stocks in 2022 – Modern Dental & Greatview Aseptic

All four stocks have been reduced somewhat to raise cash during Jan/Feb but they are still high to fairly high conviction position. So without further ado let’s jump into discussing these for stocks. (click read more for a mega post)

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Smartphone usage – Myopia – Part 2

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In the early days of my blog I talked a lot about my investment process, how I tried to combine top-down analysis of long term trends with bottom-up stock picking. I still think the best ideas comes from this approach, you identify something the market has not fully appreciated yet and then you find the best company in that something area and you buy that. Hopefully you both got a discount because the company is trading cheap and you get exposure to an area/theme which in general is trading at a discount because the market has not priced in the outcome you see. As both these things re-price you get a double re-pricing effect, which can be very powerful. In this case this trend is not news, but I think I found a pocket of this trend which is not appreciated how much it will grow. Also unfortunately the company is not cheap on trailing multiples, but it is at an infliction point where growth is pulling up margins quickly, so a few years out it does not look too expensive.

Now that I have been doing this for quite a while, I can start to evaluate my track record also on my top-down analysis. Maybe somewhat surprising I feel have got the long term trends more correct than my actual stock picking. Expressed a different way, even if I figured out where the world is going, betting on the right companies that benefit from that has often been far from easy. So what I have tried to become better at is the stock picking part and not get too excited about the top-down analysis. If no good enough company presents itself at the time, I will keep my world view in mind and keep my eye out for a suitable investment, but I won’t force it. For this top-down analysis I have definitely taken my time and it has taken me an incredible 2.5 years to find two investments to express the very long term tailwind I see from the theme of (excessive) smartphone usage. That I found both stocks almost at the same time was partly by coincidence and partly that the growth sell-off has given me opportunities to buy stocks which otherwise were too expensive (not enough margin of safety).

This post is really the part 2 of the investment theme idea started 2.5 years ago, so it’s essential to read what I wrote back then first.

Smartphone usage – ticking time bomb – Part 1

The Part 1 goes into detail of problems for the neck (cervical spine) I will below expand on the issues related to myopia (not being able to see objects far away). After that I will do two separate posts to present the investments I made in two US companies to benefit on these strong tailwinds. One of the investments I already revealed and invested in ZimVie, which is related to neck issues. The other will be revealed towards the end of this post and is then obviously myopia related. So let’s get going on the Myopia background (press to read more)

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Summary 2022

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This has been one of the most eventful years since I started investing, I would say only 2008 tops it for me. War in Ukraine, crazy inflation, huge rate hikes, collapsing currencies and China who locked in their population to keep dynamic zero. And with all these events happening, my return for the year is anything else than spectacular – a meager -3.5% (but great vs MSCI World at -18.3%). Last year I dodged being down with a slim margin, but this year, unfortunately, became my first down-year since the blog started. I’m actually surprised I fared as well as I did given I was down 20% in October but with the strong Hang Seng rebound I was back in the game by December. One can try to be a stock picker like me, but in the end Beta matters a lot for your performance. Being allocated mostly to European and Chinese stocks I’m proud how much I out-performed these markets both this year and previous years (since the blog started MSCI World Excluding USA is up 17% and I’m up 123%). At the same time it has been such a big mistake to be so underweight USA previously. 2022 was the first year in a long time where Hang Seng did actually not perform worse than MSCI World, so finally I did not fight a headwind and as such I was back to printing alpha!

So without further ado here are the 2022 results (as always results in USD)

The share with holding period less than 1 year where bought during 2022 (best purchase Vitasoy, worst purchase Anicom).

Best stocks in 2022 – PAX Global and Vinda

Worst stocks in 2022 – Modern Dental & Greatview Aseptic

Instead of making a massive comment about these stocks here I will do a separate write-up of these four holdings, this also ties into my topic below about exposure to Chinese stocks – to be continued!

A number of holdings were sold during the year:

Overall the holdings I sold gave a positive contribution to my 2022 performance of about 3.5%. (press to read more)

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Portfolio updates, new holding and other thoughts

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After a fairly long period of lower activity both on the blog and holding wise, in these past weeks I have sprung to action to make some changes. Others like Swedish Match were force upon me, now to be fully bought out by Philip Morris. This is a quite a dramatic change to the portfolio and Swedish Match leaves both very big shoes to fill and a lot of cash to deploy. I also have a new holding to reveal, so let’s go through the changes. But first let’s start with some brief thoughts about the market and all craziness that happened during this year.

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