Sunday, June 4, 2017

COVER 50 S.p.A. : a good firm with low visibility.

With regard to the FY 2016 results (consult the link, the business increases.
The profitability is strong (from 12% to 48%, from the net income to the contribution margin). 
The cash is high and the cash generation, too (see the cash flow statement) : we speak about a net financial position of about 11.9 EUR millions. The financial structure is excellent with low dependence on debt ("the company mostly finances itself with equity") and the EBIT interest coverage is very good (aka EBIT/net financial charges). 
However, the growth rates are really tight. The business increases at a rate of  2% / 3%. 
The main weakness is the low visibility explained by :

  1. Low growth rates ;
  2. Low volumes of the stock (COVER 50 is listed on AIM that is notoriously known for those features) ;
  3. Free float 25.77% ( with the significant shareholder Fhold S.p.A. with a share of 74.23% (this factor with the previous point could really represent an obstacle for the market liquidity) ; 
  4. The mono-product (the company specializes in the designing, manufacturing and selling men's as well as women's trousers, under the PT Pantaloni Torino brand name) and  the high dependance on the domestic market (the revenues in italian market are still about 43% of the total revenues). 

To improve the business and the visibility (with positive effect on market prices), they should invest more (with a cash of 12 EUR millions, the growth throught M&A could be an opportunity).  At the same time, the development to the high-potential markets should be greater (in particular, with a product differentiation). The subsidiary PT Corp in USA is an example (
As announced in the last press release, the yield is about 4.4% and the payout is about 71%. I would have preferred a reinvestment of the profits rather than a (good) shareholders remuneration, to finance the growth. In this sense, the higher growth attracts the visibility. 
Indeed, the market multiples could be cheaper compared to the peers (on average, fashion and luxury stocks have excessive valuations, due to the brand perception/visibility and due to the high profitability). 
At the current prices, the multiples of COVER 50 (FY 2016 results) are the following : 
  • P/S = 2.28 
  • EV/EBITDA = 8.12
  • P/E = 18.52
The market probably discounts the lack of the visibility and of the liquidity, the lower size and the lower growth expectations (adjusted market multiples). 

About the chart and with regard to the last performance, we have a renewed interest of the investors : the volumes are increasing and the stock is out of the rectangle (accumulation area) with a stop in area 13.7 EUR. 
See the link and compare it with the current situation (the updated chart is below). 

Chart from

Monday, May 1, 2017

Cement industry : Cementir Holding S.p.A. and the value map.

Here we have a classic value map that relates the market multiple P/S (price to sales) to its intrinsic profitability (EBIT/sales or EBIT margin or ROS) and then the mentioned multiple to the expected growth, from the year 2017 to the year 2019 (data source estimates : 

The expected growth is the CAGR, aka cumulative average growth rate. 
The formula is the following : 

[(expected revenues fiscal year 2019/revenues fiscal year 2016)]^(1/3)-1

It is expressed as a percentage. 

The meaning of the relationships (P/S-ROS and P/S-CAGR) is that higher the multiple (P/S), higher the margin (ROS) and higher the multiple (P/S), higher the expected growth (CAGR) and viceversa. 
Obviously, the market generally rewards the firms with higher profitability and with higher growth, with a major market price. 
The relationships can be shown as a value map, particularly through a regression line. 
We have two equations : 

1) P/S = a + b*ROS

P/S = y ; ROS = x

2) P/S = a + b*CAGR

P/S = y ; CAGR = x

In both cases, the intercept (a) was removed for the reason of the low statistical relevance. 
The RSQ is high (0.9070 and 0.8488), which means the strenght of the model.
Graphically, we can note that the relations are clear, substantially : higher the market multiple, higher the profitability and the expected growth.

The stocks above the regression line (dashed line) are overvalued, the stocks below the regression line are undervalued. In this way, for Cementir Holding, we get a "value gap" that is equal to :

[P/S (effective)-P/S(calculated from the market model)] : [P/S(calculated from
the market model)]

The P/S (effective) is 0.72.
The P/S (calculated from the market model) is equal to (9.10%*12.54).

There are also some "outsiders" (Vulcan Materials, Eagle Materials). The profitability is very high compared to the peers. Indeed, we have a multiple P/S of about 4X.

Likewise, for the relationship P/S-CAGR : see the following chart.

The discount ("value gap") is much greater, 71.94% vs 36.91%. The "growth adjusted market multiple" is preferable to the "multiple adjusted for the profitability".

If we remove the two outsiders from the sample, the statistical models are stronger : RSQ is higher, the relations are more even significative. However, the discounts are lower : 10.36% vs 36.91% and 57.16% vs 71.94%.

Finally, Cementir Holding is cheaper than the peers. Secondly, in my opinion, the stock is much more attractive in the area 3.80-4.80 : we could benefit more so from the discount prices and from a possible graphic retracement (see the chart), event if the current prices and expectations are interesting.

Chart from

Tuesday, April 25, 2017

Geox S.p.A. : the historical correlation with the FTSE-mib is significative.

If we look at the historical chart of Geox (red) compared with the FTSE-mib (blue), we can notice that the similitude  is clear : some exceptions apart (like the section of the circled graph, yellow ellipse), the direction of the two assets is substantially the same. To make the comparison more effective, the chart is divided into vertical lines that represent the date ranges with equal period (150 bars) : the most important thing is to value the same direction of the two graphs, inside the date range, in order to have the correlation ; otherwise, the two assets would be unrelated.
In this way, the last performance of Geox is driven by the trend of the FTSE-mib, most likely. 
Indeed, the positive newsflow is absent and the fundamentals are weak (see the last news) : they don't justify all this ; the perfomance is related to the macro context. 

Chart from

The statistical analysis confirms that, too. With sixty returns (monthly time frame, from 2012 to 2017, five years), we can build the regression analysis. 

Historical data from

The results show a beta of about 0.93 in the classic market model, as the following equation : 

GEOX (y) = a + beta*FTSE-mib (x)

If the beta is 1, it is how to hold the index ; if we have lower values, the asset (GEOX) dampens the index movements ; otherwise, with higher values, the stock amplifies the FTSE-mib movements ("leverage effect"). The correlation with the FTSE is evident. We have two outputs for the reason that in the first result, the intercept (a) is sparely significant (see the Stat t or the significance value). We discarded that and finally, we got an equation in the following form :

GEOX (y) = beta*FTSE-mib (x)

RSQ (0.3098) could be low ; it says that 30.98% of the Geox returns (variability) is explained by FTSE-mib returns. However, the CAPM literature shows that for the stocks, on average, the percentage is equal to 30-40% ; for the rest, specific factors affect stock performance. 

At the same time, we have the scatterplot (see the following chart). 

To conclude, another statistical indicator is the Pearson correlation coefficient : with the previous returns (see the second table), we got a value of 0.55 ; it means that there is a positive correlation between the two assets, Geox and FTSE-mib. Secondly, if we analyze the signs of the returns, we can see that in 65% of cases (39/60) the sign is the same (+,+ or -,-) and in 35% of cases (21/60) the sign is different (+,- or -,+). The relation is positive and significative.  

Saturday, March 4, 2017

Geox S.p.A. : the FY 2016 results undermine the ongoing turnaround.

The FY 2016 results are under the expectations of the analysts' estimates and of the targets of the business plan. The revenues grow by 3% (vs the CAGR of the BP, about +6.5% or +5.5% with the lower range of the guidance). Of course, the margins are really under pressure : the gross profit decreases, the same both for the EBIT and for the net income. The results should be considered net of extraordinary items. However, the business is not proceeding well and the cost savings policy is not giving the desired results.
We have an increase of four percentage points, with regard to the cost of sales margin (from 48% to 52%). Overall, there is a great margins erosion. About the expectations, they were estimated stable or slighty higher compared to the FY 2015 results. 
See the link to read about the related press release and compare it with the consensus
On many fronts, they are disappointing, more so after the good trend of the 9 months 2016 (appreciated by the market at the time of the release) and a fortiori with the good progress of the triennium 2013-2014-2015 (appreciated by the market with an excellent stock market performance from 2 to 4 eur/share). 
In my opinion, the management's credibility is in doubt for the above reasons. The market is discounting it. Secondly, in particular :

1) They failed the previous business plan ;

2) With insight, the change of the CEO is probably regarded as a rupture ; I would have appreciated more if the management had much clarified about that. Instead, substantially, they only confirmed what it was said before, in the press release ; 
3) The results are now under the targets of the current business plan ; 
4) The 2016 was supposed to be a transitional year but the results marked a strong deterioration ;
5) The loss of the profitability in the first half of the year 2016 had to be compensated along the second half of the year but we have a clear decline of the margins. 

Press release, first half 2016 results
Press release, 9M 2016 sales
They should work well over the next two years of the plan, to regain credibility, also focusing on the new CEO and on the new markets, like China. The small margins are the great problem ; they must work in that direction (improvement of the margins). Otherwise, the market will probably dislike with a bad price performance ; the decrease of the stock is the evidence, after the earnings release  (the negative impact was partially offset by the good performance of the FTSE-mib ; Geox, beta of about 0.80/0.90). 

Chart from

Sunday, February 26, 2017

The local banks : Banca Popolare di Sondrio and Credito Valtellinese.

Throughout history, CVAL and BPSO have been the subject of more comparisons because of geographical proximity, the similarity of the business and other aspects.
However, in my opinion, in the M&A sector, the most important thing is to create adding value and synergies. If you match together two equal businesses, you don't generate synergies. 
The result of the merger is only the same firm but greater : that is not a complementary business but a substitute. Of course, the common aspects can be used for a major geographical control and for the lower competition, in this way. Nevertheless, in the long-run, you need to grow/to acquire new markets and customer segments, you need to implement new services. By focusing only on geographical matter and/or on the classical commercial bank, you will not reach those goals, most likely. 
Nowadays, the market is changing, costantly. We must be able to meet the challenges and we have to be more flexible : the banking sector (like the past) is dead ; the new banking sector is integrated, inevitably. 

About the latest news, the hypotheses seem to be oriented more to BPER and UNIPOL, after the press relase
Because of the above reasons, I would consider these options more positively. 

M&A apart, it is interesting to compare the numbers (FY 2016). For further info, see the links :

The direct (+4.76%) and indirect (+0.61%) funding grows where for CVAL, we have a decrease, -2.7% and -4%, compared to the same period. The same, with regard to loans and receivables with customers (-8.5% vs +5.49%).

The capital ratios are equal, substantially : CVAL, CET1 11.8% vs 11.09% (BPSO) and Total Capital Ratio 13% vs 13.58% (BPSO).

About the organisational data, there is an improvement for Banca Popolare di Sondrio : 128 new hires and 5 new branches. Credito Valtellinese got worse : number of employees (-1.65%) and number of branches (-4.37%). 

With regard to the credit risk, the credit quality of BPSO is better, of course. The following table shows the comparison.

BPSO has far fewer NPLs and it has higher coverage. The coverage ratio expresses a prudent policy of the bank and a lower potential risk, the higher the coefficient. The cost of the policy is better than CVAL.

Finally, about other financial information, the cost to income ratio shows the better operating efficiency of BPSO, 55.31% vs 69.7% (CVAL). Speaking about the income margins, for both, there is a drop in margins, thanks also to an unfavorable macroeconomic context. However, for BPSO, the decrease is balanced by a cost savings, like administrative (+2.53%) and personnel expenses (+0.44%) vs CVAL, +4.22% and +17.34%. Secondly, there are minor net adjustments for BPSO.

Overall, clearly, at the end of the comparison, BPSO is the favorite. On the other hand, we should not forget the M&A factor that could change the scenario (market price and business) for CVAL, positively.
In fact, CVAL is well set to grow by external lines (like announced) while BPSO seems to continue through the autonomous growth. 

Sunday, February 19, 2017

Cementir Holding S.p.A. : the new acquisitions boost the business.

The last uptrend of the stock is due primarily to the preliminary consolidated results at 31 December 2016 : results over the expectations of the analysts. The good results are related to the new acquisitions of Sacci and Compagnie des Ciments Belges that worsened the net financial debt.
On like-to-like basis, the results would have been stable or decreasing. 

Cementir Holding, Investor Relations, Press Releases

From this point of view, the growth through acquisitions is a focus for the business.
According to me, it will be the likely growth engine for the coming years.
History is there to prove it. The strategy is always the same : organic and external growth thanks to the numerous acquisitions over the years, with a low dependence on the domestic market (about 10% of the revenues). See the image below.

Cementir Holding, Group Profile
The outlook is substantially conservative, EBITDA of around 215 EUR million. The business is still suffering unfavorable FX and geopolitical troubles (Turkey). However, the management is well set to make the difference with a cost saving policy and with the strong implementation of the integration just closed (Sacci and CCB).

Cementir Holding, Investor Relations, Press Releases

About the fundamentals, the price is pretty interesting although the expectations could be flat/conservative (mainly, about the margins). With the 2017 expected results : P/S 0.65 X ; EV/SALES 1.07 X ; EV/EBITDA 6.20 X ; P/E 12 X ; P/B 0.7 X.

Reuters Consensus
About the chart, the downtrend from 7 EUR/share is over. For some time today there is a lateral trend but the last performance with volumes is a good signal that could invalidate the trading range (3.30-5.05). It needs a continuation with the break of area 5/5.30 (FIBO level 38.2%).

Charts from
Charts from

In the meantime, the uptrend is too strong in a short time : about +30% with five trading sessions. The volatility is high (in the high range of the BB), RSI is overbought, there is a gap down to cover. There will be a physiological price correction, probably.

Charts from

Charts from

Saturday, January 7, 2017

January effect.

The January effect is a calendar anomaly that occurs during the month of January. It provides a general increase in the average returns of the stocks during the first middle of the month.
A fortiori, it is true for the small caps more than mid and large caps.
It refers to a statistical behavior and in this way, the exceptions may exist. Anyway, the effect is consistent over the years and for the majority, it is relevant.
If we had an efficient market, it should not exist. Until proven otherwise, the market is not efficient (at least, not totally) and we have market phases where it exists and market phases where it disappears.

There are multiple reasons for that ; the main explanations are the following : it is a psychological matter because January is the first month to begin a good investment program or it is the result of the tax-loss selling , with regard to the end of the previous year.

For further info, see the links : ; ; .

Currently, it would seem to prove the rule. For the first days of January, FTSE ITALIA small cap index have performed better than mid and large cap.

Chart from

The following table shows some best performances (5 days), among the small caps stocks. The effect seems to occur this year. 

Friday, January 6, 2017

Intermarket analysis : focus on luxury sector.

About the relative performance, a year now, the stocks that have performed better are : Kering, Brunello Cucinelli, Hermes, Burberry, C. Dior, Moncler, M. Kors and LVMH. 
In the middle, we have : Salvatore Ferragamo, Yoox-net-a-porter, Prada, R. Lauren, Tod's and Luxottica. The worst are : Safilo, Hugo Boss and Geox.

Chart from

About the risk, the luxury sector is an industrial, by definition. It provides low risks (individual, volatility and systematic, beta) in the face of good average returns, compared to banking and financial sector. The last one is far riskier with disappointing returns, over the long-term. The luxury stocks and industrial (in general) are more likely to the investor instead banks are best suited to the pure trader. 
As shown in the following chart, the industrial (green) is in the upper left (high returns, low risks and the financial (light blue) is in the lower right (low returns, high risks). 

The following graph shows risk-reward among the luxury industry, with a time frame of one year (252 returns). All in all, the intraday volatility is low (about 2%) and the same, for the beta (about 0.70), with some outsiders (downward) like Luxottica (1.75%) or C. Dior (1.45%) and (upward) Yoox-net-a-porter (2.73%) or Safilo (2.72%) ; with regard to the market risk (downward), Brunello Cucinelli (0.52) or Luxottica (0.45) and (upward) R. Lauren (1.15) or Hugo Boss (1.07). 
There are also the comparative returns (TE, TEV and IR=TE/TEV), related to the specific benchmarks : Ftse-mib (ITA), cac 40 (FRA), Ftse 100 (GBR), dax (GER), s&p 500 (USA), hang seng (HONG KONG). The best is Kering, the worst is Geox. 

Geox is very interesting : there is a huge "performance gap" to cover and, with regard to the business plan and other expectations, at the current prices, it could be an opportunity (see my previous post, dated December 26, 2016, 

Monday, January 2, 2017

Geox S.p.A. : chart framework and renewed interest in the stock.

About the chart, we got the break of the TLs (medium and long-term), the break of the previous maximum at 2.07 (after the 9M sales release ; it was formed a gap up, immediately covered) and the break of the previous minimum at 2.15 (October 2014), with good volumes. 
The last uptrend is well set with the support held at 1.80.

Chart from

The crossovers of the EMA (50, 100) are good, too. However, the EMA 200 is far away from the chart. The uptrend is strong but it needs some physiological corrections : RSI (overbought), BB (high volatility).
Chart from

Chart from

With regard to the high targets, we must pay attention to the support at 2.60 but particularly to the first FIBO level (23.6%) at 2.40. About the low targets, 1.80 is the main reference. 

Chart from