Portfolio Update & Trading

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The portfolio has been running neck-and-neck with the benchmark MSCI World Gross Return, but with the help of the bid on SAFT and strong performance from Criteo and a few other holdings we have managed to de-couple somewhat over the last two weeks. An unexpected bid is always a lucky shot, but I believe this shows big things is going on in the battery sector, we have both the whole electric car side as well as electricity storage from the grid. This is probably not the last battery buyout we will see over the coming years. I’m staying cautious still though, the industry is still driven by subsidies and China will most likely favor the Chinese makers.  It is still many years until we see big profits from the Korean companies like Samsung SDI and LG Chem, I’m waiting for a good entry-point in Samsung SDI as the best pure-play in the sector.

Performance graph

Graph_20160522

Trading

I have also decided to take one new position and add further to an existing holding.

Microsoft

I have been looking for a good entry in Microsoft, it never gets cheap but with a little bit of weakness here I use 4% of my cash to make a first entry in the stock. The short rational is how Microsoft is pushing hard for cloud computing and I believe they will succeed taking a huge part of the corporate market. Corporations are already heavy Microsoft Office / SQL Server etc users and are so ensnared that they automatically go for Microsoft Azure cloud. This will be a huge deal over the coming 10 years.

NetEase

This is already a holding at 6.6% and I decided to make it a high conviction position at 9% by allocating 2.4% cash. Within a few days a bigger piece on the company will be out explaining the rationale, so stay tuned.

I’m now fully invested with only a small cash residual and I’m truly live, putting my neck out there to see if I have any alpha/skill. 3 months has passed since the first pen-strokes on the blog and 2 months of live performance and I feel I passed the trial period of the blog. Now let’s do this great!

 

 

 

Take-over bid and market thoughts

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Better SAFT than sorry

Good news for the portfolio today, the oil major Total has made an offer for all shares of SAFT, the battery producer I previously wrote a post about. Under the terms of the deal, Total said it would pay €36.50 a share for Saft, representing a premium of 38.3 percent to its closing price on Friday. Total has earlier bought a Solar-Panel company and seem to be planning the full infrastructure for renewable energy. So instead of having the pleasure of holding this company over the years, we cash out early and can deploy our money elsewhere. The stock is trading close to the bid and there is little reason to think any other player would step in and outbid Total, so the position will be sold tomorrow.

The portfolio currently looks like this:

Holdings_20160510

Market thoughts

Even though S&P500 has recovered significantly from February lows and is almost back at all time highs, stocks globally still feel weak. Most of the stocks on my radar is far from all-time-highs, how come is that? Well first of all Europe is NOT back to all time highs, we need to go up +23% to break the April high of last year and Hang Seng needs to rally +40% to get back to the highs (although those highs were amplified by the China madness rally). Some of this dispersion between Europe and US lately is probably driven by the weakening of the USD against EUR.

The other reason why it feels like “my” stocks are even more depressed is that the biggest recovery has been in sectors like Oil & Gas and Basic Resources (Mining etc). Which are sectors I disregarded from now for quite some time. Maybe it’s time to revisit both Mining companies as well as agriculture related investments. I for example still believe in the Uranium story, that I invested in about 10 years ago. Long-term, if the worlds want to get rid of coal, we can only go nuclear.

Here is an interesting graph of 12-months forward estimates of P/E for three markets: Hang Seng (HSI), S&P500 (SPX) and Stoxx 600 Europe (SXXP):

PE_est_20160510

So looking at this metric, the conclusion is there is not much upside in US-stocks, Europe is somewhere in between and Hong Kong looks cheap. There is always more than meets the eye to these kind of figures though. The HSI P/E is so low partly because the Mainland Chinese banks are big in the index and they have very low P/E:s. Anyhow I find more Value in Hong Kong and this discount in the Hong Kong stock market is one of the reasons why I keep allocating an overweight there. Although my bet on battery-related companies might be somewhat too high. My next investment will probably be in a Asian Insurance company.

Criteo – Growth Case

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It’s time to present another of my Portfolio holdings – Criteo.

Criteo was founded just over 10 years ago and has in that time grown into a billion Euro revenue company. Back in 2005-2006 Criteo developed a sophisticated machine learning platform that analyzed user behavior. The company applied this to movie reviews as well as e-commerce purchases. The problem was that they could not figure out how to make money on them.

So the founders started to look at other markets and saw that the adtech industry looked like a great fit. But then again, there was no shortage of adtech operators gunning for the opportunity. In other words, Criteo needed to find something compelling to set itself apart. Keep in mind that – at the time – the adtech market focused on charging for ads based on fuzzy metrics like ad views. But for the founders of Criteo, this seemed really odd. Why not build a system that only billed customers when there was actual performance that drives sales?

This was a big idea and disruptive.

Big growth

The inner works of how Criteo creates its ad technology is not easy to comprehend. But looking at their growth figures it is obvious that they do seem to have an edge in this field.  They employ a large number of PhD’s to build their systems. The more clever people they hire, the more their system seem to scale. I try to disregard from the complexity of how they build their systems and look at the facts. My investment thesis is fairly simple. This is an extremely high growth company with a long proven track-record of growth. Right now all their revenue is plowed back into the business, to grow it further. When the company reaches a more mature stage and the growth slows down, they will have the ability to increase margins significantly, and a lot of that juicy revenue will fall down to the bottom line.

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Trading 2016-04-19

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As I said in my previous post I will start with shorter updates (from my phone) with trades done. Trades will be announced on the same day and trades on close prices.

1. Sell half of my position in Highpower International.

Rational is the risk for a rights issue outweights the upside of the bid from the Chinese company, I still believe in the case, but taking down position size in the portfolio.

2. Use the cash from the sell to enter a position in Avanza Bank.

Rational is this is the most popular online broker in Sweden. The “old” four big banks in Sweden do not take up the race and they are losing out bigtime. When Avanza takes the step to become a more full service bank with mortgage loans and credit cards, they could put a serious dent in the customer base for the big 4 banks. Also the deposit base will be worth somehing when interest rates go above zero again.

Portfolio update 2016-04-15

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Not a great start to my new blog, not making a single post for 4 weeks, I have been busy with work and a longer trip to Asia. I have realized I need some rules to how I announce trading in my portfolio. Starting now I will write a short post for every time I trade in one of my holdings. This has the upside that I can’t be blamed for back-trading my portfolio. Another added bonus is making the blog a little bit more lively with more frequent updates.

The portfolio will be calculated with a official NAV once per week, results will be presented on the blog with about monthly frequency. Latest results will always be available under the Portfolio page. So let’s review the performance of the portfolios first month live.

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My starting Portfolio

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Without further ado, here is my starting portfolio which goes live with closing prices as of Friday March 18:

NameCurrencyCurrent WeightReturnTrailing P/EP/E EstYield
SAS PrefSEK12%0%9.4%
Highpower InternationalUSD8%0%7.6
CriteoUSD7%0%45.524.0
SkandiabankenNOK7%0%8.8
Yuexiu TransportationHKD7%0%13.69.45.4%
BYDHKD7%0%166.140.6
RamirentEUR7%0%16.514.36.8%
MQSEK7%0%11.911.74.3%
CtripUSD6%0%40.563.7
NetEaseUSD6%0%18.714.21.7%
Coslight TechnologyHKD6%0%38.7
SAFTEUR6%0%52.712.73.1%
Zhengtong AutoHKD6%0%8.07.23.5%
Cash8%
TOTAL100%0

13 stocks and 8% cash position ready for adding 1-2 stocks from my Watchlist, which you will find also in the Portfolio page.

I will spend up-coming posts to introduce the stocks in my portfolio. Also from now on, I will start to update monthly the portfolio performance and changes to the portfolio. You can always find the latest Portfolio and my current Watchlist under the tab in the menu on the top.

SAFT Groupe – a battery specialist

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Batteries are all around us. Many of the batteries are advanced, going into electronics like our smartphones and laptops, where we care about high performance. Others are cheaper batteries where performance is not as important due to easy access to charging/replacement, like toys, car batteries etc. What is emerging is the need for large sets of high performing batteries for our Tesla’s and other upcoming EVs. But there are also other more niche areas where high performance and/or safety and reliability is of utmost importance. In this space I have found one French listed company, SAFT Groupe. My investment thesis is based on the fact that battery technology reached a point where they can take over conventional petrol based products also in other areas than just cars and buses.
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Investments in EV value chain

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Getting it right

If we buy the story that EVs are taking over (other theories are out there, like hydrogen powered cars), the question for us investors is, how do we play this to make money? If we focus on the electric cars for a moment. My reasoning so far has been that it will be very hard to know which car company comes out on top of this fight. Tesla seems to be in a good spot right now, but I wouldn’t count the German engineers at Audi and BMW beaten just yet, see for example what the Porsche team did with the 918 sports car. The Japanese have proven skillful as well. Another scary fact for the car companies is after-sale. I read somewhere that a regular petrol car contains about 30 000 parts, whereas a pure electric vehicle contains about 10 000 parts. And no liquids and fluids running around that need regular servicing. This probably means a lot less income for the car companies for service and repairs of the cars and that will be tough indeed.

So if we don’t know which car company will gain most market share, then perhaps we can dive deeper into the value chain and see if we can find other winners. Perhaps a battery maker that most of the car companies will use, or a Cathode supplier for batteries that is in a unique position, or a lithium mining producer in a great spot? My tactic will be to find that sweet spot or spots where the probability of success are highest, without knowing too much about the future, except that electric vehicles will gain in popularity.

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