paper
JFAC Global Fund, L.P.
Investment Prospectus
Portfolio Managers: Marco Gobatto, Edmon Tang, Michal Brander, Roy Lin
Mission Statement
JFAC Global Fund, L.P.’s, “JFAC”, mission is to intelligently allocate investor capital. JFAC aims to outperform the S&P 500 Benchmark on the upside, and to preserve investor capital on the downside by making intelligent investment decisions.
JFAC invests in opportunities in 4 countries: Japan, France, Argentina, and China. We believe that these countries include the best opportunities for investment currently and significantly into the future. The fund utilizes a bottom up approach and focuses on investing in companies that are presently trading at a discount according to our principles. These principles are ratios and metrics that include: price to earnings, debt-to-equity, gross margin, market-to-book value, interest coverage (EBIT-to-Interest), and current ratio.
Our fund is managed by country where which members of the investment team are each responsible for covering the companies under each of their respective countries. Although they are each specifically responsible for a country, every investment decision is made after thoroughly analyzing and coming to a communal decision. We believe that bringing the points of view and expertise from different markets or industries only strengthens the ability to make correct investment decisions.
We manage risk through many ways, but we strongly believe that making the correct investment decision from the initial investment is paramount. In other words, we only make investment decisions when we strongly believe in the fundamentals and future of company, as we think of ourselves as partial owners of the company rather than merely holders of the equity.
We are determined to undergo considerable analysis of the company and respective industry in an effort to better understand the environments in which our investments exist.
Table of Contents
2 Mission Statement
4 – 6 Screening Methodology and Filter Definitions:
7 – 8 Investment Allocation Methodology:
Individual Investment Summaries:
China
10 – 12 Country Overview
14 – 15 Jiangsu Expressway Co.
16 – 18 Xiamen International Airport Co.
19 – 20 Shenzhen International Holdings Ltd.
21 – 22 China Water Affairs Group
France
23 – 25 Country Overview
27 – 28 Compagnie Générale des Établissements Michelin
29 – 30 Sogeclair S.A.
31 – 32 Jacques Bogart S.A.
33 – 34 Société Bic S.A.
Japan
35 – 36 Country Overview
38 – 39 Brothers Industries Ltd
40 – 41 KDDI Corp.
42 – 43 Japan Tobacco Inc.
44 – 45 Sawai Pharmaceutical Co. Ltd
Argentina
46 – 49 Country Overview
52 – 54 Transportadora de Gas del Norte S.A.
55 – 57 Transportadora de Gas del Sur S.A.
58 – 60 Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A.
61 – 63 Grupo Financiero Valores S.A.
64 – 65 References and notes
Screening Methodology and Definitions
Screening Filters Used:
|
Filter |
Qualification |
|
Price-to-Earnings |
<15x |
|
Debt-to-Equity |
<1 |
|
Gross Margin |
>30% |
|
Market-to-Book Value |
<5 |
|
Interest Coverage (EBIT-to-Interest) |
>2 |
|
Current Ratio |
>90% |
Below are the explanations and definitions of the filters used in screening out investment. We use these filters to compare companies to the general market and their respective industry peers. The filters are also used in the monitor of the company fundamentals during the period investment. Using the same fundamentals used in selection, the performance of the company will affect their respective metrics and ratios, and thus our interest in the investment. As there are many ways to calculate the ratios and metrics used, we define the inputs to the calculation of each of the filters.
Price-to-Earnings
We use the price to earnings ratio to indicate the dollar amount an investor can expect to invest in a company in order to receive one dollar of the company’s earnings. We believe that this is a great way to compare companies within their respective industries.
We use the last price traded as the numerator and the trailing twelve months of earnings reported to calculate the ratio. We believe that by using a trailing twelve months of earnings, it will better allow for companies that are subject to seasonal fluctuations in earnings. We prefer companies whose shares trade less than 15 times their trailing twelve months of earnings.
Different industries have different price-to-earnings ranges, but as an underlying fundamental of our selection of investments, a price-to-earnings of less than 15 is a screen we believe is important regardless of industry. Thus the entire portfolio falls under this screening level.
Debt-to-Equity
We calculate the debt-to-equity ratio by dividing the company’s total liabilities by its shareholders equity. We use this ratio to evaluate the financial leverage of the companies we consider.
In calculating the debt-to-equity ratio we use the short and long debt of a company. We believe that at any point in time in the analysis of a prospective investment, the long term liabilities of a company should be taken into account. The burden of debt repayments as well as the influence of the respective creditors who are the owners of the debt have significant sway in the future of companies. Since we look for investments in countries with significant currency risk and political risk we take the debt-to-equity ratio into account for all of our investment analysis.
Gross Margin Ratio
We calculate the gross margin of a company by netting sales revenue by the cost of goods sold, and then by dividing the gross margin by net sales. We use this profitability ratio to measure how efficiently a company sells its inventory or merchandise.
The analysis of the profit a company has at disposal before paying operating expenses is a way we see the picture before a company goes about paying for its expenses. By using this ratio we can evaluate how much profit is lost to operating expenses as a measure of the efficiency of a company's internal operations. We like companies that exhibit a gross margin ratio of greater than 30%. We think that this gives companies ample space to create the conditions for steady free cash flow by having more flexibility to pay its expenses.
Market-to-Book Value
We calculate the market-to-book value ratio by dividing the market capitalization of a company by its book value. We determine the book value of a company by the liquidation value of the company, which is the stated value of liabilities minus the stated value of a company’s assets.
We use this ratio to see how much the value of a company deviates from its liquidation value. We understand that each company is subject to different terms in the valuation of its assets — intangible assets and tangible — but we use the stated value of the assets and liabilities on the financial statements filed by each respective company as the values used in the calculation of the market-to-book value. We believe that a company that trades at less than 5 times its book value is a metric that facilitates significant margin of safety in our investments.
Interest Coverage Ratio
We calculate the Interest coverage ratio by dividing the earnings before interest and taxes (EBIT) by the interest expense given by a company in their financial statements.
We use the interest coverage ratio to determine a company’s ability to meet its interest obligations. The countries where which we look for investments are subject to currency risk as the debt may be denominated in non-sovereign currency and may be subject to solvency issues. We believe that companies that exhibit an interest coverage of 2 times have ample financial flexibility and currency risk safety to cover their interest payment obligations.
Current Ratio
We calculate the current Ratio by dividing the current assets by the current liabilities of a company. We use the current ratio to determine the ability of a company to cover its short term obligations. By including the accounts payable, wages, taxes payable, and the current portion of long-term debt in analyzing the ability of a company to cover it obligations it goes one step further than the interest coverage ratio. For this reason, we use the ratio to determine our investment decisions.
We believe a current ratio of greater than 90% is ample enough to give a company the flexibility to operate without danger of meeting short term obligations.
Investment Allocation Methodology
Our team aims to employ a systematic approach to allocate our available capital. After each team member derives the set of four stocks within each country, having passed the rigorous screening, we then seek to rank each stock in terms of individual ratios. Since we have sixteen individual stocks (four countries multiplied by four stocks in each country), we ranked them from 1 to 16, with 16 being the best score one could achieve, in respect with each ratio. After finishing ranking them individually, we then combine the scores with different weighting of each ratio, to derive at a final score of the stock, thus using that to determine its allocation within our entire $100 million portfolio.
We are cognizant of the fact that for some ratios, the lower the ratio could mean a better outcome. Therefore we adjusted our ranking system to assign higher scores to lower multiples. For example, if investors were to look at P/E ratio, the lowest P/E ratio in the group - TGN04 - actually received a score of 16, whereas for 4555 JP, with the highest ratio, received a score of
Our team also decided to assign weightings to derive a final score for each stock. This is the idea that “no ratios are created equal” in our fund’s investment philosophy. P/E is a quick and dirty way to access the stock. It tells you the “earnings-yield” for a typical stock and whether it’s overvalued or undervalued. Most other ratios are focused more on the operational performance of the company, hence we felt the need to weight P/E ratio more aggressively, giving it a 25% weight. The remaining 75% was equally divided amongst the 5 ratios, giving each remaining ratio a 15% weight.
The final weighting of a stock is determined as its individual score divided by the total score (136). Our team also felt compelled to set 2% cash aside to deploy opportunistically as buying windows come-up during market corrections or macro uncertainties. We think that would be a better way to capture additional alpha for our client
38
ALLOCATION TABLE
Individual Investment Summaries
China: Roy Lin - Analyst
· Jiangsu Expressway Co.
· Xiamen International Airport Co.
· Shenzhen International Holdings Ltd.
· China Water Affairs Group
France: Michal Brander - Analyst
· Compagnie Générale des Établissements Michelin
· Sogeclair S.A.
· Jacques Bogart S.A.
· Société Bic S.A.
Japan: Edmon Tang - Analyst
· Brothers Industries Ltd
· KDDI Corp.
· Japan Tobacco Inc.
· Sawai Pharmaceutical Co. Ltd
Argentina: Marco Gobbato - Analyst
· Transportadora de Gas del Norte S.A.
· Transportadora de Gas del Sur S.A.
· Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A.
· Grupo Financiero Valores S.A.
CHINA Portfolio
General Overview:
Ever since it entered the world stage in 1949, China has established a remarkable track record, leapfrogging from one of the world’s poorest countries to the second-largest economy in the span of fewer than four decades. It’s widely conceived that this chain of social, cultural, and economic change was pioneered by Deng Xiaoping, who implemented the first steps of his “reform and opening” policies in 1978. A critical component of Deng’s plan includes the creation of Special Economic Zones (SEZ), where China could experiment with market mechanisms and interact with foreign investors who are eager to get their feet wet in this vastly underdeveloped market. One of the most famous SEZs includes the city of Shenzhen, which is known as the Silicon Valley of China that led to the rise of companies such as Tencent and DJI. More importantly, the success of these experiments enabled the central government to gradually shift towards a mixed socialism-capitalism approach that enabled the meteoric rise of China’s economy in the years that followed.
From 1992 to 2006, China’s GDP annual growth rate averages around 11%, peaking most recently in 2005 at above 15%. The economy of the country was not insulated from the global financial crisis in 2008 and 2009, slowing down to below 8% for the first time since entering the 21st century. However, it was able to quickly rebound back to 12%, capturing the global demand for goods and services that marks the beginning of synchronized global growth.
A first look at the employment statistics in China showed some pain points with the labor force participation rate decreasing from 72.3% in 2007 to 68.7% in 2018. There are a couple of other factors we should keep in mind. Like many other countries, China is facing a net decrease in the workforce as a result of more seniors reaching retirement age and phase-out of the active economy. To combat that, the central government has rolled back its one-child policy in 2015 and it will take some time for it to translate into labor force strengths. Furthermore, a 68.7% participation rate is still higher than those of most other countries, including the United States at below 64%. It’s also important to note the huge base of the Chinese population, a few percentage points difference translates into hundreds of millions, if not billions, of individual labors. The quality of labor is also another bright spot; to quote Tim Cook, Apple’s CEO, he once said that "China has moved into very advanced manufacturing, so you find in China the intersection of craftsman kind of skill, and sophisticated robotics and the computer science world...for us (Apple), the number one attraction is the quality of the people."
Chinese consumers also continue to drive demand for goods and services; they are the key driver of China’s domestic growth, creating 78% of GDP growth in the first nine months of 2018. The sentiment shows a bright spot as they continue to trade up more than down. Sales of China’s fast-moving consumer goods grew by 6.3% in the third quarter from a year ago (Q3 2018 v. Q3 2017), and even supermarkets have grown by 5.0%. Zooming in on the mobile phone example; the average price of a mobile phone sold in China has increased 65% over the past five years. This strong growth is despite the on-going trade concern between China and the United States.
Speaking of trade tensions, which has dominated the macro headlines in both China and the U.S., our team has analyzed the issue from a couple of different fronts. On tariffs, it’s important to keep in mind that it increases importer’s costs, in other words, it’s the American importers, not Chinese exporters, who are putting up additional capital. There has been a broad discussion about shifting supply chain out of China, but we believe such a transaction will be unlikely given the market size and the availability of highly skilled labor, not cheap, as Tim Cook mentioned above. On talent, there is serious drainage of Chinese researchers coming over to the United States for leading facilities due to Visa restrictions. These talents are more likely to be retained at home to work on cutting-edge technologies and breakthrough findings, translating to more opportunities going forward in China. Lastly, on government intervention, like its counterparts in the EU and the U.S., the Chinese central bank has paused stimulus and shifted its focus on deleveraging throughout the economy. However, as we have seen new rounds of global stimulus in the forms of Quantitative Easing (EU) and continue purchasing treasury securities (U.S.), we fully expect the Chinese central bank to announce similar measures to boost money supply in the economy. In fact, they have already directed national and regional banks to boost lending to small-midsize-businesses who are the backbone of the economy. The bottom line here should be the fact that our team believes trade tension could be a long term threat to the Chinese economy, we should not ignore the solid fundamentals, especially within our five-year investment horizon and the fact that most Chinese companies generate three-quarters of their revenue from their domestic market. We are cautiously optimistic and will continue to monitor how
China’s employment rate of 75.1% is the 6th highest as of 2018, and reflects a high level of employment by both genders. India, which supports a similar population size, has an employment rate of 46.3% as of 2018
Selected Investments
Our selected investments in China are in the following companies
1. Jiangsu Expressway Co.
2. Xiamen International Airport Co.
3. Shenzhen International Holdings Ltd.
4. China Water Affairs Group
Screening Values
Allocation by Dollar Amount
Allocation Distribution
177 HK Jiangsu Expressway:
Our team saw Jiangsu Expressway as a low beta, solid dividend play with some potential upside in capital gains. The company’s dividend yield has been above average at 4.7% for FY 2017 and 5.0% for FY 2018, we fully expect its dividend per share continue to rise as a result of 1) four greenfield highway projects - Zhendan Expressway, Chanyi Expressway phrase 1, Yichang Expressway, and Wufengshan Bridge - are likely to achieve break-even earlier than what management team guidance stated and hence higher than expected returns, thus funneling excess capital to reward shareholders 2) the company has also been scaling back property investment as management is patient to deploy excess capital.
Zooming in on the most recent quarter’s performance. Jiangsu Expressway reported a year-over-year quarterly revenue increase of 6.4% and a quarterly net profit increase of 9.7%, mainly driven by consensus-beating investment income. Some highlights include dividend investment income from Jiangsu Financial Leasing and Bank of Jiangsu increased by $50.72mm (79% YoY growth) and income from JVs and minority investments increased by 79.8 million. The core expressway operations were hit by ETC discount (think EZ pass in the states). However, the bread and butter of the business - traffic volume, rose steadily across the portfolio. For Jiangsu Expressway’s core Shanghai-Nanjing Expressway, total traffic volume rose by 8.2% in Q3 2019, 2.9 percentage points higher than the first half of 2019. Long-term, we expect the short-term stimulus for passengers to switch to ETC will fade away and create higher operating leverage in the future from the enhanced passing and tolling efficiency. On the ancillary business side, revenue from these road support services fell by 7.3% YoY due to the drop in revenue from petroleum products. Lowered sales volume is mainly caused by the construction of new petroleum storing facilities along the expressway and not a fundamental shift in the demand. Furthermore, the margins on petroleum sales actually expanded compared to previous quarters, and we believe this will increase the bottom line for the segment as facility restores back to normal plus margin expansion.
Our team also like the cash-flow generating capability of Jiangsu Expressway, evidenced by around 70% EBITDA margin that the company was able to deliver for the past two years. We believe it enables JSE to pursue strategic alternatives through M&A opportunities where management sees fit. We are bullish on the valuation as it remains attractive to us amid promising development opportunities, and thus will include Jiangsu Expressway in our portfolio.
152 HK Shenzhen International Holdings
Our team is bullish on the stock because of the company’s status as a conglomerate specializing in expressways, ports, aviation, warehousing logistics (heavy assets) and supply chain logistics (light assets). We expect Shenzhen Intl. Holdings to fully capture the tailwind of China’s booming fundamentals.
Zooming in on the Toll Road segment, which contributes more than three-quarters of the top line, total revenue for the most recent year increased by 13% to $7,569 million, profit before finance (interest) costs and tax increased by 22% to $4,460 million, and finally the net profit increased by 32% to $1,325 million. The revenue breakdown stays the same between FY2017 and FY2018 with Shenzhen Expressway contributing 90% and Longda Expressway contributing the remaining 10%. Traffic on Shenzhen Expressway also improved overtime with Changsha Ring Road and Yichang Expressway were fully consolidated into the company for the first time. There is a major construction project going on for the year of 2019 as the demolition of Shenzhen Outer Ring Project invested by the group is basically completed and the phrase II should take place as planned. Our team believes that the company holds a very valuable portfolio of expressway and toll road operation rights, and the traffic on these projects (especially concentrated in the Shenzhen region) will continue to improve, thus driving revenue for the segment higher in the foreseeable future.
Our team is also excited about the prospects of the Logistics segment. China is already the world’s largest E-Commerce market by transaction value, and logistics is the backbone supporting the whole E-Commerce network. An even larger differentiator between China and other markets such as the U.S. or the EU is the large number of millennials; they are more technology-savvy and will likely drive E-commerce growth in the coming decade. Logistics business’ topline increased by 8% to $2,778 million, with profit before finance costs and tax increased by 28% to $416 million, and net profit increased by 25% to $393 million. The revenue mix is pretty evenly divided within the three sub-segments. However, logistic parks does have the highest operating leverage, thus contributing more than 50% of the segment’s net profit. The group also places more focus on “Integrated Logistics Hub Business” that translates to building modern intelligent logistics platforms with large-scale logistics parks network plus high-end integrated logistics services. In 2018, the group successfully entered into investment agreement for hubs projects with local governments of Zhangqiu and Xuzhou, and acquired the Kumming project through M&A.
Locations of Logistical Projects
855 HK China Water Affairs Group:
The group also operates within three different segments, 1) water supply business that involves the provisions of water supply operation and construction, 2) environmental protection business that includes sewage treatment, drainage operation and construction, solid waste and hazardous waste business, environmental sanitation and water environment management, and 3) property development and investment segment that involves development of property for sale and investments in properties for long-term rental yields or for capital appreciation.
In the most recent annual report, the chairman of the group, Duan Chuan Liang, noted a few bright spots on the business. A utilities business model almost guaranteed the visibility of future earnings, meaning that the group is almost insulated from the trade tensions, since people are always going to need water and related services. There is also a high degree of certainty in the continued demand for more upgrades in China’s market as a result of rapid urbanization in the country. There is also a greater emphasis on manufacturers in the country to better deal with water waste, which should bring healthy demand for China Water Affairs’s Environmental Protection business segment. Another point worth with regards to national macro-policies is that the Ministry of Finance has just released its guidelines on Public-Private-Partnership (P3), the group should benefit from the government’s supportive role of private finance in public infrastructure as central government encourages local government to deleverage their own balance sheets with these P3 programs. As the broader water supply industry in China remains fragmented, this presents a great opportunity for CWA to execute M&A strategy to expand its footprint and realize cost-synergies. The April 2019 acquisition of a minority stake in Kangda International Environmental Group is a recent example of CWA putting money to work in the environmental segment.
Utilities companies are also known for the high dividends; CWA is no exception to the rule. Although the company is starting to conserve capital for deployment in the P3 scenarios (which there are ample liquidity for, as the company has very little debt on the balance sheet at the moment), CWA has steadily increased its dividend payout ratio from high-teens percentage points to 31.7% in the most recent fiscal year. Our team is also cognizant of the group’s plan to separately list its Environmental Protection Business disclosed as of the most recent annual report, which might lead to additional liquidity for the company and thus another way to reward shareholders through stock buyback or special dividends.
Xiamen International Airport Company engages in the airport operations in China. The company’s network covers various cities in Mainland China, Hong Kong, Macau, and Taiwan connecting Southeast, Northeast Asia, Europe, and the U.S.. The company has 182 routes established on the network (145 of which are domestic focused) and partnerships with a total of 40 airlines. The company was founded in 1983 and is based in Xiamen, Fujian, China.
Our team likes the capital appreciation aspect of the stock, but remains cognizant of the high-dividend it’s issuing to shareholders. Xiamen Intl. Airport has a current dividend yield of 6.14%, and the 3-year dividend growth rate is at an impressive 50% rate. Its beta is also relatively low compared to the index at 0.83 (vs. SHASHR), meaning it could also be a safe dividend play.
Furthermore, we believed that Xiamen Intl. Airport will benefit from the tailwind of Chinese civil aviation tailwind. Having experienced double digit growth rates for many years, China is now the world’s second largest civil aerospace and aviation services market, all while maintaining the highest growth rate. Chinese government has also long regarded the development of its aviation system a national priority, spending hundreds of billions of dollars to establish airlines, build and upgrade airports, develop manufacturing capabilities, train new pilots, and increase maintenance capacity. Unlike airlines that are caught in trade negotiations between the U.S. and China, in addition to the pending Boeing 737-Max grounding hassle, airport is largely isolated from these two events that have grabbed air travel’s headline for the past year. Aviation services are growing dramatically and airports are experiencing similar growth. In 2018, Chinese airports handled 1,264 million passengers, up 10.2% compared to 2017. The market is expected to overtake the US as the world’s largest aviation market by 2030. Although mega-hubs like Beijing Daxing Airport have the larger market share, we believe that the market is still under-developed. Especially in the province of Fujian, China where Xiamen Intl. Airport Group is based. The province is known for international travel to/from Southeast Asia, Australia, and North America. The only other competitor in the region, Fuzhou Changle Airport, has relatively older facilities and will likely go through the maintenance phrase soon as traffic expands, giving Xiamen Intl. Airport an opportunity to take market share from the competitor amid a growing market. Our team believes that this is going to translate into top-line growth in the coming years and we should enjoy the benefits of capital appreciation while collecting a high dividend.
The company has also achieved significant cost savings through various initiatives that resulted in a net profit YoY growth of 23%. The cash flow generating capability of Xiamen Intl. Airport Group also remains solid, with around 50% EBITDA margin. With the industry tailwind and strong financial position, we would like to include this company in our portfolio.
FRANCE Portfolio
General Overview:
France today is one of the most modern countries in the world, and a leader among European nations. As a founder and member of the European Union, a permanent member of the United Nations Security Council, NATO, the G-7, the G-20, and other multilateral organizations, France plays an influential role on the global stage.
France is the largest country in the EU, stretching from the North Sea to the Mediterranean. The landscape is diverse, with mountains in the east and south, and four river basins in the lowland.
The political system in France is a semi-presidential republic. The president of the republic chairs the meetings of the Council of Ministers (the Cabinet), and retains overall responsibility in key areas of foreign affairs and defense. The day-to-day running of the country is in the hands of the prime minister. The parliament consists of a National Assembly and a Senate.
Economic Overview
The French economy is the third largest in the European Union (behind Germany and the United Kingdom), and seventh in the world. It is diversified across all sectors, as the chart indicates. France has an advanced industrial economy; main activities include automobile manufacturing, aerospace, information technology, electronics, energy, chemicals and pharmaceuticals, tourism, and fashion. The government has privatized many large companies, but they still maintain a strong presence in some sectors, particularly within the power, public transport, and defense industries. With more than 84 million foreign tourists per year, France is the most visited country in the world and maintains the third largest income in the world from tourism. France's main export partners are Germany, Spain and the United States, while its main import partners are Germany, Belgium and Italy.
We decided to invest in France because compared to other members of the EU, France has shown resilience despite a recent global slowdown. The European macroeconomy faces numerous concerns, among them the United Kingdom’s referendum to exit; economic fragility in southern countries (such as Italy, Spain, Portugal, and Greece); Germany’s slowing manufacturing output (putting the country into a possible recession; and threats of U.S. tariffs and trade disputes. Although recently the United States threatened tariffs of up to 100% on $2.4B of French imports due to a digital tax that France is levying against U.S. technology companies, France has shown to be a relatively more stable country to invest in, as the chart below indicates:
According to the International Monetary Fund, the French economy expanded by 2.3% in 2017, but growth subsequently declined to 1.7% last year, due to slowing global growth and some domestic factors (see below chart showing France’s GDP record). Growth is expected to reach 1.3% and 1.4% this year and next, and gradually converge to its long-term potential level of 1.5% by 2021, supported by ongoing tax relief and structural reforms.
However, France’s public debt has also been rising consistently over the last four decades, increasing by 80% of GDP since the 1980s to reach close to 100% of GDP at the end of 2018 (see chart below showing French public debt as a percentage of GDP). This reflects the inability of successive governments to take full advantage of strong economic periods to reverse the spending increases undertaken during recessions. Therefore, the government must prioritize spending reforms to reduce the debt level and rebuild some fiscal room to prepare for the next economic downturn. Some reforms have been helpful to this cause, such as those made to unemployment benefits, civil service, and pensions, but they need to be complemented with additional measures to reduce France’s spending ratio, which has increased rapidly over the past decades to the highest level among OECD countries. Such measures could include streamlining corporate tax expenditures and subsidies; rationalizing spending on medical products and hospital services; improving the allocation of resources in education; merging small municipalities; and eliminating overlaps between the local and central government.
Structural unemployment is still very high in France, especially for youth, low skilled workers, and non-EU migrants. Therefore, structural reforms are necessary to bolster employment. Recent and upcoming labor code, apprenticeship and training, and unemployment benefit reforms should support labor force participation rate and increase opportunities for these groups. Complementing these reforms with measures to ease the administrative burden on start-ups and foster competition throughout the economy could generate synergies, increase resilience, and support living standards.
Selected Investments
Our selected investments in France are in the following companies:
1. Compagnie Générale des Établissements Michelin
2. Sogeclair S.A,
3. Jacques Bogart S.A.
4. Société Bic S.A.
Screening Values
Allocation by Dollar Amount
Allocation Distribution
Compagnie Générale des Établissements Michelin
Their core activities include: automotive and related distribution; road transportation and related distribution; and specialty businesses and related distribution. The revenue breakdown (in millions) generated from each business segment is charted below:
Now we will analyze Michelin’s financial performance. Michelin should be attractive to investors who wish to diversify in a French quality company that is undervalued. Michelin has a beta of 1.0602, so it moves relatively consistently with the overall stock market. A look at some key financial metrics and ratios (discussed below) prove that Michelin is a top pick. Michelin provides safe dividends, with a double-digit compound annual growth rate since the financial crisis in 2008. For a pension fund that desires stable income as well as growth, a strong dividend stock such as Michelin is a good pick for the portfolio. Long-term shareholders have made money, with a gain of 5.5% per year over the past 5 years. Some financial highlights are as follows:
Other financial performance measures are as follows. Michelin has a trailing twelve months PE ratio of 9.76, which stands below the highs for the stock, suggesting that now can be a solid entry point. Furthermore, the stock’s PE ratio also compares favorably with the Auto-Tires sector’s trailing twelve months PE ratio, which is 10.11, and the overall French market’s PE ratio of 18. This indicates that the stock is relatively undervalued compared to its peers and the broad French market. Revenue increased slightly from 2017 to 2018, but not significantly. However, analysts also forecast their earnings will grow about 8% next year. Michelin has a market capitalization of 19.226B, putting the company in the large-market cap category. Michelin is an established dividend player, paying an annual dividend of €3.70, and generating a dividend yield of 3.40% - above the industry average of 3.20%. The dividend per share has remained stable for the last ten years, and dividend payments have increased over the last ten years. With a payout rate of 41.3%, dividend payouts are well covered by earnings. Analysts forecast 9.1% annual earnings growth. Michelin also has an adequate balance sheet. Its short-term assets (€12.1B) exceed both short term liabilities (€8.31B) and long term-liabilities (€11.57B). Long term assets are €20.09B. Michelin’s debt is well covered by its operating cash flow of 38.2%, and the interest payments on its debt are well covered by its EBIT, by a 6.8x interest coverage ratio.
Sogeclair S.A.
Sogeclair should be attractive to investors who wish to invest in a company that has strong earnings growth forecasts. Sogeclair is a part of the Aerospace & Defense Industry within the Industrials Sector. Analysts predict both the commercial aerospace and defense sectors will experience continued strong revenue and operating profit improvements in 2019 with the help of projected increases in aircraft deliveries, aircraft aftermarket and increase in defense spending. Sogeclair is a strong income stock that is undervalued with reasonable growth potential, and it pays a dividend. It is currently trading at 29.3% below its fair value (it is trading at €29.30, but analysts value it at €41.45). With a low beta of .7185, the stock is less volatile than the overall market, and our portfolio would be riskier without Sogeclair. Additionally, earnings are forecast to grow 25.2% per year, and earnings have grown 7.1% per year over the past 5 years. With profit expected to grow by 53% over the next couple of years, the future seems bright for Sogeclair. Some financial highlights are as follows:
Other financial performance measures are as follows. With a return of 52.2% in the past year, Sogeclair has exceeded both the French Aerospace & Defense Industry, which returned 26.6% over the past year, as well as the French Market, which returned 17.2% over the past year. Sogeclair’s PE ratio is less than the French Aerospace & Defense Industry’s average of 24, and the French Market PE of 18, which suggests that the stock is undervalued. Sogeclair is also a good value based off of its Price to Book ratio of 1.07, compared to the Industry average of 1.8. Future earnings growth for Sogeclair is forecasted at 25.2%, which is expected to exceed both the industry earnings growth, which is expected to be 14.7%, and the overall French market, whose earnings are expected to grow by 11.7%. Sogeclair’s short term assets (€111M) cover both its short-term liabilities (€67.39M) and long-term liabilities (€31.51M). Long term assets are valued at €41.81M. Sogeclair pays out 32.63% of its earnings as a dividend, according to its trailing twelve-month data. Its Dividend Yield is currently 2.29%, and although the dividend is not stable, it has been growing over the past 10 years, and the company is expected to have future dividend coverage. However, going forward, analysts expect the dividend payout to fall to 26.54% of its earnings, which leads to a dividend yield of around 2.59%. However, EPS should increase from €1.5 to €2.8, meaning that the lower payout ratio does not necessarily indicate a lower dividend payment. However, its market capitalization of €86.489M is not significant, and while the EBIT covers interest payments by a factor of 9.73, debt is not well covered by its operating cash flow of 13.4%.
Jacques Bogart S.A.
Now we will analyze Bogart’s financial performance. They are an undervalued company with an adequate balance sheet, and should be attractive to investors for this reason. Additionally, Bogart’s EPS has grown by 19% per year over the past three years. It is currently trading at 46.6% below its fair value (its current share price is €9.40, but analysts estimate its fair price is €17.59). Earnings are forecast to grow 1.27% per year, and they have grown 10.6% per year over the past 5 years. Their 70.9% 1-year return exceeded the Personal Products Industry, which returned 17.9% over the past year, and the French market, which returned 13.6%. Some financial highlights are as follows:
Other financial performance measures are as follows. Its PE ratio of 10.5 indicates a good value compared to the Personal Products Industry average of 22.7, and the overall French market PE ratio of 18. Bogart is also a good value based on its Price to Book ratio of 1.15, compared to the French Personal Products Industry average of 2.6. Revenues, net income and EPS have all increased by double digits from 2017 to 2018. Revenues are expected to grow again by double digits, at an estimated 11.8% growth rate, which is faster than the overall French market growth rate. Earnings are expected to grow next year as well, although it is forecasted to be single-digit growth (1.3%). It has an adequate balance sheet, with short-term assets (€173.7M) exceeding both its short-term liabilities (€134.6M) and long-term liabilities (161.2M). Long-term assets total €210.84M. Its debt is well covered by operating cash flow of 33.8%, and interest payments are covered by a factor of 2.82. Lastly, it pays a dividend with a 2.13% dividend yield. With a low payout ratio (22.3%), payments are well covered by earnings. However, its dividend payments have not been stable over the last ten years, and the payments have decreased over the years as well.
Société Bic S.A.
Now we will analyze Bic’s financial performance. Bic should be attractive to investors due to its strong balance sheet and the fact that it is is a star dividend player, providing a strong, stable income. Companies that provide growing dividends at a decent rate and maintain a stable payout can provide substantial wealth for shareholders over the long term, and Bic is one such company. It is currently undervalued, and analysts estimate that it is trading at 33% below its fair value (it is currently trading at €69.08, but analysts value it at €103.98). It pays a dividend with a 5.58% dividend yield, higher than most dividend payers. The dividends have been paid consistently over the last ten years, and they have been growing as well. Its dividends are also covered by its profits and free cash flow. Currently, its dividend payout ratio is over 70%, and last year Bic paid out 88% of its free cash flow as dividends. These numbers are adequate, but they do reduce the wiggle room in the event of an economic downturn. During the past ten-year period, Bic has also generated a compound annual growth rate of approximately 9.8% a year. Some financial highlights are as follows:
Other financial performance measures are as follows. Bic has a PE ratio of 14.01, which is lower than both the Consumer Services industry average, which stands at 26.4, as well as the overall French market average of 18, indicating that it is a good value stock. Additionally, its Price to Book ratio (1.76), also shows that it is a good value compared to the industry average of 2. However, its return was substantially below the Commercial Services industry. Additionally, Bic has seen a decline in their revenues and net income from 2017 to 2018. However, Bic’s future still looks positive as earnings are forecasted to grow 6% over the next 1-3 years. It also maintains a strong balance sheet. Its short-term assets (€1.3B) exceed its short-term liabilities (€535.6M) and its long-term liabilities (€314M). Its long-term assets are €1.17B. Lastly, its interest coverage ratio is very high (58.9), because Bic has very little debt and therefore has minimal interest payments.
JAPAN Portfolio
General Overview:
It was after World War II that Japan recovered to become an economic power as well as an ally of the United States. Real decision making in the country goes to elected politicians even though an emperor was in standing. By having outstanding work ethic, knowledge of technology, and a small defense allocation, such things have led Japan to develop into a technologically advanced economy. However, it is only until a certain point in time that Japan would reach a point of stagnation.
Dating back to the late 20th century, Japan faced a series of combined forces bringing an end to the era of high growth that was experienced in the 1950s and 1960s. This included but not limited to the momentous advances in technology, industries’ disappearance of ample rural labor, and the decline in international competitiveness of heavy manufacturing industries which included shipbuilding, aluminum, fertilizers, and eventually, steel. By the early 1970s, the foreign trading environment was also changing. The United States’ U.S dollar was devalued by 17 percent against the Japanese yen. The OPEC oil embargo of 1973-1974 created a further disruption of the Japanese economy, which depended heavily on Middle Eastern oil. By the mid-1970s, many Japanese felt more insecure about their standing in the global economy. By the 1980s, the Japanese economy had become refined and is one of the world’s largest. Per capita income surpassed the United States and total national product stood at one-tenths of the world’s output. By the midst of the 80s, Japan became the world’s leading net creditor nation and the largest donor of development aid. Japan’s merchandise trade balance with western Europe and the U.S steadily mounted in its favor through technological advancement on automobiles, color-television sets, high-quality steel, precision optical equipment, and electronic products.
Japan’s economic growth rate was quite remarkable, especially from the 1960s to 1980s. In the 1960s, an average GDP growth rate of 10%. 1970s and 1980s both had an average of 4%. On the contrary, domestic consumption began to stagnate, as it did play such an important role in the first phase of Japan’s postwar recovery. By the early 90s, the Japanese consumed less than their American, British, or German counterparts while simultaneously, prices were higher than the world average. Such consumption patterns were influenced by lagging wage increases, traditional saving habits, and long working/commuting schedules which negatively affected leisure time for people. Also, what was known as Japan’s “bubble economy” of the 80s, an era that combined easy credit with unbridled speculation and eventually drove Japanese equity and real estate markets to such high prices, eventually bursted. As a consequence, Japan ran massive budget deficits (added trillions in Yen to Japanese financial system) to finance large public works program. Following such significance in the early 90s was a deep recession which postponed many of the earlier reform plans and undercut Japanese consumer confidence yet again and inevitably aggravated trade tensions. As one can point out, the Japanese stocks chosen shows one ratio that is abnormally high which is the interest coverage ratio. This shows how the Japanese were more on the conservative side and therefore, companies have ample amount of cash, is less risky, and take on less debt. As Japan entered the 21st century, the Japanese economy continued to stagnate, teetering between economic recession and anemic growth.
Selected Investments
Our selected investments in Japan are in the following companies:
1. Brothers Industries Ltd
2. KDDI Corp.
3. Japan Tobacco Inc.
4. Sawai Pharmaceutical Co. Ltd
Screening Values
Allocation by Dollar Amount
6448 JP Brothers Industries:
Brother Industries is a Japan-based company engaging mainly in the manufacture and sale of office equipment and supplies. This company operates in six segments. The Printing and Solutions segment manufactures and sells communication and printing equipment such as printers, multifunction devices, and electronic stationery. The Personal and Home segment is engaged in the manufacture and sale of household sewing machines. The Machinery segment manufactures and sells equipment such as industrial sewing machines, garment printer, machine tools, reducers and gears. The Network and Contents segment is involved in the manufacture, sale and service of commercial karaoke equipment, and the provision of content delivery services. The Domino segment is engaged in the manufacture and sale of industrial printing equipment, coding, and marking. The Others segment is involved in the sale of other products and the sale and leasing of real estate.
They were among the first to launch one of the newest generation of network computers and sold for cheap as well. The first one sold was just under $300 USD. These inexpensive devices consist of basic functions such as access to online services, electronic mail, PC compatibility, and word processing. By sacrificing memory capacity, they were able to keep costs low. We believe that this company has a lot of potential to grow. By diving into the financials, we were able to observe a revenue and net profit growth of over 10% from the 2018 fiscal year compared to 2017. Although this is not a true determinant of the direction the company is heading, we see a strong promising future as the company announced that it will add document translation to its devices at no additional cost. This move is an industry first and this includes no sign up fees, services fees, or any other costs. Considering that the Printing and Solutions business segment makes up 57% of the revenue, this move will truly benefit the Brother Industries and thus, we would like to include this to our portfolio.
9433 JP KDDI Corp:
KDDI Corporation, one of the Fortune Global 500 companies, is a telecommunications company that provides a multitude of services and is also one of Asia’s largest telecommunication providers. This company operates in four segments. The Personal segment is engaged in the provision of communication services for personal and home, including au mobile phone, fiber-to-the-home (FTTH), cable television (CATV) services, and others. The Life Design segment provides commerce services, financial services, payment services, and content services such as video, music and information distribution. The Business segment offers various communication services, the sale of mobile handset, data center services, and various Information and Communications Technology (ICT) solutions/cloud-based services to enterprise customers. The Global segment offers various communication services, data center services and various ICT solutions/cloud-based services to overseas customers. The Others category provides communication equipment and maintenance service, as well as the research and development services of information communication.
Diving into the financials of KDDI Corp, we were able to see a 10% increase in EPS in the 2018 fiscal year. The company also expect their future EPS to grow 1.5x within 6 years which shows that they are focusing on strengthening shareholder returns. According to KDDI, their dividend payout ratio was 40% which means that the company is sustaining profit growth. Operating income for fiscal year 2019 was 1,013.7 billion yen which is another year added to the recording 18-year consecutive increase in operating income and also achieving the operating income over 1 trillion yen for the first time ever.
M&A focused on three points over the past three years consistently. Those three are domestic telecommunications, life design, and new business fields. Domestic telecommunications saw a synergy of 410 billion yen with the help of cross marketing with J:COM through au Smart Value and cost efficiency. This is one of the biggest contributions to the 2019 revenue as the Personal business segment makes up for 77% of it. The second point is life design, 11% of the revenue, and a typical example of it is ENERES whom is building on the knowledge of power demand and supply management. By supporting au Denki’s services and contributing to au Denki’s total subscriptions, they were able to exceed two million customers as of the end of March 2019. Lastly, new business fields, ~16% - KDDI developed a leading-edge loT service through using SORACOM’s technology and are expecting its contribution to improving network efficiency for the coming of 5G era. We see this company as a promising and high performer and would gladly like to include it into our portfolio.
2914 JP Japan Tobacco Inc:
Japan Tobacco Inc is a Japan-based company engaged mainly in the tobacco industry. The company operates through four segments. The Domestic Tobacco segment produces and sells tobacco products. The International Tobacco segment produces and sells tobacco products through JT International S.A. The Medical segment researches, develops, produces and sells medical drugs. The Food Processing segment manufactures and sells frozen and ambient temperature processed foods, bakery, seasoning, and others. Japan Tobacco Inc is also involved in the leasing of real estate also categorized as Others.
Some company highlights to take note of is that through M&A and organic growth, Japan Tobacco has successfully become highly diverse and global. The company also expanded the T-Vapor portfolio in Japan for success in reduced-risk products (RRP). This leads us to analyze the revenue and financial highlights. We were able to see that the revenue for fiscal year 2018 was 2,215,962 million Yen which is a 76.3 billion Yen or 3.6% year on year increase. This was driven by pricing benefits and volume contributions led by acquisitions in the international tobacco business which makes up ~60% of the revenue, as well as increased RRP contribution combined with a positive cigarette price/mix in the Japanese domestic tobacco business. Other factors include an increase in royalty revenue in the pharmaceutical business which added to revenue growth as well. Total shipment volume growth exceeded 7%, complemented by significant pricing gains, which were realized by leveraging the unparalleled equity of the company’s Global Flagship Brands. JT also believes that the total volume for the next fiscal year is expected to outperform the industry, supported by the acquisitions in Russia and Bangladesh as well as the Global Flagship Brands expanding further their consumer franchise which will be important growth drivers for the future of the company, generating tailwinds in terms of volume, core revenue, and adjusted operating profit at a sustained pace. The pricing environment remains robust which provides opportunities for sustainable improvements and thus we would like to include this into our portfolio.
4555 JP Sawai Pharmaceutical Co:
Sawai Pharmaceutical is a Japan-based pharmaceutical company engaged mainly in manufacturing and selling of ethical drugs and proprietary drugs. It offers prescription drugs in various formulations, including tablets, oral dispersing tablets, capsules, granules, injections, tapes, ophthalmic/nasal solutions, syrups, and others in the therapeutic areas of cardiovascular, gastrointestinal, blood/body fluid, other metabolic, antibiotics, etc. The company also provides antihyperlipidemic agents, diabetes drugs, and OTC drugs. They serve hospitals, general practitioners, and dispensing pharmacies. This company operates in two segments. The Japan segment which made up 78% of its revenue, distributes its products through sales companies, wholesale shops, and other pharmaceutical manufacturers, and also directly to medical institutions. The US segment, which made up ~22% of its revenue, manages subsidiaries in the US and sells manufactured pharmaceuticals to wholesalers in the US.
It has been stated that Japan’s use of generic drugs has increased from 39.9% in 2011 to 65.8% in 2017 and is projected to increase to 80% by 2020. We see this as a powerful opportunity for Sawai Pharmaceuticals, as they are the number one provider of generics to the Japanese market. Another notable highlight is that Sawai Pharmaceuticals recently acquired Upsher-Smith Laboratories’ Generics Business which is a US company. This creates a strong foundation for SP’s further expansion in the US which is the world’s largest pharmaceutical market and is also a top-priority region for them. We believe that Sawai Pharmaceuticals is headed in the right direction as evidenced by its financial strength. SP’s revenue resulted in a YoY growth of 9.7% and a net profit YoY growth of 26.7% which signifies the company’s initiatives towards cost savings. The company has also strengthened shareholders return through various activities, supported by the increase in revenue, resulting in an EPS YoY growth of 22.8%. EBITDA has also increased 22.9% from the previous fiscal year. With such a strong financial position and with the highlights stated above, we see promising growth opportunities for the company and would like to add it to our portfolio.
Argentina Portfolio
General Overview:
The word “Argentina” is derived from Italian and French origins relating to “argent’ or silver. Early explorers of Argentina gave it the name in association to the legends of the existence of silver mountains heard around the coastal and river basin area of La Plata, which is the present day province of Buenos Aires. Following the colonial rule of the Spanish, Argentina was subject to several waves of European immigration after the world wars of the 20th century leading Argentina to be one of the largest countries of ethinc european ancestry globally.
Presently Argentina is a country of 44 million people (1) and the 8th largest by area, with several climates and geographies including, vast plains spanning from the center of the country to the south, a 3,000 kilometer section of the Andes to the west, 3500 kilometers of Atlantic coastline, deserts to the northwest, and jungle in the northeast.
Argentina benefits from the availability of natural resources including: fertile farmland in the Pampas region for the growth of agricultural, petroleum reserves to the south, mineral and metal deposits in the north and far west mountain ranges of the andes, and accessible ports to the Atlantic for foregin trade.
Economy
The legends of the early Spanish settlers of Argentina were partly true as much of the silver mined in Bolivia and Peru during colonial Spanish rule eventually made it down river to the present day port of Buenos Aires. More recently Argentina’s wealth has stemmed from a large ranching industry, the production of grains, and other agricultural commodities. In 2004 Argentina produced (2) 18% of world soybean production while accounting for 46% of soybean meal exports and 55% of soybean oil exports.
Although Argentina benefits from its position as one of the largest producers of Agricultural commodities in the world as well as holding access to ample reserves of resources, Argentina’s economy has been the subject of great periods of growth and severe recessions. This results from a lack of diversification stemming from an over-reliance on commodity exports and a non-competitive industrial sector. Argentina's Economy doubled in size from 2002 to 2013 (3), greatly benefiting from the increased global demand for agricultural commodities during that period.
Argentina has a history of chronic volatility and episodic illiquidity, including 9 defaults on its debt since independence in 1816. The country faced a chaotic early 2000’s dealing with a default from which it has not fully recovered. Argentinas increasing reliance on external financing to fund its budget and current account deficits leave it vulnerable to changes in the cost and availability of financing.
Argentina’s External Debt
Source: IMF
Politics and Government
Argentina’s government has operated in various forms from assembly governments, liberal democracy, military dictatorship, to social states. Like much of Latin America, the political situations within Argentina have had significant influence on the economy and financial systems, which in turn make investors worried. And like most Latin American countries transparency of the government and the autonomy of the banking sector is of concern as government officials can have a significant effect on the economic and legal aspects of doing business almost overnight.
In the last economic crisis in the early 2000’s, Argentina suffered, in an effort to decrease the debts owed and to protect the banking system, the government devalued the peso (which was fixed 1 peso = 1 USD) to 1.4 per USD and subsequently floated the peso. Since then investors have been hesitant to lend and to invest in Argentina, forcing Argentina to pay a significant premium to borrow and to be shut out of international capital markets. The recent primary and final elections in the summer and early fall of 2019 resulted in a currency crisis as investors lost confidence in Argentina’s ability to pay back its obligations.
Our Opinion
Currently Argentina is grappling with a serious economic situation. The Argentine peso has lost two-thirds of its value since 2018, inflation is hovering at 30%, and since 2015 the economy has contracted about 4% and its external debt has increased by 60%, In June 2018, the Argentine government turned to the International Monetary Fund for support. Despite these resources, the government in late August and early September 2019 postponed payments of some of it debt and the central bank imposed currency controls. The S&P Merval lost half its value after the August primary election defeat of the then incumbent president, Maricio Marcri, which shows investor sentiment is negative towards the opposition. This was reversed as the market has seemed to have taken the recent transition of power in a different light as Merval is up almost 50% since the summer sell-off low. The recent news regarding the newly elected president, Alberto Fernandez, and his plan to use the weak exchange rate as a way to boost the economy, has given certain investors the confidence to re-enter the market for Argentine equities.
Value of the Argentine Peso: 2018 to October 2019
Pesos per USD
Source: Global Financial Data
Although we believe that the current state of Argentina's economy poses a serious risk to the investments made in the country. Contrary to popular belief, we think that the mass sale of Argentine assets which put downward pressure on the peso, has given investors an opportunity to invest in these assets. The stabilization of the peso is in the best interest of the Argentine government as taming Inflation is a primary objective to fixing the economy and attracting foregin capital to once again invest in Argentina. Although the situation may get worse due to the general state of the global economy, we believe that there are quality investments in Argentina, and that the story for growth in the country is an optimistic one.
The Merval: Sector Breakdown
Selected Investments
Our selected investments in Argentina are in the following companies:
1. Transportadora de Gas del Norte S.A.
2. Transportadora de Gas del Sur S.A.
3. Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A.
4. Grupo Financiero Valores S.A.
Allocation by Dollar Amount
Natural Gas in Argentina
Industry Highlights
· LNG production capacity of 500,000 metric ton 0.7 Billion Cubic Feet per day
· Argentina’s domestic natural gas production has been rising steadily in the past three years, largely because of increasing scope of same-well production capabilities
· From 1990 through 2007, Argentina was a net exporter of natural gas.
· Since 2008, Argentina has imported natural gas by both pipeline and as LNG throughout the year.
Natural gas demand seasonality and growth in shale production have supported the development of LNG exports in Argentina. Argentina’s natural gas consumption peaks during the austral winter (May to September) and remains relatively low during the rest of the year. Argentina’s off-peak season coincides with the winter peak demand season in major LNG consuming countries. Domestic natural gas production exceeds consumption during off-peak season, but is insufficient to meet demand during the winter peak season, which requires Argentina to import natural gas by both pipeline and as LNG. Argentina currently does not have large-scale natural gas storage facilities, and natural gas producers have had to shut-in surplus production to accommodate the shifting seasonal consumption patterns.
(TGNO4) - Transportadora de Gas del Norte S.A.
Industry: Oil and Gas Storage and Transportation
Market Cap: 16,806 Million Pesos
Transportadora de Gas del Norte S.A. transports natural gas in the north and central west regions of Argentina. It operates and maintains approximately 9,100 kilometers of gas pipelines. The company also provides operation, maintenance, and technical assistance services to third-party pipelines in Argentina, Chile, Brazil, Uruguay, Peru, and Mexico. The company also offers regulated services, such as firm transportation, interruptible transportation, and exchange and displacement services; and un-regulated services, including operation and maintenance services on third party pipelines, which comprise scheduled maintenance, corrective maintenance, operation, dispatch and balance, emergency response, work inspection, commercial management, special surveys, and materials and spare parts procurement management services.The company was founded in 1992 and is headquartered in Buenos Aires, Argentina.
We believe that that poses Transportadora de Gas del Norte S.A., “TGN”,
as great investment opportunity for many reasons, but there a few which are most pertinent. 1) the increased global demand for natural gas (LNG), 2) the recent financial crisis in Argentina has hit asset prices hard, 3) The company is receiving interest from several Chinese infrastructure companies as a potential acquisition.
TGN is a company which we believe will benefit greatly from the increased exporting capabilites of Argentina. From a business point of view we think that Argentine Liquid Natural Gas operations are best positioned for the sale of LNG to Asia through pipelines into Chile, and subsequently to the pacific ocean ports. This aspect of this investmet aligns well with Asian portion of our portfolio, where which we see an increased demand for LNG in both China and Japan, as LNG supplies not only heat fuel necesities, but also the demand for ethane production, which is a main feed stock in the production of plastics.
In regards to TGN’s financial standing, we believe that its EBITDA margins are healthy and supply ample financial safety in the form of free cash flow. Although TGN’s revenues depend entirely on the price of LNG, we believe that since domestic demand often leads to the necessity to import LNG, we think that TGN is a great position to continually do business even in the event of volitile LNG prices. TGN’s balance sheet is buoyed by the extensive size of its pipline network, which could sold in part in the event of financial distress, with many Chinese infrastructure firms having already placed bids.
As per the price of TGN’s equity, we believe that the financial crisis which has been occuring in Argentina has led investors to panic, and sell Argentine Equities. TGN lost more than half of its Market cap since the end of June, as its price fell 54%, from 85 pesos per share to 35 in late November. We believe that this is an overeaction by the market in terms of price action. We also think that the negative news surrounding the possible nationaliztion of the pipeline, as YPF was in 2012, is not a significant risk due to the operational difficulties and monetary risks of running a pipeline, which would defeat the purpose of nationalizing the company.
Argentina’s Northern pipeline network is forecasted to benefit greatly if a significant lithium industry were to erupt in the northern provinces of Argentina, as the industry would require energy needs for mining and the susequent periferal industries that would emerge. For this reason, and those also explained above, we believe that TGN is a great investment.
(TGSU2) - Transportadora de Gas del Sur S.A.
Industry: Oil and Gas Storage and Transportation
Market Cap: 80,168 Million Pesos
Transportadora de Gas del Sur S.A. provides natural gas transportation and distribution services in Argentina. The company operates through four segments: Natural Gas Transportation, Production and Commercialization of Liquids, Other Services, and Telecommunications. The Natural Gas Transportation segment transports natural gas through 5,706 miles of pipeline system to distribution companies, power plants, and industrial customers. As of December 31, 2018, it served 6.2 million residential, commercial, industrial, and electric power generation end-users. It also provides operation and maintenance services for the natural gas transportation facilities.
The Liquids Production and Commercialization segment produces and commercializes natural gas liquids, such as ethane, liquid petroleum gas, natural gasoline, propane, and butane in Argentina and internationally. The Other Services segment offers midstream services, including natural gas treatment, separation, and removal of impurities from the natural gas stream, as well as natural gas compression. It also provides services related to pipeline and compression plant construction, operation, and maintenance; and generates steam for electricity production. The Telecommunications segment provides telecommunication services for telecommunication operators and corporate customers. Its telecommunication network includes a microwave digital network with synchronous digital hierarchy technology and a dark fiber optic network. The company was founded in 1992 and is headquartered in Buenos Aires, Argentina. Transportadora de Gas del Sur S.A. is a subsidiary of Compañía de Inversiones de Energía S.A.
Although we believe that Transportadora de Gas del Sur S.A., “TGU”, might share the same investment rationale as Transportadora de Gas del Norte, “TRAN”, on the basis of Natural Gas and the its global growth opportunities, TGU complete the coverage over the entire country, especially in regions which are poised to see significant growth compared to other parts of the country. TGU is a much larger company by market cap, 80,168 million pesos in comparision to TGN’s (16,806). TGU’s position as the main player in the “southern cone” region could prove to be a great advantage if the Chinese invest heavily in developing the southern port of Chile and the Tierra del Fuego area.
In comparison to TGN, TGU’s equity rebounded back to the 90-100 range following the late summer sell off. This reflects TGU’s diversification into telecommuniciations and its position as a refiner as well as transporter of natural gas. For this reason, and those mentioned above, we believe that TGU is an investment that complements an investment in TGN, and the natural gas industry in Argentina.
(TRAN) - Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A.
Industry: Electric Utilities
Market Cap: 10,427 Million Pesos
Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. provides electric power transmission services in Argentina. The company also provides line operations and transformer stations maintenance services for third-party facilities; and engineering and consulting, transportation system expansion, testing and commissioning, and transmission works supervision services. It operates a network of 12,400 kilometers of transmission lines and 6,228 kilometers of lines. The company is headquartered in Buenos Aires, Argentina
Financial Resuts and Forecasts
Compañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A., “TRAN”, is our largest position. For many reasons, the ratios which we have selected to screen our potential investments highlight that the company is undervalued following the summer 2019 sell-off, where which TRAN lost half its value after dropping 51%, from 45 pesos to 22 in late November.
Argentina's government implemented a plan for the energy generation, transportation, and distribution segments to improve the quality and security of electricity supply, in order to guarantee the provision of this public service under suitable technical and economic conditions. The dilemmas causing investors to sell TRAN stem following the failure of President Macri to win reelection and the uncertainty on government policy in regards to electrical utilities. One of the Macri administration's main priorities since 2015 was to foster the recovery of the domestic electricity sector. It did so by re-establishing the remuneration scheme that reduced drastically utility subsidies for consumers to less than 1% of GDP in 2018 from almost 3% in 2014. As a result, main credit metrics of most of the rated players in the industry recovered substantially. However, the recent election of Alberto Fernandez from the Peronist party as a new president is putting the sustainability of the sector very much in question. We believe the Fernandez administration may seek to diminish the planned rate increases to lessen the burden on households' disposable income, but such a move could hamper the sector's operating and financial performance.
Given the widening gap between energy supply and demand, the government’s objective is to expand generating capacity, and we believe that this will greatly benefit TRAN. With this, and TRAN’s healthy EBITDA, will give it the necessary safety to cover its operating and financing needs, and position itself to benefit most from possible government sponsored projects. Although TRAN faces upcoming debt maturities, and limited access to capital markets, we still think that TRAN will be able cover its liabilities. For the reasons explained above, we believe that TRAN is a great investment.
(VALO) - Grupo Financiero Valores S.A.
Industry: Capital Markets, Financial Exchanges and Data
Market Cap: 10,621 Million Pesos
Grupo Financiero Valores S.A. executes trades, and provides clearing house and central counterparty services for the settlement and monitoring of transactions. The company offers order management; primary placement and secondary trading; markets monitoring; futures, options, repos, and loans management; and risk management services. It also provides information technology services; and training, communication, research, and development services. In addition, the company provides counseling services on capital markets dynamics as an investment and financing alternative. Grupo Financiero Valores S.A. was founded in 1929 and is based in Buenos Aires, Argentina.
Grupo Financiero Valores S.A., “VALO”, represents 7.54% of our total assets under management. In contrary to the most Argentine equities, VALO has performed very well since the Summer 2019 sell-off. Its equity has appreciated 50%, trading at 12 pesos in late November from 8 pesos in July.
Although the appreciation in equity value, we still believe that VALO is undervalued for two reasons. 1) the financial crisis has led to a domestic demand for alternative banking, and 2) VALO, is the most technologically equipped to deal with change in banking needs compared to its much larger and traditionally commercial banks.
Being one of the non-state owned banks gives VALO an advantage to perform internal improvements and technological upgrades. VALO has a strong capital markets business which supplements the troubles occurred in the traditional banking sector. VALO serves as a trustee and escrow agent of collective investments, such as trusts and mutual funds, an issuer of corporate and government securities, including shares and debt instruments, and an underwriter of initial public offerings (IPOs) on Argentinean capital market. Although the Argentine economy has been hit hard with the recent financial crisis, there still a need for financial services for firms and individuals who, through one way or another, are not as affected by variations in the peso. The Company's subsidiaries also include Mercado de Futuros y Opciones SA, which specializes in brokerage of futures contracts and options, which will still see sufficient business being that Argentina is one of the worlds largest soy bean, and soy bean meal exporters in the world.
VALO’s insulation from the woes of commercial banking have left it in a great position to diversify and expand its operations to possibly provide retail banking services for individuals and small businesses. VALO has been pushing for a digital home banking platform, which has so far been unable to capture significant market share, to better service the need for retail customers. We believe as the country becomes more digitized that this will greatly benefit VALO. If this is possible, VALO would be greatly advantaged with a source of funds from deposits, and would give its more opportunities in the financial services and banking universe.
The lack of access to international capital markets for small to medium sized firms, due to the nature of Argentina’s fiduciary and political risks, puts VALO in a great position to service this market for financing needs. For the reasons stated above, we believe that VALO proves to be a great investment.
References and Notes
China Sources:
Tim Cook interview: https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-is-number-1-reason-we-make-iphones-in-china-its-not-what-you-think.html
Labor Force:
https://www.statista.com/statistics/239152/labor-force-participation-rate-in-china/
Consumer Behavior/2019 outlook:
Various annual reports and interim reports pulled from companies’ websites and investor relations
France Sources:
France economic outlook & charts:
https://www.eubusiness.com/europe/france
https://www.imf.org/en/News/Articles/2019/07/18/na071819-five-charts-on-frances-economic-outlook
https://countryeconomy.com/gdp/france?year=2018
https://www.macrotrends.net/countries/FRA/france/gdp-growth-rate
https://www.imf.org/external/datamapper/GGXWDG_NGDP@WEO/OEMDC/ADVEC/WEOWORLD/FJI/COL/FRA
Michelin Information:
https://www.michelin.com/en/finance/results-and-presentations/annual-results/
Sogeclair Information:
https://quotes.wsj.com/FR/XPAR/SOG?mod=searchresults_companyquotes
http://www.sogeclair.com/admin/files/inforeg/5b210dca6cc50.pdf
https://simplywall.st/stocks/fr/capital-goods/epa-sog/sogeclair-shares
Bogart Information:
http://www.groupe-bogart.com/en/the-group/our-story.html
https://simplywall.st/stocks/fr/household/epa-jbog/jacques-bogart-shares
Bic Information:
https://www.bicworld.com/sites/default/files/BIC_2018%20Half%20year%20Report_1AUG18.pdf https://finance.yahoo.com/news/soci-t-bic-sa-epa-135131757.html
Japan Sources:
https://www.britannica.com/place/Japan/International-relations#ref23219 (History)
https://ig.ft.com/sites/numbers/economies/japan/ (Graphs)
https://www.macrotrends.net/countries/JPN/japan/gdp-growth-rate (Economic Growth-GDP)
http://factsanddetails.com/japan/cat24/sub154/item896.html#chapter-2 (Macroeconomics)
https://www.investopedia.com/articles/markets/052516/japans-case-study-diminished-effects-qe.asp
https://www.jti.com/sites/default/files/global-files/documents/jti-annual-reports/jt-annual-report-2018.pdf (JAPAN TOBACCO INC SEGMENT BREAKDOWN - PDF)
https://www.kddi.com/english/corporate/ir/finance/business-segment/ (KDDI SEGMENT BREAKDOWN)
http://download.brother.com/pub/com/en/corporate/pdf/2019/broa4-all-en.pdf (BROTHER INDUSTRIES SEGMENT BREAKDOWN)
https://www.referenceforbusiness.com/history2/3/Brother-Industries-Ltd.html (BROTHER INDUSTRIES INFO)
https://www.prnewswire.com/news-releases/japans-sawai-pharmaceutical-to-acquire-the-generics-business-of-us-upsher-smith-laboratories-300442676.html (SAWAI PHARM INFO)
Argentina Sources:
https://www.imf.org/en/Countries/ARG
https://www.indec.gob.ar/uploads/informesdeprensa/ica_10_19AD783AA432.pdf
https://www.imf.org/external/pubs/ft/weo/2019/02
http://nulan.mdp.edu.ar/643/1/calvo_vismara_jp.pdf
https://www.spglobal.com/marketintelligence/en/news-insights/trending/fkIyEOY5LLdqCf_nS2F6pg2
https://www.spglobal.com/marketintelligence/en/news-insights/trending/s5v_JGDVevEymaXKZ_kUtw2
https://www.bloomberg.com/graphics/2019-new-economy-drivers-and-disrupters/argentina.html
https://www.ft.com/content/ddcbfca2-f030-11e9-ad1e-4367d8281195
https://www.cia.gov/library/publications/the-world-factbook/geos/ar.html
https://en.m.wikipedia.org/wiki/List_of_countries_by_employment_rate
https://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R#
https://www.lloydsbanktrade.com/en/market-potential/argentina/economical-context
https://www.euromonitor.com/argentina
https://www.bbvaresearch.com/en/geography/argentina-en/
https://www.eulerhermes.com/en_global/economic-research/country-reports/Argentina.html
https://www.gsmaintelligence.com/research/?file=35cb2633fc2acdae20960174ddaffb9c&download
https://www.fitchsolutions.com/topic/argentina
http://cepr.net/publications/reports/the-argentine-success-story-and-its-implications
https://www.bis.org/country/ar.htm
Company Fillings and Annual Reports
TGUS2 - Stock Price
43451 43452 43453 43454 43455 43460 43461 43462 43465 43467 43468 43469 43472 43473 43474 43475 43476 43479 43480 43481 43482 43483 43486 43487 43488 43489 43490 43493 43494 43495 43496 43497 43500 43501 43502 43503 43504 43507 43508 43509 43510 43511 43514 43515 43516 43517 43518 43521 43522 43523 43524 43525 43530 43531 43532 43535 43536 43537 43538 43539 43542 43543 43544 43545 43546 43549 43550 43551 43552 43553 43556 43558 43559 43560 43563 43564 43565 43566 43567 43570 43571 43572 43577 43578 43579 43580 43581 43584 43585 43587 43588 43591 43592 43593 43594 43595 43598 43599 43600 43601 43602 43605 43606 43607 43608 43609 43612 43613 43614 43615 43616 43619 43620 43621 43622 43623 43626 43627 43628 43629 43630 43634 43635 43637 43640 43641 43642 43643 43644 43647 43648 43649 43650 43651 43656 43657 43658 43661 43662 43663 43664 43665 43668 43669 43670 43671 43672 43675 43676 43677 43678 43679 43682 43683 43684 43685 43686 43689 43690 43691 43692 43693 43697 43698 43699 43700 43703 43704 43705 43706 43707 43710 43711 43712 43713 43714 43717 43718 43719 43720 43721 43724 43725 43726 43727 43728 43731 43732 43733 43734 43735 43738 43739 43740 43741 43742 43745 43746 43747 43748 43749 43753 43754 43755 43756 43759 43760 43761 43762 43763 43766 43767 43768 43769 43770 43773 43774 43775 43776 43777 43780 43781 43782 43783 43784 43788 43789 43790 43791 43794 43795 43796 43797 43798 43801 43802 43803 43804 43805 43808 43809 43810 43811 43812 43815 111.412041 109.53431 109.05284 105.00849700000001 101.734504 100.57897699999999 101.63821 105.58626 105.58626 107.030669 104.767762 112.18239199999999 112.904596 110.256514 113.626801 114.011976 113.963829 114.44529900000001 115.552679 118.345202 120.174786 120.174786 119.45258200000001 117.478557 118.778524 118.826671 116.660059 117.478557 119.25999400000001 120.945137 121.185872 119.837757 118.874818 120.800696 117.719291 114.204564 114.830474 120.656255 122.196958 118.922965 119.35628800000001 117.767438 116.32303 110.786131 112.56756799999999 109.53431 114.974915 117.815585 115.360091 112.18239199999999 110.256514 107.36769700000001 102.69744300000001 107.36769700000001 112.08609800000001 115.504532 112.42312699999999 112.952743 111.219453 112.32683299999999 116.563765 113.193478 114.54159300000001 112.66386199999999 109.149134 108.475077 106.934375 105.05664400000001 108.812106 109.87133900000001 110.737984 103.3715 103.08261899999999 102.69744300000001 105.826995 98.412364999999994 99.856773000000004 98.941980999999998 97.979042000000007 100.916006 102.55300200000001 89.216296999999997 89.890355 92.923612000000006 88.301505000000006 87.723742000000001 89.553325999999998 84.979365999999999 87.049683999999999 92.201408000000001 94.271726999999998 99.182715999999999 99.134568999999999 102.071533 99.616038000000003 99.27901 96.775368 98.604951999999997 100.24194900000001 99.038274999999999 101.301182 102.312268 104.141852 108.089902 108.715812 111.315747 112.18239199999999 110.256514 109.486163 113.097184 112.03795100000001 113.337919 113.771242 115.071209 114.25271100000001 113.626801 114.926768 120.27108 124.411717 123.68951300000001 124.941334 124.556158 122.871015 121.474754 119.45258200000001 120.559961 117.43040999999999 116.660059 118.922965 119.50072900000001 119.982198 118.489643 118.68223 119.741463 123.97839500000001 130.91155599999999 130.76711499999999 127.107947 128.55235500000001 129.27455900000001 124.796893 124.652452 117.911879 119.25999400000001 124.459864 125.230216 128.40791400000001 130.81526199999999 134.52257700000001 132.115229 131.53746599999999 128.215326 128.93753100000001 130.95970299999999 131.730054 130.23749799999999 137.84471600000001 88.012623000000005 100.33824300000001 103.03447199999999 108.475077 104.96035000000001 94.897637000000003 98.171629999999993 96.919809000000001 94.416167999999999 89.360737999999998 87.579301000000001 89.360737999999998 87.290419 90.949586999999994 95.812428999999995 88.782974999999993 96.679074 101.782651 99.712332000000004 99.616038000000003 102.89003099999999 105.971436 106.838081 107.99360799999999 113.049037 109.197281 112.18239199999999 113.241625 112.66386199999999 109.486163 104.189999 106.260317 104.189999 104.815909 103.13076599999999 107.31955000000001 109.67875100000001 107.31955000000001 115.69712 110.64169 106.019583 103.804823 107.56028499999999 109.77504500000001 108.42693 107.46399099999999 113.241625 112.85645 114.10827 118.008173 112.32683299999999 114.49344600000001 116.274883 112.03795100000001 114.10827 115.69712 116.515618 114.974915 119.06740600000001 121.330313 117.478557 117.863732 103.756676 99.75 102.25 99.3 92.2 93.4 96 96.1 94.1 92.5 92.5 85.45 89.45 91.15 91.7 87.45 84.25 90.5 91.95 95.2 96.6 91.85 93.2 93.8 97.8 101.05
TRAN - Stock Price
43451 43452 43453 43454 43455 43460 43461 43462 43465 43467 43468 43469 43472 43473 43474 43475 43476 43479 43480 43481 43482 43483 43486 43487 43488 43489 43490 43493 43494 43495 43496 43497 43500 43501 43502 43503 43504 43507 43508 43509 43510 43511 43514 43515 43516 43517 43518 43521 43522 43523 43524 43525 43530 43531 43532 43535 43536 43537 43538 43539 43542 43543 43544 43545 43546 43549 43550 43551 43552 43553 43556 43558 43559 43560 43563 43564 43565 43566 43567 43570 43571 43572 43577 43578 43579 43580 43581 43584 43585 43587 43588 43591 43592 43593 43594 43595 43598 43599 43600 43601 43602 43605 43606 43607 43608 43609 43612 43613 43614 43615 43616 43619 43620 43621 43622 43623 43626 43627 43628 43629 43630 43634 43635 43637 43640 43641 43642 43643 43644 43647 43648 43649 43650 43651 43656 43657 43658 43661 43662 43663 43664 43665 43668 43669 43670 43671 43672 43675 43676 43677 43678 43679 43682 43683 43684 43685 43686 43689 43690 43691 43692 43693 43697 43698 43699 43700 43703 43704 43705 43706 43707 43710 43711 43712 43713 43714 43717 43718 43719 43720 43721 43724 43725 43726 43727 43728 43731 43732 43733 43734 43735 43738 43739 43740 43741 43742 43745 43746 43747 43748 43749 43753 43754 43755 43756 43759 43760 43761 43762 43763 43766 43767 43768 43769 43770 43773 43774 43775 43776 43777 43780 43781 43782 43783 43784 43788 43789 43790 43791 43794 43795 43796 43797 43798 43801 43802 43803 43804 43805 43808 43809 43810 43811 43812 43815 46.65 48.15 47.85 43.55 43 43 44.8 45.05 45.05 47 47.3 48.6 49.55 50.4 51.4 53.3 52.9 54 53.9 55 55.5 56.1 56.2 55.8 56.5 57.1 56.7 55.6 56.5 57.1 57.1 58.9 58.7 59.7 59.3 57.2 59.5 59.6 59.9 59.3 58.8 58.5 57.7 56 55.2 54.5 55.7 55.5 55.4 55 55 54 50.9 50.6 51 52.3 51.9 52.1 51.7 52.5 53.4 51.8 50.5 49.8 47.9 46.7 44.55 44 45.85 46.15 44.55 41.9 41.95 41.8 41.2 39.049999999999997 39 39.4 38.700000000000003 40.049999999999997 39.799999999999997 39.85 39.4 39.799999999999997 38.299999999999997 38.85 39.1 38.65 39.25 40.049999999999997 42.95 45.45 44.85 46.3 47.1 46.55 46.55 39.1 39.1 39.049999999999997 38.200000000000003 38.65 39.200000000000003 38.799999999999997 38.4 39.5 39.799999999999997 39.75 39.799999999999997 39.200000000000003 38.65 37.549999999999997 37.75 37.9 38 37.35 38 38.950000000000003 41.15 42.35 44.3 44.5 42.85 41.15 41.25 41.95 41.1 42.95 43.4 43.2 42.5 42.1 42.1 43.9 43.85 45.3 46.25 44 43.65 43.4 44 43.75 43 43.25 42.85 43.6 45.85 46.1 46.45 46.55 45.65 46.65 46.5 46.75 46.1 45 47.6 24.1 24.4 21.7 22.1 23.4 21.85 22.5 22.1 20.6 20.55 18.399999999999999 18.7 17.55 17.149999999999999 18.149999999999999 15.3 15.25 16.850000000000001 18.25 18.5 20.65 21.2 22.9 23.85 23.95 23.55 23.65 23.6 23.75 23.05 21.25 21.4 21.3 21.6 20.95 21.6 21.95 21.95 22.9 21.7 21.75 22.25 23.1 22.45 22.5 21.55 21.8 20.75 19.899999999999999 20 19.100000000000001 19.55 20.05 19.2 19.899999999999999 21 21.9 21.95 23.2 22.85 22.75 23.9 22.15 21.25 21.85 20.85 19.5 19.600000000000001 19.899999999999999 20.5 20.2 21.2 22.6 21.95 23 23.3 23.05 22.9 22.2 22.85 23.2 23.5 23.9 22.45 22.1 21.4 22.25 23.45
VALO - Stock Price
43451 43452 43453 43454 43455 43460 43461 43462 43465 43467 43468 43469 43472 43473 43474 43475 43476 43479 43480 43481 43482 43483 43486 43487 43488 43489 43490 43493 43494 43495 43496 43497 43500 43501 43502 43503 43504 43507 43508 43509 43510 43511 43514 43515 43516 43517 43518 43521 43522 43523 43524 43525 43530 43531 43532 43535 43536 43537 43538 43539 43542 43543 43544 43545 43546 43549 43550 43551 43552 43553 43556 43558 43559 43560 43563 43564 43565 43566 43567 43570 43571 43572 43577 43578 43579 43580 43581 43584 43585 43587 43588 43591 43592 43593 43594 43595 43598 43599 43600 43601 43602 43605 43606 43607 43608 43609 43612 43613 43614 43615 43616 43619 43620 43621 43622 43623 43626 43627 43628 43629 43630 43634 43635 43637 43640 43641 43642 43643 43644 43647 43648 43649 43650 43651 43656 43657 43658 43661 43662 43663 43664 43665 43668 43669 43670 43671 43672 43675 43676 43677 43678 43679 43682 43683 43684 43685 43686 43689 43690 43691 43692 43693 43697 43698 43699 43700 43703 43704 43705 43706 43707 43710 43711 43712 43713 43714 43717 43718 43719 43720 43721 43724 43725 43726 43727 43728 43731 43732 43733 43734 43735 43738 43739 43740 43741 43742 43745 43746 43747 43748 43749 43753 43754 43755 43756 43759 43760 43761 43762 43763 43766 43767 43768 43769 43770 43773 43774 43775 43776 43777 43780 43781 43782 43783 43784 43788 43789 43790 43791 43794 43795 43796 43797 43798 43801 43802 43803 43804 43805 43808 43809 43810 43811 43812 43815 5.19 5.0999999999999996 5.09 5.07 5.05 4.97 4.9800000000000004 5.27 5.27 5.18 5.0999999999999996 5.27 5.44 5.54 5.6 5.54 5.5 5.58 5.61 5.7 5.76 5.97 6.05 5.85 5.94 6.22 6.15 6.04 6.09 6.11 6.16 6.15 6.18 6.25 6.09 5.9 6.04 6 6.12 6.14 6.23 6.68 7.06 6.79 6.84 7.11 7.09 7.11 7.12 7 6.91 6.76 6.3 6.24 6.37 6.54 6.84 6.85 6.78 6.74 6.79 6.78 6.7 6.43 6.13 6.25 6.13 6.09 6.23 6.21 6.13 5.85 5.84 5.84 5.75 5.66 5.73 5.6 5.65 5.93 6.18 6.15 6.09 6.14 6 5.98 6.04 6.06 5.62 5.8 5.8 5.94 5.9 6 5.99 5.94 5.99 5.99 5.98 5.99 5.92 5.92 6 5.98 5.92 5.88 5.95 5.9 5.95 5.93 6.03 6.11 6.54 6.68 6.9 6.87 6.9 7.23 7.42 7.38 7.38 7.36 7.3 7.31 7.29 7.27 7.47 8.02 8.18 8.4 8.59 8.75 8.76 8.7899999999999991 8.9600000000000009 8.65 8.4700000000000006 8.08 8.08 7.97 7.69 7.57 7.24 7.53 7.72 7.63 8.0399999999999991 8.18 8.1300000000000008 8.0500000000000007 7.84 7.77 7.63 7.8 7.58 7.41 7.65 5.53 6.08 6.01 6.22 6.31 5.92 5.93 5.9 5.84 5.84 5.5 5.57 5.3 5.1100000000000003 5.32 5.05 5.43 5.67 5.76 5.7 5.86 5.85 5.82 6.09 6.37 6.35 6.35 6.44 6.76 6.45 6.15 6.02 6.02 6.14 6.38 6.52 6.64 6.42 6.54 6.53 6.58 6.78 6.98 7.17 7.23 7.2 7.33 7.45 7.52 7.69 7.96 8.1 8.3800000000000008 8.61 9.0299999999999994 9.66 10.6 11.4 12.35 10.65 9.99 10.5 10.35 10.25 9.9600000000000009 9.77 9.16 10.199999999999999 10.65 11.25 11.35 10.9 10.199999999999999 10.3 10.75 10.85 10.5 10.3 10.65 11.25 11.4 11.65 11.5 11.2 11.6 12.3 12.7 12.65
TGN-04 Stock Price
43451 43452 43453 43454 43455 43460 43461 43462 43465 43467 43468 43469 43472 43473 43474 43475 43476 43479 43480 43481 43482 43483 43486 43487 43488 43489 43490 43493 43494 43495 43496 43497 43500 43501 43502 43503 43504 43507 43508 43509 43510 43511 43514 43515 43516 43517 43518 43521 43522 43523 43524 43525 43530 43531 43532 43535 43536 43537 43538 43539 43542 43543 43544 43545 43546 43549 43550 43551 43552 43553 43556 43558 43559 43560 43563 43564 43565 43566 43567 43570 43571 43572 43577 43578 43579 43580 43581 43584 43585 43587 43588 43591 43592 43593 43594 43595 43598 43599 43600 43601 43602 43605 43606 43607 43608 43609 43612 43613 43614 43615 43616 43619 43620 43621 43622 43623 43626 43627 43628 43629 43630 43634 43635 43637 43640 43641 43642 43643 43644 43647 43648 43649 43650 43651 43656 43657 43658 43661 43662 43663 43664 43665 43668 43669 43670 43671 43672 43675 43676 43677 43678 43679 43682 43683 43684 43685 43686 43689 43690 43691 43692 43693 43697 43698 43699 43700 43703 43704 43705 43706 43707 43710 43711 43712 43713 43714 43717 43718 43719 43720 43721 43724 43725 43726 43727 43728 43731 43732 43733 43734 43735 43738 43739 43740 43741 43742 43745 43746 43747 43748 43749 43753 43754 43755 43756 43759 43760 43761 43762 43763 43766 43767 43768 43769 43770 43773 43774 43775 43776 43777 43780 43781 43782 43783 43784 43788 43789 43790 43791 43794 43795 43796 43797 43798 43801 43802 43803 43804 43805 43808 43809 43810 43811 43812 43815 57.7 57.55 57 56.3 55.55 55.05 57.05 56.55 56.55 56.55 55.1 58.15 61.3 61.3 62.7 63 63.6 65.099999999999994 64.900000000000006 66 66 65.2 66.400000000000006 64 65.400000000000006 65.099999999999994 63.7 63 64.7 65.900000000000006 66.7 69.5 71.3 70 68.7 66.8 68.2 69.099999999999994 69.599999999999994 69.099999999999994 69.5 69.400000000000006 69.2 67.5 67.2 67.8 71.5 71.8 71.8 72.2 70.8 69 65.400000000000006 69.5 68.7 69.099999999999994 69.400000000000006 70.099999999999994 69.5 69.900000000000006 70.2 68.5 67.3 67.8 68.3 67 64 63.5 65.099999999999994 64.8 62.6 60.9 59.2 58.7 57.5 53.3 54 55.4 56.4 56.4 51 50.9 51.8 52 50.7 51.4 51.8 51.1 53.3 54.1 57.6 59.5 60 63.1 65.599999999999994 66 66.900000000000006 66.8 68 68.2 67.8 67.900000000000006 70 70 69.900000000000006 69 69.400000000000006 69.2 69.400000000000006 69.7 69 67.599999999999994 68 68.599999999999994 67.400000000000006 67.8 69 70.7 71.599999999999994 70 70.8 71.3 70.3 70.900000000000006 70 69 69.5 69.3 68.5 67.3 68 67.8 69.8 70.2 71.099999999999994 70.8 71.3 69.7 68.900000000000006 69.400000000000006 70 69.5 68.8 68.5 69 69.099999999999994 73.599999999999994 77.900000000000006 77 76.400000000000006 76 76.7 74.900000000000006 74.2 72.7 72.7 77.2 49.85 50.5 42.7 46.9 46.8 41.55 40.9 41.15 39.1 37.25 32.799999999999997 29.55 25.7 24.3 25.75 26.4 26.05 29.2 31.25 32.549999999999997 35.4 38.950000000000003 44.65 46.1 47.9 48.7 48.95 48.45 48.15 43.95 40.950000000000003 41.35 41.7 42.8 45.35 49.05 53.1 53.3 54.4 51.1 49.85 50.2 50.1 50.9 49.85 46.8 47.25 45.45 43.9 42.9 40.4 39.6 37.85 38.950000000000003 40.85 45.35 46.25 43.9 44.25 44.4 45.25 46.45 43.05 42.1 40.200000000000003 38.450000000000003 35.299999999999997 37 38.15 40.9 39.299999999999997 38.700000000000003 38.450000000000003 36.799999999999997 37.5 36.049999999999997 35.950000000000003 34.9 34.85 34.299999999999997 35 35.35 35.5 33.9 32.85 33.799999999999997 36.75 38.25
Ticker Company Name Price Earnings Debt/Equity
Gross Margin
(%)
Market/Book
Value
Current
Ratio
Interest Coverage
TRANCompañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. 4057127
Ticker Company Name Price Earnings Debt/Equity
Gross Margin
(%)
Market/Book
Value
Current
Ratio
Interest Coverage
VALOGrupo Financiero Valores S.A.5081333
Ticker
Company
Name
Price
Earnings
(25%)
Rank
Debt/Equity
(15%)
Rank
Gross
Margin
(15%)
Rank
Market/Boo
k Value
(15%)
Rank
Current
Ratio (15%)
Rank
Interest
Coverage
(15%)
Rank
Stock
Score
Stock
Weight
Stock $
Allocation
BB.PASociete BIC SA14.020.41050.591.822.41158.9137.35.33%5,224,264.7$
ML.PACompagnie Generale des Etablissements Michelin9.8100.4632.611.581.466.856.44.71%4,611,764.7$
JBOG.PAJacques Bogart SA10.390.7459.0141.2132.182.828.46.18%6,052,941.2$
SOG.PASogeclair Aerospace SAS10.680.8161.9151.1141.779.788.86.43%6,305,147.1$
TGNO4Transportadora de Gas del Norte S.A. 3.3160.31340.430.4161.0237.41110.87.90%7,746,323.5$
TGSU2Transportadora de Gas del Sur S.A. 5.1130.8250.5101.742.71510.099.36.80%6,665,441.2$
TRANCompañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. 3.8150.4957.3130.7152.4107.0611.78.60%8,430,882.4$
VALOGrupo Financiero Valores S.A.4.6140.21480.9162.712.6132.7110.37.54%7,386,029.4$
6448 JPBrothers Industries ltd10.770.21544.081.3113.01669.01411.48.35%8,178,676.5$
9433 JPKDDI Corp11.950.31143.361.771.1395.0157.65.55%5,440,441.2$
4555 JPSawai Pharmaceutical Co Ltd14.410.4840.741.492.61453.6127.35.37%5,260,294.1$
2914 JPJapan Tobacco Inc12.040.4756.9121.761.2525.0106.95.09%4,990,073.5$
177 HKJiangsu Expressway Co.11.360.5555.6111.760.917.375.94.36%4,269,485.3$
600897 CHXiamen Intl. Airport Co.12.230.01643.871.832.292200.0168.46.18%6,052,941.2$
152 HKShenzhen Intl. Holdings Ltd.7.7110.31239.521.3102.4125.348.86.43%6,305,147.1$
855 HKChina Water Affairs Group7.1120.8341.751.2121.144.6
37.15.18%5,080,147.1$
Sum:136.0100%98,000,000.0$
SegmentRevenue
Personal3,911,229.00$
Business796,863.00$
Life Design579,374.00$
Global208,790.00$
Other99,180.00$
Unallocated Adjustment(515,082.00)$
Total Revenue5,080,354.0$
$ in millions Yen
FY 2018FY 2019
Revenue5,041,979.0$ 5,080,354.0$
YoY Growth6.2%0.8%
Net Profit955,147.0$ 1,010,275.0$
YoY Growth6.6%5.8%
EPS235.45$ 259.01$
YoY Growth6.3%10.0%
EBITDA1,504,698.00$ 1,571,264.00$
EBITDA Margin29.8%30.9%
Capital Expenditures(361,102.00)$ (399,531.00)$
as % of Sales7.2%7.9%
SegmentRevenue
International Tobacco1,339,979.00$
Domestic Tobacco629,403.00$
Processed Food161,388.00$
Pharmaceuticals113,992.00$
Other12,553.00$
Elimination(41,353.00)$
Total Revenue2,215,962.0$
$ in millions Yen
FY 2017FY 2018
Revenue2,139,650.0$ 2,215,962.0$
YoY Growth-0.2%3.6%
Net Profit392,409.0$ 531,486.0$
YoY Growth-6.9%35.4%
EPS218.97$ 215.20$
YoY Growth-7.0%-1.7%
EBITDA662,315.00$ 680,322.00$
EBITDA Margin31.0%30.7%
Capital Expenditures(123,726.00)$ (138,605.00)$
as % of Sales5.8%6.3%
SegmentRevenue
Japan144,098.00$
United States of America40,242.00$
Total Revenue184,340.0$
$ in millions Yen
FY 2018FY 2019
Revenue168,067.0$ 184,340.0$
YoY Growth26.9%9.7%
Net Profit20,251.0$ 25,666.0$
YoY Growth1.9%26.7%
EPS360.26$ 442.32$
YoY Growth-16.5%22.8%
EBITDA36,532.00$ 42,270.00$
EBITDA Margin21.7%22.9%
Capital Expenditures(10,319.00)$ (7,500.00)$
as % of Sales6.1%4.1%
Ticker
Company
Name
Percentage
Allocation
Dollar Amount
TGNO4Transportadora de Gas del Norte S.A. 25.63%7,746,323.53$
TGSU2Transportadora de Gas del Sur S.A. 22.05%6,665,441.18$
TRANCompañía de Transporte de Energía Eléctrica en Alta Tensión Transener S.A. 27.89%8,430,882.35$
VALOGrupo Financiero Valores S.A.24.43%7,386,029.41$
Total Allocation100.00%30,228,676.47$
Ticker Company Name Price Earnings Debt/Equity
Gross Margin
(%)
Market/Book
Value
Current
Ratio
Interest Coverage
TGNO4Transportadora de Gas del Norte S.A. 30400137
Ticker Company Name Price Earnings Debt/Equity
Gross Margin
(%)
Market/Book
Value
Current
Ratio
Interest Coverage
TGSU2Transportadora de Gas del Sur S.A. 51512310