Value hunting – Ericsson

What stocks are “Value”?

In a number of posts (Last section hereand here) I have concluded a desire to tilt my portfolio more towards Value. Particular in Europe where Value stocks have been hammered. So a few months ago I started by asking myself, what stocks in Europe are actually considered Value? At the time I had access to an advanced Value ranking which blends simple metrics like Book to Price with more advanced ones. I ran the Stoxx 600 members through the scoring and the top 5 stocks in that ranking were:

  1. Ericsson
  2. Lufthansa
  3. Marks & Spencer
  4. Casino Guichard Perrachon
  5. Sanofi

They say Value should feel hard to invest in.. ..well they were right, that is not a list of stocks I find particularly attractive. In the future I intend to build a model which rank stocks on a blend of my own Value-metrics, but that will take some time to get in place. So I will use the advanced Value model (which I trust) and start with the list above. I don’t think I will analyse them all, but Ericsson looks interesting to me, so at least I start there.

Ericsson introduction

Ericsson is a huge company with 110 000 employees spread out over the world. Ericsson was one of the companies that was hyped during the dot-com bubble and thereafter crashed terribly and was saved thanks to strong owners (Investor and Industrivärlden) through a huge rights issue in 2002. A lot has happened since then (business model changed from phones to networks) but the company has failed to create meaningful shareholder value over the past 15 years:

eric_pricehistory

As I want to merge Value investing with Momentum, this price graph is not ideal, given the sharp negative trend Ericsson is in, but let’s look further anyway.

Business Model

It’s current business model is fairly simple to understand – they build mobile networks and everything that comes with it. The company divides its business into three parts: 1. Networks, 2. Global Services and 3. Support Solutions. Below follows more details on the units.

(more…)

Read More