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Thursday, June 20, 2024

Eurokai KGaA (ISIN DE0005706535) – Taking part in the “Time arbitrage recreation” with the probably least expensive Port Inventory within the World 


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

Some cause for not studying this publish:

  • You will have 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 optimistic share value and/or basic momentum
  • You require brief time period catalysts/Share purchase backs/activists and so forth.
  • You want easy companies with easy constructions
  • You assume 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 based mostly Eurokai is a sixth technology household owned & managed Container Port proprietor and operator. The corporate is extremely conservatively financed (vital internet money and “additional 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 is no such thing as a express catalyst and 2023 was a troublesome yr, each for container commerce and likewise for infrastructure usually, Eurokai represents a really enticing, contrarian alternative to associate with a household on nice belongings at a very 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. Due to this fact I feel Eurokai is an attention-grabbing 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 participating in “time arbitrage”.

L) Professional’s & Con’s

As at all times, 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 technology household owned/managed, long run orientation
  • financially extraordinarily conservative
  • Decentralized group 
  • 5% dividend yield for ready
  • a number of potential “mushy catalysts” within the subsequent few years
  • solely coated by 1 analyst, TIKR/Bloomberg numbers deceptive, very exhausting to know

+/- Change to sixth technology occurred in 2023

+/. Bigger Capex initiatives deliberate

  • No exhausting catalysts, potential for a “worth entice” type of scenario
  • excessive complexity for a small cap
  • some basic dangers (China/Taiwan, Hamburg vs Rotterdam)

M) Abstract, Return expectation & “time arbitrage”

I’ve to confess that my resolution course of for Eurokai took loads longer than normal. I’ve been taking a look at Eurokai many occasions prior to now 15-20 years and by no means obtained snug till but.

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

However, I do assume that the valuation is so absurdly low, that even when we assume a major low cost to the most cost effective rivals, the inventory may simply double or triple and it will nonetheless be modestly valued.

For my part, perhaps additionally pushed by the inaccurate information in instruments like TIKR or Bloomberg, few individuals perceive the undervaluation and even fewer assume that it’s a appropriate funding. Eurokai is illiquid, has a low Beta (0,6) and for anybody managing towards a benchmark is nearly assured to underperform for some prolonged time.

Nonetheless, as my solely actual “edge” is an extended time horizon as the everyday market participant and an above common capability to endure underperformance, I discover the inventory very attention-grabbing. I feel that is one thing that I’d name “time arbitrage”: As a personal investor who is just not in a rush, I do need to luxurious to put money into one thing  the place there is no such thing as a clear exit or catalyst. The arbitrage right here is that I feel over time there may be an growing risk that one thing occurs which 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 feel over 3-5 years there’s a good likelihood that sooner or later the market discovers (once more) this gem after which the share value may simply go up by +100% or +200% and the inventory could be undervalued.

If I assume a 50/50 likelihood of this occasion taking place, my anticipated return could be north of 10% p.a. over 5 years with in my view little or no actual draw back. Typically, shares which can be as low cost as Eurokai are sometimes in some type of existential bother, which in my view is just not the case right here. That’s ok 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 intently how the market will take up 2023 numbers going ahead. I additionally plan to attend the AGM in Hamburg this yr to get a greater feeling for the corporate. 

Bonus monitor (for all Time Arbitrageurs):

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