NO. 3 | JULY 2008
ThE EurOpEan
VALUE I N NV V E S T O R
IN VE ST ME NT ST RAT EG IE S
B E Y O N D T HE H E M AI A I N S T R EA EA M
»To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks« Benjamin Graham
Discipline, Focus, Independence: Braun, Brau n, von Wyss & Mül Müller ler AG The goal is sustainable capital appreciation. Since its initation in 1997 BWM‘s Classical Global Equity Fund has appreciated 224%. Over the same period the MSCI World only appreciated 33%. Fo lmost decde, te vle sttegy followed by te Swiss sset mge met comy B, vo Wyss & Mülle (BWM) eslted i cotios otefomce. Oly i te yes of te Iteet d tecology boom
did te Clssic Globl Eqity Fd clely deefom te MSCI Wold Idex. Tis sittio ws evesed immeditely fte te bbble bst. Te fodes, Toms B (52), Geog vo Wyss (43) d Eic Melle (54) view sot eiods of dee fomce s ecessy coseqece of globl ivestmet style. Wit EVI tey soke bot te comies istoy, tei ivestmet sttegy d idividl stock ides. …p.2-9 Thomas Braun Founder and Owner of BWM AG
CONTENTS THE CHEST Braun, von Wyss & Müller AG The Swiss value experts attach great importance to a high safety margin and welcome the opportunity of buying one franc for 65 cents. They currently identify opportunities with Agfa and Avis Budget
p. 2-9
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VALU VA LUEE KN KNOW OWLE LEDG DGEE ¡On the Contrary! Jim Rogers from A-Z. EVI talked to the commodities expert on current investment ideas, the future of China and his assessment of specific commodities
p. 10-13
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¡On the Contrary! Dr. Tito Tettamanti – He is considered a pioneer of the activist investment style. However, as one of the most successful investors he also warns of the risks inherent in activist funds
p. 14-16
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Research
Dr. Tito Tettamanti – pioneer of the activist investment style
What is the performance of companies that own a corporate jet? A survey among German DAX and MDAX companies
p. 17-19 …………………………………..............…………… VALU VA LUEE IN INSI SIDE DERR
He introduced the activist investment style in Switzerland and Europe. EVI talked to the financier domiciled in Ticino about the risks and opportunities of this strategy.
What‘s up with...?
Dr. Tito Tettamanti, attorney, entrepree d cie domiciled i Ticio, is cosideed ioee of te ctivist ivestmet style i Switzeld d i Eoe. Iitilly, is oc did ot d mc fvo wit te cil com mity. Tody Tody e is, ite li, Cim of Stelig Sttegic Vle Ltd. d oe of te most sccessfl d esectble ivestos of o time. EVI tlked to im bot is ivestmet iciles, stte gies d esectives bsed o sod ctivism. …p. 14-16
News of the Scene
Interview with Fund Manager p. 20-23 Tobias Klein …………………………………..............……………
p. 24-25
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Editorial:
p. 27
Imprint
p. 28
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Stocks in this edition: Agfa-Gevaert, Avis Budget, Avis Europe, Dr. Tito Tettamanti Entrepreneu r and Financier
No. 3 – 3 – Page 1 – July 08
BMW, Circuit City, DSG International, Fred Olsen Energy, Fuji, Hertz, Kodak, MBIA, Nestlé, Saurer, Siemens, Sixt, UBS, United Veolia lia Airlines, Veo
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
Braun, von Wyss & Müller AG For almost a decade, the value strategy followed by the Swiss asset management company Braun, von Wyss & Müller (BWM) resulted in a continuous outperformance. Thomas Braun (52), Georg von Wyss (43) and Erich Mueller (54) spoke to EVI about the situation on the stock exchanges, their investment strategy and individual stock ideas. EVI: Your funds suffered two-digit losses in 2007. And the rst half of 2008 did not bring any improvement. To which extent are you affected by this slump?
The owners of BWM AG (left to right): Thomas Braun, Georg von Wyss, Erich Müller
Aiming at a sustainable asset formation, BWM has posted an average yield of 11.8 percent since 1997 with its Classic Global Equity Fund. Te fodes of te comy, Toms B d Geog vo Wyss, met fo te st time i 1995 t ivte bk rüd, Blss & Cie. Toms B ws te esosible fo te bk‘s e sec detmet, wic Geog vo Wyss joied fte etig fom te uSa. pio to tis, fte comletig MBa, vo Wyss ws itodced to fdmetl lysis by exets sc s Micel F. pice, te owe of Mtl Seies Fds, wic is tody t of te Fkli Temleto go. B ws so imessed by vo Wyss‘ cosistet vle style tt e did ot esitte fo secod we vo Wyss sggested to im to fom tei ow comy d become tes. Te tid te, Eic Mülle, is i cge of cstome eltiosi mgemet d dmiisttio. We it ws decided to fom ew comy, Toms B ws lookig fo someo e wit good ogiztiol skills d ddessed Eic Mülle. Ivestmet decisios e exclsively tke by B d vo Wyss „i democtic me“, s tey delie. Tey e soted by fo lysts, wose ex clsive tsk is to evlte comies. Tey e cotiosly moitoig 150
to 250 secities, of wic od 30 e eld i te otfolio. Te ivestmet ocess s sc is clely stcted. If te ice of stock flls to o below 65 ecet of te itisic vle detemied by te lyst tem, it qlies to be dded to te otfolio, ovided tt oe of te two decisio mkes ots gist sc cqisitio. I ll cses, te stocks e sold t 100 e cet of tei Fi Vle. B d vo Wyss do ot ccet y ovevltios. Wit tei Clssic Globl Eqity Fd issed i 1997, B d vo Wyss cieved vege l et of ove 20 ecet til 2006. De to losses sffeed i 2007 d 2008, te lised et wet dow to 11.8 ecet. howeve, wit ovell efomce of 224.2 ecet sice its lc, te fd is clely bove te MSCI Wold Idex, wic icesed by oly 33.6 ecet i te sme eiod. Te fodes, Toms B (52), Geog vo Wyss (43) d Eic Melle (54) view sot eiods of deefomce s ecessy co seqece of globl ivestmet style. Te “new Ecoomy” exeiece oves tem igt sice te deefomce ws cgt eltively qickly i te ost dot-com e.
No. 3 – Page 2 – July 08
Müller: Sice ll owes of te com y e iv ested wit lm ost 100 ecet of t ei ivte ssets i te comy‘s ow ivestmet f ds, it goes witot syig tt we e te most ffected by mket tt s bee movig i dvese di ectio fo sc log eiod. Yo eveteless see s clm d elxed sice we kow tt tis ted my evese vey qickly. Te mots of moey flowig ot of te fds e ket witi ceti limit. I te fist qte of 2008, tey moted to mee five ecet.
We ve o oblem wit fds of fds tt o loge lce tei tst i s sice tis go of ivestos is of lmost o imotce to s. nely ll of o cliets e ivte ivestos, of wic od 65 ecet e s set mges ivestig te moey of idividl esos. Tis is te stble go of ivestos. von Wyss: howeve, I ve to dd tt I m iitted by te losses wic o cliets sffeed, of cose. aod oe tid of o otfolio stocks wee mssced t te sme time d dly y of te stocks gied i vle. Tis is extodiy situation – just as extraordinary as i evios ses we te ices of ely ll stocks icesed t te same time.
We e eveteless coviced of o log-tem sttegy. as yo c see, te comy BWM fctios desite losy efomce. as log s o clcltios of stock‘s i tisic vle e coect, tigs e ot ll tt bd.
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
EVI: How did your respective families react when part of your private assets went down the drain? Müller: Tey ected i te sme wy s o cliets. Tey kow vey well tt ivestig eqies tiece. I icile, we e ow exeiecig exctly te sittio wic we ve foecst fo some time. as cetl elemet of o mketig, we ket o oit ig ot tt sc mket beks my occ. We e te efoe lookig fo ivestos wo ve ivestmet oizo of sevel yes d c ts coe wit sc sittios. Braun: Ivestos wo cot coe wit loss of 30 ecet sold ot ivest i o fds – d i icile tey sold lso ot ivest i stocks. Ivestos wo joi te geel e oi ofte mke te mistke to by we stock ices ec tei ek d to lose tei eves we ices e lowest. ufottely, tis kid of bevio is mc moe commo mog ivestos t te ote wy od. If we wee emloyees of fd mgemet comy, we wold o bbly ve lost o jobs.
Tis is exctly te eso wy we foded o ow comy. Beig ble to cosistetly ly o i vestmet style is of mjo imo tce to s. We wold ot wt to cge o ivestmet style jst be cse o boss, fte few qtes wit egtive efomce, is of te oiio tt o ivestmet sttegy does ot wok. EVI: How did you develop your investment style? von Wyss: It ws i 1992. I d jst ed Bejmi Gm‘s book „Te Itelliget Ivesto“ dig my MBa stdies. Sotly fte, dig stge t Votobel bk, I d te ootity of ticitig i te lyst co feece of noki-Millefe, Swiss sbsidiy of noki tt mfctes cble odctio mciey.
I idetified clssicl et-et sit tio s descibed i Gm‘s book: Te comy‘s mket citliztio
ws ot moe t two tids of te cet ssets less te totl mot of ymet obligtios. as eslt, te stock ws well eceived by te mket d its ice icesed by fcto of seve. Tis ws cle evidece tt te vle ivestig sttegy is effective. Braun: ad lte o, we we met i 1995 t rüd, Blss & Cie., e co viced me of tis oc. Befoe, I d bee sty bgi te, to t it jokigly. To be seios: I 1986, I met hs-pete ast, wo ws o bbly te best lyst i Switzeld t te time. he mde me fmili wit fdmetl lysis. Bt it ws ot ely vle-oieted oc, te ivestmet oizo ws te six to twelve mots.
Eve sice we foded o ow com y i 1997, we ve bee givig stock t lest two to fo yes time. ad te icile of omlized yields wic we ly tody ws jst s ew to me t te time. We detemie te mgis ove comlete cycle of seve yes, fo exmle, d ty to destd wt te comy is eig de oml cicmstces – d ow mc it is wot de te give coditios.
cble of ovidig cle swe. We cot sy wet e te cisis i te uS bkig secto s it ock bottom w it te evets so dig Be Stes o wete te dowwd ted will cotie. Wt we do kow is tt te otimism i te mket s sffeed temedosly, wic i s ot ecessily bd sig. at fom tis, it is wog to sy tt te el ecoomy is i stte of cisis. If yo ve look t te ode books i te G em i dstil sec to, yo will otice tt eveytig is (still) goig smootly. EVI: But the USA‘s high level of debt is an issue that cannot be ignored. If, starting in Northern America, the global economy slows down, the companies‘ prots will decrease all over the world, which is not benecial for the stock market. Braun: absoltely. pofits will of cose decese fo some time. I o oiio, te ecessio i te uSa is immiet o s ledy stted. It is lso cle tt t is will ve imct o te est of te wold. Te level of ofit mgis of Eoe comies is simil to tt t te ed of se cycle.
howeve, tis s o imct o o EVI: Assuming a seven-year cycle, job. If yo com e where do we stand at tis wit te omthe moment and what »We are lized mgis wic speaks for stocks in we se s bsis, yo the current market stock pickers will otice tt tis environment? that are not s ledy bee fc following toed ot. We do ot Braun: We e stock economic cycles.« ickes tt do o t se te cet to follow ecoomic mgis s bsis. cycles. as I sid, we O clcltios lso oly se sc cycles fo detemiig iclde te ye 2002 we tigs did te vege mgis. I tems of i ot go well fo te comy. We dividl stocks, we esetly idetify we coside comy to be ce, mc moe by ootities t we ve ledy lgely iclded i ye go. o clcltios te effects of flc ttig icome. EVI: However, many asset managers say that the world economy is on the EVI: Your compatriot Josef Ackerwrong track. Do you completely ignomann, CEO of Deutsche Bank, conre such warnings? siders increasing food prices to be a serious problem for the global ecovon Wyss: Tis is qestio of mket nomy and draws a parallel with the timig d we believe tt obody is year 1929. What is your opinion?
No. 3 – Page 3 – July 08
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
von Wyss: Comig te cet si ttio wit 1929 my be sligty ex ggeted. howeve, te oblem mst by o mes be deestimted. We e cetily goig to fce stctl cge, wic my ve mc de ee imct t we ll exect tody. howeve, we mst ot foget oe de cisive fct, mely tt tody‘s socil secity systems e vey diffeet fom tose existig i 1929.
If yo d lived t tt time d mde eddt, yo wold ve lost yo oly soce of icome d yo wold ve bee foced to edce yo cosmtio ccodigly. aote imott diffeece comed wit te sittio i 1929 is t t Keyes idced te govemets to give tei lisse fie olicy. Tody, te cetl bks e m i g m ss iv e m o ts of mo e y ito te ecoomic system i times of cisis d te oliticis e l cig blic sedig ogms to icese demd i excess sly situations. EVI: In other words, prots are pri vatized while losses are allocated to the public, as could be seen in the case of IKB?
von Wyss: Tog tis is cetily wot discssig, ecoomists l gely gee tt govemets sold itefee to evet te ecoomy fom collsig. Moeove, te 1929 cs sceio is eglly efeed to weeve te ecoomic sittio is woseig. Tis ws lso te cse i 1987 we stock ices o Wll Steet exeieced s declie s well s i 2002 we te tecol ogy bbble b st. ad, s we ve see, tis ws ot te ed of te wold. EVI: Mr. von Wyss, you mentioned a structural change. What do you mean in concrete terms? von Wyss: We mily idetif y stctl cge esltig fom sotge of tl esoces d commodities. Tee my vey well be lo ge eiod wit ig if l tio tes ed of s.
EVI: In how far have you taken this fact into consideration when compiling your portfolio? Braun: Sice we do ot egge i mco bets bt ty to idetify devled comies, tis sect s ot bee tke ito ccot i o otfolio. I tems of idividl stocks, we ve ot idetified y ootities i te commodities secto. Tis is ot lest becse we wee ot vey esistet i o sec. as coces commodities, we ve ot fomed oiio o te gold o oil ices, fo istce. EVI: Is this not grossly negligent, especially when considering the aspect of portfolio diversication? von Wyss: We e coviced tt i te log tem stocks otefom y ote tye of ivestmet. Fo tis eso loe we do ot eg ge i commodities, wic, simil to bods, do ot offe moe t mee comestio fo ifltio i te log tem. If yo i m t ofit te tt is bove te ifltio te, yo will ot get od ivestig i stocks. Evey eo ivested i istmets ote t stocks fo eiod of moe t te yes is i vested itiolly. EVI: Nothing against your longterm investment horizon, but you virtually traded the UBS stock (ISIN: CH0024899483).
EVI: Let‘s talk about your other investments. Your performance was spoiled by US investments that suffered from the weak dollar. Would it not have been wise to take a closer look at the economic situation in the USA? von Wyss: no. Tese losses e oly tly elted to te uS doll. Te wek efomce is mily de to too ig exose i te sbi me mket. We qite simly de estimted te sbime cisis. We sold ve idetified te oblem t elie stge, d ticlly te effect tt comy fcig fi cil difficlties eeds to icese its citl, wic etils coside ble diltio.
Vios citl iceses wee eqied fo MBIa (ISIn: uS55262C1009), fo exmle. Tis ffected o e fomce cosidebly lst ye. aywy, tis is istoy. now, te decisive qestio is wete tis stock offes ew ivestmet ootities. EVI: Why did you buy MBIA in the rst place? von Wyss: Te comy is ctive i two bsiess fields, oe of wic seemed to be eltively isk-fee: ficig of comml o tiol ifstcte ojects sc s scools, embkmet dms d ositls. Te ote bsiess field coces mot gge isces d tei deivtives.
Braun: I etosect, »We are convinced tis is coect. Bt it Tis icldes te that in the ws ot led tis isce of stc long term stocks wy. We byig te ted odcts sc outperform any stock we cold ot s CDOs. Te mo ve kow tt its del wic cosists other type ice wold be eig of setig d of investment.« te itisic vle so bdlig motgge qickly. I dditio, los d te esl we d to edce te itisic vle tig csflows s bee lied i sice te deecitios d ts te te uSa fo 40 o 50 yes. Te oc extet of te citl icese d te cece of losses fom time to time diltio of beets ve ideed tke is t of te bsiess. s by sise. Tis mde s close te osit io wit ot we te ice Wt we deestimted is tt te icesed to ove 30 Swiss fcs. If diectives fo cedit ovl ve te ice d csed, uBS wold ow become less d less sti ct. I 2 005 be oe of o lge osit ios. d 2006, my eole took i -
No. 3 – Page 4 – July 08
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
teest i sig otetil ome ow es to egge i motgge lo. as eslt, eve low-icome cls ses wee gted los wic tey sold eve ve eceived. Te emiicl vles wic MBIa sed s bsis fo detemiig de flt tes filed simly becse tee wee o sc vles. Tt‘s ow te comy ito oblem. ad, fom tody ‘s oit of view, we simly do ot kow to wt extet tis oblem my icese sice te imcts will become evidet oly gdlly. EVI: Which are the conclusions you draw from this wrong assessment? von Wyss: Fo te momet, we kee te stock i o otfolio, of cose. Te wost-cse sceios e le dy iclded i te ice. Well, yo cold lwys imgie moe dedfl sceio, bt we yo do simle clcltio yo will fid tt tis is ledy eflected i te ice. Eve fo sbime debtos te deflt te is ot moe t 100 ecet of tei los. It is teefoe sfficiet to wite off te sbime te fo CDOs to zeo.
Eve if tis ws doe, wic imlies tt i fct ot sigle doll is id bck b y sb ime debtos, te st ock is still fvobly iced. Tis is lso te i cse of -off, i.e. liqi dtio of te stock, wic migt t ot to be te best soltio fo te seolde. Braun: Moeove, te sittio s clely imoved. Tee is i cesig iteest i byig sset bcked seci ties. Sc secities e teefoe ot vleless. Tey e ofte cqied by edge fds secilized i distessed secities. It goes witot syig tt o i vestmet i sc secities is ket t low level. howeve, fo te fist time sice te cisis boke ot, smt moey is likely to be ivested i tese istmets. EVI: Rating agencies assigned companies like MBIA a r ating of AAA
despite the problems that had been obvious for a long time. Has this not added to the current condence crisis?
Itetiol (ISIn: GB0000472455) els to s. Te stock ice is cetly ffected by te cosme elctce i te uK s well s i tel oblems sc s stisfc toy cliet sevices d odct ge tt does ot flly meet cliet eqiemets.
Braun: Yes, of cose. I te cse of motgge-bcked secities, tig gecies d bks clely misjdged te sittio. Te cet codece cisis ffects bks i ticl. Bec Te ew CEO s ecogized te se mket ticits o loge tst ob lem s d im l em e te d fi st ec ote, tey eti tei liqidity meses to imove te sittio. to be ble to evet Tks to its solid to itel cig b l c e s ee t, t e if te mket ts comy is i o »Sorry, but gist tem. Tis, sitio to coe well it has never been i t, itesies te wit low oetive part of cedit cisis. ott. Wit cet our concept to ice of ox. 5 0 follow Buffett.« ece, DSG is qoted EVI: Would this not below its book vle. be the perfect moI o oiio, te ment to increase instock is cosidebly devled, vestments in classical value stocks eve if te mgemet sold fil that are underrepresented in your to flly meet ll its objectives d if portfolio? stog ecessio sol d occ. von Wyss: Wt do yo me by clssicl vle stocks? EVI: Which other securities would you recommend? EVI: Companies active in crisisproof sectors, in other words: rather von Wyss: We idetified eve gete otetil wit agf-Gevet defensive securities such as Nestlé (ISIn: BE0003755692). Te comy (ISIN: CH0012056047)? is cetly tded t ice tt is ot moe t oe tid to oe fot von Wyss: Yo me te clssicl Bffett sectos. „We s tem“ of te itisic vle detemied by – d t is tomticlly qlif ies s. Te sfety mgi seems to be tem s vle stocks. Soy, bt it moe t sfficiet. De to mis s eve bee t of o cocet mgemet of te comy‘s most to follow Bffett. We by coss ll imott bsiess it − eltce sectos if te ice is igt. I tis − agf-Gevet is cetly fcig esect, we e omivoes. O te difficlt sittio. howeve, te ote d, we e vey geedy d ew mgemet s ll te q demd mssive discot o te lities eqied to get te comy itisic vle dete mied by s. We bck o tck. teefoe ttc get imotce to sfciet sfety mgi. I tis e EVI: When and how did you identify sect, nestlé, fo exmle, is jst ot Agfa-Gevaert? ce eog. Of cose, tee is ceti ice t wic we wold like von Wyss: Tis is log stoy fll to by nestlé, bt te sfety mgi of sffeig, to t it tt wy. O is ot yet sfciet fo s. fist cqisitio of te stock dtes bck to te ye 2002. Te comy, wic d jst lced come EVI: And which stocks would you esive estctig ogm, ws consider buying now? Where do you cosidebly cee t te ote see opportunities? comies i tis secto. Te com Braun: amog otes, te uK le - y did well − til te begiig dig electicl etilig go DSG of 1995 we, de to mgemet
No. 3 – Page 5 – July 08
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
mistkes d te soig commodi ties ices, loss i mgis occ ed wic ws ot eflected i o ccots. Te icese i commodities ices loe wold ve edced te etx ofit e se by two eos if it d ot bee tilly comes ted by ice iceses d efficie cy gis. EVI: What makes you feel condent that the situation will improve?
von Wyss: I te itig secto, te mket is oligoolistic. I te bsi ess field of digitl itig ltes, agf‘s se i te globl m ket is ox. 30 ecet, wic is sligt -
ly moe t tt of Fji (ISIn: Jp3814000000). Tog Kodk (ISIn: uS2774611097) is still te mket lede, agf s mket se of oly 15 ecet i Kodk‘s ome mket uSa. Tee is still oom fo imovemet. all tee comies stggle wit i cesig ices fo silve d lmim. hiteto, tey did ot wt to ss o ice iceses to tei cliets, bt tey migt ot be ble to miti tis olicy fo log. I teoy, tey migt icese tei ices o t lest ss o te isk of ice cttios fo l mim to te itig sos becse tey ve te ossibility of sellig te sed ltes. Wt we d ticlly elig is tt itig ltes e
cosmble odcts tt eed to be csed o ecig bsis. I te eltce secto, simil oligool lies fo ceti odcts, i ticl ites fo digitlly ge eted diogms, s fo itig ltes. Moeove, agf s idetified te ed of film-bsed diogy t ely stge d itodced ew ifomtio tecologies wit e fomt softwe. Ts, te com y is ledig i cliic ifomtio systems i Eoe. Te bsiess it ow s to get its oce sses d costs, ticlly te fixed costs, de cotol. EVI: Does Agfa have any signicant competitive advantages?
AGFA-GEVAERT N.V. ISIN BE0003755692
Business: agf-Gevet odces d sells o togic d electoic eqimets fo oto gic ocesses.
Financials: revee:
€ 3.28 b (2007) € 3.21 b (2008e) 8.1%
EBITDa Mgi: Stock Information (06/17/2008): Price: € 5.02 52 Week rge: € 19.60 – € 4.38 Divided Yield: 0% Mket C: € 635 m
Valuation Metrics*: p/E p/B
AGFA 10.6 0.7
BEL20 10.6 1.4
Institutional Investors: 1) Fkli Temleto 2) node Ivestmet Fds 3) Clssic Fd Mgemet
12.53% 5.94% 5.14%
Fair Value: € 15.00 - € 20.00
* bsed o 2008 Cosess Estimte
AGFA-GEVAERT N.V. STOCK PRICE EURO
INVESTMENT THESIS Te eltce it ovides good digitl odcts, mily softwe, wic sold soo comeste te decesig volme i lm-bsed cosmb les. Te it gics it is tecologicl lede i oligoolistic mket. Te ig ice levels fo commodities d te eo s well s te oo mgemet of te eltce it ve t mssive esse o te ot. howeve, te ew mgemet sold be ble to imove mgis tks to good mket ositioigs.
No. 3 – Page 6 – July 08
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
von Wyss: Yes. Te comy s cometitive edge i tecology i vios bsiess its. I te elt ce segmet, tis coces digitl diogy tecologies. Moeove, agf s eqied cliics wit its o dct s fo decdes d is we ll f mili wit tei eqiemets.
accodig to te mgemet, agf‘s Gic Systems it s come titive edge i tecology fo ocemicl, digitl itig ltes. Te sme lies to Commecil Ikjet pitig, wic belogs to te sme bsiess it. Tey odce mcies fo i tig lstics sed fo ckgig, fo exmle, sig do-o-demd system. Ikjet‘s cotibtio to te bsiess eslt s so f bee eg tive, bt te it will tsfom itself fom loss mke to ofit mke. Tis sold lso el big te l test EBIT mgi i te Gic Systems segmet of 3.7 ecet to 6 to 8 ecet i te medim tem. EVI: The healthcare unit is already operating with margins on this level. Is there also room for improvement in this segment? von Wyss: O, yes. Tog te EBIT mgi i tis segmet is ledy t 7.6 ecet, it my be exded to 12 to 13 ecet. I vios es of digitl imge ocessig, agf-Gevet s omiet ositio i te mket. ufottely, eltce ws te most ooly mged segmet i te st, wic is wy te CEO of tis bsiess it d to leve i smme 2007. his sccesso is fome mem be of mg emet of alctel d eeds to do some tidyig . EVI: Where do you see the Fair Value of the company as a whole? von Wyss: Fctoig i te cet commodities ices, we estimte te Fi Vle of agf to be t ox. Eur 15 to 20 e stock. Tog te comy‘s vltio o p/E bsis is ot lowe t tt i te Belgim BEL 20 Idex, its ofit dymics e clely bove vege i view of
te mgi imovemet wic te comy stives fo d wic, i o oiio, is elistic. EVI: Are there any other stocks where you identify such extreme undervaluation? Braun: Yo my cetly by te uS c etl comy avis Bdget (ISIn: uS0537741052) fo o ximtely oe tid of te itisic vle. recessio fes ve t esse o t e stock‘s ice , wic s eced level tt is o loge jstif ible. EVI: Why do you give preference to the company‘s competitor Sixt (ISIN: DE0007231326), which was discussed in edition number 1/2008 of the EVI magazine?
Braun: avis Bdget d hetz (ISIn: uS42805T1051) e te to dogs mog c etl comies t i ots. M ke t ety b ie s e ig sice yo eed cote t te iot fist of ll if yo ited to stt c etl bsiess tee. no mlly, te eqi ed sfces go wy vey q ickly.
Tee wee fes tt te mket lede i te o-iot bsiess – Ete ise C retl – wold eet te te mket wit ggessive icig olicy. afte tkig ove almo d ntiol C retl, Eteise is ow eeseted t iots witot vig to figt ice w.
Te tee comies hetz, avis Bdget d Eteise ow se ove 90 ecet of te uS iot bsiess. I tis lmost oligoolistic mket, obody s iteest i iig »You may currently te ices sice tey buy the US car rental ll wis to oete wit ofit. company Avis Budget
Braun: We ve to be cefl ee. Tese comies e ot ecessily comble. avis Eoe (ISIn: GB0000658053) is for approx. ideedet uK comEVI: What makes one third of the y d cometito Avis Budget attractive intrinsic value.« of Sixt i Eoe. O compared to Enterte ote d, avis prise and Hertz? Bdget (ISIn: uS0537741052) geetes most of its bsiess volme Braun: Eteise my be ite i te uSa, wee Sixt s lit tle o estig comy, bt it is ot listed o imotce. o te stock excge. Its coe bsi ess is to et ot cs to cliets of I t, te lgest t of te to isce comies wose ow ve ve wic avis Bdget geetes i icles e o loge odwoty fte no te ameic is el ted to c ccidet. as coces te etl etls o iots. hee te m ket bsiess, tee is o big diffeece imlies tt i tffic my decese betwee hetz d avis Bdget. Bside te ecoomic slowdow i te clly, tis is stddized ocess uSa. I te st, tee ws ig wit simil cost stctes. coeltio betwee te mbe of ilie sseges d c etls. Tee e two esos wy we efe avis Bdget: Fist of ll, we like te I o oiio, te mbe of s two-bd sttegy wic te com seges will decese to lesse ex y lies i efect me. avis tet t feed sice te uSa ve d Bdget eset temselves to become tt ctiv e destitio f o te cliet s idividl comies. foeiges tks to te low uS dol avis focses o bsiess tvel wile l. C etls fo toists sold t Bdget mily ovides its sevices lest tilly comeste ossible to ivte cliets. howeve, ytig decese i bsiess tvel. tt te cliet does ot see is sed, icldig te veicle fleet. O te ote d, we my well do witot EVI: What is the competitive situahetz‘s costctio mciey bsi tion in the USA?
No. 3 – Page 7 – July 08
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
ess. retig ot costctio mci ey is igly cyclicl bsiess. EVI: How come the price of Avis Budget has suffered such a tremendous loss? Braun: Oe of te esos migt be te coces bot te ecoomy s metioed befoe. I o oii o, tese coces e exggeted. O lyst Mks Ksse fod ot tt 70 ecet of te costs e vible.
C etl comies e ble to e sod to decesig toves wit oly sot time dely by simly by ig less ew c s. C s em i i te fleet fo ie to te mo ts o
vege. Tey my be ket fo o te tee o fo weeks i ode to sigifictly edce costs. plese be i mid tt eve fte te teoist ttcks of 11 Setembe 2001, we uS iots emied closed fo fo dys, te c etl comies osted fvoble qte ly eslts. Tis secto is ts igly flexible s egds te cost side. aote fcto vig t esse o te bdget of avis ws te o blem of efici g te bsi ess. By te, c etl comies oete wit ig level of levege. I view of te cedit cisis, we wee wodeig fo some time if d t
wic coditios avis Bdget wold be ble to cqie ew citl fte te mtity of ceti bods. howeve, tese dobts ve diseed. Te ew bods cold be lced i te mket witot y oblem. Te sligtly ige isk emims wee moe t comested by te te medos decese i iteest tes. EVI: Which are the expansion opportunities? Braun: avis Bdget iteds to become moe ideedet fom te iot bsiess d is flly cble of doig so. To tis ed, etl sttios eed to be oeed i city cetes. Tis is ot vey cost-itesive sice te comy c evet to te existig
AVIS BUDGET GROUP INC. ISIN US0537741052
Business: Oe of te ledig c etl comies woldwide
Financials: revee:
$ 5.98 b (2007) $ 6.30 b (2008e) 6.8%
EBIT Mgi: Stock Information (06/17/2008): Price: $ 12.05 52 Week rge: $ 30.50 - $ 9.00 Divided Yield: 0% Mket C: $ 1.22 b
Institutional Investors: 1) Sio Citl Mgemet 2) ax 3) OSS Citl Mgemet 4) Clssic Fd Mgemet
11.6% 8.3% 8.1% 5.2%
* Soce Bloombeg
Valuation Metrics*: p/E p/B
AVIS 9.5 1.2
S&P 500 14.5 2.5
Fair Value: c. € 30.00
* bsed o 2008 Cosess Estimte
AVIS BUDGET STOCK PRICE
INVESTMENT THESIS recessio fes d te ecig isk (te eet comisig ox. 400,000 veicles is ced tog debt) t esse o te stock ice. Te mgemet is igly exeieced d kows ow to vigte c etl comy tog difclt mket. aod 70 ecet of te cost is vible, fo istce. avis Bdget ims to big te EBITDa mgi bck to te log-tem ge of 10 to 12 ecet. Te comy sold be ble to cieve t lest 10 ecet. I tis cse, te stock is wot uSD 30.
No. 3 – Page 8 – July 08
ThE EurOpEan VaLu E I nVESTOr
»THE CHEST - BRAUN, VON WYSS & MÜLLER AG«
veicle fleet − ge dvtge fo avis fo tis kid of exsio. Sc exeimet does ot cost moe t uSD 20,000 to 30,000 e etl sttio. If ll goes well, fie. If ot, te etl sttio is closed d te loss is ket t low level.
exesive, bt lso good. as eslt, te comy‘s cisis itesified. O iitil ssessmet of te mgemet ws clely too ositive.
EVI: And all of this makes you conclude that the stock has the potential to triple its price?
Braun: amog ote meses, we effect scees i Bloombeg to bow se te mket fo secities wit low vltio. Bt te mi elemet i o sec ocess is to ed te ewses. We wt to kow if d wee tee e y oblems tt e eseted to te blic i exggeted me. Tis s ow become moe exciti g comed to te sittio few yes go. ad it isies o tig istict.
Braun: almost. Te igly exe ieced mgemet oces EBITDa mgi of te to 12 ecet i te log tem. I o oiio, te ecet sold be cievble. Discoted ccodig to o DCF model, te Fi Vle of te stock, b se d o 20 11 of it s, wo l d be bove uSD 30.
By te wy, te comy‘s CEO bogt sto cks wo t oe millio uS dolls six mots go – t ice of uSD 16. Cetly, te stock is tded t sligtly moe t uSD 11. EVI: Management is a good keyword. What importance do you attach to talking to Executive Board members of your buy candidates? Braun: Tis is vey imott to me sice I eed to ssess wete te comy‘s mgemet is cble d willig to cieve te stdd mgi estimted by s d to ivest te comy‘s citl wee it ge etes vle fo te seoldes. We visit comies d lso ivite tem to o emises.
It is bsoltely oml tt comies ty to e i good ligt t ll times. It is important to maintain a citicl ttitde d to ot be cmed by te comy‘s eese ttives. It goes witot syig tt wog ssessmets e ossible eve wit tis oc. Te mgemet of Cicit City (ISIn: uS1727371080), electoics ci domiciled i te uSa, mde te mistke of fiig ll emloyees wit ig sly. Wt ws ot tke ito cosidetio ws tt tese stff membes wee ot oly
EVI: Where and how are you looking for buy opportunities?
EVI: You do not go hunting in emerging markets. How come you miss out on this opportunity? von Wyss: We estict oselves to Weste Eoe d note ameic sice we do ot clim to destd te ote mkets. htig god s e big eog i te mkets we kow, d it mkes teefoe o sese to fmiliize wit ote m kets, lso i view of o lck of time. Ote mket ticits ve te ccity d te exeiece to lyse te asi d Sot ameic mkets o site – d tey e mc bett e t tis. a cobble sold s tick to is lst! EVI: Thanks to your highly transparent quarterly reporting, your search process is more or less public. Do you not fear imitators? von Wyss: Wt we woy moe bot is ceti scdefede sice ices omlly fll sotly fte we‘ve bogt stock. To be seios: Tee is i fct tedecy mog ivestos to coy o ides, esecilly i Switzeld.
Tis becomes oblemtic we sc ivestos cll s to sk fo moe e sec mteil o idividl stock. Fo esos of time, we cot d do ot wt to ovide sc sevice. We do ot commicte te itisic
No. 3 – Page 9 – July 08
vles wic we detemie fo idi vidl ses d do ot commet o tem – t lest ot dig oe-to-oe covestios wit cliets. If t ll, tis is doe i idividl iteviews wit te ess. Teefoe, we do ot ovide q tely eotig. We stive to cocl de te cqisitio of ositios by qte-ed befoe te eots e vilble. Tis geelly woks ot well, tog ot i ll cses. EVI: On the other hand, do you monitor what others are doing? For instance, many investment funds take an interest in a stock once Tweedy Browne invests in it. von Wyss: We stel ides f om time to time, bt i geel we develo o ow ides. If tee e oveligs, tey e slly ely ccidetl. We do ot wt to be sot v esio of te Tweedy Bowe fds. EVI: With only 30 securities, your portfolio is rather concentrated. Have you ever thought of reducing the risk by a higher degree of diversication? Müller: neve. Sice we ve logtem ivestmet oizo, we ccet te ig voltility wic coce tted otfolio bigs bot. We will cotie to move i tis fiel d sice we exlicitly wt to see imct of te idividl secities o te ovell efomce. EVI: Thank you for this open and inspiring interview!
remk: Te disclime ote blised o te lst ge of tis editio is licble to te etie cotet of tis ticle.
Contact: Braun, von Wyss & Müller AG Brandschenkestr. 150 8002 Zürich Switzerland T: + 41 44 2064080 F: +41 44 2064085
[email protected] www.bwm.ch
