Wednesday 14 January 2015

Analysis of Balaton 2015

Balaton, a German investment company

Company: Balaton

ISIN DE0005508204 | WKN 550820

Business: A German investment company. They keep it very simple and only say that their core business is to invest in publicly and non publicly traded companies. Here you can however find the list of the companies that they currently have holdings in.

Active: Main focus is in Germany.

P/E: 2.5

Comment: I have a hate/love relationship to this company. Since a long time I have wanted to buy them but since they made the same mistake as me when it comes to stepping into China I have still not invested in them. They bought three China companies and in two of them the managers have gone missing with the money and the third one is... who knows... to my knowledge they have still not written off those companies as losses... and neither have I...

Here you can find the previous analysis of Deutsche Balaton AG.

contrarian values of P/E, P/B, ROE as well as dividend for Balaton

The P/E of Balaton is insane low with 2.5 and the P/B is equally low with 0.,5 which gives a very clear buy signal from Graham. The earnings to sales are great with 50% and the ROE is excellent with over 21%! The book to debt ratio is also something to get excited about since it is 2.5.
In the last five years they have had a yearly revenues growth rate of 15.5%! This gives us, modestly calculating, a motivated P/E of 25 to 30 and Balaton is then highly undervalued on the market.
They pay no dividend which is bad but obviously they consider themselves to be able to generate more money by keeping it instead of handing it out to the shareholders.

Conclusion: Graham gives a clear yes signal and so do I but with the caution concerning the China stocks that they still have not written them off as losses. As always many argues that investment companies should be bought and sold at discounted value which I do not agree with and therefore also do not consider. P/E, P/B and ROE are all excellent! Balaton is allowed to stay on the Stocks of Interest list.

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Hmmm said...

Considering the company cannot manage its investments whatsover which you proved in one paragraph, this just feels like yet another value trap...

If you subtract these 3 investments from IC over a few years, how does ROIC evolve? Why would you assume that their other managers are going to behave well?

Also how much of the earnings are cash backed?

Fredrik von Oberhausen said...

Hi Hmmm,

Well, to be fair in the two companies they had 7 respectively 15% so they were more there as activist investors and not as 100% owners so their influence and insights were less.

I do not know the price they paid for the shares in the companies so I have not been able to calculate that but the ROIC for the last 5 years has been around 12% which is not excellent.

The cash flow tells that it is less backed with cash. Good point!

Value trap you say... I once asked on a blog that were discussing value traps if they could give me some examples. The ones I got were companies that they today considered to be value traps. I know very few value traps when I look back in history.

To me, a value trap lies in the patience of the investor. Oh, and that the company does not go bankrupt which is the only real fear.