Time to get back to Fondul Proprietatea

Fondul Proprietatea, one of the largest closed end funds in the world, is becoming interesting. In the last few days Romanian index and Fondul are down 5%.

The reason for the sell off is Romanian bank shares. The sell off was caused by speculations of new asset tax on banks to be imposed by Romanian government. It may be a buying opportunity to get back/increase exposure in Fondul.
Fondul trades at 31% discount to its NAV. The reason for such steep discount is in high proportion of unlisted assets in its portfolio.
Over the last years FP was selling one non-listed asset per year. This year they may be selling half of unlised NAV:
– sale process for the two electricity distribution companies is under way (19% of NAV)
– Salt mine is in sale process (2% of NAV)
– Fondu appointed advisors for the disposal of Hidroelectrica stake (33% of NAV)
Unlisted assets now represent 69% of total assets. If the disposals would materialize, unlisted assets would decrease to 15% only while cash would represent over 55% of total assets. The price would sky rocket.
For more information on the opportunity pls go to:

Egyptian Pound is the most undervalued currency in EM

Please read my Egyptian Pound published here last week
23 May, 2017 FT.com
 Egyptian pound ‘cheapest in EM’ after central bank hikes rates – RenCap
Better late than never.Analysts at emerging-market specialists Renaissance Capital had practically given up hope of an interest rate rise from the Central Bank of Egypt after predicting one earlier in the year, but now they see some good opportunities after the central bank finally moved overnight. The CBE surprised observers by increasing all its rates by 200 basis points (2 percentage points), taking the overnight deposit rate to a record high of 16.75 per cent in an effort to combat the country’s eye-watering inflation rate.The central bank has been struggling to contain inflation since it devalued the pound and moved to a floating exchange rate regime last November, as the weaker pound has driven up the cost of food imports. Headline inflation hit an annual rate of more than 30 per cent in April, with food prices climbing at least 3 per cent six months in a row. RenCap had predicted a rate hike would be needed in February or March, and chief economist Charlie Robertson admits that by last week “we wondered if the CBE was just trying to ‘wait out’ the inflation cycle, given how weak domestic demand was”.While the move may have come a little later than hoped, Mr Robertson says it is good news for the Egyptian pound:It shows a commitment to getting inflation back down again, after months where it has consistently been running high.Currency stability – which should be supported by the higher interest rate – will help drive down month on month inflation. Currency appreciation should help more.Despite the inflation difficulties, RenCap thinks the Egyptian pound is the cheapest emerging market currency, with current levels of around E£18 per dollar “cheap” compared to a fair value of between E£14 and E£15 per dollar.The pound did briefly approach those levels at the start of the year, rallying more than 14 per cent in just two weeks. However, analysts had suggested the extent of the climb may have been influenced by CBE intervention and it quickly erased the gains.At publication time the currency stood at E£18.10 per dollar, a 0.5 per cent climb for the day.While the central bank’s move is expected to reduce pressure on prices, the CBE admitted that bringing inflation down will take some time. Policymakers said higher inflation will be “temporarily tolerated”, with the bank targeting a decline to around 13 per cent by the end of next year, and “to single-digits thereafter”.

Investment idea: Long Egypt Government bonds

Investment idea: Invest in local currency Egypt Government debt instrument yielding 16% + benefit from the currency comeback after a steep devaluation


  • Last year Egypt enacted reforms required by IMF. IMF provided funding to Egypt
  • Further reforms laws are being enacted
  • As a part of the IMF lead reforms Egypt devalued its currency by 100%.
  • To balance its budget Egypt stopped fuel subsidies
  • Interest rates are around 16%
  • The Egyptian economy is benefiting from the reforms and is starting to recover
  • 16% yield represents a downside protection. If the economy improves part of the shock devaluation would reverse. An investor would make the 16% + a gain from currency uplift.



My favorite Greek play

Greece is still not recovering. It will. Especially when they finally agree to write off part of the debt as IMF is repeatedly suggesting. My favorite Greek recovery play is OPAP. You get a 6.5% dividend yield for waiting and an upside from Greek recovery and from implementation of VLT machines

Until recently most analysis attributed no value to the VLT machines build up, due to low visibility. The visibility is now improving. See below just published research summary from Wood and Co.

*** OPAP: Greek non-financials top pick ***

We maintain our BUY rating on OPAP and increase our 12M price target (PT) to EUR 11.60/share (from EUR 10.00), due to: i) our forecasts increases; and ii) our WACC cut. First, we have increased our 2017-19E EBITDA forecasts by 1-7%, to factor in the new agents’ commission scheme, the details of which were announced together with the 4Q16 results. Second, following the recent EUR 200m bonds issue in March at 3.5%, barely half the Greek sovereign bond yield, we now consider our old WACC assumption of 11% as excessive. With respect to the multiples, despite the 50% rally since mid-2016, OPAP is still only trading at a 2018E EV/EBITDA of 7.1x, 29% below its peers’ average. Moreover, with a dividend yield of 6.6%, the stock is strongly ahead of its 4.4% peer average. Overall, despite the 50% rally since mid-2016, we still see OPAP’s risk/reward profile as appealing. OPAP remains our top pick within our Greek non-financial universe. To download the report, please click on the following link: Greece_Consumer Discretionary_OPAP_Update_12Apr2017.pdf, (504 KB)

New agents’ commissions should cut costs. Together with its 4Q16 results, OPAP announced the details of its new commission scheme, which has already been accepted by 90% of agents. Under the new arrangement, OPAP has replaced the old system, based on c.8% of wagers, with the share of NGRs easing from 39% in 2017 (triggering virtually no change in costs to ensure a smooth transition), to 37% in 2018E and to 35% +1% in 2019-21E. We estimate that the new set-up should save c.EUR 33m in 2019E. We have increased our EBITDA forecasts by 1% to EUR 308m in 2017E, 5% to EUR 409m in 2018E and 7% to EUR 469m in 2019E. Accordingly, we have upped our earnings and DPS forecasts by 8% for 2018E and 11% for 2019E.

EUR 200m bonds issue at half the Greek sovereign rate. In mid-March, OPAP issued EUR 200m of five-year bonds at a yield of 3.5%, which is barely half the Greek state 10-year bond yield. Interestingly, according to the company, the issue was more than 2x oversubscribed (total demand of EUR 421m). As a result, OPAP has not only improved the efficiency of its capital structure, but has also proved that our previous assumptions of a cost of debt of 9% (7% sovereign + 2ppts debt premium) and an effective WACC of 11% were inappropriate. To address both these issues, we have trimmed our cost of debt assumption to 3.5% and our WACC to 8.1%.

Our new PT of EUR 11.60/share offers 34% total return potential. Our valuation methodology is 50/50 based on our DCF model and our 2018E multiples. Adjusting for our higher forecasts and the WACC cut, our new DCF model implies a 12-month PT of EUR 11.70, up 25%, from EUR 9.40 previously. With respect to the multiples, despite the 50% rally since mid-2016, OPAP is still only trading at a 2018E EV/EBITDA of 7.1x, 29% below its peers’ average. Moreover, with a dividend yield of 6.6%, the stock is strongly ahead of its 4.4% peer average.

Risks. The major downside risks for our positive stance are: a deeper slowdown in the Greek economy; regulatory risks, especially in the case of VLTs; losing exclusivity to online gambling; and further GGR tax hikes.

Czech koruna trade

Speculators piled in over 70 billion into CZK in anticipation of  CZK appreciation after the Czech National Bank currency support ends. It ended today. CZK did strenghtened a bit. Now expect the reversal. THe speculative position is very significant and when they start closing it, expect strong short squeeze. CZK could devalue significantly. Go long EURCZK.

Elliot Associates Romanian play

Wood and Co research on Fondul Proprietatea published 2/22

We continue to regard Fondul Proprietatea (FP) as one of the most attractive investment opportunities in Romania. We see it as a play on: 1) the restructuring of state companies and corporate governance improvement; and 2) the eventual longer-term recovery of energy prices; as well as 3) the ability of the Fund’s manager, Franklin Templeton, to apply the right methods for reducing the discount to NAV. Our NAV estimate, derived by marking to market the listed holdings and valuing some of the unlisted stakes, is RON 1.196/share, which is in line with the official NAV of RON 1.208/share (as of January 2017). However, for some of the listed companies, we see further upside as possible (e.g., Petrom). We believe the current 25% discount to NAV is too high, and we see ways of narrowing this. We increase our price target (PT) to RON 1.11/share, using a 15% fair discount to NAV and a 9.5% cost of equity, implying 23.4% upside. We maintain our BUY rating on the stock.

Potential catalysts for the NAV discount to narrow. We see more asset disposals or listings from the unlisted part of the portfolio, followed by cash distributions to shareholders, as potential catalysts for the discount to narrow. The Fund has already disposed of its stakes in Transgaz, Transelectrica, Romgaz and unlisted E.ON, and has partially reduced its participation in Petrom and Conpet. We believe more disposals are possible from both the listed and the unlisted parts of the portfolio (e.g., a 10% stake in Hidroelectrica, once listed; an eventual sale of the stakes held in Electrica’s subsidiaries to the parent company). The proceeds of any disposals, as well as any dividends that the Fund receives from its listed holdings, are to be distributed to FP’s shareholders, either via buybacks or via reductions of the share par value.

NAV discount too high. The discount to NAV is at 25% currently, from 30% a year ago. The Fund pays a low amount of tax; generates an average yearly earnings yield close to its cost of equity; has been able to sell stakes at a discount of less than 5% to their NAV; and has taken important steps towards either listing other stakes in the portfolio or disposing of them. Therefore, we see no reason for the NAV discount to remain this high.

NAV could see further upside. Not only should the discount to NAV narrow, in our view, but we also see growing support for FP’s NAV to increase, as it is highly exposed to the prices of oil & gas and electricity (46% of NAV). We see oil & gas and electricity prices moving slowly higher, to the benefit of oil & gas producers like Petrom (17.7% of NAV) and electricity producer Hidroelectrica (26.4% of NAV). Moreover, we see more upside for the currently unlisted stakes once the IPOs have been undertaken, as we are currently applying a discount to them in our valuation (Hidroelectrica and Bucharest Airport being the largest).

For more details go to:http://seekingalpha.com/article/3757246-invest-paul-singer

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