No brainer trade for 2017

Rember Grexit. At that time Euro came under severe selling pressure because people were worried that Greece exit from the EU could result in other departures. That is now all forgotten.

Surprisingly, BREXIT so far resulted only in week GBP, because the markets have been focusing on what will happen to Britain after its departure from the EU. The markets devote little attention to what will happen to the EU. The is wrong. If Grexit resulted in worries about the EU future, Brexit would likely result in significant larger panic. When this happens, the markets will sell EUR.

So if you believe, that Britain is on the way out, then you should get ready to sell EURUSD.

Fondul starts 7th buyback programme

Fondul Proprietatea announced competion of the 6the buyback in which the fund has repurchased 731.9 million shares. The share will be cancelled at the next shareholder meeting. Yesterday Fondul announced commencement of the 7th round of buyback in which it will repurchase 409.6 million of shares. The fund is authorised to purchase up to 25% of the daily volumes.

Fondul Proprietatea announced the completion of the 6the buyback in which the Fund has repurchased 731.9 million shares. The share will be cancelled at the next shareholder meeting. Yesterday Fondul announced the commencement of the 7th round of buyback in which it will repurchase 409.6 million of shares. At current market price, the buyback amounts to USD 80 million, which represents 4% of its market capitalisation. The fund is authorised to purchase up to 25% of the daily volumes.

Fondul shares currently trade at 31% discount to its NAV. If the shares were repurchased at the current prices, the NAV would increase by USD 35 mln, which is approximately 1.8% of the NAV.

Fondul is working on the listing of its largest asset Hidroelectrica on the local stock exchange which should be completed by the end of 2016. Hidroelectrica is Fondul largest holding at 27% of NAV. The illiquidity of this holding represents on of the main reasons for the NAV discount.

Net dividend yield of 6.25%

The Fund management proposed that the Fund for 2016 will distribute 0.05 RON per share. The payment will take the form of reduction of share nominal by that amount. In most jurisdictions, such capital return is tax-free. Fund shareholders will, therefore, be able to collect net ”dividend” yield of 6.25%.

Fondul NAV up 5%

From Wood and Co Research note released this morning:
Fondul Proprietatea has disclosed the NAV for end of June at RON 1.1445, up 5.4% from previous NAV disclosed on 9 June (just after the reduction in par value to RON 0.85 per share). The reason for the increase in the NAV is the revaluation of the stakes held in Bucharest Airports, Constanta Port and the one in Hidroelectrica after exiting insolvency. The total cumulated increase was RON 785.7m, 6.5% of the NAV, with the largest effect coming from Hidroelectrica revaluation.

Paul Singer´s Fondul restructures its portfolio

Fondul Proprietatea is one of the largest closed end funds in the world. The largest investor in the fund is actvist investor Paul Singer.

Franklin Templeton Investment Management Ltd. United Kingdom Bucharest Branch, in its capacity as Investment Manager of Fondul Proprietatea SA (“the Fund”), announced yesterday that it has sold the entire participations of the Fund in E.ON Distributie Romania S.A. and E.ON Energie Romania S.A.
The stakes in total represented 5.3% of Fondul´s NAV. The shares of the Eon companies were not listed.

Details of the transaction were not disclosed.

For more details on the Fondul opportunity see:


Catalyst for Fondul Proprietatea investors

Bucharest, 21 June 2016 – Franklin Templeton Investment Management Limited United Kingdom Bucharest Branch, in its capacity as Investment Manager of Fondul Proprietatea SA (“the Fund”), welcomes the closure of the insolvency proceedings of Hidroelectrica following the syndic judge’s decision on 21 June. After a long period in insolvency, Hidroelectrica emerges as a healthier and stronger company, prepared to capitalize on its enormous potential and to list on the stock exchange.
“We would like to congratulate the judicial administrator Remus Borza for Hidroelectrica’s outstanding results over the past four years and for his dedication, commitment and contribution to the restructuring of Hidroelectrica. From a loss-making company Hidroelectrica became a highly profitable, efficient and competitive one. The judicial administrator made remarkable efforts over the past four years and, despite the numerous challenges, managed to increase Hidroelectrica’s revenues and reduce operational costs, which allowed the company to return on a positive cash flow and subsequently exit insolvency” commented Grzegorz Konieczny, Portfolio Manager of Fondul Proprietatea.
He added: “We are concerned to see that even though the company’s exit from insolvency had been expected since last year, Hidroelectrica still does not have an independent Supervisory Board selected and appointed in accordance with Ordinance 109/2011. This might pose significant risks for the company in the near future. We urge the Ministry of Energy to accelerate the appointment process of the new Supervisory Board that should follow up with an appointment of professional executive management team. Especially now, after the insolvency exit, Hidroelectrica needs strong and determined management in order to protect the value that has been created during the process, to create further value for Hidroelectrica’s current and future shareholders as the next important milestone is to successfully list the company in Bucharest and London.”
The closure of the insolvency proceedings opens the way towards Hidroelectrica’s initial public offering, the first listing of a Romanian state owned company in more than two years and the largest listing in the history of the local capital market. Fondul Proprietatea is a strong supporter of the company’s IPO, which represents a great leap towards the upgrade of the local stock exchange to the emerging market status.
Fondul Proprietatea advocates for Hidroelectrica’s dual listing on both the Bucharest Stock Exchange and the London Stock Exchange, which would benefit the Romanian capital market, as well as ensure access to a larger pool of demand at the time of the IPO and afterwards, as well as greater visibility for the company. In order to contribute to a successful dual listing, Fondul Proprietatea has proposed to sell during the IPO a 5% stake out of its 20% holding in Hidroelectrica, and also a 3.74% stake representing the subscription rights the Fund has in the share capital increase process, besides the 15% stake the state intends to list.

I am buying OPAP


Basic characteristics

  • Dividend yield of 8%
  • 2017 PE of 12.4
  • No debt, positive cash balance of 100 mln E
  • ROE of 15%
  • EV/EBITDA of 7
  • Not in the price: further significant potential from VLT – the investment was made, OPAP waiting for the licence. Plan B – OPAP already lunched BIT arbitration against Greece

From Morgan Stanley:

A new chief gambling regulator in Greece raises the prospect of OPAP finally launching VLTs. These are not included in our forecasts or valuation, and we see it as a free option worth €1.8-4 per share

Greece will appoint a new president of the Hellenic Gaming Commission, who will replace Mr Stergiotis, whose term ends on June 19.

A new chief regulator raises the prospect of launching VLTs. OPAP and the regulator have been in a stand-off, with OPAP stating that regulatory restrictions made the project not economically viable. We expect that resolving this stand-off could well be one of the key issues to be addressed by the new regulator. Tax revenues from VLTs formed part of last July’s third memorandum with the European Stability Mechanism to secure additional funding, suggesting that launching will be important for State financing.

We estimate that the VLT project could be worth €1.8 to €4 per share. We do not include VLTs in our forecasts or valuation, and see this as a free option, as we outlined in this note. If launched with commercially acceptable terms, we expect that VLTs could generate c.€170m of EBITDA and €0.21 of EPS at maturity in 2010. OPAP paid €560m for the licence, equivalent to €1.8 per share, and our bull case values VLTs at 7.4x EV/EBITDA, broadly in-line with international comparables and transactions.

€12 per share bull case becoming more realistic? Our bull case assumes VLTs ramp up in 2017, reaching maturity at €172m of EBITDA in 2020. We assume modest cannibalisation, with Retail EBITDA dropping from €315m in 2016e to €279m in 2019e. Our bull case values the shares at a P/E of 16x in 2018e, at the higher end of their historical range, reflecting the strong cash generation, recovery potential in Greece, and strong growth driven by VLTs. We estimate that the company could return nearly €6 per share to shareholders in the next 4 years in our bull case.

Higher duties and a weaker macro environment would make us more cautious. We see VLTs as a free option, as these are not included in our forecasts or valuation. The main downside risks are that duties increase beyond the planned 35% rate, or that the bond yield moves upwards again

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