Portfolio changes – Criteo In, Sony out

Adding Criteo 6% weight

For the second time I buy back into a stock I previously held. First time it was NetEase, this time it is Criteo (Criteo – Growth Case). To also revisit the reason I sold it was uncertainty on their revenue model and competitors crying wolf (Criteo – lawsuit scares me). Like all previous holdings of mine, I have kept this on my watch-list. With time I have understood their core model better. Although one has to mention that they keep innovating and coming up with new revenue sources that again are hard to understand.

But to summarize, the investment case is not very different from Catena Media, which is the affiliate for betting i have in my portfolio. Both companies are just trying to in the most clever way route customers to companies homepages and generate sales. The more I think about it this a very natural next step, we do not browse as much as we once did, we go to known pages through apps, but companies still want to reach us with their message. It’s a new and changing field and it might be that there is no room in the future for this players and Google/Apple takes it all. But that’s not my view, I think these players will mature and be a more accepted part of the business for anyone wanting to generate online sales. In the current circumstance for Criteo I feel the market has taken a way to negative view of the possibilities that Apple will limit their business model in the future. Meanwhile since I sold, the company has kept delivering very well and building up its cash-pile. I think the company is still misunderstood and negativity has again taken over and the stock is oversold. I find the stock attractively priced with a nice risk reward.

The biggest negative I can find is how they keep increasing the Equity awards compensation, although the stock price is not moving up. Clearly their metrics for Equity awards is not aligned with share holder returns.

Sell Sony – full holding

After a very decent run its time to part ways with Sony. I bought the stock believing the VR gear could become a big hit. It has done decently well but has not at all been any main reason why Sony has had solid results in general or good results in the games business. A bigger reason for the recent profit upgrade is the image sensor business, which goes into smartphones. An area I did not foresee at all would drive profits, sometimes you are just lucky too.

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My first pharma holding and Portfolio Update

Yes, it’s time to deeplet these high cash levels, I have suffered some serious performance drag having 15% cash in an uptrending market. First it was LG Chem announced the other day. As of today’s close I’m allocating a 6% position in my first Pharmaceutical company – and no, it’s not Valeant (although it seems to have bottomed out by now).

Shanghai Fosun Pharmaceutical (2196 HK)

Yet again I dig into the Chinese market, this time through the fairly famous Fosun Group, which I previously been a shareholder in.  Shanghai Fosun Pharmaceutical (from now on Fosun Pharma) is a H-share listed in Hong Kong, meaning it’s also listed in mainland China (as is some of my other holdings – BYD, Ping An)

Fosun Pharma:

  1. Develop drugs (metabolism, anti-infection, cardiovascular, oncology etc).
  2. Provide Healthcare services, they have been fairly aggressively buying up hospitals.
  3. In Co-operation with it’s big shareholding and partner Sinopharm they co-operate in drug distribution in China.
  4. Produce Medical Devices.

I’m taking this position for a number of reasons:

  1. In general I think the Pharmaceutical companies need a re-visit, after being the market darling stocks, they have taken a beating lately and I have been looking for a good candidate to invest in.
  2. Fosun Pharma listed in HK is fairly cheap, trading at trailing P/E 15 and looking like 2016 figures will come out around P/E 13-14.
  3. The stock looks oversold and the China listed stock has started to move upwards lately, the spread between China and HK listed stock is as stretched valuations as they historically ever been. See picture below for spread in orange.
  4. Fosun Pharma is a big shareholder (11%) in the pharmacy distributions company SinoPharm, this stock has been soaring lately. This holding accounts for over 50% of the price for Fosun Pharma’s stock price, meaning you get the rest of it’s business very cheap.
  5. I need a Pharma holding in my Portfolio.

Fosun_Spread

This is the first time the China listed stock has been moving so significantly, without any spike in either the stock or the Chinese stock market.

Portfolio Update

I also include a Portfolio update (not including Fosun Pharma yet).

Holdings_20160815

A lot of beats

Skandiabanken came out with fantastic results that beat estimates, after Altor came in as a new big investor, the stock has been soaring. As always when you bet correctly you wish you did not allocate more in an earlier stage, but with this significant gain the current weight in the portfolio has become a high conviction position.

NetEase continues to deliver, awaiting a report in a few days, if the stock keeps soaring I will probably cut the weight in this one short term. It’s a struggle to stay long-term in companies where the gains you were hoping for over the coming 1-2 years materialize in 3-4 months. Definitely the type of luxury problems I would like to keep having.

Microsoft also came with a beat, the market seems to start to value it’s Cloud business (my reason for investing), not sure about the hefty price tag for buying LinkedIn though..

Sony beat estimates with a strong report, I read some comment like “Nintendo should look at Sony, a Japanese game maker that actually makes money”.

One big disappointment was Ramirent’s report and the market struck down the stock -13% over two days. The momentum seems to keep holding though, which was one of the one the reasons I bought this stock (no I’m not a value investor).

Overall in the strong market many holdings has started to recover (Zhengtong, Ctrip, CRRC and MQ). The only company that is strangely weak is Avanza Bank, I might need to re-evaluate this one, as I always listen to what the market is trying to tell me. Stocks going side-ways in a up-trending market will not do well the day the market breaks down. I have also discussed this company with some friends who are knowledgeable about Swedish Banking, they think Avanza will have a tough time finding ways to making money out of their customers. More to follow..

 

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