Stocks sold February 2017: Eniro, Gerry Weber and Kernel

I wanted to keep Eniro until the very bitter end. Not because I believe they can turn anything around but simply as a monthly reminder of how poor the decision was to invest in them. To buy into a company where the CEO has been arrested for not running things with the company properly is not a good idea. To take a current event example then that would be to buy into Samsung now. Every company everywhere will have a couple of crooks employed. Once the authorities start to seriously look into a company or person for that matter then you will always be able to find something. It does not please me to say so but I honestly believe that to be true.

Eniro had a crook CEO. The CEO that took after was, by the look of things, not better. The person running the show now I neither know or care what or who he is. Key employees will have left the company and what is left is a call center in Poland.

With Eniro I additionally learnt to take a look at the goodwill. If your goodwill is higher than your equity and your tangible assets are non existing all the while having a large debt... well... that will not end very well and it did not.

Due to tax reasons I decided to walk a separate road compared to Eniro and I sold all my 850 shares, that I had paid 1035 € to acquire, for 13.60 €. There were some fees but I think I got some slack because they only reached the value of 13.60 € which means that I received zero € out for that sale. Due to that I once sold share rights for 74.50 € this "investment" did not become a -100% loss but merely a -93% loss. Eniro became, in the end, a 31 months holding.

The reason for why Gerry Weber ended up in my visual field at all was due to insider trading. The new CEO, the son of one of the founders, was each month buying shares after shares after shares. He did that when the share price was up at over 30 € so when it dropped down to around 20 € I started to look upon it as being an interesting investment. The new CEO kept buying shares. Not that long afterwards the price dropped further down to around 15 € before it started to settle around 10 to 12 €. All of a sudden the CEO was not buying any more shares.

In the article that I wrote when I bought the shares I was already then annoyed with myself because I never ever saw any customers in the store. Never. It was therefore a kind of anti-Lynch company where the books looked ok however a company without any customers will only end up at one location in the end. The bin!

I have too many companies and far too many within retail that removing one while having a tax benefit from doing so felt pretty ok. Gerry Weber you are out! and for the future of the company I hope that Ralf Weber will pretty soon also be out!

I sold my 50 shares including the removal of fees for 509 € which gives me a loss of 530 €. I received a tiny dividend in the size of 20 € which gives me a loss of -49%. Gerry Weber stayed with me for 28 months more than what they should have stayed.

Kernel was a pure low P/E, P/B and looking into a war zone where very often share prices of companies drops like stones even though they are still able to continue their business. Sometimes they are even able to perform better during such situations so it was a classical contrarian company. When I look back at the reason for why I bought it then there was not that many. I had tried to buy another one but ended up with this one... was more or less the reason for the buy. In war zones everything drops so maybe no other reason is actually needed.

I ended up buying more shares in Kernel on four different occasions which came from that the share price kept dropping and back then I had my "auto" rule of buying more shares when the drop went passed certain borders.

After a couple of years the share price started to increase and I was sitting around with a Ukrainian agricultural company, in a war zone, having plenty of business with Russia in the size of 10% of my entire stock portfolio. I then decided to decrease the holding and I sold off a large part of my shares at a profit of 35%. I now decided to sell off the rest of this holding because there were several things in the latest report that I have not been so happy with.

They are playing around a lot with the valuation of the crops on the fields and not only in storage. The have hired a person for hedging. The dollar is very strong and all crops are traded in dollars so their profits are inflated due to this... all the while they are unable to increase their revenue flow since many, many years now. An insider, it must have been the founder and CEO, sold off larger portions of shares during the end January. For me that was enough and I decided it was time to leave.

I sold my remaining 170 shares for 2864 € with a 92% gain. Looking at the entire Kernel investment then I made a profit of 2518 € and I received almost 160 € in dividends giving me a profit of 56% during the 45 months that I remained as a shareholder in Kernel.

My average holding time of my departed shares are now up at 29 months.

Any changes will be brought into the stock portfolio upon the next update in the very end of the month.

Analysis of Kernel 2016

Company: Kernel

ISIN LU0327357389 | WKN A0M7QF

Business: An Ukrainian agricultural and logistics company with its headquarters in Luxembourg. They have six different business units: Sunflower Oil in Bulk (buy sunflower seeds and crush them to oil), Bottled Oil (sold under the brand names: Schedry Dar, Stozhar and Chumak Zolota), Farming (producing all kind of crops with the new thing being rapeseed), Grain (logistic handling of bought crops), Export Terminals (export of the grain and oil via harbours) and Silo Services (storage and drying of crops before export and sale).  

Active: Agricultural production in Ukraine and Russia. The products are exported and sold all over the world according to world market prices.

P/E: 7.9

Here you can find the previous analysis of Kernel 2015.

The P/E for Kernel is excellent with 6.7 and the P/B is good with 1.5 which gives a very clear buy signal from Graham. The earnings to sales are good at 11% and the ROE is excellent with over 22%. The book to debt ratio is looking great with 1.9.

In the last five years they have had a negative growth rate of -1.6% which is very bad and this then gives us a motivated P/E of around 8 to 10 which means that Kernel is pretty close to being fairly valued by the market.

They pay out a silly low dividend in the size of 1.4% which correspond to not even 10% of their earnings which is very low.

Conclusion: Graham says yes to Kernel but I do not. Yes, all the values are looking good but I find that the values are doped due to USD valuation and, in my opinion, different valuation of biological assets. I am still shareholder but I am very uncertain for how long.

Kernel annual report 2016

There has been some major share price movements in Kernel lately since the Polish retirements funds and what have you seem to have discovered Kernel. These are the moments when you regret that you sold off parts of the company but even so I must keep my head on straight and realise the risk of owning companies that are pretty much operating in a war zone. 

The report in full can be found here and all material is taken from it. For the previous annual report please see Kernel annual report 2015 and to find out more concerning Kernel please visit analysis of Kernel 2015.

The revenue dropped dramatically, from my point of view, however the earnings are in the end very decent due to increased dollar valuation in which they sell many of their crops while many of their costs are in Ukraine Hryvnia.

There are some annoying question marks in the company... Compared to 2015 they significantly increased the valuation of their crops. To my knowledge the valuation of many crops have not increased significantly from July 2015 to July 2016 so why do they decide to push up the valuation of that? Yes, their costs to recover those assets will be less... I can agree on that but that should not influence the value of the biological asset.

They have have give them selves stock options in the size of 3.8% of the total shares. Is the CEO and founder planning to retake the company via stock options to himself?

They have now hired a BA guy that will most likely fool around with currency and crops hedging. I do not really see how that will end well.

Conclusion: Kernel is doing well on the paper which to a very large extent comes a very strong dollar and crops having world market prices in USD. The managers seems to want to create a cosy little environment for themselves and the amount of stock options are, in my opinion an outrage. This is a company that pretends to make money and it is not a little start-up that needs to tie extremely skilled people to them via the hand out of shares because the salaries are so bad. For this reason I am currently cautious. I will remain shareholder for now but it might change quickly.

Analysis of ABF 2017

Company: ABF

ISIN GB0006731235 | WKN 920876 

Business: A British conglomerate with agriculture, agricultural products as well as retail. Currently they have five business segments: Sugar, Agriculture, Retail, Grocery and Ingredients. To find out more about their grocery brands then please click here and to find out about their businesses in general then please click here.

Active: Europe, Africa, USA and Australia. Heaviest in the UK and Ireland.

P/E: 24.1

Here you can find the previous analysis of ABF 2015. 

Since the last analysis the share price have dropped by over -30% which means that the P/E is at a more reasonable level today with its 24.1 however this is still a high value. The P/B have also improved significantly and is now at 2.8 which still gives a very clear no go from Graham. And I realise while writing this how insane it was of me not to sell ABF when it was up at a P/E of over 50.

The earnings to sales have improved slightly and is now at 6% as has the ROE that is up at 11.6. It is still not good but it is ok. The book to debt ratio is great with 1.7.

The yearly revenue growth rate is at a low 1.8% so more or less inflation considering their global presence. From this we get a motivated P/E of 10 to 13 which means that ABF is overvalued on the market today.

The pay a silly dividend of 1.5% however it only corresponds to 36% of their earnings so they should be able to keep it up for a while.

Conclusion: Graham has always said no to this one. I, on the other hand, decided not that long ago to increase my position in ABF. The P/E is down as a more reasonable level, the P/B is ok, the ROE will hopefully keep improving and more importantly for me Primark keep increasing the store area and sales. I will continue as a shareholder in ABF.

If this analysis is outdated then you can request a new one.

ABF annual report 2016

When I saw the front page of the report I must admit that I got slightly disturbed. It directly brought back memories of Asian Bamboo and my massively failed investment that I ended up doing. 

There is one reason and one alone for why I own ABF and that is due to Primark. Living here in the UK now it is very clear that they have saturated the market here because the amount of visitors are more similar to in an H&M store than the insane amount of people that entered the Primark stores in Germany.

For the report in full please go here and for the previous report from ABF please visit ABF annual report 2015 and to find out more regarding ABF please click on analysis of ABF 2015.

Looking at the statement below we can see that ABF did indeed increase their sales slightly. They are a global company which means that they have profited massively from a decreased valuation of the GBP. They have claimed since a long time to be working on and decreasing their costs... I do not really see that here. The profits are up by over 50% and yet they only increase the dividend by 5% so they know that the year was good.

If one takes a look at the different segments of this odd conglomerate then one can really see all the issues with Sugar. It used to bring in the big bucks and these days they are hardly even worth mentioning with their 34 million in profits.

Conclusion: Due to the decreased valuation of the pound sterling ABF profited immensely and will continue to do so as long as it remains pushed down. I still wait for the day when they will break Primark loose from the rest of the conglomerate. I will remain as a shareholder in ABF.