Carrefour grows organically but decision on acquisition possible, monitors marketAlthough Carrefour, a French supermarket group that is present in Poland, is growing organically, it is also able to make a decision on acquiring another entity or a network of shops, dlahandlu.pl reported, citing Guillaume de Colonges, president of the Carrefour network in Poland.Such a decision, however, would have to be supported by the conviction that the purchased format will appeal to customers, and will be a good supplement to the current offer portfolio of Carrefour, the president was cited by the Polish portal, as saying.Carrefour’s development department is carefully monitoring the market with a view of potential opportunities, the president ensured.As an appropriate supplement to the company's offer, he mentioned the previous acquisitions from previous years, of Rast supermarket chain and and Galerie Alkoholi retail network, the article reported.Carrefour reported 2015 net sales of EUR 76.9bn and EUR 1.123bn net income, according to the company's financial statements posted on its website.dlahandlu.pl
Here’s a way to dispel the gloom prevailing over European markets—feast on salmon and shell out baubles. Salmon farmer Marine Harvest and jeweler Pandora can outperform in 2016. The Scandinavian stocks each could add more than 20% in the next 12 months.
Both meet Kuldip Shergill’s criteria for inclusion in the Cheyne European Mid Cap Equity Fund that he manages. Both offer earnings and cash-flow upsides, and sustainable or structural growth.
Marine Harvest (ticker: MHG.Norway) and Pandora (PNDORA.Denmark) should be familiar names to longtime readers. Last June we tipped Marine Harvest, which has leapt almost 50% since then. My colleague, Vito Racanelli, touted Pandora’s charms in 2011 just before its shares collapsed 90%, but investors who rode out the storm have doubled their money, and then some.
At Thursday’s close of 133.20 Norwegian kroner ($15.68), Marine Harvest trades for a modest 12.1 times forecast 2017 earnings. The stock has gained 11% in 2016, swimming upstream against a 10% slump in European equities. The world’s largest producer of Atlantic salmon also has American depositary receipts ( MHG ) that closed Thursday at $15.50.
Marine Harvest plays into the theme of a rising global population and an increasing appetite for protein. The company could benefit from a drop in supply this year from Chilean stocks hit by a severe algae outbreak. Growing demand and a supply squeeze are pushing up prices, and Marine Harvest’s profits. The Bergen company is expected to see earnings per share double this year to NOK9.50 per share from NOK4.77 last year. In 2017, EPS is estimated at NOK11.01.
Shergill says Marine Harvest’s production of smolts, an intermediary stage in the life cycle of young salmon, offers great visibility on supply growth. He likes the company’s defensive nature and its dividend yield above 5%.
MEANWHILE, PANDORA, which designs and manufactures hand-finished and contemporary jewelry, has high margins, strong cash flow, and lots of potential avenues for growth, says Shergill. The share price. he says, offers “growth at an attractive valuation.” Pandora’s shares closed Thursday at 849.50 Danish kroner ($127.30), down 2.6% in 2016 but up 37% over the past 52 weeks. It trades for 14.4 times forecast 2017 earnings of DKK58.82 a share, up 21% from the DKK48.62 projected for this year. Pandora also has ADRs ( PNDZY ) that closed Thursday at $31.64.
Pandora is enjoying phenomenal growth. Revenues are projected at more than DKK19 billion this year, up from DKK16.74 billion last year. In 2012, revenues were just DKK6.65 billion. Glostrup-based Pandora anticipates its network of 9,500 points of sale, including 1,600 concept stores, will account for one-third of that growth. Expansion, including 250 more concept stores, mostly in Europe, is expected to contribute the remainder. Shergill also sees potential in new markets, from collaborations with other companies, new products and online. “The company keeps on delivering,” he says.
Analysts share his enthusiasm. Of 12 analysts that follow the stock, all but one has a target price at DKK1,000 or more. A consensus target price of DKK1,077.50 suggests more than 25% upside, which makes Pandora a real gem.
How to Buy Bill Ackman, Dan Loeb on the Cheap
Closed-end funds run by these hedge fund pros trade at a discount to net asset value.
Few prominent investors have performed as badly in recent years as Bill Ackman of Pershing Square Capital Management. Battered by the collapse of Valeant Pharmaceuticals International and other stock losses, Ackman’s publicly traded, overseas-listed closed-end fund, Pershing Square Holdings, fetched $14 a share late last week, down from an August 2015 peak of nearly $30. The fund’s net asset value was down 25.2% this year through March 22, after a loss of 20.5% in 2015. The Standard & Poor’s 500 index was about flat last year.
While many investors want nothing to do with the controversial Ackman, intrepid buyers could score with shares of the $3.8 billion fund, which trades in Amsterdam (ticker: PSH.Netherlands) and on the Pink Sheets (PSHZF). The fund offers the best way for retail investors to play a possible rebound in Ackman’s fortunes, via a concentrated portfolio of stocks that includes Air Products & Chemicals (APD), Zoetis (ZTS), Canadian Pacific Railway (CP), Restaurant Brands International (QSR), and Valeant (VRX).
The fund trades at an 11% discount to its NAV of $15.69 a share as of March 22, and is well below its October 2014 offering price of $25. It has investments and performance similar to Ackman’s main hedge fund, Pershing Square.
Pershing Square Holdings and activist investor Dan Loeb’s Third Point Offshore Investors (TPOU.UK), a closed-end fund listed in London, offer retail investors access to hedge fund strategies with some key advantages over regular hedge funds. These include daily liquidity, no minimum investment, and a discount to NAV.
In the U.S., individual investors often need to be “qualified”—that is, have substantial income and liquid net worth—in order to buy hedge funds. The Ackman and Loeb funds, in contrast, can be purchased through many brokerage firms, including Merrill Lynch and Fidelity, without restrictions. Charles Schwab allows purchases with some restrictions, but Morgan Stanley allows only qualified investors with a net worth of $25 million or more to buy the two funds, as they aren’t registered in the U.S.
Third Point Offshore also trades lightly on the Pink Sheets (TPNTF). It traded around $13.25 last week, a 16% discount to its Feb. 29 NAV of $15.81. The NAV probably has risen since, as the S&P 500 is up 5% so far in March. The fund invests directly in Loeb’s main Third Point hedge fund.
In the case of Pershing Square, investors also benefit from an elevated “high-water mark.” Since Pershing Square Holdings is way below its peak level, the NAV would have to rise about 70% for Ackman to start earning his incentive fee. “This offers investors a substantial performance-fee-free recovery,” wrote Jefferies analyst Matthew Hose earlier this month. He has a Hold rating on the fund.
Pershing Square Holdings charges an annual base fee of 1.5% and a performance fee of up to 16%. Third Point Offshore has an annual base fee of 2% and a 20% incentive fee, the same as Loeb’s hedge fund.
While the rewards could be substantial, there are plenty of risks associated with Pershing Square Holdings, stemming from its concentrated positions, use of leverage, and Ackman’s investment style, which included an outspoken defense of Valeant, even as the drug company’s sales practices came under fire.
The fund sold $1 billion of debt last year to leverage its holdings, and Standard & Poor’s recently threatened to downgrade the bonds’ triple-B credit rating because of declining asset coverage. That prompted Ackman to raise $835 million for the fund by selling 20 million shares of Mondelez International (MDLZ), the packaged-foods company.
It remains to be seen how well Ackman can hold together his organization, given the poor performance and bad publicity. He couldn’t be reached for comment, but in his annual shareholder letter, released on Thursday, he wrote that, at the current discount to NAV, Pershing Square Holdings investors are “paying almost nothing for our investment in Valeant” and that the fund’s overall portfolio is “at a substantial discount to the intrinsic value of the companies we own.”
THIRD POINT OFFSHORE INVESTORS might be a better play than Ackman’s overseas vehicle. The $750 million fund could be the only way to get exposure to Loeb’s investing, as his main hedge fund is closed to new investors. When open, the fund’s minimum was a stiff $10 million. Loeb’s firm runs $16 billion.
The main Third Point hedge fund has returned an annualized 16.2% since its 1996 inception, against 7.3% for the S&P 500 in the same 20-year span. But Loeb’s performance has suffered since the start of 2015, which could help to explain why his offshore fund currently trades at a wider-than-usual discount to NAV of 16%.
The fund’s NAV was down 2.6% in 2015 and 4.9% in the first two months of 2016. Jefferies’ Hose initiated coverage of the fund last month with a Buy rating, citing the discount to NAV and the “flexibility” of Loeb’s investment approach, which combines equity investments with bonds and other credit instruments.
Fund investors get an annual Passive Foreign Investment Company, or PFIC, tax form, which is like a K-1 or 1099 form.
INVESTORS ALSO CAN play hedge funds through two U.S.-listed reinsurers: Third Point Reinsurance (TPRE), a Bermuda-based reinsurer whose investment portfolio is run by Loeb, and Greenlight Capital Re (GLRE), a Cayman Islands reinsurer whose investments are managed by David Einhorn’s Greenlight Capital.
Third Point Re, now about $11, trades at a 14% discount to its year-end 2015 book value of $12.85 a share, while Greenlight Capital trades around $20.80, a 6% discount to its year-end 2015 book value of $22.17.
Most reinsurers invest conservatively, putting the bulk of their holdings in bonds. Third Point Re and Greenlight Re are more aggressive. “Greenlight Re amounts to an investment with David Einhorn’s fund,” says Brian Meredith, an analyst at UBS. “The returns from reinsurance are small relative to the returns from Einhorn’s investment performance.”
Meredith rates the stock Buy, with a $31 price target. “If you can buy the stock below book value, it’s a pretty good investment opportunity if you believe in Einhorn as an investment manager,” he says.
Einhorn is coming off a poor year in which Greenlight Re’s investment portfolio declined 20.2%. That showing, plus weak underwriting results, led to a big 2015 loss of $8.90 a share. Einhorn is in the black this year, however, with Greenlight Re’s portfolio showing a 3.2% return through February.
Meredith sees Greenlight Re earning a hefty $3.57 a share this year, reflecting what may be an optimistic expectation of an 11.2% investment return and an underwriting loss.
BOTH GREENLIGHT RE and Third Point Re have been disappointments since they went public. Greenlight Re is up just 10% since its 2007 initial public offering at $19, while Third Point Re is below its 2013 IPO price of $12.50. Neither has paid a dividend. Underwriting results have been weak and investment performance mixed. This shows the difficulty of operating smallish reinsurers in a highly competitive market where there is too much capital.
If Loeb gets back on track, Third Point Re investors could do especially well because the company, like Greenlight Re, is more leveraged to investment returns than underwriting results. Since both reinsurers are domiciled in tax havens, the companies pay no taxes on their investment returns, allowing gains to compound tax free. This was a big selling point of the reinsurers when they went public.
Morgan Stanley analyst Kai Pan cited Third Point Re’s advantages relative to hedge funds in a recent report: “liquidity, no minimums or lockups, tax-efficient, cost-efficient, slightly leveraged.” He has an Equal Weight rating on the stock with a $13 price target, reflecting his view that “continued [reinsurance] pricing pressure and market volatility” could weigh on its returns.
Sentiment could change with better investment results, and Loeb’s track record suggests that’s a good bet. If it happens, investors could benefit from book-value growth and a higher price/book ratio. If book rises 9% in the next year to $14 a share and the stock trades in line with book, investors could earn a 25% return.
Hedge funds and hedge fund vehicles have fallen from favor amid disappointing investment performance. This is reflected in depressed prices of the two overseas funds and two reinsurers. Yet unless Einhorn and Loeb have lost their touch, their investment vehicles could rebound. There is even hope for Ackman: It’s hard to think he can stay so bad.
Alliance Tire Group to be acquired by Yokohama Rubber for USD 1.18bn
Yokohama Rubber [TYO:5101], the Tokyo, Japan-based tire maker, announced today an agreement with KKR to acquire the private equity firm’s 90% stake and all other shares in Alliance Tire Group.
Tokyo–The Yokohama Rubber Co., Ltd. ("Yokohama Rubber" or the "Company"), today announces that it has reached an agreement with global investment firm KKR and other concerned parties to purchase all of the shares of Alliance Tire Group (“ATG”) as part of Yokohama Rubber's plans to expand its commercial tire business. The agreed equity value of the transaction is USD 1.179bn (approximately JPY 136bn). The acquisition is expected to be finalized on 1 July 2016, after completion of all necessary closing procedures, including regulatory approvals.
ATG has developed a highly specialized business in the manufacture and sale of tires for agricultural, industrial, construction and forestry machinery. ATG sells radial and bias tires for the aforementioned types of vehicles in 120 countries around the world, with a focus on the North American and European markets.
Yokohama Rubber does not currently manufacture or sell tires for agricultural or forestry machinery. The acquisition of ATG will strengthen Yokohama Rubber’s product lineup in commercial tires.
Agricultural equipment tire demand is expected to increase as a result of the growing use of agricultural machinery, which is crucial to improve agricultural efficiency to meet the increasing food needs for the world’s growing population.
Yokohama Rubber is currently in Phase IV (2015–2017) of its Grand Design 100 (GD100) medium-term management plan. This plan has established the expansion of the business in commercial tires as a new core pillar of Yokohama Rubber’s tire business strategy, and the Company is accordingly devoting considerable resources to developing and expanding sales of ultra-large radial tires for mining and construction equipment. Also, Yokohama Rubber recently started production of truck and bus tires at a new plant in the U.S. state of Mississippi, and it plans to continue promoting local production for local consumption. The ATG acquisition will strengthen the Yokohama Group’s business in commercial tires and accelerate its ongoing globalization.
ATG's head office is in Amsterdam, Netherlands, and the company has two production bases in India and one in Israel.