SKAGEN Kon-Tiki Status Report September The art of common sense

Transcription

1 SKAGEN Kon-Tiki Status Report September 2015 The art of common sense

2 Highlights September 2015 SKAGEN Kon-Tiki* was down 0.2% in September, while the MSCI Emerging Markets index fell by 2.3% measured in EUR. So far this year SKAGEN Kon-Tiki is down 11.1% compared to the index down 8.3%. Our top three performers in September were Hyundai Motor, Samsung Electronics and Great Wall Motor. Hyundai Motor saw August sales returning to positive growth of 3% (compared to -3% YTD), but more importantly the Vice Chairman (son of Chairman and key owner) bought 1.4% of Hyundai Motor shares at market price. Great Wall Motor on the other hand benefited from China reducing the purchase tax for passenger cars 1.6L or below from 10% to 5% from October. Approximately 85% of Great Wall s unit sales fall into this category. At the bottom of the performance list for September were Brazilian bank Banrisul and oil company Petrobras. Brazil s debt was downgraded to non-investment grade by S&P this month, and as state owned entities both Banrisul and Petrobras debt followed automatically. For Banrisul this doesn t have a big impact as it is mostly deposit funded but the share price has been weak on continued concerns about the fiscal crisis in the State of Rio Grande do Sul and potential asset quality implications. Petrobras is heavily indebted and hence a credit downgrade has a more negative direct impact on them. On the positive side, Petrobras used this as an incentive to increase petrol and diesel prices. We added Samsung SDI as a new position in September. It is the leading lithium-ion battery cell producer for IT batteries, but more importantly it is heavily involved in batteries for new business segments like electric vehicles and energy storage systems. We sold out of our struggling Mexican construction and concession operator Empresas ICA due to their high debt levels (not helped by the weak MXN given USD debt) and a less favourable industry outlook. We also sold out of low-cost airline operator AirAsia due to concern related to recapitalization of subsidiaries. Emerging markets continue to trade at a discount to developed markets, with a 2015e P/E of 11.4 and P/B 1.3x for EM, compared with 16.0x and 2.0x for DM. The fund s portfolio remains even more attractively valued at a 2015e P/E of 8.3x and P/B of 1.0x. The top 12 positions now represent more than 48% of the fund, and in total we now have 82 positions (down from 95 at the beginning of the year). *Unless otherwise stated, all performance data in this report relates to class A units and is net of fees. 2

3 Highlights markets September 2015 The volatility we saw in August in global markets calmed down a little in September. After the substantial underperformance of emerging markets versus global equity markets YTD (-8.5% versus +1.7% in EUR), we saw a slight reversal as EM outperformed global equities in September. The major news this month was the Fed s decision to hold policy interest rates unchanged at record lows as concerns over an increasingly fragile global economy overshadowed evidence of a US recovery. The worst performing market in September (after the Chinese local market which is not part of the index) was, maybe not surprisingly, Brazil, which was down 11% in September after S&P downgraded the country s debt to noninvestment grade. YTD the market is down 34% (in EUR). At the same time, however, the BRL currency is down 8% and 21%, respectively. The only markets that were up in September in EM were India and Korea. The consensus view is still to be cautious on EM due to a China slowdown and the potential impact of future Fed rate hikes. This is also evident from big EM equity outflows this year. There have been discussions recently whether we might see a 1997-style crisis again in EM. The difference since then is that this time around emerging markets in general have rising current accounts, they have doubled their FX reserves and most countries have transitioned to flexible exchange rate regimes which should make a difference. There are however big differences between countries. SKAGEN Kon-Tiki invests in individual companies with a bottom-up perspective. It is in uncertain times like these that we tend to be able to find cheap, high quality companies as the market might not distinguish based on underlying company fundamentals. 3

4 A Results, September 2015 EUR, net of fees A September 3Q YTD 1 Year 3 years 5 years 10 Years SKAGEN Kon Tiki A -0,2% -16,0% -11,1% -12,1% 4,2% 0,5% 7,0% MSCI EM Index -2,3% -17,9% -8,3% -8,6% 4,6% 0,3% 5,1% Excess return 2,1% 1,9% -2,8% -3,5% -0,4% 0,1% 1,9% Note: All returns beyond 12 months are annualised (geometric return) * Inception date: 5 April

5 SKAGEN Kon-Tiki has beaten the index in 11/13 calendar years Percent 92 SKAGEN Kon-Tiki A* (EUR) MSCI EM Index (EUR) YTD Note: All figures in EUR, net of fees * Inception date: 5 April

6 Emerging markets, September 2015 (in EUR) Percent India South Korea SKAGEN Kon-Tiki A Taiwan MSCI EM Index USA Hungary Phillippines Hong Kong China (International) Mexico South Africa Ghana Thailand MSCI World Index Poland Malaysia China (lokal) Colombia Chile Russia Turkey Singapore Czech Pakistan Indonesia Brazil Argentina

7 Emerging markets, YTD 2015 (in EUR) Percent Hungary Russia Argentina Pakistan Vietnam Czech South Korea USA MSCI World Index China (local) Phillippines India Hong Kong Taiwan Mexico South Africa Poland Nigeria MSCI EM Index Thailand Chile SKAGEN Kon-Tiki A China (International) Singapore Ghana Egypt Malaysia Kenya Indonesia Turkey Colombia Brazil

8 Main contributors MTD 2015 Largest positive contributors Largest negative contributors Company NOK Millions Company NOK Millions Hyundai Motor Co 454 ##### Banrisul -115 Samsung Electronics Co Ltd 203 ##### Petroleo Brasileiro SA -100 Great Wall Motor Co Ltd 165 ##### Golar LNG Ltd -99 Mahindra & Mahindra Ltd 94 ##### CNH Industrial NV -97 Frontline 2012 Ltd 69 ##### Cosan Ltd -85 Moscow Exchange MICEX-RTS OAO 68 ##### ABB Ltd -76 GCL-Poly Energy Holdings Ltd 67 ##### Tullow Oil PLC -64 Tech Mahindra Ltd 66 ##### Hitachi Ltd -50 Richter Gedeon Nyrt 65 ##### Vale SA -49 X5 Retail Group NV 55 ##### Yazicilar Holding AS -47 Value Creation MTD (NOK MM): 426 NB: Contribution to absolute return 8

9 Main contributors QTD 2015 Largest positive contributors Largest negative contributors Company NOK Millions Company NOK Millions Hyundai Motor Co 338 3E+08 Petroleo Brasileiro SA -347 Richter Gedeon Nyrt 164 2E+08 Cosan Ltd -338 Frontline 2012 Ltd 152 2E+08 Great Wall Motor Co Ltd -300 Tech Mahindra Ltd 125 1E+08 Haci Omer Sabanci Holding AS -265 X5 Retail Group NV 87 9E+07 Banrisul -236 Korean Reinsurance Co 77 8E+07 Bharti Airtel Ltd -226 Mahindra & Mahindra Ltd 75 7E+07 Samsung Electronics Co Ltd -211 Familymart Co Ltd 52 5E+07 Vale SA -188 Samsung SDI Co Ltd 43 4E+07 Tullow Oil PLC -180 KULIM MALAYSIA BHD 41 4E+07 Golar LNG Ltd -160 Value Creation QTD (NOK MM): NB: Contribution to absolute return 9

10 Main contributors YTD 2015 Largest positive contributors Largest negative contributors Company NOK Millions Company NOK Millions Richter Gedeon Nyrt 310 # Banrisul -610 Frontline 2012 Ltd 297 # Cosan Ltd -456 X5 Retail Group NV 285 # AirAsia BHD -433 Shiseido Co Ltd 264 # Hyundai Motor Co -423 Mahindra & Mahindra Ltd 214 # Vale SA -388 KIWOOM Securities Co Ltd 207 # Haci Omer Sabanci Holding AS -370 UPL Ltd 199 # State Bank of India -319 AP Moeller - Maersk A/S 195 # Hindalco Industries Ltd -280 Familymart Co Ltd 189 # Tullow Oil PLC -231 Moscow Exchange MICEX-RTS OAO 188 # Samsung Electronics Co Ltd -226 Value Creation YTD (NOK MM): NB: Contribution to absolute return 10

11 Holdings increased and decreased, September 2015 Key buys during September Key sells during September Samsung SDI (New) Holdings in other Samsung companies are worth almost 100% of the share price, which means you get the market leader in small and large lithium batteries, energy storage technology, electronic materials and a rather stable chemical plastic business almost for free. On top of that, the large battery business for cars is currently loss-making as they are ramping up capacity, but timeline to profits might have shortened after the VW scandal which might lead to increased regulatory focus and a faster switch to electric and hybrid vehicles. Cia Brasileira de Distribuicao We took advantage of price weakness to increase the holding slightly. Empresas ICA Sold out due to high debt levels, FX weakness and a deteriorating outlook. AirAsia Sold out due to uncertainties regarding the recapitalisation of its Indonesian and Philippines subsidiaries which owe the listed company significantly overdue lease payments. Hitachi Reduced position due to changed risk assessment in the current climate. Samsung Electronics Reduced position slightly due to high weighting in the fund. Hyundai Motor Reduced position slightly due to high weighting in the fund. 11

12 Most important changes Q Holdings increased Holdings reduced Q1 Petroleo Brasileiro SA Cia Brasileira de Distribuicao Hitachi Ltd (New) (New) Q1 Heineken NV OCI NV Rocket Internet AG United International Enterpris Afren PLC Great Wall Motor Co Ltd Bharti Airtel Ltd Distribuidora Internacional de Casino Guichard Perrachon SA KIWOOM Securities Co Ltd AP Moeller - Maersk A/S Familymart Co Ltd Tech Mahindra Ltd 12

13 Most important changes Q Holdings increased Holdings reduced Q2 China Shipping Development Sberbank of Russia Eros International Media Ltd Haci Omer Sabanci Holding AS Golden Ocean Group Ltd (New) (New) (New) Q2 Harbin Electric Co Ltd Value Partners Group Ltd Skyworth Digital Holdings Ltd MRV Engenharia KIWOOM Securities Co Ltd Yingli Green Energy Holding Co Exxaro Resources Ltd Siem Offshore Inc Avance Gas Holding Ltd AP Moeller - Maersk A/S Great Wall Motor Co Ltd Lenovo Group Ltd Shiseido Co Ltd Raiffeisen Bank International AG Samsung Electronics Co Ltd Casino Guichard Perrachon SA Hengdeli Holdings Ltd Kerry Logistics Network Ltd 13

14 Most important changes Q Holdings increased Holdings reduced Familymart Co Ltd Q3 Samsung SDI Co Ltd China Shipping Development Cosan Ltd (New) Q3 AP Moeller - Maersk A/S AirAsia BHD Casino Guichard Perrachon SA Shiseido Co Ltd Kerry Logistics Network Ltd Empresas ICA Hitachi Ltd Hyundai Motor Co ABB Ltd Samsung Electronics Co Ltd 14

15 Largest holdings SKAGEN Kon-Tiki, end of September 2015 Holding Price P/E P/E P/BV Div. yield Price Upside size, % 2015e 2016e last 15e (%) target % Hyundai Motor 8, ,3 4,3 0,5 3, Samsung Electronics 8, ,6 5,6 0,8 2, Mahindra & Mahindra 4, ,9 13,3 2,9 1, State Bank of India 4, ,2 6,8 1,1 1, Sabanci Holding 3,8 8,9 7,4 6,1 0,9 1, Bharti Airtel 3, ,9 11,3 2,1 0, Richter Gedeon 3, ,1 14,8 1,4 1, ABB 2, ,8 12,4 2,7 3, Naspers 2, ,5 23,0 9,0 0, Great Wall Motor 2,0 8,6 6,8 6,8 1,8 4, SBI Holdings 2, ,3 9,6 0,7 2, X5 Retail Group 2,0 17,4 13,4 11,6 3,1 0, Weighted top 12 48,4 7,7 7,2 1,0 2,1 68 Weighted top 35 77,3 8,3 7,7 1,0 2,5 66 Emerging market index 11,4 10,5 1,3 3,0 Top price target 13,9 12,8 1,7 1,5 Note: Valuation estimates are based on SKAGEN Kon-Tiki s independent analysis and may vary from consensus estimates. 15

16 P/BV for SKAGEN Kon-Tiki versus emerging markets P/B Kon-Tiki P/B EM Index 3,5 3,0 2,5 2,0 1,5 1,0 0,5 jan. 06 mai. sep jan. 07 mai. sep jan. 08 mai. sep jan. 09 mai. sep jan. 10 mai. sep jan. 11 mai. sep jan. 12 mai. sep jan. 13 mai. sep jan. 14 mai. sep jan. 15 mai. sep As of September 30,

17 jan. 06 mai. 06 sep. 06 jan. 07 mai. 07 sep. 07 jan. 08 mai. 08 sep. 08 jan. 09 mai. 09 sep. 09 jan. 10 mai. 10 sep. 10 jan. 11 mai. 11 sep. 11 jan. 12 mai. 12 sep. 12 jan. 13 mai. 13 sep. 13 jan. 14 mai. 14 sep. 14 jan. 15 mai. 15 sep. 15 P/E SKAGEN Kon-Tiki versus emerging markets P/E FY0 Kon-Tiki P/E FY0 EM Index 20,0 18,0 16,0 14,0 12,0 10,0 8,0 6,0 4,0 As of September 30,

18 SKAGEN Kon-Tiki sector and geographical distribution Sector distribution Geographical distribution Fund Index Energy Raw materials Industrials Consumer discretionary Consumer staples Health Banking & Finance IT Telecom Utilities Cash Asia DM Asia EM Europe DM ex. The Nordics Europe EM Frontier Markets Latin America Middle East & Africa North America The Nordics Cash

19 Key earnings releases and corporate news, September 2015 (cont.) Gedeon Richter (3.2% weight): FDA approval for Vraylar (Cariprazine) against bipolar disorder and schizophrenia Investment case update: Hungarian pharmaceutical company transitioning from generic-focused to more specialised, higher-margin products in nervous system treatments and women s health. A successful launch of Vraylar into the US market could be a game changer for Richter. The company sought approval in 2013 and the FDA asked for further research late in the year. The current news is positive, because the approval includes both bipolar disorder and schizophrenia. Bipolar disorder affects 3.6m and schizophrenia 2.6m American adults. Partner Allergan, which is behind commercially successful brands such as Botox and Juvederm, will put their distribution platform and marketing force behind Vraylar in the US. A 3% script antipsychotic market share in is within reach with average price of USD 850 per script, in line with market leaders Latude, Abilify and Invega. None of this is factored into current consensus estimates as sell-side remains sceptical to product ramp-up. Event summary: Gedeon Richter Plc. announced that the US Food and Drug Administration (FDA) has approved Vraylar (cariprazine) capsules, an atypical antipsychotic, for the acute treatment of manic or mixed episodes associated with bipolar I disorder and for treatment of schizophrenia in adults. Unpopular: the number of buy recommendations have increased from 28% to 46% currently with 5 analysts rating the stock a buy versus 6 at sell/hold. Under-researched: Yes. Vraylar is poised to be a major growth driver, which means Richter s revenues and profits will be diversified away from Russia, currently 23% of sales. Richter has historically traded at a discount to peers due to its exposure to Russia and much of the analyst focus has been on the CEE region. Consensus does not seem to factor in much value from either Vraylar or Esmya, the company s uterine fibroid treatment for women. Undervalued: Yes. A 3% market share in 2018 implies incremental sales of USD 1.8bn and USD 400m EBITDA for Assuming the rest of the business growing in line with historical 7-8%, this is more than twice consensus estimates for Our HUF 7500 target price implies a 70% upside and is 10x 2017 earnings and 1.8x P/B. 19

20 Key earnings releases and corporate news, September 2015 ABB (2.9% weight): Adapting to lower demand. Still a good play on worldwide electrification trend Implication for investment case: Lower demand in the industry to be offset by additional cost cutting, improved mix (more consulting services for example) and better group cross selling (this is nothing new). Management showed some examples of how the new organisation would be more customer focused and appeared convinced of a margin at the higher end of the 11-16% range by 2017 despite soft demand. In response to external pressure to break up the company, a strategic review will be conducted on some of the power activities during Impression was that current management wants to keep the group as intact as possible. ABB position within power generation and distribution makes it a good long-term play on the structural trend of increasing electrification and renewables. Strong balance sheet and good cash flow generation supports yield of at least 5% (share buybacks/dividends) going forward. Event summary Capital markets day: lowered long-term growth targets to 3-6% (was 4-7%) but helped by cost cutting and improved mix, margin targets left unchanged at 11-16% and company still aims to grow EPS 10-15% p.a. Release of USD 2bn cash over the next 2-3 years to support R&D investments and shareholder returns. Company to reorganise from five to four divisions and launched gross cost saving program of USD 1bn. Unpopular: Yes, a lot of focus on negative impact of oil price and slowdown in China as well as management s ability to deliver. Under-researched: Yes, ABB has a complicated corporate structure which often overshadows the underlying value of the company. While there is ambition to reduce discount to underlying values (cost cutting, cross selling, improved mix, etc.), consensus remains overly focused on impact of lower oil prices (70% of analysts have sell/hold). Undervalued: Company has leading positions in several growth areas which should offset some of the weakness related to oil price. We also expect internal improvement to give higher returns going forward. On 14% margin and 3% CAGR sales growth, stock should be able to make around USD 2/share by 2018 which on 15x (10 year avg.) renders SEK 250 (50% upside). 20

21 The largest companies in SKAGEN Kon-Tiki Hyundai Motor is the world's 4th largest car maker, including their 39% stake in Kia Motor. Sold 4.7m cars in 2013 and has a ca. 5% global market share. Focus on smaller/less expensive cars. Strong position in several countries and in emerging markets such as India and China. Samsung Electronics is one of the world's largest producers of consumer electronics, with over 155,000 employees. 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 appliances, cameras, printers, PCs and air-conditioning units. Mahindra & Mahindra is the largest manufacturer of utility vehicles in India (50% market share) and tractors (40% market share). It has several listed subsidiaries including Tech Mahindra and M&M financial services (largest financier of UVs and tractors in India). Largest bank in India with 17% market share (ca. 25% including 5 associate banks). Also presence in life insurance, asset management and investment banking. 15,000 branches, 32,000 ATMs, 130 million customers and over 220,000 employees. Largest Indian overseas bank with 190 offices in 34 countries. Turkey s leading and financial conglomerate in sectors including financial services, energy, cement, retail and industrials. The company has 10 companies currently listed on the Istanbul Stock Exchange and operates in 18 countries across Europe, the Middle East, Asia, North Africa and North and South America. Controlled by the Sabanci family. 21

22 The largest companies in SKAGEN Kon-Tiki (continued) Bharti Airtel is India s largest private integrated telecom company, and it is a leading global player (#4) with operations in 20 countries across Asia and Africa. They had around 287m customers across their operations at the end of June They separated out towers in part owned unit (passive infrastructure). Bharti family and SingTel own 30% each. Hungarian pharmaceutical company established in 1901 with focus on CEE. Transitioning from generic-focused to more specialised through higher margin, innovative products within its women s health division (Esmya) and nervous system treatments (Cariprazine). Significant upside potential from US marketing approval of Cariprazine and extended usage of Esmya is not reflected in the current valuation at 30-40% discount to peers. ABB is a leader in power and automation technologies that enable utility and industrial customers to improve performance while lowering environmental impact. The group operates in around 100 countries and employs 146,000 people. Approximately 50% of sales stem from emerging markets and this share is rapidly increasing. South-African listed media and internet holding company incorporated in They have a strong Pay-TV business in South-Africa and Sub-Saharan African countries and a fast growing internet division focused on commerce, communities, content, communication and games. They hold a 34% stake in Chinese Tencent and 29% of Russian Mail.ru. China s largest SUV and pickup manufacturer. Owns the Haval and Great Wall brands which covers three categories: SUV, passenger car and pickup. Over 30 holding subsidiaries, more than 60,000 employees and four vehicle manufacturing bases. They have their own engine and transmission production. 22

23 23 Additional information

24 The world according to free-float equity market capitalisations 24

25 US companies market cap compared to select emerging markets for an illustration as to how unpopular EM is 25

26 Credit default risk mapped by country 26

27 For more information please visit: Our latest Market report Information about SKAGEN Kon-Tiki A on our web pages Unless otherwise stated, all performance data in this report relates to class A units and is net of fees. Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager s skill, the fund s risk profile and subscription and management fees. The return may become negative as a result of negative price developments. SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however, makes reservations regarding possible errors and omissions. Statements in the report reflect the portfolio managers viewpoint at a given time, and this viewpoint may be changed without notice. The report should not be perceived as an offer or recommendation to buy or sell financial instruments. SKAGEN does not assume responsibility for direct or indirect loss or expenses incurred through use or understanding of the report. Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in this report or are part of the fund's portfolio. The art of common sense