SKAGEN Vekst Status report June 2015

Transcription

1 SKAGEN Vekst Status report June 2015

2 Summary June 2015 SKAGEN Vekst* lost 5.9% in June versus a decrease of 5.5% in the Nordic/Global benchmark index, measured in SEK. In the second quarter the fund lost 2.9%, considerably less than the benchmark which was down 4.2%. Measured in NOK, the largest contributors in June were Norwegian, Lundin and Continental. The largest detractors were Norsk Hydro, Samsung and AirAsia. SKAGEN Vekst made a few changes to the portfolio and added Golden Ocean following a spin-off from our holding in Frontline The fund also exited its holdings in the Japanese toilet manufacturer Toto and the Norwegian consumer bank Bank Norwegian after very strong performance since investment. The top 10 positions have a weighted 37% upside to current values. The top 35 companies in the fund are expected to return more than 47% over the next 2 to 3 years through share price appreciation and dividends. For 2015 and 2016 we expect earnings of the companies in the portfolio to grow approximately 20% per year on average, and as such, the expected price performance should also be positive regardless of whether valuation multiples expand or not. * Unless otherwise stated, all performance data in this report is in EUR, for class A units and is net of fees. 2

3 Results, June 2015 SEK, net of fees June QTD YTD 1 Year 3 years 5 years 10 Years Since inception* SKAGEN Vekst A -5,9% -2,9% 3,8% 5,4% 11,8% 6,8% 6,5% 14,2% Benchmark index* -5,5% -4,2% 10,3% 19,9% 18,5% 13,7% 8,4% 10,2% Excess return -0,4% 1,4% -6,5% -14,5% -6,7% -6,9% -1,9% 4,1% Note: All returns for periods exceeding 12 months are annualised. Inception date: 1 December Effective 1/1/2014, the Fund s investment mandate changed from investing a minimum of 50% of its assets in Norway to investing a minimum of 50% of its assets in the Nordic countries. This means that returns prior to the change were achieved under different circumstances than they are today. The Fund s benchmark index prior to 1/1/2014 was an evenly composed benchmark index consisting of the Oslo Stock Exchange Benchmark Index (OSEBX) and the MSCI All Country World. The benchmark index prior to 1/1/2010 was the Oslo Stock Exchange Benchmark Index (OSEBX). 3

4 Annual performance since inception* Percent SKAGEN Vekst* (EUR) Benchmark Index** (EUR) YTD 2015 Note: All figures in EUR, net of fees. Inception date: 1 December Effective 1/1/2014, the Fund s investment mandate changed from investing a minimum of 50% of its assets in Norway to investing a minimum of 50% of its assets in the Nordic countries. This means that returns prior to the change were achieved under different circumstances than they are today. The Fund s benchmark index prior to 1/1/2014 was an evenly composed benchmark index consisting of the Oslo Stock Exchange Benchmark Index (OSEBX) and the MSCI All Country World. The benchmark index prior to 1/1/2010 was the Oslo Stock Exchange Benchmark Index (OSEBX).

5 Markets in June 2015 in EUR (%) Brazil India Thailand Japan South Africa Mexico Turkey Belgium USA (S&P 500) Singapore Spain Denmark Finland France MSCI AC Index South Korea USA (Nasdaq) Italy Hungary Germany Russia Netherlands MSCI EM Index MSCI Nordic/MSCI AC ex. Nordic Canada Hong Kong Norway SKAGEN Vekst A Taiwan Sweden United Kingdom Poland Switzerland Austria China (Hong Kong) Indonesia China (Local)

6 Markets YTD in 2015 in EUR (%) China (Local) Hungary Russia Denmark Japan Hong Kong Italy China (Hong Kong) Switzerland South Korea France Netherlands USA (Nasdaq) Austria MSCI Nordic/MSCI AC ex. Nordic Norge Taiwan MSCI EM Index Belgium Germany MSCI AC Index United Kingdom Sweden Finland USA (S&P 500) India South Africa Thailand Mexico Spain Singapore SKAGEN Vekst A Poland Canada Brazil Indonesia Turkey

7 Largest holdings in SKAGEN Vekst, end of June 2015 SKAGEN Vekst has 54.8% of its portfolio invested in the Nordic countries Weight in Price P/E P/E P/E P/B Target Upside portfolio 2014e 2015e 2016e trailing price potential Samsung Electronics 7,0 % ,3 5,8 5,9 0, % Norwegian Air Shuttle 6,2 % 325 NEG 10,5 8,6 5, % Continental AG 6,1 % ,9 13,7 11,9 4, % Norsk Hydro 5,8 % 33 25,4 9,4 8,3 0, % Citigroup 5,2 % 55 12,0 9,2 8,0 0, % Teliasonera AB 5,0 % 49 14,6 12,4 12,2 1, % Danske Bank A/S 4,8 % ,5 11,7 11,5 1, % Carlsberg 4,5 % ,7 16,0 13,5 1, % ABB 4,2 % ,3 14,4 12,4 3, % Kia Motors 3,6 % ,2 6,3 6,1 0, % Weighted average 10 52,4 % 15,3 9,7 8,9 1,39 37% Weighted average 35 90,6 % 16,7 10,8 9,3 1,29 47% Reference index 17,5 15,2 13,8 2,28 7 Earnings estimates are based on net cash earnings when meaningful Price/book is calculated in the same way as for the index

8 Main contributors MTD 2015 Largest positive contributors Largest negative contributors Company NOK Millions Company NOK Millions Norwegian Air Shuttle AS 36 ##### Norsk Hydro ASA -50 Lundin Petroleum AB 22 ##### Samsung Electronics Co Ltd -46 Continental AG 18 ##### AirAsia BHD -38 Citigroup Inc 12 ##### Solstad Offshore ASA -23 Danske Bank A/S 8 ##### Wilh Wilhelmsen Holding ASA -17 Teliasonera AB 7 ##### Koninklijke Philips NV -16 Oriflame Cosmetics AG 7 ##### DOF ASA -14 Credit Suisse Group AG 6 ##### Kia Motors Corporation -13 Frontline 2012 Ltd 4 ##### SAP SE -12 Bonheur ASA 1 ##### Volvo AB -11 Value Creation MTD (NOK MM): -199m NB: Contribution to absolute return 8

9 Main contributors QTD 2015 Largest positive contributors Largest negative contributors Company NOK Millions Company NOK Millions Norwegian Air Shuttle AS 133 1E+08 Norsk Hydro ASA -118 Lundin Petroleum AB 44 4E+07 Samsung Electronics Co Ltd -86 Danske Bank A/S 30 3E+07 Toshiba Corp -62 Carlsberg A/S 22 2E+07 AirAsia BHD -52 Golar LNG Ltd 20 2E+07 Casino Guichard Perrachon SA -30 Citigroup Inc 16 2E+07 Koninklijke Philips NV -22 Wilh Wilhelmsen Holding ASA 14 1E+07 Solstad Offshore ASA -20 Ganger Rolf ASA 11 1E+07 Rec Silicon ASA -20 SBI Holdings Inc 11 1E+07 Teliasonera AB -18 Korean Reinsurance Co 10 1E+07 SAP SE -15 Value Creation QTD (NOK MM): -123m NB: Contribution to absolute return 9

10 Main contributors YTD 2015 Largest positive contributors Largest negative contributors Company NOK Millions Company NOK Millions Continental AG 84 # Norsk Hydro ASA -119 Norwegian Air Shuttle AS 77 # Solstad Offshore ASA -82 Carlsberg A/S 54 # AirAsia BHD -67 Danske Bank A/S 54 # DOF ASA -52 Lundin Petroleum AB 51 # Toshiba Corp -45 Volvo AB 48 # Kia Motors Corporation -36 Novo Nordisk A/S 32 # Casino Guichard Perrachon SA -24 SBI Holdings Inc 29 # Siem Offshore Inc -18 Nokian Renkaat OYJ 28 # Eidesvik Offshore ASA -11 Teva Pharmaceutical Industries 27 # Electromagnetic GeoServices AS -11 Value Creation YTD (NOK MM): 302m NB: Contribution to absolute return 10

11 Most important changes Q Holdings increased Holdings reduced Q1 Roche Holding AG (New) Kemira OYJ (New) Frontline 2012 Ltd (New) Danieli & Officine Meccaniche SpA (New) Carlsberg A/S SBI Holdings Inc FLSmidth & Co A/S Toshiba Corp Teliasonera AB Oriflame Cosmetics SA Citigroup Inc ABB Ltd Golar LNG Ltd Danske Bank A/S Sodastream International Ltd Lundin Petroleum AB Q1 Teva Pharmaceutical Industries Kongsberg Gruppen AS Getinge AB Q-Free ASA Odfjell SE Samsung Electronics Co Ltd Royal UNIBREW A/S Continental AG Novo Nordisk A/S Sparebanken Ost Stolt-Nielsen Ltd Korean Reinsurance Co Norwegian Finance Holding ASA Nokian Renkaat OYJ Avance Gas Holding Ltd Bang & Olufsen A/S 11

12 Most important changes Q Holdings increased Holdings reduced Q2 Credit Suisse Group AG Elekta AB Solar A/S H Lundbeck A/S Golden Ocean Group Ltd Investment AB Kinnevik Carlsberg A/S Kia Motors Corporation Kemira OYJ Norsk Hydro ASA AirAsia BHD Continental AG Danieli & Officine Meccaniche SpA Casino Guichard Perrachon SA Citigroup Inc Teliasonera AB Danske Bank A/S ABB Ltd YIT Oyj (New) (New) (New) (New) (New) Q2 Toshiba Corp Nokian Renkaat OYJ Toto Ltd Novo Nordisk A/S Norwegian Finance Holding ASA Stolt-Nielsen Ltd Sparebanken Øst Agrinos AS Royal UNIBREW A/S Koninklijke Philips NV SAP SE Korean Reinsurance Co Samsung Electronics Co Ltd Sberbank of Russia 12

13 Sector and geographical distribution vs. index (percent) Sector distribution Geographical distribution Energy Raw materials Industrials Consumer discretionary Consumer staples Health Banking & Finance IT Telecom Utilities Asia DM Asia EM Europe DM ex. The Nordics Europe EM Latin America Middle East & Africa North America The Nordics Oceania Nordics in SKAGEN Vekst Finland 1% Norway 22% Sweden 20% Cash 1 0 Fund Index Kontanter 1 0 Denmark 12% 13

14 Key buy and sell, June 2015 Key buy Golden Ocean Group The underlying shares in GOGL were distributed amongst shareholders of Frontline 2012 as a special dividend. The company owns one of the world s largest and most modern bulk carrier fleets. At the same time, freight rates are reaching an all-time low and seem close to the bottom. The stock is trading at a discount to ship values which are at 15-year lows. Key sell Bank Norwegian SKAGEN Vekst exited its Norwegian Finance Holding ASA (Bank Norwegian). These were the last shares the fund had left after gradually reducing our stake over the last couple of quarters. The investment has done exceptionally well and risen 7.5 times since the initial investment prior to the financial crisis. 14

15 Key earnings releases and corporate news, June 2015 Samsung Electronics (7.2%) Shareholder activism impacts Korean chaebol Summary: Elliot Associates (largest activist fund in the world) last week disclosed its ownership of a 7.12% stake in Samsung C&T now worth USD 760m. C&T is in a merger process with Cheil Industries. Both companies are part of the Samsung chaebol, but the Lee family has a much larger holding in Cheil, with a de facto majority. Elliot said the merger s terms are neither fair to nor in the best interests of Samsung C&T shareholders. Key to this deal is that C&T owns 18m ord. shares in Samsung Electronics or 12.2% of ord. shares and 10.6% of capital worth KRW 24tr. The net asset value of C&T is around KRW 111k while its share price pre-elliot announcement was KRW 63k. Implications for Investment Case: We do not know how this will end (requires 2/3 approval at EGM on 17 July from shares attending), but it is indeed positive as it is the first recent step to challenging governance overstepping by the large chaebols, which are now re-organising their corporate structure (or spaghetti ownership system) ahead of a generational translation in ownership. This is a cheap way for the Lee family to gain control of a big position in Samsung Electronics without paying a premium. If this does not work out, they might have to buy Samsung shares in the market. The move by Elliot, if successful (i.e. changed terms etc.) would have positive implications. The National Pension Service owns 9.98% of C&T. Their voting would be important and also signal their willingness to protect the investing public against the chaebols. 15

16 Key earnings releases and corporate news, June 2015 (cont.) Bonheur/Ganger Rolf (1.7%) The stock market is not efficient Summary: TRIG (The Renewables Infrastructure Group Limited) will acquire 49% of Fred Olsen Wind Limited (FOWL). TRIG will subscribe GBP 142m in new shares and provide FOWL with two loans totalling GBP 104m. The total cash consideration is GBP 246m, implying an EV for FOWL of GBP 752m (NOK 9.3bn). The cash proceeds will be used to repay loans provided by Fred Olsen Renewables (50/50 owned BON/GRO) and to pay a special dividend to Fred Olsen Renewables. TRIG is buying into a company which has 433MW installed capacity and EBITDA (2014) of GBP 52 m. They are paying an EV/EBITDA multiple of 14.4 and an EV/EBIT multiple of 41. Fred Olsen Renewables will after this transaction be a 51% owner of FOWL and100% owner of the remaining UK onshore wind farm development and the investments in Norway and Sweden. Proceeds will in part be utilised for projects as renewable energy is a key part of the investment activities in BON/GRO. Implications for investment case: Our investments in the Fred Olsen twins, BON/GRO, have been very disappointing the last couple of years. We underestimated the collapsing drilling/rig market, which used to be the companies main asset (Fred Olsen Energy FOE NO). However, the discount to NAV in this holding company has been huge and is the main reason why we kept it in the portfolio. Today s news is in part a game changer when it comes to the valuation of the companies. They announced a sale of 49% of the UK onshore wind farm portfolio. BON/GRO will receive NOK 3bn in cash and if we calculate only Bonheur s part, BON will receive NOK 2.2bn or NOK 54 per share vs today s stock price of NOK 58. Unpopular: yes, it is widely hated. Under-researched: yes, there is not a single report from sell-side analysts Undervalued: yes, as all focus has been on the driller assets (FOE NO) and the rest of the company s assets are overlooked (renewable, shipping/offshore wind and cruise). 16

17 Key earnings releases and corporate news, June 2015 (cont.) Air Asia (1.1%) Are they cooking the books? Summary: The negative analyst report from GMT Research sent Air Asia s share price into a tailspin. The report accuses Air Asia of milking transactions with its money-losing associates in the Philippines and Indonesia, such as plane leasing and maintenance deals to boost the parent company s operating cash flow. As the associates are currently unable to pay their bills to the parent company, Air Asia is extending significant capital to them essentially gearing up and funding its own profit and operating cash flow, the report said. Implications for investment case: Air Asia has net gearing of 2.5, down from 4.2 a few years ago (when they established Air Asia Thailand). The CEO Tony Fernandes has said they are confident of bringing the ratio down to 2 by year end. They are also raising USD 100m each for the Indonesian and Philippine associates by bringing in new investors via convertible bonds as a lead up to IPOs in The company said both these associates will become profitable this year. Air Asia may well be in some trouble, but we will hold on to the investment for now. Even if they have to do a full impairment of total receivables (due to leases not paid from associates), the company will still have a net asset value above today s share price. They own 128 aircrafts, which at a conservative price have a value of 1.5x net debt. We will monitor the investment closely going forward. Unpopular: No, 19 out of 26 analysts have a buy rating. Under-researched: No. Undervalued: Yes, as long as they have not overstated their income. If they have to do a full impairment, it is not.. 17

18 The largest companies in SKAGEN Vekst Samsung Electronics, the Korean electronics group, has enjoyed very solid growth in consumer electronics, especially smartphones. It has pole position in the global semiconductor market. Cash generation is very strong and the company has historically wisely invested in new business areas solar power and healthcare are on the roadmap for the future. Norwegian Air Shuttle is the leading Nordic-based low-cost airline, which in 2014 flew 24m passengers. Its fleet of airliners and route network are growing rapidly, proving the concept of a Norwegian local low cost airline that has Nordic, European and global reach. Continental AG produces tyres for cars and trucks and makes auto technology such as power trains, safety systems and automated drive systems. The replacement cycle for tyres is becoming. stretched in some markets, so near-term earnings look promising. In the longer-term Continental s pole position in global auto technology provides a good backdrop for substantial growth. Norsk Hydro ASA is a Norwegian aluminium and renewable energy company headquartered in Oslo. Norsk Hydro is one of the largest aluminium companies worldwide. It has operations in some 50 countries around the world and is active on all continents. The Norwegian state holds a 34.3% ownership interest in the company, which employs approximately 13,000 people. Citigroup Inc. or Citi is an American multinational banking and financial services corporation headquartered in Manhattan, New York City. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group in October

19 The largest companies in SKAGEN Vekst continued Swedish/Finnish incumbent telecom operator offering services primarily in the Nordic region. The company dates back to 1853 as the Royal Swedish Electrical Telegraph. The company is Europe s fifth largest telecom operator and offers services across Eurasia, including stakes in mobile phone operators in Turkey and Russia. Danske Bank is the second largest bank in the Nordic region and is also active in Ireland. After an unsustainable acquisition binge and loan growth before 2008, the bank has struggled with loan losses and a sub-optimal cost structure. In 2012 a new management group began to restructure the business and prepare customers and the company for an automated banking future. Carlsberg A/S is an international brewing company. The company produces branded beers and regional brands. Carlsberg makes most of its beer outside of Denmark and it is sold in markets around the world. The company also markets and produces soft drinks, water and wine. ABB is a multinational corporation headquartered in Zurich, Switzerland, operating mainly in robotics and the power and automation technology areas. ABB is one of the largest engineering companies as well as one of the largest conglomerates in the world. ABB has operations in around 100 countries, with approximately 150,000 employees. Kia Motors Corporation manufactures, sells, and exports passenger cars, mini-buses, trucks and commercial vehicles. The company also manufactures auto-parts and tools using hybrid electric and fuel cell technology. 19

20 For more information please visit: Latest Market report Information about SKAGEN Vekst on our website 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.