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SKAGEN Global
Statusrapport – mars 2015
Hovedtrekk – mars 2015
• SKAGEN Global leverte en liten mindreavkastning mot sin referanseindeks i mars. Fondet steg med
4,0 prosent, mens referanseindeksen MSCI All Country World Index steg med 4,3 prosent.
• Samsung Electronics, Roche og AIG var de beste bidragsyterne til den absolutte avkastningen i
mars. State Bank of India, Banrisul og China Unicom var de største negative bidragsyterne.
• SKAGEN Global gikk inn i det danske bryggeriselskapet Carlsberg.
• Fondet gikk ut av sin posisjon i Renault og Yamaha Motor etter veldig god utvikling. Energinavnene
Gazprom og Petrobras har også blitt solgt ut av porteføljen.
• Fondet økte sin beholdning i Roche og AIG hvor utviklingen har hengt litt etter, og redusert
beholdningene i Global Mediacom og Technip etter solid utvikling.
• SKAGEN Globals portefølje forblir attraktivt priset både på absolutt og relativ basis. Fondets 35
største innehav prises til en vektet Pris/Inntjening (2015e) på 11,6x og en Pris/Bok på 1,2x, mens
respektive tall for referanseindeksen er hhv. 17,3x og 2,1x. Porteføljens rabatt er dermed betydelig
målt på begge multiplene.
* Med mindre annet er oppgitt er alle avkastningstall for fondet i denne rapporten knyttet til klasse A, og etter fradrag for gebyrer.
2
Avkastning, mars 2015
A
A
Mars
1Q
Hittil i år
1 år
3 år
5 år
10 år
Siden start*
SKAGEN Global A
4,0%
9,2%
9,2%
28,1%
19,0%
13,4%
11,5%
16,1%
MSCI AC World Index*
4,3%
10,4%
10,4%
42,4%
24,5%
15,9%
8,5%
4,9%
-0,3%
-1,3%
-1,3%
-14,3%
-5,5%
-2,5%
3,0%
11,1%
Relativ avkastning
Note: Alle tall utover 12 måneder er annualisert (geometrisk avkastning)
* Startdato: 7. august 1997
** Referanseindeksen var MSCI World i NOK fra 7. august 1997 til 31. desember 2009 og MSCI All-Country Index fra 1. januar 2010 og videre.
3
Årlig avkastning siden start (%)*
SKAGEN Global A har gjort det bedre enn indeks 14 av 18 år
SKAGEN Global A (NOK)
MSCI AC World** (NOK)
113
63
47
39
26
31
28 25
4
-3
-8
-5 -5 -4
-16
-23
-38
31 34
27
22 24
11 8
8
16 13
10 8
29
16
9 10
-7 -5
-5
-24
-32
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Hittil
i år
2015
Note: Alle tall i NOK, etter gebyrer
* Startdato: 7. august 1997
** Referanseindeks var MSCI World i NOK fra 7. august 1997 til 31. desember 1997 og MSCI All-Country Index fra 1. januar 2010 og videre.
4
Markedenes utvikling i mars 2015 i NOK (%)
Kina (lokal)
Danmark
Ungarn
Japan
Sør-Korea
Kina (Hong Kong)
Indonesia
Hong Kong
Singapore
Tyskland
Taiwan
Sveits
Italia
MSCI ACWI
MSCI EM
SKAGEN Global A
Spania
Polen
USA (S&P 500)
Russland
Finland
USA (Nasdaq)
Frankrike
Nederland
Mexico
Canada
Sverige
Østerrike
Belgia
Norge
Thailand
Sør-Afrika
India
Storbritannia
Tyrkia
Brasil
5
20
8
7
6
6
6
6
5
4
4
4
4
4
4
3
3
3
3
3
2
2
2
2
1
0
0
-7
-2
-1
-1
1
1
6
6
10
10
Markedenes utvikling 1. kvartal i NOK (%)
Kina (lokal)
Danmark
Hong Kong
Russland
Japan
Ungarn
Tyskland
Italia
Sør-Korea
Sveits
Frankrike
Finland
Sverige
Taiwan
Østerrike
India
Thailand
Kina (Hong Kong)
Nederland
Verdensindeksen
USA (Nasdaq)
Vekstmarkedsindeksen
SKAGEN Global A
Indonesia
USA (S&P 500)
Sør-Afrika
Belgia
Spania
Norge
Storbritannia
Singapore
Mexico
Polen
Canada
Tyrkia
Brasil
6
25
24
21
21
8
7
7
7
5
-8
-8
1
4
9
9
9
8
8
14
13
13
12
12
12
11
11
11
11
11
10
10
10
17
16
19
19
Største bidragsytere i mars 2015
Største positive bidragsytere
Selskap
Samsung Electronics
Største negative bidragsytere
NOK millioner
Selskap
255 ##### State Bank of India
NOK millioner
-70
Roche Holding
89 ##### Banrisul
-43
AIG
88 ##### China Unicom
-40
Citigroup
88 ##### Global Mediacom
-24
Cheung Kong Holdings
77 ##### Raiffeisen Bank
-24
General Motors
74 ##### Norsk Hydro
-21
Teva Pharmaceutical
66 ##### Petrobras
-17
Akzo Nobel
64 ##### Global Telecom
-14
Tyco
61 ##### Microsoft
-14
Gap
61 ##### Tata Motors
-12
Total verdiskapning i mars 2105:
Note: Bidrag til absoluttavkastning
7
NOK 1 505 millioner
Største bidragsytere 1. kvartal 2015
Største positive bidragsytere
Største negative bidragsytere
Selskap
NOK millioner
Samsung Electronics
316
3E+08 Afren
Renault
289
3E+08 Banrisul
-93
Nordea Bank
213
2E+08 State Bank of India
-68
Cheung Kong
190
2E+08 Hyundai Motor
-53
China Unicom
167
2E+08 Lundin Mining
-45
Akzo Nobel
157
2E+08 Petrobras
-39
General Motors
155
2E+08 Microsoft
-38
HeidelbergCement
133
1E+08 Global Telecom
-32
Roche Holding
127
1E+08 KazMunaiGas
-26
Volvo
123
1E+08 Raiffeisen Bank
-23
Total verdiskapning 1. kvartal 2015:
Note: Bidrag til absoluttavkastning
8
Selskap
NOK 3 466 millioner
NOK millioner
-140
Kjøp og salg mars 2015
Kjøp
Salg
•
•
Bilselskapet Renault har gitt en avkastning på
nesten 40 prosent i lokal valuta hittil i år, og vi
besluttet å ta gevinst og selge oss ut av aksjen
ettersom aksjekursen var høyere enn kursmålet
vårt.
•
Yamaha Motor var en av de med beste relative
avkastning i 2014 og etter at aksjen fortsatte å
stige i 2015 begynte vi å redusere beholdningen
og til slutt solgte vi oss ut.
•
Vi reduserte vår beholdning i Global Mediacom,
Technip og Philips etter sterk utvikling.
•
Gazprom og Petrobras gikk ut av porteføljen for
å finansiere nye muligheter.
•
Vi gikk inn i en ny posisjon i det danske
bryggeriselskapet Carlsberg. Selskapet har de siste 7
årene levert bare 3 prosent i samlet årlig avkastning til
aksjonærene mot 20 prosent for de 2 største
konkurrentene. Situasjonen i Ukraina har rystet
markedets tillit gitt Carlsberg store eksponering mot
russiske forbrukere. Vekstmuligheter i Asia og en ny
CEO er andre katalysatorer. Mer informasjon i
faktaarket på slutten av rapporten (på engelsk).
Det sveitsiske farmasiselskapet Roche har hengt etter
markedet og vi benyttet det vi ser på som en
midlertidig svekkelse til å øke eksponeringen.
•
Vi økte også litt i vår beholdning i AIG som er en
posisjon med høy overbevisning og som vi mener vil
fortsette å utvikle seg i riktig retning.
•
Vi økte også beholdningene i GE og Lundin
Petroleum.
9
Viktigste endringer så langt i 2015
Økte poster
Q1
10
General Electric
Lundin Petroleum
Columbia Property Trust
Carlsberg
AIG
Lundin Mining
Kingfisher
NN Group
Microsoft
Roche
Storebrand
DSM
Phillips
OCI
Reduserte poster
(Ny)
(Ny)
(Ny)
(Ny)
Q1
Renault
Baker Hughes
Gazprom
Yamaha Motor
Weatherford
Petrobras
Mosaic
UIE
Rec Silicon, incl. convertible
Afren
Akzo Nobel
Samsung Electronics
Technip
Toyota Industries
Unilever
Norsk Hydro
Roche
Tyco
Gap
Vimpelcom
(Ut)
(Ut)
(Ut)
(Ut)
(Ut)
(Ut)
(Ut)
(Ut)
(Ut)
(Ut)
Største poster i SKAGEN Global per 31. mars 2015
Posisjonens
Kurs
størrelse, %
P/E
P/E
P/BV
Kurs
2015e
2016e
siste
mål
CITIGROUP
7.1
51.5
9.6
8.8
0.8
75
SAMSUNG ELECTRONICS
6.8
1 104 000
7.2
7.0
1.0
1 300 000
AIG
4.9
54.8
11.1
9.9
0.7
80
GENERAL ELECTRIC
4.0
24.8
14.4
13.7
1.9
34
NORDEA
3.2
105.3
12.5
11.8
1.5
150
ROCHE
3.0
268.1
19.1
17.6
11.6
380
LG CORP
2.7
61 300
9.4
8.6
0.9
84 000
GENERAL MOTORS
2.7
37.5
8.1
7.3
1.7
50
DSM
2.5
52.0
19.7
17.1
1.6
65
STATE BANK OF INDIA
2.4
267.1
11.8
9.4
1.4
380
Vektet topp 10
39.2
10.4
9.6
1.1
36%
Vektet topp 35
79.3
11.6
10.6
1.2
30%
17.3
14.8
2.1
MSCI AC World
11
Sektor og geografisk fordeling mot indeks for SKAGEN Global (%)
Geografisk fordeling
Sektorfordeling
Fond
3
Energi
Asia ex Japan
8
13
Råvarer
14
13
13
7
27
Bank og finans
21
12
14
Informasjonsteknologi
5
4
Telekom
0
3
4
0
2
2
2
0
1
8
15
10
33
Nord Amerika
12
55
13
Norden
2
5
Perifer EU
10
2
3
Sør Amerika
Oceania
Kontanter
Indeks
9
Kjerne EU
10
Medisin
12
Japan
2
Defensive
konsumvarer
Kontanter
Frontier Markets
10
Inntektsavhengige
forbruksvarer
Nyttetjenester
EMEA
5
Kapitalvarer, service
og transport
23
0
2
4
0
Nyheter og annet om
porteføljeselskaper
– på engelsk
Key earnings releases and corporate news, March 2015
Citi
(7.1%)
Stress test reveals Citi can survive a 4.5% contraction of US economy and 60% decline in stock prices
Summary: Further to the stress test results of 31 US banks, the Fed conducted its CCAR (Comprehensive
Capital Analysis and Review). Citi performed well and the bank will now increase the quarterly dividend from 1
cent to 5 cents as well as execute share buybacks to the tune of USD 7.8bn over the next 5 quarters. While
consensus figures are hard to pin down, expectations seem to have been around 8 cents per quarterly
dividend and USD 6bn buybacks over 6 quarters, i.e. Citi’s ‘all-in quarterly remuneration’ is USD 150m higher
per quarter than expected.
Investment case implications: This is very positive for our investment thesis. We think the market fails to see
how much free cash flow Citi can generate over the coming years. Earnings will go up, risk-weighted assets
will go down, and regulatory capital will increase by more than accounting earnings as Citi consumes its
significant disallowed deferred tax assets. Simply adding earnings + usage of disallowed DTA will come to 40%
of current market cap in the coming 3 years. As Citi is now allowed to buy back stock, we think the market will
start to focus on this.
Norsk Hydro
(1.6%)
Extended maintenance in Paragominas
Summary: Norsk Hydro announced that maintenance at their bauxite mine, Paragominas, has been extended
by one month. One of the two ball mills at the mine was taken out for planned maintenance in March, which
implies 50% production capacity. Alunorte’s need for bauxite has been covered by inventory in addition to
increased sourcing from the MRN bauxite mine. The prolonged maintenance will imply somewhat higher
bauxite costs, but the earnings effect should be limited due to normal production in Alunorte.
Investment case implications: Investment case is intact. Very limited new capacity coming on stream and
healthy demand driven by car manufacturers will tighten the market further going forward. Due to the strong
USD, EPS 2015 is expected to be above NOK 4.
14
Key earnings releases and corporate news, March 2015 (cont.)
GE
(4.0%)
GE sells the Consumer Lending Business in Australia and New Zealand for USD 6.3 billion
Summary: GE has divested the Australia Finance Arm, part of GE Capital, to a private equity consortium
of KKR/Deutsche Bank/Värde Partners for USD 6.3bn. This business area has 100 branches and
provides GE-branded credit cards and personal loans to consumers. The business has just under USD
6bn in gross assets.
Implications for investment case: Slightly positive. Our investment thesis for GE assumes that the
company will shrink the financial business area, GE Capital, and focus more on the industrial segment,
GE Industrials. We project the earnings split between GE Industrial and GE Capital to go from around
50/50 in 2013 to 75/25 by 2017/18. Financials trade at lower multiples than Industrials, so the stock
should re-rate as the proportion of earnings from GE Capital gradually shrinks. In addition, the financial
units should see higher valuation as US financials continue to recover post the financial crisis. Therefore,
we view GE’s decision to divest financial sub-segments as a positive signal. We have seen similar
transactions last year (Nordic consumer finance unit sold to Santander; Swiss consumer finance unit sold
to Cembra Money Bank) and envision further announcements in the next 12-18 months.
Irsa
(0.7%)
Plans to create a clean real estate company
Summary: Irsa provided results in line with expectations. Sales in shopping malls increased in line with
inflation and occupancy stayed unchanged at close to 100%. The company was hurt by weak
performance of their Israeli investment, but the core business is developing as expected. Irsa plans to
create a new listed “pure” real estate company which will most likely attract interest from real estate
investors.
Implications for investment case: Irsa is an owner of high quality real estate assets trading at a deep
discount to NAV. The expected spin-off should help reduce the discount. The ultimate trigger is the
replacement of the current political leadership in Argentina.
15
Key earnings releases and corporate news, March 2015 (cont.)
Mayr-Melnhof
(0.7%)
Good FY14 results
Summary: MMK reported clearly better than expected Q4 results. Operating profit was 43% better than
expected. Despite downtime at the Frohnleiten site, MM Cartonboard sales declined by just 2% due to
better pricing almost offsetting the volume decline. At MM Packaging, volumes were up 6% and prices
remained firm as seasonality did not have a significant effect. EPS for Q4 of EUR 1.68 was helped by a
tax refund during the quarter. Results for FY14 were very strong both on sales and operating profit. EPS
came in at EUR 6.54. Both MM Packaging and MM Karton profitability surprised positively. Dividend of
EUR 2.6 was also a positive surprise as the market was expecting EUR 2.4. In the outlook statement the
management flagged a solid order intake for the first 2 months of 2015 and its ambition is to grow further
in 2015. It was mentioned that the 2014 earnings level represents a “challenge”.
Investment case implications: MMK is a well-managed company that stands for quality and continuity
with exposure to a resilient end market. Cash flow generation is good and dividend continues to be
hiked. MMK has scale advantages vs its competitors, a strong balance sheet and is gradually expanding
into EM. We see further revenue growth combined with strict cost control leading to better earnings and
return of cash to shareholders. Using a 15x PE multiple for 2017 and including dividends, we get a target
price of EUR 107.
Indosat
(0.4%)
Reduced loss figures reported
Summary: Indosat reported reduced loss from IDR 512 to 366/share. Quarterly EBITDA turned around
during the year from IDR 1.2bn in Q3 to IDR 2.5bn in Q4. Some 5% growth in customers and sales, and
possibly some improvement in EBITDA margins to come as the huge upgrade of infrastructure tapers off.
Implications for investment case: Enterprise value for Indosat is the same as in December 2008, while
debt is up and market cap down. The company has been the loser in the competitive Indonesian market,
but is still number two. Sales have been flat and EBITDA declining for the past 7 years; we are waiting
for the turnaround. Valuation is 4.5x EV/EBITDA and 1.7x book. Dividend down from IDR 188 in 2008 to
0 this year. For this case to fly, operational recovery needs to be confirmed in 1Q 2015. Our patience is
wearing thin.
16
Key earnings releases and corporate news, March 2015 (cont.)
Philips
(1.6%)
Philips sells 80% of its auto and lumileds business for USD 2.8 billion
Summary: As part of the restructuring of the group towards medical technology, Philips last year announced its
intention to sell its auto and lumileds business. The company has now reached an agreement with a
consortium led by GO Scale Capital to sell an 80.1% stake with Philips retaining the remaining 19.9%. Philips
is looking at pretax cash proceeds of USD 2.8bn and a deferred contingent payment of up to USD 100m.
Expected completion in 3Q.
Investment case implications: 14x EV/EBIT is a good price for a business with a lot of competition. However,
Philips shares have appreciated over the last couple of months, partly driven by speculation around the
outcome of this divestment and cash proceeds of USD 2.8bn appear to be in line with expectations. What is
interesting is what the company will do with the cash. After meeting with management a few weeks ago we
believe it will be spent thus: (i) Pay for volcano acquisition - USD 1bn; (ii) Pay down pension deficit - USD
1.2bn; and (iii) War chest for future acquisitions within medical technology. After paying down its pension
deficit it will be possible to spin off the remaining part of the lighting business which will help Philips in its aim
to go from a conglomerate towards a med tech company.
Teva
(1.1%)
USD 3bn acquisition of Auspex
Summary: Teva will acquire Auspex (ASPX) in a USD 3.2bn enterprise value (USD 3.5bn equity value) deal.
The purpose of the acquisition is to strengthen Teva’s position in the central nervous system (CNS) field. Teva
is paying a 40% premium, all in cash. The portfolio of medicines acquired mainly targets people who live with
movement disorders (Huntington’s disease, tardive dyskinesia, Tourette syndrome). The deal is expected to
close by mid-2015.
Investment case implications: Teva has flagged that it is looking for inorganic growth to offset the dependency
on Copaxone. The company estimates that drugs from Auspex could increase sales in two years and
contribute up to USD 2bn a few years down the line (Teva 2014 group sales are c. USD 20bn), so it would be
a meaningful boost. With further room on the balance sheet (post-deal net debt/EBITDA is c. 1.8x) we would
expect further corporate activity during the year. The market is supportive of Teva’s ambition to reduce the
high earnings reliance on Copaxone, but, as always, the price paid for the acquisitions will be key. Teva trades
at 12x 2016 P/E and 2.2x 2015 P/B.
17
Key earnings releases and corporate news, March 2015 (cont.)
China Unicom
(2.1%)
China Unicom reports FY2014 in line with expectations
Summary: Across FY14 as a whole, China Unicom's cellular service revenue increased by only 3% YoY
(slightly below expectations). This was mainly due to the implementation of VAT, for which 3Q14
represented the first full quarter of imposition, but it is also clear that Unicom is waiting for the final 4G
approval. Unicom’s fixed line business continued to produce solid results in FY14, with rising broadband
revenues (up 10 % YoY) large enough to offset declines in traditional voice services and the impact of VAT.
Thus fixed line revenues grew by 2% YoY. Operating expenditure declined more than expected due to
decent cost control and significantly lower selling costs due to the lack of 4G. Thus, EBITDA increased by
11% YoY. Operating leverage meant that EBIT increased 20% YoY. Capex was slightly higher than
expected, but FCF remained in positive territory for the second consecutive year (with a capex-to-sales
ratio of 31%).
Investment case implications: : Our original thesis was based on 3 factors: 1) Unicom taking market share in
a growing market; 2) operating leverage combined with higher margins when growth slowed; 3) higher
valuation multiples as the company turned cash flow positive. With preferential treatment currently being
given to the incumbent China Mobile (the only operator given a full 4G licence), Unicom did not gain market
share this quarter. If this continues, it does remove some of the upside in our case. Operating leverage
continues to be evident as it has for some time. We got clear confirmation of margins being very leveraged
to slower subscriber growth (although this was an abnormally slow quarter). Cash flow surprised positively
in 2014, but this is again mainly due to the postponement of 4G. EV/EBITDA of 3.5 and PE of 16x in 2015
for 15-20% earnings growth seems attractive, especially if free cash flow turns positive as we expect.
18
The 10 largest companies in SKAGEN Global
Citi is a US financial conglomerate with operations in more than 100 countries worldwide. The bank was
bailed out by the US government during the credit crisis and subsequently raised USD 50bn of new
capital. Consists of two units: Citi Holdings which is a vehicle for assets that are to be run down and sold
and Citi Corp which is the core of the going concern business. In Citicorp 60% of revenues are derived
from outside the US - mainly from emerging markets.
Samsung Electronics is one of the world's largest producers of consumer electronics. The company is
global #1 in mobile phones and smartphones, the world's largest in TV and a global #1 in memory chips.
Samsung also produces domestic appliances, cameras, printers, PCs and air conditioners.
AIG is an international insurance company serving commercial, institutional and individual customers. The
company provides property-casualty insurance, life insurance and retirement services. AIG was at the very
centre of the financial crisis as the central bank for mortgage insurance – it was bailed out in a USD 180bn
bail out. The company has two core insurance holdings: Sun America and Chartis that it intends to keep.
The company has set a target to achieve 10% ROE by 2015.
Founded in 1892 by Thomas Edison et al., General Electric (GE) operates two divisions (GE Industrial,
GE Capital) contributing approximately the same portion of group earnings. GE is the world’s 10th
largest publicly-traded company and boasts the 6th most valuable brand. The industrial segment is a
play on global infrastructure with a high-margin service business and a large installed base producing a
wide variety of capital goods ranging from aircraft engines and power turbines to medical imaging
equipment and state-of-the-art locomotives.
Nordea holds pole position in the Nordics with 11.2m retail costumers and 625,000 corporate clients.
Nordea is the largest Nordic asset manager/wealth manager with EUR 224bn in AuM (EUR 138bn in
managed funds). It is the most diversified among its Nordic peers. Total loans are EUR 346bn with the
following split: Finland 27%, Sweden 26%, Denmark 24%, Norway 18%, and Baltics/Poland/Russia 5%.
19
The largest companies in SKAGEN Global (cont.)
Roche is a leading pharmaceuticals and diagnostics company based in Switzerland. Half of group
sales and 2/3 of EBIT are derived from the company’s Big 3 oncology franchises: HER2 (breast
cancer), Avastin (colorectal cancer), and MabThera/Rituxan/Gazyva (blood cancer), each about USD
7bn of revenue. These businesses all come from Genentech, in which Roche has been a majority
owner since 1990, and bought the last 46% in 2009.
LG Corp is the third largest conglomerate in Korea. It is a holding company which operates a number of
listed subsidiaries: LG Chem (basic chemicals but it is also a leading manufacturer of batteries), LG
Electronics (consumer electronics and home appliances), LG Uplus (wireless telecom services), and
LG Household & Health (households and personal care products). The company also operates a
number of unlisted companies.
General Motors is one of the world’s largest automakers with a global market share of 11% and its
products are sold in 120 countries. Brands include: Buick, Cadillac, Chevrolet, GMC, Daewoo, Holden,
Isuzu, Jiefang, Opel, Vauxhall and Wuling. North America is still its largest market, making up more
than 50% of revenues. However, General Motors has a strong presence in BRIC with a market share of
12% together with joint venture partners.
DSM is a global life sciences and materials science company. It was founded in 1902 and is
headquartered in Heerlen, the Netherlands. The company operates in five segments: nutrition,
performance materials, polymer intermediates, pharma, and an innovation centre. DSM has spent a
decade reshaping its businesses from basic chemicals to life science. 2/3 of earnings come from
nutrition today.
State Bank of India is the largest bank in India with a 22% market share. It has an unrivalled pan-India
branch network and a very strong deposit franchise. The bank also has a sizeable overseas presence
(15% of loan book). Aside from its core banking operation, the company is also involved in life
insurance, asset management, credit cards, and capital markets.
20
Mean reversion
Special situation
25%
50%
Columbia Property Trust (CXP US) USD 24.59
History, what they do and source of investment idea
Founded in 2003, Columbia Property Trust (CXP) is the 7th largest office REIT in the US. The diversified
portfolio consists of USD 5bn high-quality (Class-A) office assets with >40% exposure to San Francisco,
Washington D.C., and New Jersey. CXP listed on the NYSE in 2013, funded primarily by a large (sticky)
retail investor base. In executing its asset recycling and concentration strategy, CXP has gone from 31 → 15
markets, 38% → 52% central business district (CBD), and 53% → 63% multi-tenant exposure since 2011.
The balance sheet is one of the strongest in the industry with a leverage ratio in the mid-30s (peers >40%).
Occupancy rates well above 90% and 8-14% annual lease expirations until 2018. Investment idea identified
via SKAGEN m2.
Rationale for investment
Our investment case builds on a differentiated view on three key aspects:
• While the market questions the strategy and management’s ability to deliver results, we argue execution
has gone according to plan (see above) and we see significant scope for CXP to beat low market
expectations and build credibility by prudently executing the asset recycling with minimal CF dilution.
• Market concerns about 15-20% lease expirations over the next few years seem overdone because this fact
is well known from transparent disclosures and mitigated by a property base steadily rising in quality
combined with a gradual shift toward a higher share of blue-chip multi-tenant contracts.
• The market appears to place undue attention to the lack of short-term (weeks/months) catalysts, creating a
compelling valuation asymmetry for long-term investors. CXP trades at attractive levels on virtually all
relevant metrics (P/NAV, P/FFO, FFO yield, implied cap rate) with a fairly protected downside.
Triggers
• Consistent delivery by management against targets to gain investor trust, closing the valuation discount
• Capital return: (i) Strong B/S and trading well below NAV; (ii) Activist fund largest owner since Nov 2014
• Index inclusion. For example, MSCI US REIT (RMZ) evaluated twice a year. Next opportunity in May 2015
• Take-out candidate (free option)
Risks
• Office market fundamentals deteriorating in key markets, leading to lower rents and occupancy rates <90%
• Overpaying for acquisitions since cap rates in gateway markets are low (<4%); limited track record
• Rising US interest rates are typically negative for sector sentiment
Target price
5% premium to 2015e NAV = USD 32/share, (vs. currently trading at 15-20% discount)
21
Long term value
builder
25%
Key Figures
Market cap
Float
Daily turnover
No. of shares
USD 3.0bn
100%
USD 18m
125m
NAV 2015
P/FFO 2015
Cap rate (implied)
P/B 2014
DY 2015
USD 30/sh.
12.6x
6.5%
1.2x
4.9%
# of analysts
with SELL/HOLD
Largest Holders
1. 40 North Management 6.5%
2. Vanguard 6.2%
3. Blackrock 5.0%
6
67%
Carlsberg (CARLB DC) 480.50 DKK
History and what they do
Global/regional beer company established in 1847 in Copenhagen. Merged with Tuborg in 1970. Expanded
facility footprint since 1968. Bought Baltika with 40% market share in Russia in 2008. 2013 revenues of
DKK 67bn – North/Western Europe 58% (14% OP-margin on 49m hectolitre), Eastern Europe 27% (23%
margin on 42m hectolitre) and Asia/other 15% (26% margin on 28m hectolitre).
Rationale for investment
The market is focused on the problems in Russia, forgetting that after all the earnings downgrades, Russia
will no longer be 40% of earnings, it will be 20% on depressed demand, depressed FX and low utilisation.
Thus, on depressed Russian earnings we are buying the stock on an FCFE yield of 7-8%. We think this
cash flow will grow due to streamlining of the cost structure in Western Europe combined with healthy
growth in Asia (factors the market has lost sight of in the unilateral focus on Russia).
Triggers:
• Earnings growth driven by cost cutting in Western Europe (currently a net drag on earnings due to upfront costs), closing capacity in Russia (current utilisation is less than 60%), continued market growth in
Asia.
• Normalisation of Russia tensions will reduce risk premiums on Carlsberg’s Russian assets.
• Higher oil price will improve the fundamental earnings outlook for Russia and the valuation multiple.
• Industry consolidation, however the foundation structure limits straight-out acquisition of Carlsberg.
Risks:
• Carlsberg and other mainstream brewers structurally losing market share at a faster pace to niche
players.
• Adverse alcohol/beer regulations as we have seen in Russia.
• Expensive acquisitions – The Carlsberg Foundation’s amended charter has made capital raising
possible.
Target price
Assuming a small improvement in Western Europe driven by lower costs, no improvement from depressed
2015 Earnings in Russia, and healthy growth in Asia, leaves us with a 2017 EBIT target of DKK 12bn.
Assuming the market is still sceptical to Russia (despite being less than 15% of earnings), we use an
unchanged EV/EBIT multiple from today’s 12x but use a lower debt level due to healthy FCF in the coming
years. This leaves us with a target price of DKK 650 per share at end 2016 - almost 40% upside.
22
Key figures:
Market cap
USD
11.7bn
Net debt (cash)
USD
No. of shares (A+B)
6.1bn
153m
P/E 2015e
P/E 2016e
P/BV trailing
ROE 2015e
Yield 2015e
13.6x
12.1x
1.1x
7.1%
1.9%
Daily turnover
USD
30m
Carlsberg Foundation controls 51% of
votes in A-shares, and 11% of Bshares (119m B-shares).
For mer informasjon, vennligst se:
Siste Markedsrapport
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