Wednesday, October 29, 2014

Fred Olsen Energy dives into the deep end of the pool

Fred Olsen Energy (Oslo: FOE), like the whole offshore drilling industry, has been hammered this year. In last couple of days FOE has been diving because of worse than expected quarterly report. To date it has clearly performed worse than most of it's peers listed in Oslo and New York.

In March this year, we tripled our position in this stock. Now it's our worst performing stock. Luckily, rest of the portfolio has performed better than the market, so despite of FOE moving to wrong direction, we might beat the market as much as 10%. However, it's still two months to go and anything can happen.

With regards to FOE, I'm not able to pinpoint any fundamental reason why FOE is performing worse than peers.

Any ideas from readers?


Thursday, October 2, 2014

Siili Solutions in - Valmet out


I have made two changes in our portfolio:
  • Siili Solutions was added
  • Valmet was removed
Valmet came to our portfolio for demerger of Valmet from Metso. As said then, then plan was to allow hidden value of the companies to unlock and then make decisions. The decision was between accumulate or sell and I chose latter.

Apart from some very risky positions that we have, I want rest of the positions to be meaningfully large to make a difference. Also, I want to keep the overall amount of companies at a level that I can manage to follow with some regularity.

Siili Solutions is a small Finnish IT company. They are listed at NASDAQ OMX First North Finland, which is an alternative market, operated by the different exchanges within NASDAQ OMX. It does not have the legal status as an EU-regulated market. Companies at First North are subject to the rules of First North and not the legal requirements for admission to trading on a regulated market. The risk in such an investment may be higher than on the main market.

The company has appeared regularly in my screens at the top, has good profitability and above all - potential to grow. Given most of the companies we hold are defensive and/or very large, it was time to inject a growing company into the portfolio even when it means also increasing risk for losses.

Inderes has made a thorough analysis of the company, but it's available only in Finnish (link). However, people from same company summarized their rationale when selecting the company to their expert porfolio in May 2014 - only a week after releasing the analysis linked above.

The company has been trading recently around 13,6 euros and is around all time highs. Lowest price within 1 year period is around 8 euros and before the above mentioned analysis and recommendations the company was trading at 11 euros. This should be taken into account when reading the above linked analysis.

Liquidity with the company is rather low even for individual non-professional investors like me. Thus, I had to aquire the shares we now hold over multiple days and even then I managed to increase price on several occations.

I believe the company is now fairly valued by market (and we bought with that valuation). We are in for the long run and hoping the company will deliver profitable growth, which is the key thesis to own the company.


The writer owns shares in Siili Solutions.

Sunday, August 31, 2014

Russia, Finland and stocks

Russia has been in news lately a lot due to the situation in Ukraine. Tensions are rising also in the north as Russia has repeatedly violated Finnish airspace over a short period of time. On friday, Finnish Air Force moved F-18 fighters to locations closer to Gulf of Finland where violations have taken place. Testing, teasing or just plain ignorance from Russian pilots. How knows. Some talk about echos of Cold War.

We in Finland share 1300 kilometers (800 miles) of border and a long history with Russia. They are one of our our most important trade partners, and therefore, the current crisis and sactions placed by EU and Russia to each other are bad news for already stagnant Finnish economy. Overall, the relationship between Finland and Russia is good. However, Finland as member of EU clearly has chosen its side in the crisis.

Many Finnish companies listed in Helsinki stock exchange generate considerable revenue from Russian operations:
  • Oriola-KD 38%
  • Nokian Renkaat (Nokian Tyres) 35%*
  • Aspo 32%*
  • Tikkurila 31%
  • YIT 27%
  • Honkarakenne 27%
  • Nurminen Logistics 20%
  • Raute 20%*
  • Fortum 19%
  • Stockmann 17%
*) Reporting includes also other countries than Russia from Commonwealth of Independent States (CIS)

Source: Arvopaperi magazine August 2014


The crisis has already impacted valuations of many of these companies. Maybe good opportunity to buy - maybe not. We don't have stake in the above mentioned companies other than in Fortum.

Russian stock market itself seems dirt cheap:
  • P/E 5
  • dividend yield around 5%. 
 Source: Arvopaperi magazine August 2014 (Factset, Economist)


We don't have much of a exposure to Russia at this point and I intend to keep it that way for time being. It's currently hard to see how things can get "normal" between West and Russia for some time.

Monday, June 30, 2014

How nuts is our allocation

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors." - Warren Buffett

The asset allocation suggested by Warren Buffett in his 2013 letter to shareholders of Berkshire Hathaway is quite similar to "Aggressive Investor" profile in AAII Asset Allocation Models. The biggest difference is that in AAII models and many others, it is recommended to dial down risk with the remaining investment horizon.

Vanguard offers historical Risk/Return (1926–2013) for each of their portfolio allocation models.

100% bonds

Average annual return: 5.5%
Best year (1982): 32.6%
Worst year (1969): –8.1%
Years with a loss: 14 of 88

100% stocks

Average annual return: 10.2%
Best year (1933): 54.2%
Worst year (1931): –43.1%
Years with a loss: 25 of 88

That's historical perspective to risk vs. return.

One particular rule I have come across says that allocation to stocks should be 100 minus your age. I guess it depends on whether you are going to ultimately sell stocks to cover expenses or not. Because if you are not, then why move money from stocks to bonds - especially from the dividend paying kind?

I like Warren's advice for three reasons: For its stock vs. bond allocation, its simplicity and for the use of low cost index fund. In fact, I should probably benchmark myself to his advice in addition to my selected benchmark index.

Our own allocation is close to 100% stocks allocation so it is near the extreme end of asset allocation models discussed here. I feel good about it, but we also have very high risk tolerance with the money invested. I personally think people who take sure loss after inflation are nuts (i.e. people who park money to bank accounts or low yielding bonds).

Wednesday, May 7, 2014

Helsinki Top 20

I use a service provided by Valuatum.com via Pörssisäätiö to screen stocks listed in NASDAQ OMX Helsinki. I use the screen periodically to check where our holdings stand relative to other companies listed in Helsinki. Naturally I am also continuously screening for new investment ideas.

Currently the results of my personalized screen look like this:
Our positions are marked with prefix ">".

Rank Company (Score)
-----------------------------
#1 CapMan (3,1)
#2 Orava Asuntorahasto (2,9)
#3 Siili Solutions (2,8)
#4 eQ (2,6)
>#5 Fortum (2,6)
#6 Nokian Renkaat (2,5)
>#7 TeliaSonera (2,4)
#8 Soprano (2,4)
#9 Technopolis (2,3)
>#10 Orion (2,3)
#11 Revenio Group (2,3)
#12 Taaleritehdas (2,2)
>#13 Citycon (2,2)
#14 Sponda (2,1)
#15 Norvestia (2,1)
#16 Sampo (2,0)
#17 Ponsse (1,9)
#18 Suominen (1,9)
#19 Aspo (1,8)
#20 Elisa (1,8)

..

>#35 UPM (1,5)
>#73 Nokia (0,9)
>#82 Metso (0,8)
>#95 Valmet (0,5)

Average Score of all companies in the research database: 1,4
Average Score of our positions: 1,65

Median Score 1,3
Worst Score 0,0 (#99 Incap)

Parameters used in screen (weight):
-------------------------------------------
P/B estimate 2014 (13%)
P/E estimate 2014, 2015 (8%, 10%)
Dividend yield estimate 2014, 2015 (8%, 8%)
ROA estimate 2014 (10%)
ROI estimated 3 year average 2012-2014 (8%)
ROE estimated 3 year average 2013-2015 (8%)
Turnover estimated increase 2013-2015 (8%)
Net Profit estimated increase in 2013-2015 (8%)
Gross Margin estimate 2014 (8%)
Profit Margin estimate 2014 (8%)


The used parameters emphasise attractive valuation (31%), profitability in broad sense (26% weight), growth (16%) and dividend yield (16%).


The screen relies on estimates about future. Those combined with volatility of stock prices means that you should not try to chase screens like this (I don't). Ultimately any investment decision should be based on much more than just looking at the current numbers and estimates of future numbers.

However, this screen is one of the many ways I monitor our portfolio and seek for new ideas in Helsinki Stock Exchange.