mercredi 2 janvier 2019

2018 review

My portfolio is down 11% in 2018 (incl dividends).

Past years :(2017: 20%, 2016: 22%, 2015: 15%, 2014: 11%, 2013: 35%, 2012: 15%, 2011:-1%, 2010:15%, 2009: 33% largest loss -40% in 2008

Benchmark:
HMG Finances Découvertes down ~20%
Independance et expansion -32%
sextant pea -20%
- cac mid&small -23%

I've been somewhat protected from the general underpeformance of French small caps by a large cash position (I was finding everything too expensive last year), but it's still painful. My cash position is still about 30% end 2018.

The positive aspect is that the market is less boring now, with more opportunities (some details below).


Main holdings end 2018 are close to end 2017

Precia (PREC) (-20%)
Makes industrial scales and associated services (calibration...). The business is slowly expanding its operations and making small acquisitions. Down ~20% for no particular reason.

Gevelot (ALGEV) (-10%)
See my original blog article here.
The auto parts manufacturing branch has been sold last year, what remains is the pump business, currently priced at a negative EV (market cap is 137 m€ for a net cash of 165 m€).



However end 2017 there is a 65 m€ in "advances received from customers" in the balance sheet that I don't understand (why such large advance payments ?) and maybe should be deducted from net cash. Taking into account this correction, a 9% "historical" median margin on 90 m€ sales, the valuation is still low EV/EBIT ~ 3.
The management has announced "thinking about potential diversifications" and there was some modest share buyback. No special dividend though, and no illusions about management attitude with minority investors,

Installux (STAL) (-25%)
See "value and opportunity" article here, or "back of the enveloppe investing" article here. Assuming a 10% decrease in results (latest guidance), EV/EBIT  ~ 5 at current price.


Tessi (TES) (-37%)
See original article here.
In 2018 the "gold" branch CPROr was sold to Loomis, however the transaction was only approved by the authorities last week so will not be finalized in 2018 accounts apparently the sale was completed dec 31.

2018 HY accounts were relatively surprising (for me) : net debt  went from -15 m€ end 2016, to 34 m€ end 2017 and 126 m€ mid-2018. Lots of acquisitions, accounting movements due to the CPROr sale (large part of cash was reclassified in assets to be sold).

I've sold part of my position after HY results, waiting for the dust to settle to reconsider.
Some legal issues on the horizon end 2018 (60 Tessi employees working as subcontractors to an insurance company called CNP want their contract to be requalified  as direct employees of CNP ; they are suing both Tessi and CNP ; what will be the impact on business ?)
Probably the largest negative impact on my portfolio this year.



Malteries Franco-Belges (MALT) (+13%)
Micro-cap, malt for beer brewing, French and East-european markets. I was writing end 2017 that "It is likely that the main shareholder (Groupe Soufflet) will buy out minority investors at some time" and it did happen a few weeks ago, at around 11x2018 EBIT. Not a very generous offer, but the stock will probably be delisted in 2019.


Gerard Perrier (PERR) (-12%)
Industrial automation, nuclear sector
See article here.
Still reasonably valued (around 10xEBIT)



SII (SII) (-17%)
See my blog article here. I was writing end 2017 : "No longer cheap , I'm beginning to get nervous after the stock price increase, but good recent results and growth make me reluctant to sell. When should a stock like this should be sold ? When reaching unreasonable valuations ? When results start to degrade ?"
Finally I sold some around 25 € this spring, should have sold more...
Results are quite good, and valuation still reasonable.



New buys and companies/sectors under watch

Some sectors have been devastated this year and look currently very cheap (based on last year results) :

- auto parts manufacturers (Valeo -60%, Faurecia -53%, Plastic Omnium -50%, Plastivaloire -55%)
I guess that the market anticipates a recession for these cyclical companies, some defavorable impact of the transition to electrical vehicles (much less parts), and the impact of trade wars ("Trump" effect).
I've cautiously started to buy some shares of Akwell.

The company ticks a list of negative aspects :
- specialized in equipement for fluid management in cars (air, fuel, coolant,...) : likely to be impacted if there is a strong switch towards electric vehicles. I don't see that happening very quickly, but I may be mistaken. Some electric batteries need to be cooled anyway.
- manufactures Adblue systems (an additive to reduce emissions of diesel engines). Diesel cars have a bad environnemental image now and some models have been banned from some towns in Europe. However trucks will continue to use these systems for a long time I think
- opened recently a plant in Mexico to follow its  customers operating in the US market ; likely to be impacted by a trade war
- and finally a recent announcement of a provision for some quality problem in parts

The stock currently trades at 4x2017 EBIT ( and 10x the average EBIT of the last 13 years). I think the safety margin is sufficient, but I'm staying very cautious at this stage.


I've also started to buy some shares of Boiron (see value and opportunity article here)
In 2018, there has been numerous articles and official criticisms (along the lines : no scientific proof of efficency compared to placebo effect) about homeopathy in France, with persistant rumors about social security stopping reimbursement.
This may impact Boiron sales (about 40% of revenue if I understand correctly) but  I think that "believers" will continue to buy nonetheless (the pills are quite inexpensive anyway).


- temporary staffing sector  (groupe crit : -30%, synergie -50%, groupe dlsi -35%) : they all trade at 3 to 4 times 2017 EBIT. The market anticipates a recession, and maybe the impact of some French fiscal changes.

- housing (promoters and indivual home construction) : Maisons France Confort (MFC), AST groupe (ASP),... same story a strong contraction seems to be anticipated by the market.

For net-net amateurs, Passat (PSAT), Exacompta (EXAC), Signaux Girod (GIRO) trade under their net current asset value.


Best wishes !

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