Swiss capital updated Fondul Proprietatea price target to RON 1.16

We updated our view on Fondul Proprietatea with a target price of RON 1.1159 per share and a BUY recommendation. (Prev TP 1.0666 as at Sep 24 2014)

* As the current 27% discount to NAV is below the management agreement objective of 15%, the Fund will continue to pour cash into investors’ pockets.

* Last year the Fund distributed some RON 1.9b. Accordingly, the discount to NAV reduced from 33% at 2013-end to 26% at 2014-end.

* This year at least RON 1.6b to be returned to shareholders via buy-backs and share capital reduction.

* RON 0.05 per share distribution is expected by June-end via the reduction of the nominal value of the Fund’s shares to RON 0.90 (6% DIVY). The Fund manager recommended and the shareholders approved (on 21 January 2015) a cash distribution of RON 0.05 per share (RON 609m).

* The fifth buy-back programme started on 10 February 2015. The programme refers to the acquisition of a maximum number of 227,572,250 shares and needs some RON 198m to be completed if last close considered.

* The sixth buy-back programme to be approved. On 27 April GSM, shareholders are convened to approve the buy-back of 891,770,055 shares or GDRs/ DIs equivalent. At the last close, the sixth buy-back would require some RON 775m.

* The exit from Electrica subsidiaries is expected in H1’15. Price negotiations are ongoing and the Fund expects a conclusion to be reached by the end of Q1’15. We see Electrica stakes fairly priced in the Fund’s NAV.

* The Fund manager expects to reduce further the discount to NAV through Q2’15 LSE listing. Trading in London is planned to be achieved via the use of GDRs or DIs.

* In the medium term, the Fund looks trapped as minority in Enel, E.ON, GDF Suez subsidiaries. RON 2,679m (21% of NAV) stuck in. Enel halted the Romanian market exit as the group managed to reduce the debt burden following the successful completion of several transactions. E.ON and GDF Suez did not consider either withdrawing from Romania or buying out the Fund’s minority stakes.

* The chances for an IPO this year are small as no firm privatisation calendar has been presented up to now. Hidroelectrica 15% IPO is expected in H1’16 (offering value EUR 350m).

* Posta Romana privatisation might take place at the end of H1’15. The Fund that owns 25% in Posta Romana, values the respective stake at RON 56m.


Valuation of Aena – a significant upside ahead

Valuation of Aena – a significant upside ahead

  • Largest European IPO since 2011 up 21% since its launch
  • Shares performed strongly despite the fact, that there is no analyst report published, yet
  • Our valuation shows 30% further upside
  • Aena in play – activist investor TCI became the largest investor will most likely push for further improvements to earn further upside

Aeana is the world’s biggest airport operator based in Spain. The company runs 46 airports and two heliports in Spain and another 15 in Latin America, the United States, and Europe, including London’s Luton. It handled nearly 196 million passengers last year, a 4.5% increase over 2013, making it the world’s one airport operator by passenger numbers, ahead of Germany’s Fraport and France’s ADP. The company has over 6500 employees.

The company reported revenues of €2,876 million and net profit of €596 million for 2013. The company has not published its results for 2014, yet. Under my model, the company should report revenues of €3,025 million and net profit of €648 million.

Since 2011 the company is on active restructuring mission to reduce costs and decrease leverage. Over the last four years the company managed to reduce costs by €255 million, significantly improve profitability (from net loss of €306 million in 2011 to net profit of €597 million in 2013 and cash flows and reduce leverage significantly from 14x net debt/EBITDA in 2011 to 7x in 2013.

The IPO was a success. It was five times over subscribed and its shares closed at €70, up 21% from the issue price of €58. All despite the fact that the shares were priced at the very top of the range of the €53-€58 per share.

Spain, which is privatizing the company as it tries to lower a public debt sold in the IPO 49% stake in the company while plans to keep a 51 per cent controlling stake in the operator. The largest private shareholder in the IPO was The Children Investment Fund (TCI), a prominent activist fund run by on of Britain’s biggest philanthropist Chris Hohn. TCI bought 7% in the IPO and additional 3% on the first day of trading of the company. In total TCI invested over 900 million in Aena shares.

TCI strategy for the investment has not been disclosed. I followed recent involvement of TCI in the IPO of Royal Mail. After Royal Mail IPO Christorpher Hohn´s TCI emarged as the largest Royal Mail shareholder with 5.8% stake. TCI invested in Royal Mail as it planned to unlock the significant hidden value of property assets that were undervalued on Royal Mail balance sheet. TCI were quite successful with this investment generating over 50% return over six months period. Aena might be a similar play. José Manuel Vargas Gómez, Aeana CEO, stated on CNBC that Aena also has significant land assets that are currently not used. What is the value of the opportunity is uncertain, what is certain though is, that TCI significant presence indicates that there must be a hidden opportunity to be realized. The fact that Christopher Hohn personally sits on the Board of Directors of Aena is a further indication how interesting the investment for TCI is.

As stated above there is no analyst research on Aena – no investment bank or brokerage house is currently covering the Aena stock, mainly due to post IPO restrictions. To bridge the gap I performed a quick valuation of the company. The valuation is based on comparables of similar airport operators in Paris, Frankfurt, Zurich, Copenhagen and Vienna.

To check the comparability of the sample, I compared the growth, profitability and leverage of Aena vs. the sample.

The table below indicates that Aena reported a better growth and profitability and return on equity than its peers. In general, a faster growing company should attract a higher PE multiple than its peers. Similarly a company with a higher return on equity than its peers should trade at a higher PE multiple than its peers.

Name Sales Growth (%) EBITDA Growth (%) EBITDA Margin Operating Income Margin Net Income Growth (%) Net Profit Margin Capex/ Sales (%) Return on Assets Return on Equity
KOBENHAVNS LUFT. 6,05 -21,90 55,64 38,42 -43,10 25,28 20,28 10,05 36,40
ADP 1,33 1,98 39,43 25,21 13,57 13,12 16,11 3,90 9,71
FRAPORT FRANKFURT 0,85 7,64 33,46 20,29 5,88 9,27 14,14 2,42 7,18
FLUGHAFEN ZUERICH -0,19 32,49 54,47 30,79 775,90 22,41 22,96 5,61 10,81
FLUGHAFEN WIEN 1,35 NA NA 20,42 30,80 13,42 15,66 4,35 9,16
Average 1,88 5,05 45,75 27,03 156,61 16,70 17,83 5,27 14,65
AENA SA 10,71 48,63 52,81 24,39 9,00 20,74 16,28 3,60 21,79
Source: Bloomberg

The table below indicates that Aena is more highly leveraged than its peers. The higher leverage can be demonstrated by higher Net Debt to EBITDA or Net Debt to Equity ratios. On the other hand EBITDA to Interest Expense ratio indicates that due to higher profitability of Aena the debt level is less out of line that it would seem from balance sheet ratios.

Name Net Debt/EBITDA (x) Net Debt/Equity (%) Total Debt/Total Assets (%) EBITDA/ Interest Expense (x)
KOBENHAVNS LUFTHAVNE 2,12 174 43,98 11,09
ADP NA NA 43,33 5,78
FRAPORT AG FRANKFURT 4,45 110 46,85 4,13
FLUGHAFEN WIEN AG NA 55 33,64 4,75
Average 3,29 113 40,02 7,96
AENA SA 5,48 274 69,77 6,07
Source: Bloomberg, own research

In general a multiple valuation should be performed based on forward looking financials. Past is past, but the shares trade on a future outlook. For Aena it is a little bit more difficult. There is no analyst’s research, no consensus numbers. At this stage I did not try to forecasts 2015 performance. Therefore, I performed valuation based on 2014 financials. The airport operation is a stable cash flow generating business. If we assume that 2015 would be a year without major economic disruptions than we can assume that 2014 performance is a good proxy for a future performance. Under such assumption, the table below shows that Aena trades at 30% discount to its peers on PE multiples.

Name Mkt Cap (EUR) EV P/E
KOBENHAVNS LUFTHAVNE 3 443 4 051 26,46
ADP 10 475 13 562 28,92
FLUGHAFEN ZUERICH AG-REG 3 727 4 484 18,37
FLUGHAFEN WIEN AG 1 608 2 128 19,09
Average 4 850 6 574 23,02
AENA SA 10 500 21 961 16,24
Discount     29%
Source: Bloomberg, own research


As shown in the table above Aena was able to generate a better growth, a better profitability and a better return on equity than its peers. Aena should therefore trade at PE premium to its peers, not discount. Further upside can be expected from the TCI activist actions. The CEO on CNBC mentioned that there are significant underutilized land assets that could be monetized. There should be good times ahead, at least for Aena shareholders.

My new exposure – co-invested with TCI

TCI sits on ‘business’ of Aena to reach 10% of the capital after investing 900 million

If an investor has brought business class ticket at the recent privatization of Aena this is The Children’s Investment Management (TCI). The British fund, already bought a 6.7% stake in the airport operator in the public offering (OPV), has acquired market for at least another 3% of capital by 300 million euros. De esta manera, alcanza alrededor de un 10% de la compañía pública tras una inversión de cerca de 900 millones. Thus, reaches about 10% of the public company following an investment of about 900 million.

Purchase additional 3.3% was mainly in the day of the premiere bag Aena day that changed hands 15.87 million shares, 10.58% of the share capital. De este número de títulos, TCI barrió cerca del 70% a través de Goldman Sachs y Morgan Stanley, los brokers más activos en el debut bursátil de la compañía presidida por José Manuel Vargas . Of this number of titles, TCI swept about 70% through Goldman Sachs and Morgan Stanley, the most active brokers in the market debut of the company led by José Manuel Vargas.

With this participation, TCI becomes by far the largest private shareholder of Aena, whose 51% stake is still in the hands of the Spanish State. A precios de mercado, la adquisición de este algo más del 3% adicional asciende a entre 300 y 350 millones de euros, por lo que la inversión total del fondo inglés en el dueño de Barajas y de El Prat ronda los 900 millones. At market prices, the acquisition of this just over 3% additional amounts to between 300 and 350 million euros, so that the total investment of English background in business Barajas and El Prat around 900 million.

source: translated from

P.S. Follow this page for detailed valuation of Aena to be released shortly

Fondul Proprietatea will report Q4 on Friday 13 February

Fondul Proprietatea will report Q4 on Friday 13 February. The investor call is scheduled for Monday 16 February.

The results should be quite good. The company already indicated that 2014  ended with a record net profit of EUR 228 million, up by 48% compared to 2013, when the company’s profit amounted to EUR 151.1 million.

Most of this profit came from dividends paid by companies in which FP holds stakes, as well as from the fund’s asset sales, which reached EUR 240 million in 2014. The fund sold several significant stakes last year, in gas producer Romgaz, electricity transport company Transelectrica and oil pipe operator Conpet.

The best oil price analysis I read to date

From 29.1.2014

January 28, 2015 5:03 pm

Tricks of the mind turned oil into gold

In 2007 I made a bet with a fellow Russian businessman. The price of oil, he told me, would never drop below $80 again. This was the consensus among oilmen at the time. And that, I thought, was the surest sign that the oil price would soon start falling.

I told my acquaintance that the oil price could easily go down to $40. What determines it, I said, is not supply, demand or the cost of production. Rather, what matters is the mere perception of a potential shortage.

The price of oil stayed high only because people believed there was not enough of it to go around. But once people believe that, consumers start looking for an alternative while producers try to pump more of the stuff — and then prices fall.

I am not a professional oilman and my assumptions were based not on knowledge of geology or the rate of economic growth in China, but on the simple fact that humanity usually finds a way around any obstacle in its path.

While many of my colleagues in Russia and elsewhere are arguing about when the oil price may bounce back, I am convinced that we have entered a new period of low oil prices. It is like alchemy, but in reverse: black gold, a precious substance whose price was determined by its scarcity, has turned into a black, smelly liquid that makes wheels turn.

It is not the first time this has happened. The price of oil was relatively stable until the 1970s brought the psychological shock of an embargo imposed by Saudi Arabia on the export of oil to America.

In 1975, the US started its petroleum strategic reserve, contributing to the perception that oil was scarce. Oil producers saw their main objective was to guard their oligopoly. No one cared about such trifling matters as efficiency — the distribution of licences was far more important. A good lobbyist was worth more to an oil company than a good engineer.

To deal with this challenge, developed countries started to invest in energy saving and new technologies, and by the early 1980s this started to yield results. The ensuing fall in oil prices eventually sapped the Soviet Union of its economic lifeblood.

Rapid economic growth in China and India in the early 2000s changed the perception about the balance between demand for oil and its scarcity. And once again developed countries with high levels of entrepreneurial freedom set themselves to work on solving the bottleneck.

There was no single solution, but everyone thought of something: biofuel, wind energy, oil sands, shale.

It was no accident that the countries that led the innovation were liberal market economies with strong property rights, while the countries that wished to thwart these efforts were resentful of competition and riddled with monopolists. They treated private property as a concession that could easily be taken away.

Political systems based on the distribution of rent demoralise people. Political regimes based on free competition motivate people. It is because of free initiative and competition that humanity can overcome bottlenecks.

The reason America has led the way in the production of shale oil and gas is not that it has a lot of shale — many other countries have a similar geology. It is that America has a lot of economic freedom.

This is a precious resource that many other countries lack. Its government does not sell licences for onshore drilling. It lets people buy land, and promises that nobody can take away from you what it is yours.

The dizzying oil prices of recent years were profoundly abnormal. The fall will turn oil production into a proper business where costs and efficiency matter more than lobbying power. This stands to make the world freer and safer, by reducing the power of illiberal regimes that thrive on oil rents.

Two years ago, I found myself in Manaus, a unique city in Brazil’s Amazonas, in the middle of the rainforest. In the late 19th century Manaus became one of the richest and most extravagant cities thanks to the rubber it had.

It built a splendid Belle Époque-style opera house out of Italian marble with vast domes and gilded balconies. But a few years later the seeds of the rubber tree were smuggled out of the Amazon and Brazil lost its monopoly.

Then the invention of artificial rubber finally buried the entire prosperity of this tropical Paris. Manaus fell into poverty, electricity generation became too expensive and the opera house went dark. It is a powerful lesson to the futility of suppressing competition.

The writer is an international businessman and chairman of LetterOne Group and Alfa Group Consortium

Making money is about great ideas.