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HomeValue InvestingEurokai KGaA (ISIN DE0005706535) – Enjoying the “Time arbitrage recreation” with the...

Eurokai KGaA (ISIN DE0005706535) – Enjoying the “Time arbitrage recreation” with the presumably most cost-effective Port Inventory within the World 

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Disclaimer: This isn’t funding recommendation. PLEASE DO YOUR OWN RESEARCH !!!!

Some cause for not studying this publish:

  • You’ve got already posted YTD Efficiency numbers on FinTwit
  • You don’t like capital intensive shares
  • You don’t like cyclical shares
  • You favor shares which have constructive share value and/or elementary momentum
  • You require brief time period catalysts/Share purchase backs/activists and so on.
  • You want easy companies with easy constructions
  • You suppose Germany/Italy/Europe goes down the drain anyway

In such a case, do your self and myself a favor and transfer on.

For anybody nonetheless studying, please discover right here the “Elevator Pitch”, the “Professionals & Cons” part in addition to the abstract. All of the gory particulars can be found on this 21 web page PDF file:

  1. Elevator Pitch:

Hamburg primarily based Eurokai is a sixth era household owned & managed Container Port proprietor and operator. The corporate is extremely conservatively financed (vital web money and “further belongings”) and ridiculously low cost in comparison with friends and up to date M&A  transactions, though TIKR and Bloomberg incorrectly present way more costly multiples. 

Based mostly on my calculation. Eurokai trades at ¼ or ⅓ of the valuation in contrast even to the most cost effective Peer group inventory and M&A multiples. 

Though there isn’t a express catalyst and 2023 was a tough 12 months, each for container commerce and likewise for infrastructure normally, Eurokai represents a really engaging, contrarian alternative to accomplice with a household on nice belongings at a extremely low value.

Within the mid-term there are some developments (Generational change, new port initiatives) that might assist to get the valuation of Eurokai nearer to its friends which in my view outweigh the final dangers and some extra particular ones. Subsequently I believe Eurokai is an fascinating deep worth play for the affected person investor who doesn’t must beat any brief time period market benchmarks however who has the luxurious of partaking in “time arbitrage”.

L) Professional’s & Con’s

As all the time, earlier than coming to a conclusion, here’s a assortment of Professional’s and Con’s 

  • Extraordinarily low cost however effectively run infrastructure asset
  • sixth era household owned/managed, long run orientation
  • financially extraordinarily conservative
  • Decentralized group 
  • 5% dividend yield for ready
  • a number of potential “comfortable catalysts” within the subsequent few years
  • solely lined by 1 analyst, TIKR/Bloomberg numbers deceptive, very onerous to know

+/- Change to sixth era occurred in 2023

+/. Bigger Capex initiatives deliberate

  • No onerous catalysts, potential for a “worth entice” type of state of affairs
  • excessive complexity for a small cap
  • some elementary dangers (China/Taiwan, Hamburg vs Rotterdam)

M) Abstract, Return expectation & “time arbitrage”

I’ve to confess that my determination course of for Eurokai took lots longer than common. I’ve been Eurokai many occasions previously 15-20 years and by no means bought comfy till but.

A part of my motivation won’t be 100% rational, as an example I identical to ports which was the preliminary motivation to go actually deep. There’s clearly a non-zero chance that the inventory won’t be “found” over the following 3-5 years and I’ll “solely” be capable to acquire dividends. Investor consent for the time being appears to be that an affordable inventory and not using a catalyst is like lifeless wooden and can all the time keep low cost. David Einhorn as an example has talked about typically that the capital market is damaged for worth buyers and that the one different is to take a look at catalysts like share purchase backs or take overs..

However, I do suppose that the valuation is so absurdly low, that even when we assume a big low cost to the most cost effective opponents, the inventory might simply double or triple and it could nonetheless be modestly valued.

In my view, perhaps additionally pushed by the wrong information in instruments like TIKR or Bloomberg, few folks perceive the undervaluation and even fewer suppose that it’s a appropriate funding. Eurokai is illiquid, has a low Beta (0,6) and for anybody managing towards a benchmark is sort of assured to underperform for some prolonged time.

Nevertheless, as my solely actual “edge” is an extended time horizon as the standard market participant and an above common capability to undergo underperformance, I discover the inventory very fascinating. I believe that is one thing that I’d name “time arbitrage”: As a non-public investor who is just not in a rush, I do must luxurious to spend money on one thing  the place there isn’t a clear exit or catalyst. The arbitrage right here is that I believe over time there’s an growing chance that one thing occurs that may result in a re-valuation.

My worst case state of affairs over 4-5 years on this case is the present dividend yield of 5%. I believe over 3-5 years there’s a good probability that in some unspecified time in the future the market discovers (once more) this gem after which the share value might simply go up by +100% or +200% and the inventory can be undervalued.

If I assume a 50/50 probability of this occasion occurring, my anticipated return can be north of 10% p.a. over 5 years with in my view little or no actual draw back. Usually, shares which might be as low cost as Eurokai are sometimes in some type of existential hassle, which in my view is just not the case right here. That’s adequate for me.

As I wish to retain some flexibility, I allotted 3% of the portfolio into Eurokai pref shares at round 26 € per share and can monitor carefully how the market will take up 2023 numbers going ahead. I additionally plan to attend the AGM in Hamburg this 12 months to get a greater feeling for the corporate. 

Bonus observe (for all Time Arbitrageurs):

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