Turning Point Brands (TPB US)

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Today is Garry Kasparovs birthday.

Growing up as a teenager in the early 90s, I remember how the discussion in media went around computers beating humans in chess. Already as a 9 year old I bought a chess computer. It signaled with lights at the corner of the board what moves it wanted to make. At it’s harder settings it took a few minutes to compute each move, which was a bit boring to wait for, but it beat the crap out of me. Back then the real chess grandmasters, like Kasparov, were still better than the computers. Mid-90’s the computers were closing in and IBM’s monster computer Deep Blue with custom chess circuits was fighting Kasparov. In 1997 Deep Blue finally beat Kasparov and humans has never since been close to the capabilities of the best chess computers.

 

But the saying in the mid-90’s and onwards for some time was that a human that had the help of a computer, still beat the pure computer. I don’t know how true that was and I’m quite certain the human does not have much to add to the equation of winning in chess anymore. But even for something as constrained as chess, there was a certain period of time when the human could enchance the results by teaming up with a computer. I guess you can see where I’m going with this. I’m certain humans still have something to add to the equation in terms of investing.

As explained in the previous post, I’m currently playing around quite a bit with AI and Claude, more specifically to understand what parts of the investment process, can I out-source to Claude to save time, and what parts should I probably take a closer look at myself. I will try out a new format now. Call me out if I took some wrong shortcuts below? Did I rely to heavily on AI instead of doing the reading myself? Let’s dive into the first AI enchanced case study. Below attached is the AI generated material, after that comes my own thoughts:

Turning Point Brands

AI Claude generated background information:

TPB_Equity_Research_Report

US_Nicotine_Pouch_Investor_Report_2026

Turning Point Brands, a tobacco company, has shown rapid gains in the US nicotine pouch business. The long term reader knows, that Swedish Match was one of my big winners, basically betting on this very same trend. It’s interesting that the market perhaps is serving up another opportunity in this space so many years later.

Given that much of my information is sourced by AI above and is available to anyone who knows how to write a few prompts, one quickly thinks, what do I see differently than the market in this case? What I still believe is an alternative view is how big the nicotine pouch market could grow in the US. I base this off living in Sweden and seeing how much more convenient it is to consume nicotine through pouches compared to cigarattes. It is also much more addictive, which means when you started, you almost can’t quit. The vape hype in the US helped to kick off the nicotine pouch hype in the US, but by now it has got legs and I think those legs are going to walk very far.

Let’s take a look and historical data from Sweden on cigarette and snus usage. Snus is a nictotine pouch which also contains tobacco, meaning the flavor is very different to the white pouches which now takes over the US. The form factor and everything else is the same, nowadays a lot of Swedes also transition from Snus to white nicotine pouches, but the category still has a similar power over cigarettes.

Sweden long term history of Cigarette and Traditional Snuff  (Snus) usage

The above pictures show the long term trend of how snus usage grew since the 1970s and kept growing for 40 years. The second graph shows how in modern time snus usage overtook smoking even.  If we then look at the US market below, it’s current state and expectations of growth. We can see that cigarettes is at 150bn sticks currently, and modern oral + snuff is at 39.8bn stick equivalent, this is to grow at a tremendous pace to 57bn equivalent in 2028 whereas cigarettes by then has shrunk to 118bn. US has started on the trend Sweden was on back in the early 2000’s. this means that modern oral has a 20 year growth story infront of itself, if society values the same things that Sweden has (no risk for lung cancer, a more discrete experience  – usage indoors infront of computer, etc). I do not believe the market has even fully priced in the 2028 expectations in the table below and definately not that it will double or tripple further from there.

Brand landscape

Zooming in on brands (click on pictures if hard to read). ZYN by Philip Morris is the fourhundred pound gorilla in the room with On! and Velo as strong contenders. What I find very interesting though as the market still grows so extremely quickly there are still room for new brands to take a spot and TPB with Fre and Alp is doing just that.

Legacy business is key to investment thesis

The two points I see as key for Turning Point Brands being investable are: it’s distribution and cash generative legacy business.

Distribution and product

Winning in nicotine pouches is in my view more about distribution and being early in the market, to build habits for new users. The actual taste or quality of your product of course also holds some importance but less than most people think. People are really sticky with the nicotine they got used to using. From anectodal stories of friends I known through the years, using nicotine pouches, to more conrecte proof of the huge stickiness of US customers using ZYN (although competitors have been selling their product at a fraction of the price), I’m a strong believer it’s hard to shift a user who is deeply entrenched with a brand. Think your uncle who has been smooking Marlboro his whole life, try to convince him to change brand – good luck. That said, if your product is not available everywhere, it’s hard to win a loyal customer. So distribution is also key.

Just like Swedish Match had a legacy cigarr business which gave them a foothold in the US to distribute their ZYN, Turning Point Brands have their legacy tobacco business which gives them the similar chance to reach out to already it’s already established network to push their Fre product (their Alp product is almost only sold online, until now when they will try to push it also in stores). I think this a key differentation which gives TPB a chance to fight with the big boys. The nicotine pouch product itself is very easy to create, just like TPB have turned to a supplier in India which makes their pouches, anyone can come up with a brand and do the same thing. What is special in terms of TPB is that they have distribution from the legacy business, this is something that costs a lot of money to setup and can’t be replicated by other start-ups.

Cash muscles to grow

Long-term to be a winner in the nicotine pouch market you also need the cash-flow to build production plants on US soil. Not only for tariff reasons but even more so for shipping reasons. Nicotine pouches is fairly bulky product and producing it in India, where a supplier takes their cut, the tariffs takes a cut and the shipping takes a cut, you will never reach that profitability level one is looking for. Again Turning Point Brands has thanks to it’s legacy business, a strong cash-flow generating asset, which can carry the high expenses of building up a production plant on US soil. Again a smaller start-up will struggle for many years to reach the scale to get there. We are currently in land-grab mode for new customers but later on small players who can’t get a cost competitive production will suffer when taxes are raised on the product, as is bound to happen. As a side note, I believe higher taxes will actually be a long term positive for the strongest players in the market.

So product taste is not important?

As I argued above, I think being early in the market is more important, but obviously if you are switching from cigarettes to nicotine pouches you will try a few different brands to see what you like. Still key to winning that customer and the new habits they are building, the product must be available at the spots the customer buys their products, gas stations and whatnot. What I understand from taste perspective is that both Fre and Alp taste very similarly, which is a bit unfortunate, it would be nicer if they were diversifying and targetting two different type of “styles”. Listening to users of these pouches there are a few key complaints, some feel the flavour dissapears to quickly, Fre/Alp seems to do decently in this regard compared to competition. The largest differentiator of Fre vs for example ZYN is that Fre pouches are more moist. This comes down to personal preference, some like dry like ZYN (and On!) others like more moist like Fre. I do really like that TPBs brands are differentiated in this way, even if only 20% of users prefer moist this could be a huge win for TPB if they can win 10-20% of the market thanks to their product being more moist. Velo is the big competitor which also is moist. So from this perspective I think TPB is will position with a product that seems to get good reviews from users who recently switched to nicotine pouches.

FDA

There is quite a lot to say on the topic, some of it is in the AI material. I do ponder a bit on that TPBs products are the only chemically made nicotine pouches whereas the competitors waiting for FDA approvals are all tobacco derived nicotine. But it feels strange if a more pure chemically made nicotine should be denied approval whereas tobacco derived is approved. The stock has sold off recently on some rumours that FDA is not all too happy to approve all these new nicotine pouches. There is for example the aspect of this being a gateway drug for kids (with mint flavours and all). Clearly none of these companies want to sell their product to kids, but they find their way to them anyway and FDA is tracking this closely. From what I can see in the data, this is not a big problem yet, compare numbers on vape and nico pouches here: E-cigarette prevalence (which is highest amongst middle and high school students vs. other•categories) saw the biggest reduction vs. other categories. Youth usage reduced from 5.9% in 2024 to 5.2% in 2025. Nic pouch prevalence reduced from 1.8% in 2024 to 1.7% in 2025. ZYN is the most used brand, with c61% of the group using it vs. c6% using On!.

In Summary

TPB has shown that they can grow their nicotine pouch products quickly in a market which is also growing fast. There is currently a land-grab of new customers who are establishing new habits which in many cases will mean lifelong usage of nicotine pouches. TPB is well positioned to take a 5-15% market share in the US, which would mean considerable upside for the shareprice at current levels, as the entire market will grown to become larger than most investors currently think. They sometimes take unconventional approaches as teaming up with Tucker Carlson where they have a 50/50 JV to own the Alp product. But they also do savvy things as growing their clout to cooperations like this: TPB and UFC Coop. 

I see this is a fantastic long-term compounder if they play their cards right. There are some hesitations, the FDA approval, some less good comments about management, but overall I think it looks like a really good setup.

 

 

 

Ten Years!

globalstockpicking 11 Comments

Twelve years ago, after many years working in back-office roles I had finally landed a dream role, as a Portfolio Manager in Stockholm. I was given a free mandate to invest globally with other fund managers, finally I had a role related to equity investing. Just two years later, I resigned, to move back into a back office role.

I had some very good reasons to resign. I wanted to move back to Hong Kong, not only because I loved the city but because there was a special someone, I loved even more than I loved the city. Ten years later as I’m writing this, she is on the sofa here next to me. At the time it was a big decision to leave, as said finally I had made it to the front-office, I was afraid of giving it up. But my gut feeling was telling me life in Hong Kong, instead of Sweden, could be even greater. My gut was right, no regets, these ten years have been amazing. My back-office role those then years ago in Hong Kong would not be investment related. So in that moment of resigning, I was inspired by some early investing bloggers. I wanted to hold on to the investing, somehow, this blog became that outlet.

Ten years ago I launched my blog and a month later my portfolio with the below post:

Early on I decided that this blog would be my journey to become a better investor. Evaluate myself, with high transparency towards you as readers. Back in those days (way before the now crazy Substack era) I was one of very few, who consisently posted my full portfolio. I even for many years made a post explaining every single portfolio change. As a side note, I got slightly less enthusiastic about that approach when I was contacted by a reader who had replicated my whole portfolio and was un-happy due to some execution risk. Everything has it’s pros and cons, but overall I really liked the accountability that came with being transparent with all you readers.

How has my starting portfolio performed?

So the avid reader (with a good memory) knows that I like to evaluate myself in different ways. A favorite of mine was at the end of the year see if all my portfolio changes added value or not (most years it did). So naturally I felt I then now have to ask myself, what if I just kept that very first portfolio I happened to have when the blog started. How would that portfolio have returned compared to my actually portfolio for these past ten years?

So I set out to quickly calculate that, after ten minutes I realized that it’s not going to be so quick of a task. Less than half of the initial holdings are today listed companies. Out of the starting 13 above, one got bought back by the company, four got bought out, one defaulted, one delisted and one stock is currently suspended. So I had to come up with a fair rule for what do I do when a company is bought out? I decided to equally distribute the cash from that company to the remain stocks in my portfolio. So my quick calculation turned in to a multi-hour exercise of re-balancing the portfolio at every event (luckily I have Bloomberg which made it possible to fairly easy include at least all dividends into the calculation).

A lot more could be said about the methodology to calculate the above. I’m not going to deep dive into this, it was just a fun excercise to see how did it go. As we can see there are a few heroes of the portfolio, BYD mainly, which by itself more than doubled the full portfolio. This is a combination of that BYD went up more than 7x in this timeframe but also as other stuff was acquired in 2019-2020, some of that money was recycled into BYD before the stock had gone up very much. NetEase has also done really well up 376% in 10 years. Overall it’s the larger companies that kept performing and while some of my smaller companies did well in the sense that they were acquired, that money needed to find new homes to keep compounding. A wrote a whole post long time ago about the Coffee can approach to investing and I think this is a good example of just that. In such a portfolio in the end only a few stocks will drive the whole return, the ending portfolio is basically a bet on BYD, NetEase and to some degree Trip (changed name from Ctrip).

My actual return then?

So the above portfolio did +165.5% over 10 years, including dividends not too bad I think. That compares with Hang Seng at meakly +24%, MSCI World, Ex-USA +80%, MSCI World +226% and finally the US monsters Nasdaq at +477%. As you know I’m focusing on Healthcare investing (on my new Substack) and the phase of sharing with all you readers how it’s going is not really a big part of my investing journey anymore. For curious people I do share sometimes on X.

At a 10 year celebration I will make an exception and show my full 10 year return:

This is a +255% return over these 10 years, which comes out to a CAGR of 13.5%, luckily better than my starting portfolio . The drawdown recently has been pretty brutal, but as my 10 year track-record shows, it’s no longer my first rodeo and I started investing in 2004, so I have really accumulated a number of rodeos by now. At least there are some benefits of approaching getting old.

As I nowadays focus on Healthcare investing, my approach has shifted since beginning of 2025, the above portfolio now consists of three buckets: 50% Healthcare related stocks, 40% Non-Healthcare and 10% Opportunistic. I will not bore you with the detailed breakdown of all portfolios but so far Healthcare is outperforming the other portfolios, further strengthening my thesis that I’m a decent Healthcare-sector investor.

Contemplating on these 10 years

It’s with some sense of acheivement I’m writing this blogpost. I remember when I started the blog, thinking, it will probably take me a good 10 years to prove if I’m a decently good investor or not. I had just come off 2 years evaluating other fund-managers and investing teams. Yes you could make a quite good educated guess after a 5 year track record, but to be statistically fairly confident you needed 10 years. Or otherwise deep down quite deeply into how their returns were generated, as in a 5 year track-record, hitting just one real big winner could create a great track record for those 5 years. Also you kind of want to see how someone performs through a cycle. The US market hasn’t really had a very deep bear-market, but we all had the Covid shock and later Europe and Hong Kong has performed real bad, the markets I was mostly allocated to. So I think I pass all my own tests, 10 year track-record, invested through a bull/bear/bull market cycle and came out alive with out-performance at the end. I’m satisified, but I know I could have done a bit better if this was my full time job. Now it’s evening and weekends basically and there hasn’t been enough time to really stay on top of all holdings.

A few things stand out:

  • My call that the Electric Vehicle industry while be huge somewhere early 2020’s, this was not a consensus bet back in 2016. I wrote a lot about this, put my money where my mouth was and made quite a bit of money from it. Lesson learned would be that I actually missed the really large leg up when everyone piled into this theme, I had already sold and had no EV related stocks at all anymore. I basically missed the last double.
  • I noticed that people don’t have the attention span to really remember who wrote what (I’m the same). So you become for them, the guy that pitched the stock they remember. For me a few stock pitches stand out for which I have been closely linked to: Greatview Aseptic, Dream International and above all else Modern Dental Group. It’s funny how over 10 years you look at so many companies, some you hold for a few years, and a rare few like Modern Dental become you become very closely related with. I’m quite proud that out of the many many troublesome frankly bad micro/small caps listed in Hong Kong, I managed to find maybe one of the top 20 such small caps to hold. Back in 2018 though, I hesitated if I should even invest at HK$1.2: “I have been somewhat torn if this is a good enough case to invest in or not. I do love a good turn-around (maybe I like them a bit too much). ” Everything is much easier with hindsight and I had no idea at the time what a strong company Modern Dental would become, but I’m proud I held on, it has not been easy and many of not most have doubted me.
  • Sometimes you just get real lucky or unlucky. Lucky – Researching vaccine companies (Valneva) in the autumn of 2019. Unlucky – Your largest holding a Chinese payments company (Pax Global) get their warehouse raided by FBI – nothing ever came out of this raid by the stock never recovered and lost 50% on that day.
  • More companies than you think get bought out, at least with the investmentstyle I have. It’s really the only new conclusion I draw from writing this post. As you saw from my original portfolio half got acquired. Some of my very best investments also got acquired, Swedish Match, L’occitane, Vinda and ZimVie, all stocks I held for a long time and wrote quite a bit about on this blog. It didn’t hit me until now how much of my returns have been generated from companies being acquired. Something I need to think a bit more on..

Contemplating on 2025

2025 was a strange year for me both personally and investing wise. My portfolio was up close to +40% at the mid-year mark and then everything started to go downhill. In my day job, around the same time as my portfolio peaked I had to start in a new role, basically to save me from being fired. Keeping my job was ideal from an income perspective, but really not ideal from an investing perspective. I have been real busy to get up and running in my new role. It’s been a real challenge the past 7-8 months to find time and energy for investing. This meant that my ambitions to keep this blog running and talking about the 40% Non-Healthcare ideas, which would fit here, just went out the window. Looking at my Post tab in WordPress there are a few meak attempts from my side to write something to share with you guys, they are still early drafts. There simply wasn’t time and even more so, I did not have the energy to write. Now I have got more comfortable in my role and there is energy again, but priority will still be on my Healthy Stock Picks and not this blog. So no promises this time, let’s see if I can squeek something new out. I have got very good feedback from friends and readers on that TINA for China post which is over a year old now, I’m happy I got that one out to you all, as it was quite spot on and I should have probably listened more to my own advice.

All-in-all, was a great but very challenging year, on multiple fronts. I’m looking forward to 2026 which seems to be more challenging in the markets, but I also feel there are so much more opportunities (finally), especially among small-caps, so much stuff is cheap again.

Contemplating on 2026

This year has continued as last ended, nothing is working, well barely nothing at least. In my portfolio and the stocks I have on my long watchlist, it’s feel already like we entered a bear market. The markets feels extremely flow driven and flows are chasing the AI valuechain and perhaps some small pockets like Japan/Korea. I’m not in those pockets, so it’s pretty horrendous, although on index level it doesn’t look that bad. Like I said it’s not my first rodeo and I try to do my best to zig-zag, but it is pretty brutal how things just sell-off with no mercy, even if it’s cheap already, it keeps getting cheaper.

And then AI..

I know, everyone needs to say their piece about AI. I guess what I want to say is, I don’t know really what AI means for blogs like this and my Healthy Stock Picks Substack. When I finally emerged from under the load of my new job, my friend pushed me to get an account with Claude. I have to say I’m really impressed. I have been working on building good prompts and for the first time properly learn how to incorporate AI in my investing process, it helps so much. Yes sometimes it hallucinates, and yes sometimes it does get stuff wrong, but mainly it short-cuts work that took me weeks, months to do in the past. Now it’s one evening with Claude to get there. I keep sharing the material I produce with a small group of friends, I don’t really know what to do with the material I produce. I find a lot of that material as interesting as my old blog posts that took me months to research. But you all have access to Claude yourself, so you don’t need me to send you “my AI-slop”, or do you? Somehow I do feel it’s relevant to share some of that material as I’m know able to draw much faster conclusions if an investment is worthwhile or not.

I’m playing with the idea to share very short pitches written by myself, focusing on key-points of the investment thesis. And then just attach Claude answers which backs up all my short statements with lengthy backgrounds. In this type of format I would be able to churn out a massive amount of material compared to in the past, but I don’t know if it would be valuable to others. I just know the Claude material I generate is very valuable to myself. What do you think?

Thank you all who followed me on this journey, maybe since halfway, maybe since Covid and for a few of you, since almost the very beginning!

Cheerio!

TINA for China?

globalstockpicking 9 Comments

There Is No Alternative was originally minted for other political motives but was famously revived to explain the environment with zero interest rates – TINA – you just had to buy equities. The question on my mind the past few weeks has been, has China now reached such a moment in time? So I wanted to share some random thoughts on the topic.

My thesis is simple – Chinese has no alternative to look for yields except stocks and particularly Hong Kong:

  1. Chinese property bubble has burst, it will be a long painful process before we see steady gains in the China property market.
  2. Interest rates have collapsed during 2024, The 7-day reverse repo is at 1.5% and the 10 year Gov Bond yield is at 1.6%. Neither with short duration, bank account, or long duration (Wealth Management products) can Chinese get any yield.
  3. Crypto is not easily accessible in China, left is basically gold, which is something Chinese do like but it’s not something to build a big portfolio solely on.
  4. The stock market has been really weak in both Mainland and Hong Kong, so from a momentum perspective it might not seem attractive either. But when stocks are cheap something is else is attractive – dividend yields!
  5. Mainland investors due to capital controls can’t access the outside world equity markets and buy products from other markets very easily. Hong Kong stands out as the only alternative.

So my conclusion is, Hong Kong listed companies with high dividend yields that are part of the Stock Connect (HK listed stocks mainlanders can buy from their local brokerage accounts within Mainland without restrictions) should see a lot of inflows in 2025.

So what does that list look like? Running a screen and matching it vs Southbound stock connect inclusion one can see there is quite a lot of juicy dividend cases to find.

All dividend stocks (included in Southbound Stock connect)

Ticker Company Name Div Yield MCAP
9979 Greentown Management Holdings Company Limited 16.0% $830
6110 Topsports International Holdings Limited 15.9% $2,296
101 Hang Lung Properties Limited 12.6% $3,684
1883 CITIC Telecom International Holdings Limited 11.6% $1,085
3990 Midea Real Estate Holding Limited 11.2% $539
327 PAX Global Technology Limited 10.6% $663
467 United Energy Group Limited 10.4% $1,147
440 Dah Sing Financial Holdings Limited 10.3% $1,142
639 Shougang Fushan Resources Group Limited 10.3% $1,649
2356 Dah Sing Banking Group Limited 10.3% $1,460
3669 China Yongda Automobiles Services Holdings Limited 10.0% $621
839 China Education Group Holdings Limited 9.8% $1,130
590 Luk Fook Holdings (International) Limited 9.7% $1,085
1361 361 Degrees International Limited 9.6% $1,095
303 Vtech Holdings Limited 9.6% $1,683
546 Fufeng Group Limited 9.4% $1,708
6808 Sun Art Retail Group Limited 9.4% $2,220
1378 China Hongqiao Group Limited 9.2% $13,985
3360 Far East Horizon Limited 9.1% $3,071
817 China Jinmao Holdings Group Limited 9.1% $1,615
598 Sinotrans Limited 8.9% $4,628
1052 Yuexiu Transport Infrastructure Limited 8.8% $811
386 China Petroleum & Chemical Corporation 8.6% $101,012
14 Hysan Development Company Limited 8.6% $1,558
857 PetroChina Company Limited 8.5% $212,400
1908 C&D International Investment Group Limited 8.4% $3,169
883 CNOOC Limited 8.2% $120,799
548 Shenzhen Expressway Corporation Limited 8.2% $3,278
659 CTF Services Limited 8.2% $3,978
1675 AsiaInfo Technologies Limited 8.1% $687
683 Kerry Properties Limited 8.1% $2,866
1836 Stella International Holdings Limited 8.1% $1,671
1138 COSCO SHIPPING Energy Transportation Co., Ltd. 8.0% $6,513
363 Shanghai Industrial Holdings Limited 8.0% $1,613
998 China CITIC Bank Corporation Limited 7.9% $46,724
777 NetDragon Websoft Holdings Limited 7.8% $672
968 Xinyi Solar Holdings Limited 7.7% $3,490
1972 Swire Properties Limited 7.6% $11,594
12 Henderson Land Development Company Limited 7.6% $14,472
995 Anhui Expressway Company Limited 7.6% $3,336
384 China Gas Holdings Limited 7.5% $4,614
1929 Chow Tai Fook Jewellery Group Limited 7.5% $8,488
3306 JNBY Design Limited 7.5% $1,146
2386 SINOPEC Engineering (Group) Co., Ltd. 7.4% $3,675
341 Café de Coral Holdings Limited 7.4% $567
83 Sino Land Company Limited 7.4% $9,121
1088 China Shenhua Energy Company Limited 7.2% $109,102
2388 BOC Hong Kong (Holdings) Limited 7.2% $33,779
1359 China Cinda Asset Management Co., Ltd. 7.2% $5,643
1658 Postal Savings Bank of China Co., Ltd. 7.1% $71,002
3323 China National Building Material Company Limited 7.1% $3,741
3618 Chongqing Rural Commercial Bank Co., Ltd. 7.1% $8,445
868 Xinyi Glass Holdings Limited 7.0% $4,061
3988 Bank of China Limited 7.0% $196,320
11 Hang Seng Bank Limited 7.0% $22,941
1516 Sunac Services Holdings Limited 7.0% $621
956 China Suntien Green Energy Corporation Limited 7.0% $3,212
2666 Genertec Universal Medical Group Company Limited 7.0% $1,165
3877 CSSC (Hong Kong) Shipping Company Limited 6.9% $1,395
1044 Hengan International Group Company Limited 6.9% $3,265
220 Uni-President China Holdings Ltd 6.9% $4,248
2877 China Shineway Pharmaceutical Group Limited 6.8% $840
819 Tianneng Power International Limited 6.7% $1,154
2338 Weichai Power Co., Ltd. 6.7% $15,304
173 K. Wah International Holdings Limited 6.7% $709
941 China Mobile Limited 6.7% $214,760
371 Beijing Enterprises Water Group Limited 6.6% $3,087
667 China East Education Holdings Limited 6.6% $723
1919 COSCO SHIPPING Holdings Co., Ltd. 6.6% $31,104
1330 Dynagreen Environmental Protection Group Co., Ltd. 6.6% $1,020
1199 COSCO SHIPPING Ports Limited 6.5% $2,210
3328 Bank of Communications Co., Ltd. 6.5% $67,981
177 Jiangsu Expressway Company Limited 6.5% $9,128
939 China Construction Bank Corporation 6.5% $197,487
3998 Bosideng International Holdings Limited 6.4% $5,352
1113 CK Asset Holdings Limited 6.4% $14,129
856 VSTECS Holdings Limited 6.4% $911
576 Zhejiang Expressway Co., Ltd. 6.3% $4,246
392 Beijing Enterprises Holdings Limited 6.3% $4,310
1999 Man Wah Holdings Limited 6.3% $2,318
552 China Communications Services Corporation Limited 6.2% $3,847
1093 CSPC Pharmaceutical Group Limited 6.2% $6,844
1958 BAIC Motor Corporation Limited 6.2% $2,246
1398 Industrial and Commercial Bank of China Limited 6.2% $301,751
2688 ENN Energy Holdings Limited 6.2% $7,852

Since China interest rates collapsing is a recent 2024 phenomena, let’s combine above table with a filter of the stocks that are up on 1 and 3 month time period (basically showing some good recent momentum):

Dividend Stocks with good short term momentum

Ticker Company Name Yield MCAP
440 Dah Sing Financial Holdings Limited 10.3% $1,142
2356 Dah Sing Banking Group Limited 10.3% $1,460
3669 China Yongda Automobiles Services Holdings Limited 10.0% $621
546 Fufeng Group Limited 9.4% $1,708
548 Shenzhen Expressway Corporation Limited 8.2% $3,278
1836 Stella International Holdings Limited 8.1% $1,671
998 China CITIC Bank Corporation Limited 7.9% $46,724
995 Anhui Expressway Company Limited 7.6% $3,336
3306 JNBY Design Limited 7.5% $1,146
2386 SINOPEC Engineering (Group) Co., Ltd. 7.4% $3,675
3618 Chongqing Rural Commercial Bank Co., Ltd. 7.1% $8,445
3988 Bank of China Limited 7.0% $196,320
3877 CSSC (Hong Kong) Shipping Company Limited 6.9% $1,395
941 China Mobile Limited 6.7% $214,760
3328 Bank of Communications Co., Ltd. 6.5% $67,981
177 Jiangsu Expressway Company Limited 6.5% $9,128
552 China Communications Services Corporation Limited 6.2% $3,847
1398 Industrial and Commercial Bank of China Limited 6.2% $301,751
3311 China State Construction International Holdings Limited 6.1% $7,681

In this list I recognize quite a lot of the stocks. We have my large holding JNBY, we have another good company I looked at but passed on so far, Stella International. We have some financials and toll-road operators, some odd-balls like Fufeng Group which makes MSG for food and we have a group of Chinese SOEs, like SINOPEC, Bank of China, China Mobile etc.

There are three different types of bets to do from the above table:

  1. Stock picks – like JNBY & Stella – both are good stocks in my view
  2. Toll-road operators – these are very bond like in their investment, similar like holding a REIT, it could clearly be an interesting area. There are talks that REITs will be included in the Southbound connect, when that happens REITs are probably preferable for investors, but in the meantime this might be the next best thing.
  3. SOEs – clearly Mainlanders will be very familiar with these stocks, the problem I see is that most of these are also listed in Mainland China, although the yield often is higher in HK because of the valuation spread between HK and Mainland this is more a play on the spread than that investors will be reaching for these stocks for TINA reasons – but who knows, the yield is great on these and from a Mainlanders perspective owning ICBC or China Mobile is as safe as money in the bank (if you can accept some volatility).

To look further into this one can then also look at the daily flows of the Stock Connect (to literally verify if Mainlanders are buying). As JNBY was recently added to the Stock Connect it comes from a low level and is recently seeing steady buying by Mainlanders through the Southbound stock connect. Do they like the yield or like the company? Perhaps both..

Stella is not seeing the same type of inflows as JNBY but there must be others which fulfil all the criteria of being decent companies, with good yield and which Mainlanders are slowly accumulating.

So what if we then rank the original list after the last 3 month delta in percentage increase of holding by Mainlanders from Southbound connect?

High Dividend stocks ranked after last 3 months inflow from Mainland Southbound flows

Ticker Company Name Div Yield 3m Delta Southbound
2386 SINOPEC Engineering (Group) Co., Ltd. 7% 10.0%
968 Xinyi Solar Holdings Limited 8% 9.6%
1088 China Shenhua Energy Company Limited 7% 5.1%
177 Jiangsu Expressway Company Limited 7% 4.6%
857 PetroChina Company Limited 9% 4.3%
1658 Postal Savings Bank of China Co., Ltd. 7% 4.2%
1093 CSPC Pharmaceutical Group Limited 6% 3.8%
9979 Greentown Management Holdings Company Limited 16% 3.6%
1398 Industrial and Commercial Bank of China Limited 6% 3.4%
598 Sinotrans Limited 9% 3.4%
6110 Topsports International Holdings Limited 16% 3.4%
1330 Dynagreen Environmental Protection Group Co., Ltd. 7% 3.3%
576 Zhejiang Expressway Co., Ltd. 6% 2.8%
552 China Communications Services Corporation Limited 6% 2.8%
839 China Education Group Holdings Limited 10% 2.7%
956 China Suntien Green Energy Corporation Limited 7% 2.5%
2338 Weichai Power Co., Ltd. 7% 2.5%
3669 China Yongda Automobiles Services Holdings Limited 10% 2.3%
2877 China Shineway Pharmaceutical Group Limited 7% 2.2%
3618 Chongqing Rural Commercial Bank Co., Ltd. 7% 2.1%
392 Beijing Enterprises Holdings Limited 6% 2.1%
2688 ENN Energy Holdings Limited 6% 2.0%
3306 JNBY Design Limited 7% 1.9%
819 Tianneng Power International Limited 7% 1.9%
995 Anhui Expressway Company Limited 8% 1.9%
1675 AsiaInfo Technologies Limited 8% 1.8%
3988 Bank of China Limited 7% 1.6%
1958 BAIC Motor Corporation Limited 6% 1.3%
939 China Construction Bank Corporation 6% 1.3%
1361 361 Degrees International Limited 10% 1.3%
3328 Bank of Communications Co., Ltd. 7% 1.3%
386 China Petroleum & Chemical Corporation 9% 1.3%
868 Xinyi Glass Holdings Limited 7% 1.2%
341 Café de Coral Holdings Limited 7% 1.2%
998 China CITIC Bank Corporation Limited 8% 1.1%
101 Hang Lung Properties Limited 13% 1.1%
384 China Gas Holdings Limited 8% 1.0%
327 PAX Global Technology Limited 11% 1.0%
363 Shanghai Industrial Holdings Limited 8% 1.0%
1199 COSCO SHIPPING Ports Limited 7% 0.9%
1052 Yuexiu Transport Infrastructure Limited 9% 0.9%
777 NetDragon Websoft Holdings Limited 8% 0.9%
1044 Hengan International Group Company Limited 7% 0.9%
639 Shougang Fushan Resources Group Limited 10% 0.8%
2666 Genertec Universal Medical Group Company Limited 7% 0.8%
590 Luk Fook Holdings (International) Limited 10% 0.8%
1836 Stella International Holdings Limited 8% 0.8%
941 China Mobile Limited 7% 0.7%
3990 Midea Real Estate Holding Limited 11% 0.6%
683 Kerry Properties Limited 8% 0.5%
1113 CK Asset Holdings Limited 6% 0.5%
371 Beijing Enterprises Water Group Limited 7% 0.5%
1972 Swire Properties Limited 8% 0.5%
1359 China Cinda Asset Management Co., Ltd. 7% 0.4%
440 Dah Sing Financial Holdings Limited 10% 0.4%
220 Uni-President China Holdings Ltd 7% 0.4%
3877 CSSC (Hong Kong) Shipping Company Limited 7% 0.4%
303 Vtech Holdings Limited 10% 0.3%
2356 Dah Sing Banking Group Limited 10% 0.3%
467 United Energy Group Limited 10% 0.3%
12 Henderson Land Development Company Limited 8% 0.3%
667 China East Education Holdings Limited 7% 0.2%
3360 Far East Horizon Limited 9% 0.2%
1908 C&D International Investment Group Limited 8% 0.2%
2388 BOC Hong Kong (Holdings) Limited 7% 0.2%
1929 Chow Tai Fook Jewellery Group Limited 8% 0.2%
1883 CITIC Telecom International Holdings Limited 12% 0.2%
173 K. Wah International Holdings Limited 7% 0.1%
14 Hysan Development Company Limited 9% 0.1%
856 VSTECS Holdings Limited 6% 0.1%
883 CNOOC Limited 8% 0.1%
11 Hang Seng Bank Limited 7% 0.0%
1999 Man Wah Holdings Limited 6% 0.0%
83 Sino Land Company Limited 7% 0.0%
659 CTF Services Limited 8% -0.1%
1378 China Hongqiao Group Limited 9% -0.3%
6808 Sun Art Retail Group Limited 9% -0.3%
548 Shenzhen Expressway Corporation Limited 8% -0.4%
817 China Jinmao Holdings Group Limited 9% -0.4%
1516 Sunac Services Holdings Limited 7% -0.5%
546 Fufeng Group Limited 9% -0.6%
3323 China National Building Material Company Limited 7% -1.5%
1919 COSCO SHIPPING Holdings Co., Ltd. 7% -2.0%
1138 COSCO SHIPPING Energy Transportation Co., Ltd. 8% -3.9%
3998 Bosideng International Holdings Limited 6% -8.2%

To clarify the 3 month delta is the percentage change of total ownership of the company. Bosideng on the last row had Mainlanders selling 8.2% of all shares outstanding in the past 3 months. Interestingly enough quite a few of these toll-road and SOEs that had good returns the past 1 and 3 months are also the ones with good Southbound flows for the past 3 months. If one look at all the Southbound flow data, the companies with highest inflows are not really high dividend stocks, it’s some hot stock that Mainlanders speculate in, stocks like these.

Company name 3 month inflow
EASOU TECHNOLOGY HOLDINGS LIMITED 34%
BEIJING FOURTH PARADIGM TECHNOLOGY CO., LTD. 32%
SHIYUE DAOTIAN GROUP CO., LTD. 26%
CHINA TRADITIONAL CHINESE MEDICINE HOLDINGS CO LIMITED 21%
FLAT GLASS GROUP CO., LTD. 18%
IMMUNEONCO BIOPHARMACEUTICALS (SHANGHAI) INC. 16%
ROBOSENSE TECHNOLOGY CO., LTD 15%
IMOTION AUTOMOTIVE TECHNOLOGY (SUZHOU) CO., LTD. 15%
LAEKNA, INC. 15%
XTALPI HOLDINGS LIMITED 14%
13%

So the flows clearly move stock prices as if you look into the stock prices of above stocks, they have been moving a lot. Looking at historical flows won’t help much in predicting future flows, it’s more about skating to where the puck is going of course. And what I’m trying to say with all this rambling is that in general Chinese should be moving more into equities and if you are fairly skeptical and unwilling to buy stocks, probably a high dividend in something quite safe will convince you more easily. I see a pretty strong case for this at least.

As always, what are your thoughts?

2024 coming to an end

globalstockpicking 6 Comments

I hope you had some relaxing holidays and can look back at 2024 as a successful year! After a long radio silence from me during 2024 I’m back with a post. With so much great material on Substack nowadays (it really exploded compared to what was available back in 2016 when I started this) I spent quite a bit of time during 2024 pondering if I should keep this blog alive or not, and if yes, in what format. More on that later.

Firstly I want to go back to one of the few posts made during 2024 Year of the Dragon – HK Stock Picking. This was my call to invest in the Hong Kong market just as we entered the year of the dragon in Jan 2024. How did it go, was it a good call in general? Did the stocks I recommended perform well? The short answers to those two questions would be, yes and definitely yes.

I use the Hang Seng index as the representative for if Hong Kong was a good market to allocate money to. The index is up 18% year to date, but my blog post was a call to action when the HSI had fallen in January, so from my blog post date the Hang Seng is up a whopping 25%, not bad at all – that is in USD also, which is not bad compared to pesky EUR returns :). So how did the stocks I recommended back in January do then? Do I have any stock picking skills in Hong Kong? Well with a small sigh of relief, on average, they did actually do better.

Stocks recommended in January 2024 post

Some comments of these holdings

The first stock is also my last real stock picking post back in May this year, L’occitane which after a quite lengthy process was bought out at pretty good premium. I’m surprised we have not seen a re-listing of Sol de Janiero in the US yet, but then again peers like ELF have almost halved in valuation since then so maybe they are biding their time for a more hot IPO market. Although I sounded quite a lot of frustration at the time, them getting SdJ on the cheap etc, sure I still think that’s somewhat true but with some distance to the deal I’m very pleased with the work I did on this company and the very good outcome in a difficult market (this all happened before Hong Kong had it’s small rally). I was able to recycle some profits into other ideas which have lifted upwards in the second half of the year, contributing strongly to that I did well in 2024.

A big purpose of the post was to convince the in-experienced investor that there are different pockets of the Hong Kong stock market. Some which has nothing really to do with China or being controlled by Chinese. Euroeyes which was in that first category and H&H being in some type of middle category were the dogs, but even they were not major losses. I did own Euroeyes for some time and exited around 4.4 HKD and H&H I was close to buying but never pulled the trigger on. I think Euroeyes is an interesting business but the Chinese consumer is so down now and competition is actually rather high here in China for eye-clinics so I changed my view, not a bad business but not great either. I have found a much better case in the same sector (in Spain) thanks to a reader that gave me the idea. I will cover that in more detail on my new Healthy Stock Picks Substack during 2025.

Modern Dental is still my high conviction case, as such a 14% return when Hang Seng is up 25% it’s a clear disappointment. I can talk for weeks about MDG but will try to keep it very short here. For the new reader just head over to Healthystockpicks.com and I have a big deck there on the company. What I will say is that the company is still clearly struggling in the US, they are not able to get to local people to cooperate in selling their products from China/Vietnam. This seems to be what the market has focused on when the stock traded down from 5 to 4 HKD during the summer. On the positive side there is quite a bit and why it’s a high conviction holding still to me. Firstly they are killing it in Europe, clearly pulling away from the competition. The European market is still huge (aging population and all that) and even if MDG is now a clear market leader in Europe they are still at high single or low double digit percentages of market penetration, this easily has room to grow another double. Secondly I really like their acquisition in Thailand. The company has historically had a moderate amount of leverage (showing how they are not terrible cash hoarders like other HK small caps). But they slowed down the acquisitions so much after the “poor” purchase in the US that all that cash their business generates has evaporated that net debt situation. This acquisition adds to top and bottom line nicely at no cost to us equity holders, just a tiny bit of leverage which is just healthy – Bravo and the market so far doesn’t care – I have just kept adding.

JNBY is one of my proudest moments in my 12 years of HK stock picking. I had my own thesis since 2019, Chinese will become more “patriotic” in their shopping habits, I searched for years for the right company to express that view through. Really took my time this time and JNBY during 2023 emerged out of Covid as the perfect company to fit that thesis. Good management, great cash-flow generation, fantastic long term track record and a super-low valuation. I tried to bounce my idea with others, nobody really liked it enough to also buy shares. I went my own way, bought and added further when I was validated to be right fundamentally. The company has delivered fantastically, 17% div yield as of the date I posted the idea, but rather 20% div yield on my initial purchase price is just unreal. Most of the 85% gain is just through dividends and earnings growth, very little is multiple expansion. I have now started to reduce my position to a more normal sized position. The stock deserves to go to 25-30 HKD, but the HK market is fickle, best chance for that to happen is that the inclusion in the stock connect seems to have put a fire under the mainlander buyers. They are consistently increasing their holding in the company (you can track this on the HKEX webpage). I guess my only regret with JNBY was that I did not write it up fully, I talked about it a lot on Twitter, but I had done so much work on this one, that it did deserve its own full write-up. I still like it but with the underlying Chinese market being so extremely weak, I don’t have the same confidence the company can keep delivering outstanding figures.

Vitasoy – The second largest gainer of the bunch, here I did own it in the past, but stock price was a very very long falling knife. I felt so much pain and fundamentals kept deteriorating that I stop-lossed out of this stock unfortunately. For some time I was right but then I have been oh so wrong. It seems to be some ownership fight in the company which explains the dramatic turnaround in the stock price, which is not fully deserved as the company fundamentally is still doing quite poorly. So stock kind of went up for the wrong reasons.

CNOOC and Travelsky I think are two good examples that you shouldn’t be too afraid to buy China SOEs, you are in fact aligned with CCP here. And it seems CCP will also directly support the stock price much more for these types of companies compared to private owned ones. I owned CNOOC but sold way too early and TravelSky I never pulled the trigger on, both are high quality cheap companies. If just looking for HK/China exposure these are two excellent stocks.

So will this blog continue or not?

After much deliberation the answer is yes. 2024 was the year I made the decision to focus on Healthcare and my new Substack, although not very active yet, the format is set and it is now live. I spent the latter half of 2024 to read up on quite a bit of healthcare companies, this is a process that takes a lot of time. I knew that and the whole point of focusing on Healthcare was the journey to become really good at this sector. That’s long road to travel, which will hopefully be enjoyable but also means I don’t have tons of quality ideas as I’m still in the learning phase. Also I enjoy a lot of stuff which is not Healthcare related. Something of a way forward has been forming in my head over the Christmas holidays. I will basically run two portfolios, one non-healthcare and one healthcare only. The main focus will be on the healthcare portfolio but the other one will also be very much active. The non-healthcare one obviously does not fit the format of the Healthystockpicks.com page.

I’m not going to hold myself to any hard rules just yet but the idea is something like this for 2025:

40% of my assets in about 10 non-healthcare long term holdings – Some of these ideas I will share on this blog, given time constraints it will be much shorter write-ups than what I did in the past. Don’t expect too much though my focus is on healthcare so probably just a few posts in 2025.

50% of my assets in about 10 healthcare long term holdings – All these ideas will be covered on the Healthystockpicks.com substack and not mentioned here.

I will then track the performance of these two portfolios separately. This will be more of a hidden exercise as I’m done spending so much effort on sharing every buy/sell decision and performance reviews of my portfolio. Personally it will of course be interesting to see which one of the two performance best long term – what do you think?

The last 10% of my assets will go to shorter swing trades – I want to evaluate myself if this adds or detracts from my performance – Some of these ideals I will share on this blog, which will also fill out the frequency of posting nicely, as it otherwise will be a bit too silent here, just like 2024 has been.

So will I share how my 2024 went at all?

Yes, here it comes. I will cut my year a few days short as I’m posting this now, so as of close 27th of Dec I’m neck on neck with MSCI World in 2024 at 21% return in USD. I sound like a broken record saying this but I’m quite pleased with that since MSCI World is doing so well as the large tech stocks is lifting the whole index. As I don’t participate in those stocks at all I think I should be proud of my performance. My actual Benchmark is closer to MSCI World excluding USA and that index is up 3% on the year – just wow what a difference.

There is a lot to say about the year, overall it was a very stressful year for me. The Hang Seng gave hopes of revival and then quickly gave back a lot of it. Although I hit winners like JNBY and L’occitane I also had a lot of bag holdings, companies like Nagacorp, Essex Biotech and attempts to catch falling knifes like Nayuki has ended in disaster for the portfolio. There has also been lots of grief of missed opportunities, I sold bought Synektik and RaySearch (I have long write-ups on both) and these went on to make several hundred percent of gains after I sold. In the middle of all the chaos of gains and losses I had this tiny position which became a shining star in the portfolio. Back of my idea of bone graft material company OssDsign (still hold) I also invested in Swiss listed Kuros Bio. From my first purchase to last sale it became a ten bagger, in exactly 1 years time. That has never happened to me before. Companies like Paxman which sailed up as new high conviction holdings has also done really well, these big gains has spurred me on to keep digging in the Healthcare space, I know I’m on to something good here.

Finally my whole performance chart since this journey started in 2016. Repeating some numbers, 2024 YTD 21% return, that brings me to a CAGR of 13.5% since inception back in March 2016.

Quite a lot happened since I did my first performance review back in April 2016 Link:

Graph_20160415

Wish you and your loved ones a great 2025!

 

L’occitane (973 HK) – Call to action

globalstockpicking 1 Comment

Disclaimer: Global Stock Picking uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. You are advised to discuss your investment options with your financial advisers and to understand whether any investment is suitable for your specific needs. From time to time, I may have positions in the securities covered in the articles on this website. Full disclosure: I do hold a position in L’occitane when publishing this article. Note that this is a disclosure and not a recommendation to buy or sell.

This is a quick note discussing the buyout offer of L’occitane by it’s majority shareholder Reinold Geiger and Blackstone/Goldman who are advising/backing him in this deal.

Also for this note I will assume you are familiar with the company and the brands they carry. If you are not I would direct you towards fund manager Butler Hall Capital’s open letter to L’occitane. In his letter he was worried about exactly the situation that is currently happening, a low ball offer for the company at 34 HKD per share. Here is the letter and an excellent PowerPoint making the case for the value in the company: Butler Hall Capital LLC has issued an open letter to L’Occitane’s board of directors regarding the opportunity to maximize shareholder value through a relisting.

Details of the basic offer:

  • HK$34/per share offer.
  • Condition per HK-take over code: 90% acceptance of “disinterested shareholders” a.k.a. minorities. To be extra clear this means all shareholders who have no part in the buyout. The last 10% will be squeezed out if 90% is reached.
  • 27.36% of shares are held by minorities and 90% need to accept = 90%*27.36%=24.624% need to accept.
  • Some larger shareholders have already committed to irrevocably accept the cash offer and other have provided letters of support. If we add all of their shares together it is: 9.6%
  • If 15.04% (24.624-9.6) of the other shareholders accept, the deal is done and there is nothing further to discuss.
  • Timeline is to decide by 20th of May with a grace period (if company allows it) to 10th of June.

The twist in the offer:

I would speculate that Butler Hall’s letter and probably comments given privately from other shareholder (stock was halted for 3 weeks) the company has added an extra clause in the offer:

  • If by 15th of May, 10% or more of disinterested shareholders, meaning 2.736% of shareholders (minorities) send a physical letter to the company, expressing their interest in an alternative to hold “rollover securities” the company will at their sole discretion release the details of such rollover share offer.
  • This offer will only be valid up to 5% of shareholders
  • Since there is 15.04% of share left to accept either the HK$34/per share or this offer (if it will be available), roughly a third of the remaining shareholders has the chance to receive rollover shares instead.

Rollover shares – what is it?

Well basically they don’t say what it is. Which in itself is a highly unusual strategy to say the least. They basically say, we offer HK$34/share but instead of declining the offer we may have another offer for you.

The name already implies that its a temporary share, anything else does not make sense anyway, why would you accept to get a share in an unlisted company for all eternity? Would be very few public investors that are interested in that, so then we have to go back to what Butler Capital was voicing out and other rumors we can find online.

I came across this article which also heard rumors’ about a listing of Sol de Janeiro: Vogue March 2024

What makes sense?

To me what makes most sense, and to maximize value for Blackrock/GS stakes in this deal. This means to separately list Sol de Janeiro in the US. Just like Butler Hall is saying, the clear peer company is US listed elf Beauty with ticker ELF. Both companies have very similar growth trajectories. And as the Vogue article linked above also says, SdJ near term growth prospects looks great with launching a whole new product line in sun screen.

Borrowing Butler Hall’s valuation comparison with ELF:

Currently ELFs Enterprise Value is slightly higher than when Butler wrote his pitch (now US$9,019m) but basically in in-line. If we assume that Sol can be listed at the mid-point of the two Butler estimates it gives us US$8.3bn just in value for SdJ, or HK$36.4/share (L’occitane holds 83% of the SdJ holding and 13% if held by founder Heela Yang), higher than the cash offer.

To make the estimate fully complete we have to take in the information given after Butler’s letter where SdJ founder Heela Yang was given 7% more of the SdJ shares as a call option. At a non-listed strike price cost of US$88.5m for that 7%. When this was announced the announcement is also hinting at that one of the options is listing the shares:

“in connection with (but conditional upon) completion of an initial public offering of Intermediate Holding Company, or a direct or indirect change in control of the Company, Parent Subsidiary may, at its discretion, require Connected Shareholder to sell all (but not some) of the Total Interest then-held by Connected Shareholder, provided that if the call option is exercised in connection with an initial public offering, then the call option exercise price per share shall match the public offer price per share of the initial public offering. “

What is the rest then worth?

The rest is basically L’occitane + Elemis and what will happen to those entities? Again, just a wild guess. But based on other conversations that Geiger wants to make a mark in the French “high society” my again pure speculation is that these entities will be listed in Paris.

Elemis has been doing well lately, growing at 12% on constant rates. One way to conservatively estimate its value would be the 900m EUR L’occitane paid for it, this is very conservative given that the brand has done quite well since.

L’occitane itself has been struggling, it’s very hard to use the latest trailing EBITs as the company decided to allocate an extra 100m EUR in marketing spend on the brand. Perhaps they have under-invested in the past but it also seems extremely well timed to sink profits significantly with huge extra costs and then start a take-over process.  The L’occitane brand in my view clearly has the capacity to deliver over 100m EUR in Operating Profit and Butler agrees (who has estimates even higher, see their pres). I would put a conservative EBITDA estimate for 2026 at 150m EUR, if you add another 50m EUR for Elemis or choose to value it separately does not matter too much. I will be using a 17x EBITDA multiple in-line with a developed market listed major cosmetics brand but far below the top portfolio companies like Estee Lauder and L’oreal (they are above 20x multiple).

This gives that L’occitane is worth conservatively 2,550m EUR and Elemis 850m, added together 3,400m EUR. After some quick maths this converts to HK$19.28/share.

All together

So Butler is claiming L’occitane is worth at least HK$45/share but with my calculation I would say even that is very conservative now that we are in a sharp situation of being bought out. I would say a fairly conservative IPO estimate is 36.4+19.3 = HK$55.7/share if you are allowed to get the potential roll over shares, wait the 6-9 months for this process to finish and then sell your allocations in SdJ in USA and the rest of the company in Paris.

That is an additional upside of 64% from the current cash offer.

Call to action

Clearly all shareholder who care and can hold an unlisted entity waiting for it to be listed again, should at minimum send a physical mail to L’occitane telling them you are interested in this option. This comes with no commitment its just to get the company to release the details of this offer.

What happens now?

Well I’m just a small personal investor, I hope that Butler Hall and the likes will opt for the roll-over option, or at minimum ask for what the details are before deciding, if nobody asks, we will not know.

Also I believe that the bidding group is allowed to buy shares in the open market now that the offer has been made. If they are buying, they could be soaking up many of the shares that are part of that 15% of free-float which has not committed to anything yet. In the past two trading days 35 million shares have traded hands, that’s 2.4% of outstanding shares. They need very few investors to accept the cash offer to just close this deal on HK$34 and never even need to open this Pandora’s box of rollover shares. But given the large turnover, that also means there is an opportunity for someone running a larger fund to in the open market to buy a 2.8% position and force the option of rollover shares.

If this option opens up, this could also mean that the value of the shares are not capped at HK$34 but the allocation one can get in rollover shares and the confidence one has in that this will yield a much higher value. Potentially this could start a bidding war for the shares still trading, very interesting in deed. For now I’m holding hard in my few shares and perhaps I will even send a letter of interest, even if my shares unfortunately will not move the needle.

 

 

I promised a fresh start and something new

globalstockpicking 4 Comments

Beginning of this year I posted that I had done my last performance review and promised a fresh start – something new. Well it took a while to move my ideas into a new product, but today it’s time to reveal what it is!

Before the reveal, give me a few minutes to explain how I ended up where I did. Afterwards I will also try to explain what it means for the longevity of this blog (which is getting pretty old by now – 8 years, yikes).

Starting GlobalStockPicking.com was really from the start planned as a long development & investment journey for myself. Although I did not spell out all the goals in a post but this was my thinking 8 years ago:

  1. Run with your passion for investing, do your best to become better and see if it’s enough to beat index/benchmark investing.
  2. Run a fully transparent investment process where internet will help you stay accountable for all your investment decisions.
  3. Record all your investments in a (by now mega) Excel spreadsheet and calculate a weekly NAV which you can use to evaluate yourself.
  4. Evaluate yourself under a long enough time frame so you have seen a bull & bear market cycle and how you cope in different investing environments.
  5. Use the journey to become a better investor, critically evaluate yourself, have a lot of fun and hopefully connect with other likeminded people.

On all of the above I can say CHECK! So given that I succeeded in all of the above, its time for GlobalStockPicking to change format. Stop evaluating my performance publicly and focus on something else. My next question then was, what should I do now? I want to become a bit more personal and share a little bit of what got me here (except the blog).

Journey within a journey

My actual investing investing journey started 20 years ago when I with shaky hands from my student dorm room bought my first stock.  For the first 10 years this was the hobby investor journey and my focus on investing shifted up and down, depending on other life events or job workload. Towards the end of those 10 years I added a CFA to my existing Msc quant math background. The second half of my investment journey started with that I became a FoF portfolio manager for 2 years. I had the fantastic opportunity to spend two years meeting some of the best long only managers in the world. Get a glimpse into how they and their teams operated and sometimes discuss with them the stock ideas I myself had. This was incredibly rewarding and spurred me to start my blog 8 years ago. I classify the last 10 years as my more “professional” and structured investing journey, although it of course has been more of a sliding scale of becoming more mature/better investor.

What am I good at?

So sitting contemplating what to do next, I went through the thought process of what am I actually good at (investing wise). Well I have knack for finding ideas at infliction points for sure, quite often my stocks either take off or dump straight down after I bought them. I find it slightly harder to define how to exploit this if I’m not going to become an options trader. Since I don’t want to sit and trade options my mind wandered onwards to the next thing.

Which markets do I know well? I sharpened my teeth particularly in some markets and one market above all others  – my new home – Hong Kong. After struggling for many years to invest here and making plenty of mistakes, I feel I’m actually pretty decent at investing in Hong Kong now. My first investment on the HK exchange I did 2012, so it was a long journey but I think I got there! Also coming from the Nordic region I feel very comfortable investing in Nordic stocks. These two pools are my home base and I try to expand my circle of competence by investing in places like Poland and Japan, I still feel more like a novice in these markets.

Thirdly I thought about what I feel most excited to do research about, it does vary but looking back many of the cases was related to Healthcare. I then dug a bit further and realized not only was it a sector I enjoyed digging deeply into but indeed I also had some of my best stock ideas and returns from this sector.

Healthcare?

I went through my 8 year GSP investment record of healthcare related ideas/write-ups which had clearly outperformed my broader strategy. Some of the better examples which all have solid write-ups here on the blog:

Name Story at the time First Purchase Peak price I sold at Today Price Still holding?
Modern Dental (3600.HK) Dental lab turnaround 1.29 9.4 4.7 Yes
Valneva (VLA.PA) Vaccine producer (potentially benefit from Covid) 2.57 14.9 3.69 No
ZimVie (ZIMV) Spin-off with misunderstood dental / spine assets 8.33 / added 6.55 18.1 15.4 Yes
RaySearch (RAY-B.ST) World leading software for cancer radiation, turnaround. 46 80.4 116 No

New blog – Healthy Stock Picks

All this led me to the idea to start a new blog – a Substack this time – focused on the Healthcare sector. The reasons I came to this conclusion was:

  1. I really enjoy learning about Healthcare related products how they function or not function. There is something in the complexity of the topic that makes me want to dig deeper into a Journal publishing test results or just understand what is the key factors that is important for a spine disc replacement or eye procedure.
  2. I had and have persons around me in my life who are very good and knowledgeable about everything Healthcare.
  3. The two market pools, the Nordic region and Hong Kong are very rich pools of Healthcare stocks, if you add to that USA and Japan you have enough to dig into for a lifetime.
  4. There are so many highly skilled investors on Twitter, Substacks etc, but the Healthcare sector seems to be a bit of a white spot, I would love to be part of filling out that spot.
  5. It feels exciting to start a new investing journey, of becoming not only a good general investor, but really an expert within a specific field. I think I already came a decently long way in the Healthcare related write-ups in the past, but with more focus on the sector I want to bring it to the next level.
  6. This product I’m launching feels much more possible to in the future monetize. I’m dreaming about doing investments full-time and I then need to find a model where I can make some income from what I do, this could be one way forward (depending on how it succeeds).

So without further ado here is the link to the new blog:

https://healthystockpicks.substack.com/

It has so far only one write-up. It had to be one my oldest and currently largest holdings Modern Dental Group! The format I’m writing is focuses on the Slide deck which I’m attaching, heavily inspired by Asian Century Stocks. Many thanks to Michael who kindly let me use his disclaimers and given plenty of feedback in my process from everything of choosing a logo to the slide deck format. Others have also helped me a lot to deliver something I feel is a very high quality research product, I hope you will feel the same!

How about GlobalStockPicking?

Well time is limited, but I imagine from time to time I will still want to look at other things outside of Healthcare, my idea is to write much more informal posts here in the future. Probably no more full write-ups but shorter investment ideas are often as good as full write-ups. You should do your own due diligence anyways! Let’s see what I have time for, but I’m not retiring this page yet, although it costs me a bit of money to keep it running.

One final note, you are now 879 wonderful people who subscribed to this blog. I will give you a few weeks if you want to un-subscribe now, otherwise I will send you a link to add you as subscribers to my new substack also, I hope you will follow in my journey also there!

And like I said, this page will still publish non Healthcare ideas from time to time.

Thanks for this amazing 8 year journey!

Year of the Dragon – HK stock picking

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We are quickly approaching the year of the dragon, a special year for Chinese people. In the past birth rates would go up as its extra lucky to be born during a dragon year. Given how extreme the Hong Kong market underperformed the rest of the world in the past 3 years, I just have to talk about the opportunities it presents. In this post I will present 8 stock pitches of what I believe are excellent companies selling at rock bottom valuations – take your pick!

There are probably a number of investors that are, contrarian in nature and know that opportunities like these is when you are supposed to pounce, but haven’t spent enough time on HK listed stocks. This is your introductory guide to do further work in the pockets of the market that speak to you. Let’s dive straight into it.

Risks with investing in Hong Kong

The Hong Kong stock market is broad with many different types of companies, depending on what risks one wants to avoid one can look at different pockets of the market. One should clearly stay very skeptical before investing in Hong Kong but there is also a limit to how cheap something can be. In my view at these valuations it makes sense to have some HK risk in your portfolio. One can dream up very bad tail events, for example given what happened with investments in Russia. But even with such a negative scenarios I believe in some HK listed stocks you won’t be more hurt than investing in for example Apple. Be skeptical but not paranoid is my view on this. This categorization I myself use to understand what risks am I exposing myself to with a HK investment.

First categorization – Who owns it

Chinese state owned enterprises (SOE)

The main benefit of these companies would be that you are aligned with the CCP. These companies enjoy preferential treatment by the banks and the government. They can for example get deals other companies do not have access to. Quite often the valuations are very low and the stocks are more a dividend play than a play on revenue growth and some type of payout far far in the future. It’s almost like a long duration corporate bond position betting on that China won’t withdraw fully from the world financial markets.

Chinese family owned

This is a very common category among HK listed companies, you find that many companies are lead by one family and nobody else will ever make the decisions on how the company is run. Investing with the family then to a large degree becomes about looking at that families track record and how have they in the past rewarded minority shareholders? Obviously you here also run geopolitical risks if you are based outside of China.

Non-Chinese family owned

That a non-Chinese family would decide to list their company on the HK exchange is much more rare, but there are still quite a few examples and some of them are very interesting. This category is also what potentially could be closest to babies that have been thrown out with the bearish bath water. As even if worst case scenarios happened, since the family owner is not Chinese, the company would most likely just re-list elsewhere (if it’s not feasible to be listed in HK anymore). Probably a painful process depending on what has happened in the world but at least not impossible.

No majority owner

This is also a decently common category, quite often there is still some family involved but for whatever reason they did not manage to maintain total control over the company. There are of course companies with just funds etc as largest owners, but this is not nearly as common as it is in the western developed markets, at least not among better run companies.

Second categorization – Where do they sell

Companies mainly selling into China and/or Hong Kong

Many HK listed stocks is a Chinese business, selling products mainly in China. With these companies one has to have both some understanding of the market, but also some belief in that the Chinese economy won’t totally crash. This is hard for many investors to get a grip on, me included although I lived in Hong Kong for over 10 years.

Companies selling globally

This category is much more comfortable to many, me included. Here the products can perhaps even be found in your home market and you can perhaps even have an edge over Asian investors if you can inspect the products at your local Home depot, Walmart or whatever the product may be selling.

Third categorization – Dividend Payout / Buybacks

This is tackling the risk from another perspective. Something can stay cheap for a long time, but if you get paid a high dividend to wait, it is much less painful to wait for the revaluation.

Here I will divide it into three categories. Companies with:

  • Low dividends and/or buybacks (0-3%)
  • Medium dividends and/or buybacks (3-6%)
  • High dividends and/or buybacks. (6-10%+)

Drawing the line what is investable

So some people will draw the line and say I don’t invest in SOEs. Others actually go the other way around as say, well at SOEs I at least will get my dividend, they won’t go bust no matter what. Others won’t trust Chinese family owned companies in fear of never seeing any of the cash flow generated making it back to their pocket. In the same way some people feel comfortable over the whole spectrum of where the sales happen in China or outside. The good thing is that no matter how skeptical you are, there are still some pockets that should not seem un-investable to you. With all that out of the way, let’s look at companies in these different categories, how cheap they now are. Press Read more to see all specific stock ideas..

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Summary 2023 & changes on the horizon

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After two years with around zero returns (but a lot of volatility), like many others the GSP portfolio sprinted towards year end managed to eke out a return of +13% for 2023. This compares poorly to MSCI World at 25%, in-line with MSCI World ex USA and quite favorably versus Hang Seng at -14% (what an insane spread). I’m still quite far off my ATH which was set back in May 2021.

2023 Returns

Returns since blog start:

Thoughts about the past year

The start of 2023 was the middle/end of the massive Hong Kong stock rebound due to China reversing it’s Zero Covid policy and literally overnight removing all Covid restrictions. The bulls were out and it the big re-opening revenge spending was anticipated. I was fully loaded on HK stocks, having further increased my positioning in the 2022 autumn crash, using mainly my Swedish Match buyout proceeds. I knew I took some risk increasing my position so heavily to HK stocks, but the sell-off was just too brutal and quick, there had to be a bounce. Luckily for me it came and when it had run it’s course I reduced my HK positions again and have continuously over the year had as a rule for every increase in HK stocks I had to make an equivalent decrease in other HK stocks. This basically saved my year as Hong Kong continued it’s brutal slide after a bounce which only lasted until end of January.

Portfolio composition beginning and end of the year

The main reason Hong Kong is still such a significant weight is spelled Modern Dental Group (3600.HK), which is up an amazing 78% in 2023 in a market where the Hong Kong small cap index was -23%, just incredible. Due to the meteoric rise of ZimVie at the year end snap, it was only my second largest position but after some profit taking the last week in ZimVie, Modern Dental is back on top and remains my highest conviction idea.

2023 the year of bad portfolio calls

So if selling Hong Kong stocks (but keeping the MDG that bucked the trend) into the January rally was a master stroke a lot of other portfolio changes was rather the opposite. I prided myself in the past with how my portfolio changes added to my returns and so far almost every year my portfolio changes have been accreditive (something I evaluated quite thoroughly). If we disregard from the “HK moves”, 2023 was the first year I failed miserably at this, basically selling huge winners and adding to losers. Let’s have a look:

Synektik – I had done a full write-up on Synektik the Polish healthcare company in the past (company installing Da Vinci robots, servicing and production of other contrast fluids). My case was built on that the upside would come from the cardiotracer and as that did not materialize as I had hoped, I disregarded how well the rest of the company was doing and sold my shares at 35 PLN per share. Synektik today trades at 91 PLN per share.

GreatView – I could not take more pain in GreatView Aseptic, I company I held and covered closely for years when the majority shareholder sold their shares to Yili. Their major customer Mengniu got upset with the competitor having influence over the company. I almost bottom ticked my final sell at 1.65 HKD, there would have been plenty of opportunity to get out above 2 HKD if I just kept my cool. What Jardine Group did here I will never forget and I will never touch anything which is under their influence ever again. As a small side note, the Yili/Mengniu conflict seems to have been resolved with a share issuance to Mengniu.

RaySearch – I had spent considerable time researching this company (full write-up done). But the question was if there was trouble on the accounting side, I felt decently comfortable, until the new CFO (again) was fired from the company. I could not believe it and decided I lost my trust in the CEO, I sold all my shares (I had built this up to one of my largest holdings at the time). Again I more or less bottom ticked the stock for the whole year, selling at 57 SEK. The share trades today at 90 SEK. This one was the most bitter of all, due to the high conviction I had in the companies products (but not enough conviction on management). The market later choose to focus on the results, which was really good the rest of the year (after I sold) and stock marched steadily up from where I sold it.

Other noteworthy stocks

CNOOC – The exception from my “rule” of no increase of HK holdings, was CNOOC. This was a short term play on picking up two dividend payments in less than 4-5 months time. CNOOC paid out 0.75+0.59 HKD per share over the summer period. So I picked up shares end of April in anticipation of this for 12.3 HKD per share. With some luck the oil price went up, so not only did I get my dividend but also managed to sell my shares (in two tranches) at 12.8 HKD per share. Even in a shitty HK stock market sentiment you can find good trades. If one want’s oil exposure as a high dividend play, this is still one of the best ways globally to get that.

PAX Global – This has been one of my top holdings, a high conviction position that I fairly “suddenly” changed my mind about. First I reduced my position during the January bounce and still sold some shares into Feb and March. End of August I exited my position fully, I just felt that I had given the management the chance to further improve dividend payout ratio, but they didn’t really, at a time when it was really needed. On top of that I had this fear that due to trade wars, USA would go out and ban payment machines made in China. This is wild speculation on my side and rather a black swan event but I believe it could happen, in this market PAX would be down 50-60-70% on such a day. I couldn’t live with that tail risk as there were other safer ideas that I really liked. In a better environment for HK stocks with less geopolitical overhang, even if PAX management is not the best in terms of capital allocation I still think this is a very interesting company, go anywhere in the developed world and you bump into PAX payment machines, its pretty amazing.

L’Occitane – Someone on Twitter made me aware of how L’Occitane’s latest purchase Sol de Janeiro was performing really well. Since I followed this stock for years it was quite easy for me to pick up the threads and just read about on the SdJ brand, which was new to me. To more I read and listened to influencers etc, I realized they had striked gold with SdJ. I bought a medium size position just before the market started to reprice the stock on a rumour of a buy out from the majority shareholder. Long story short, a really strange turn of events happened – again! Kind of a theme in stocks I’m in unfortunately, so the deal was on the table and then the majority owner turned around and changed his mind. I thought the buyout made ton of sense, apparently he didn’t. I would have liked to book a win in a tough market, instead I get a chance to own a company with a really fast growing product. I tried to benchmark how popular SdJ is on social media etc, to me it looks like it’s hitting very high basically among top 10-15 cosmetics brands worldwide. I expect monster sales from SdJ in the next report and I hope the majority owner regrets not buying out the company on the cheap.

Marimekko – In my rotation away from HK I have tried to find new good ideas. The one that worked out so far and I still believe in long term is Finnish designer brand Marimekko. I think this is a typical example where someone like me, with a Nordic background living in Asia can spot something before most people do. I believe Marimekko as a niche brand has a very strong market position among the small group of people that are drawn to their type of design. The brand is extremely popular in Japan and trying to replicate this in the rest of Asia. They are doing clever cooperation and cross-overs with larger brands, most recently Uniqlo. It’s always hard to guess fashion trends and Marimekko is not a super cheap stock here but I do think they will succeed decently well at minimum with their Asia expansion. So far I’m up some 30% on my position so market also seems to agree. What I like with these smaller fashion stocks is that you have kind of an imbedded call option if the brand really hits a craze. For example Swedish company Fenix Outdoor did such a journey 10-15 years ago with their Fjällräven backpacks. This was a brand we Swedes knew since we grew up, but they took that heritage and managed to push the brand worldwide and again especially in Asia. Marimekko has a similar strong brand for Finnish people but the brand is almost unknown outside Finland. If Marimekko manages half of what Fjällräven did I will do really well.

Thought’s about this blog and it’s future

For the long time reader, one would have noticed how the pace of writing has decreased the past few years. This has partly been due to not fully finding the same motivation to write but also some health problems, which now are finally fixed! In 2023 I only did 5 posts, a record low! On the other hand the last two stock pitches has turned out really really well (so far). I have spent quite a lot of time thinking about how and in what way I should continue this journey.

The blog has been a bit unusual in the sense that I have given very high transparency on my positioning and trades done. For a few years you could even search and see each trade done in my portfolio through a small database on a specific tab. The purpose of me starting this blog, was to evaluate if I could beat index investing, have fun and hopefully learn a lot along the way. The blog kept me honest and accountable for what I did. I also had to do the work properly as I could not post a semi finished thought or stock idea, I needed to cover all bases. This has been incredibly rewarding for myself. I look back at my posts from my first few years and feel I developed a lot. I had good intentions back then and I think I put good structures in place. I also got a few big things right, the call on EVs 2016 was great but I did not really have the experience to capitalize fully on it. Avoiding traps and really doing the work on a company was not there back in 2016. That’s something I’m confident I can do now, if I just have the time. Buying into ZimVie late 2022 around 8-9 USD getting a small quick gain and then getting hit with a -40% day, that’s not something I would have had the confidence to handle well 2016. Today I can keep my cool, it’s not my first rodeo losing 40% on a day in a stock. I can think it through rationally and decide. As in this case I decided I’m right and the market is wrong and I will double down at 6 USD per share. I recently took my first profit at 18 USD per share in ZimVie, this decision alone saved my year up 13% instead of another year close to flat returns.

Basically I have fulfilled the purposes I set out back in 2016, now close to 8 years later I’m a significantly better investor and although I invested close to half of my money on the Hong Kong exchange, I have beat the MSCI World (although barely). I have crushed the Hang Seng Index, or just World stocks ex USA for that matter. Ok enough of bragging, I’m still quite unsatisfied with my returns, as I know it could have been so much better with less focus on Hong Kong. So with this in mind it’s time for something new and different. I’m not sure if it will sadden you or not but I will not do anymore portfolio reviews. No more posting of all my holdings. The focus will shift to just discussing ideas, like thematic stuff I posted in the past and specific stock pitches of course. In what format I would do that I have not fully decided, but it will most likely not be in the shape of only as GlobalStockPicking anymore. This blog has been here to document my investment journey and my full portfolio, a fresh start will probably be better for a new format. I will take 2024 to set out a new path and let’s see what I come up with in the future. Stay tuned 🙂

OssDsign – USA bone regeneration pureplay

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Introduction

Neck and spine problems will be on the rise in the future. We stare down into our smartphones all day and spend too many hours sitting (with bad posture) in front of our computers (old post for more on this link). OssDsign has a very interesting product, in a small but important niche of this market. The product has high gross margins and is used in spinal fusions.

In short:

Market Cap: 630 MSEK / US$60m

Explosive Growth: Newly launched bone graft product (My estimate 100 MSEK run-rate in sales)

High margin: Gross margins should be 80%+

Large total market: Total market estimated above 1.25bn USD for USA only.

In this same spine space, I have taken a position in Zimmer Biomet spinoff ZimVie, which is targeting the newer technology of disc replacement. OssDsign is trying to bring innovation to the old and current gold standard of care, spinal fusion. OssDsign believe so much in their newly launched product that they are willing to close their previous main business line and fully focus on the new. At the same time, in a poor market environment for micro caps, the company managed to raise a substantial amount of cash from investors. Even more impressive was that this direct share issue was done around the current share price, so dilution happened at quite “fair” levels for existing investors. The product has 80-90% gross margins and has potential to be used in a large number of surgeries. All-in-all this is a high risk, high reward case where the odds of bringing this product to market is much higher than for Pharmaceutical products as there is no need for Phase 1/2/3 studies to launch the product.

Spinal fusion

Spinal fusion patients are usually in tremendous pain and have often suffered for many years before a surgery is decided as the last option. Fortunately like many medical procedures, spinal fusions success rates have increased tremendously over the past 30-40 years and evolved from one of few bad options to the gold standard of care. Due to poor results of this procedure in the (far) past, it still has a quite bad reputation. The Spinal fusion procedure can simplisticly be explained as to remove the disc between two bone segments and then trigger the two bone segments to grow together (fuse) into one solid segment. Except the surgeons expertise in performing the steps of surgery, the most crucial component for the success of a fusion is to get as high confidence as possible that the full fusion will happen. Although outcomes have improved a lot over the years, that the fusions does not happen or partially happens, is still the weakest link of this surgery.

This is what OssDsign is trying to solve with their Catalyst bone graft material, where the idea is that the graft fills the void of the disc and triggers bone growth. The product sells at an ASP of about 2500 USD and depending on surgery different volumes of the product is needed. Together with two main competitors OssDsign have a bit of a first mover advantage here in a new generation of products coming to market increasing the interest from doctors to move to a synthetic solution instead of the other options available to them.

Although hard to exactly estimate, around 500 000 spinal fusion surgeries (lumbar and cervical) are done each year in the US. So with some quick math’s of 2500 USD of OssDsign product per surgery the market size OssDsign is competing for is about 1.25bn USD. With an aging, obese population the number of surgeries just keeps growing. Given the rapid increase of spinal fusions, a both efficient and cost effective solution for creating stable fusions of the bone is highly desired by surgeons. As a small company out of Sweden, it might seem far fetched that they would win the US market. But together with 2 other players (where one is also a small company) they are the only ones seeing FDA approvals and all indications so far seems positive towards a chance to win a decent market share in this segment. The upside for OssDsign even at 5-10% market share is very substantial as this is a high margin product. Let’s try to dive deeper into this topic.

History

OssDsign listed in 2019 for 27.5 SEK per share and today it trades around 6 SEK per share, not a great outcome. What the company has done historically is unusually irrelevant though. The company you are purchasing as of today, is vastly different to what was listed in 2019. How come the company has changed it strategy so drastically and quickly? OssDsign listed as a 3d printed cranium implant company with a titanium-reinforced calcium phosphate plate. I don’t think the company necessarily done anything wrong in launching this product into the market, the problem, I believe, is that its just too niche. Yearly sales have roughly doubled since pre-IPO from some 20 to 40 MSEK. Although it could probably scale further, there is not enough patients in need of these type of cranium implants to really deliver shareholder value from this one product. In the hot “free money” era, OssDsign then decided to expand its produce range by an acquisition. OssDsign recently announced that they will abandon (in best case find a buyer) the cranium business and fully focus on their spinal fusion product Catalyst (which was the acquisition they made). Below is a timeline of the Catalyst product. Press read more..

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ZimVie – Undervalued MedTech spinoff

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Background

ZimVie completed it’s spinoff from 29bn USD MCAP Zimmer Biomet (ZBH) in March 2022 and traded around a 800-700m MCAP + some 600m USD of debt after spinoff. The MCAP has since then shrunk to around below 150m USD and lately rebounded to 350m USD. The company is active in two segments: Dental (main product teeth implants) and Spine (main products spinal fusion and disc replacement).

Zimmer Biomet comes from a long history of spinoffs, mergers and acquisitions. Zimmer was spun off from Bristol-Myers Squibb in early 2000’s. Including in the spinoff was the dental business which back then was a main segment within Zimmer (now part of ZimVie). In 2016 Zimmer Bio acquires LDR Holding for about 1bn USD, with the flagship product being Mobi-C artificial disc, which now belongs to ZimVie (current EV of ZimVie less than the Mobi-C purchase).

For industry background I made two post about the dental sector back in 2018: Dental Industry Part 1, Dental Industry Part 2 and one post in 2020 about how our spine health has worsened due to smartphone usage, strengthening the case for young people needing neck surgery: Smartphone usage – ticking time bomb.

ZimVie is a small company holding unique assets and in a unique position. To establish products on a global scale like ZimVie’s has you need a massive sales network, this is something normally only large companies have the muscles to do. ZimVie coming from large Zimmer Bio has the benefit of being a small company but with that reach pre-established by a large company. Now the question is they can right size their business and leverage the advantaged they have. Press More to read the full story

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