samedi 21 avril 2012

Seth Klarman / Vivendi update

The Baupost / Klarman position taking in Vivendi (see my previous post) news and with it the possibility that I'm missing something continues to nag me so I've done some additional checking.
It's not really important, but I tend to get obsessed once a subject interests me.

Turns out that Klarman took a position in a French company in the late 90's : link.
The 95-2001 Baupost fund letters are compiled here.

This company is Chargeurs (ticker : CRI). The Value and opportunity blog had signaled it but I hadn't noticed.

If you check the 2011 Chargeur Group annual report, page 12, The Baupost Group still holds ~9 % of the capital, some ~15 years later

Actionnaire = shareholder
action = share
nombre d'actions = number of shares

I wasn't able to find much details about Chargeurs in the Baupost letters, but the AMF (=French SEC) requires major shareholders to officialy register when they cross some treshholds (5%, 10%,...).
Their records are public.

Turns out that
in '98 Baupost had more than 5 % : link (in French)
in '99 Baupost had more than 10 % of Chargeurs : link
in '11 Baupost went under 10 % : link.

Below is the long term graph of Chargeurs.
I checked it, taking into account stock splits and Francs => Euro conversion and checked if it was consistent with some pre-2000 Chargeurs annual reports, but a mistake is always possible.

If I'm not mistaken and if the long-term graph is right, Baupost is facing a large potential loss on this position.

So whats's my point ?

Klarman position-taking in Vivendi is a strong positive signal, not a guarantee
And I'm still a fan of Seth Klarman.

P.S : for those interested, Chargeurs currently trades at 25 % of book value and 2011 PER is 4.

mercredi 18 avril 2012

Vivendi update

Apparently Vivendi gets some interest from foreign readers so it's time for an update, and I'll write it directly in English.

Besides today a reader (thank you !) sent me an email pointing out that the Baupost group (Seth Klarman) had taken a position in Vivendi end 2011 and that certainly got my attention because I'm a huge fan.

My original article on Vivendi is here (september 2011).

The stock went up early 2012 and I briefly felt quite pleased with myself, but that didn't last long :

So what happened ?

Arch-competitor Free (ticker : ILD) launched a mobile phone offer, much much cheaper than its competitors (see my post here), and SFR lost many clients (including me).

SFR CEO Frank Esser was fired.

Vivendi CEO, Jean Bernard Levy, sent me (along with several millions other shareholders, that is) a nice letter.
With all due respect to Mr Levy, I found the 3rd point in his letter particulary hilarious :
"It seems to us likely that equity markets will rebound now that financial and monetary turbulence appears to be under control."
Well they teach you a lot of things at the Ecole Polytechnique but I wasn't aware that a crystal ball was part of his kit. It seems to me that the proverbial can got kicked down the road and that very little is under control.

This came after Vivendi cut its dividend from 1.4 to 1 €, despite Mr Levy having declared a few months before (1st HY 2011 earnings) : "We confirm our full year outlook for adjusted net income above €3 billion, and for an increase in the dividend.”.
I'd rather not make additional comments.

2011 results and valuation ratios

I've updated my tables (see previous article) and even made a graph

CA = Chiffres d'Affaires = Sales
ROP = Operational result
RNPG = Resultat Net Part du Groupe = Net Income
I don't take into account the adjusted EBIT published by Vivendi, which is always higher.
Flux activite = Cash flow from operations or operating cash flow
LT debt = long term financial debts

All figures in m€.

Note the ugly run-up in debt.

Some valuation ratios
EV ~ 32 €bn for a last quote of 13 €, using the diluted nb of shares. Given the balance sheet of Vivendi (current liabilities much exceeding current assets) I consider that there is no excess cash, so EV here is market cap + short + long term financial debt.

EV/current ROP = 6
EV/average past 8 years ROP = 8

EV/current FCF = 9
EV/average past 8 years FCF = 9

Current PER = 6
Current yield = 8 %

So yes, the stock appears to be cheap.
But you can easily find small caps that are cheaper and safer (shameless self promotion for the blog).
Why would I pay a premium for a big-cap ? I don't run a hedge fund and do not have the same liquidity issues.

Insider trading

Updated table on insider transactions since 2011 (from the AMF website)

Nothing but buys. But these insiders' timing is about as bad as mine, so I don't know what to make of this.

Margerie = current CEO of Total
The Dubreuil family owns the Cointreau cognac brand
Fourtou is the former CEO of Aventis (now Sanofi) and Vivendi
Jabes is the CEO of Nuxe, a cosmetics brand
To sum ip up, they are all well-off (okay, they're all filthy rich in fact), and it's pocket money to them.

Scuttlebutt investing

I happen to be a Vivendi customer.
I was a SFR customer but left them for Free mobile. For 1 h of mobile phone (amply enough for my needs), my bill went from 14.9 € to 2 €.
(side note : to be fair, Free mobile is cheap but it's far from perfect ; 2 times I was unable to make a call at peak hours because the network couldn't cope with it ; this never ever happened with SFR).

A nice lady from SFR called me recently, and asked if I was satisfied from my current contract with them...she wasn't aware that I had terminated it months ago; nothing serious but shows some lack of organisation somewhere.

SFR has lauched in 2011 a joint-venture with La Poste = French post-office. La Poste sells the subscriptions and SFR provides the network.
If you have a look at their current offer : that's ~9 €/month for 1 h, compared with 2 €/month with Free mobile. Who's going to buy that ?

I upgraded my ADSL subscription (from ADSL only to ADSL+unlimited fixed and mobile phone calls+ TV, I have a teenager at home...). I wanted to avoid switching fees and potential issues when changing the operator + I had 2 months offered as a "fidelity bonus" so I stayed with Vivendi.

My adress was not labelled correctly by whoever sent me the new modem, so I stayed 1 week without a phone connection, waiting for the new modem. Finally I had to pick it up at the nearby post-office.

Sure enough, my first bill didn't take into account the bonus even though I had scrupulously followed their online procedure. I called them, but they had no trace of it in their system. Luckily I had made a screenshot to prove my good faith.

The new ADSL connection works well.

Here again nothing serious, and my individual experience has no statistical value, but it left me a negative impression about the overall (or lack thereof) organisation.


See page 162 of the annual report

"For 2012, Vivendi expects adjusted net income to be above €2.5 billion, before the impact of the transactions announced in the second half of 2011 (see below). As a result, Vivendi expects to propose a dividend with respect to fiscal year 2012 representing around 45% to 55% of adjusted net income, payable in cash in 2013."

2011 adjusted net income is €2.95 bn, so we're looking at a 15 % decrase in earnings.
~ 50 % of 2.5 €bn earnings / nb of shares leads to a dividend of around 1 €. So I expect the dividend to remain stable.

"Vivendi expects Financial Net Debt to be below €14 billion at year end 2012, assuming closing by end of 2012 of the transactions announced in the second half of 2011 (see below)"

Now that one surprises me. Currently net debt is around €12 bn, so how do they manage to dig a deeper hole, despite (at least up to now) a positive FCF and a reduced dividend ?

SFR is the major contribution to cash flow. Here's what the annual report says :
"For 2012, SFR expects a 12% to 15% decrease in EBITDA  and cash flow from operations close to €1.7 billion (excluding the impact of 4G spectrum acquisition in January 2012 for €1,065 million)."

Cash flow from operations for SFR was €2.0 bn in 2011, so here again we're looking at a 15 % decrease, without taking into account the additional 1.0 bn CAPEX early 2012 ??
This may explain why Vivendi might need some additional debt in 2012 ?
Confusing and hardly encouraging.


Positives :
- Cheap
- Seth Klarman
- Brasil subsidiary GVT growth, but heavy CAPEX requirements

Negatives :
- lost confidence in management,
- negative 2012 outlook : rising debt, 15% decrease in earnings, maybe worse for FCF
- price war with competitors,
- high-risk macro and national environnement (who nows if France is not going to have to pay 6%+ interest rates on its national debt like Italy and Spain to fund the deficit in 2012 or next year)

So for me it's a stand-by. I'll update after HY 2012 earnings.
As usual, thanks for the feedback.

link to a German blog covering the same subject