December 2012

December, 2012

To whom it may concern,

In this letter we will present a small market overview and the two new stocks for our Stockscreener Portfolio namely Tipp24 SE and Indus Holding. Our two portfolios are trading at 0.5% for the Stockscreener portfolio, which displays a current loss compared to the previous month and 3.6% about 1% higher then the previous month for the HiddenChampions portfolio as of the 3^rd of December 2012.

The markets are still waiting for stronger signals, after a small set back in Germany the markets are gaining back positive momentum at the moment. Furthermore we are currently working on how to achieve better results for our cash in stock. We are thinking of investing in strong bonds or ETF’s of bonds but still have to figure out the best choices from our range of investing possibilities. Unfortunately wikifolio does not provide the possibility to directly invest into bonds, which would be very helpful in allocating our cash pile in cash near securities. Still our strategy for the Hidden Champions Portfolio remains the same of holding a minimum of 30% cash or cash near securities to be able to act in uncertain times(fall 2008).

The first stock that was added to our Stockscreener Portfolio is Tipp24 SE. This company is operating in the private betting industry. From the opening of the monopolistic structures of the betting industry in Germany the company was striving for success. It is still among the biggest European players and is earning a 5years ROIC of 45.55%. Furthermore the company can display a sales growth of 40% still this will not be replicated in the near future but it displays the strong historic results from the company.  We build a conservative 5-year DCF-model to value the company sufficiently and came up with a market premium of more than 50% (DCF-valuation 6% growth rate including inflation). To be sure not to exaggerate our DCF-valuation, the NOPATs of Tipp24 the last 5years average was taken into account and decreased by 20%. This was done to be sure to value the company as if it is slowly growing. Further facts about the financials of the company: It has hardly any debt and the B/MV of 43.84% and these two facts are assuring for a sound Margin of safety.

Short facts:

E/Total Assets: 74.72%

B/MV: 43.84%

P/E: 12,16

ROIC 5y: 45.55%

DCF-Valuation premium to Market Price: >50%

Growth rate: 6%

WACC: 8.67%

The second company that was added to the Stockscreener Portfolio is Indus Holding. Indus Holding is a very diversified company that specialized in buying stakes of specialized German Small and Mid cap companies. It is investing into companies of various industries such as machinery, construction, medicine, car suppliers, the environmental sector etc. The reputation of the company stands for conservative and sound investment decisions and this is revealed by its 20 years remarkable track record.  From our valuations the company turned out to be slightly undervalued with an undervaluation of 20% (DCF –valuation model of 5.4% growth and a WACC of 8.35%). Furthermore the company has a high Book to Market Value (83.7%), which accounts for our Margin of safety here. Also the low P/E ratio was one of the contributions to our decision.  To conclude we found a company that stands for thorough investment decisions and is currently undervalued, we will not expect this company to outperform the market by a large number but we rather expect the value gap to close Furthermore if the company grows by 5% by next year, will we have a handsome return with limited risk.

 Short facts:

B/MV: 83.7%

P/E: 6.99

ROIC 5y: 21.88%

DCF-Valuation premium to Market Price: 25%

Growth rate: 5.4%

WACC: 8.35%

I hope you like our analysis and if so, please support our wikifolios. If you have any further questions please do not hesitate to contact us or comment here! Given the number of support on wikifolio we expect our first wikifolio to be tradable on the stockmarkets very soon.

Concerning our analysis:

We try to investigate with serious effort, besides the information given in this letter we have to admit that we have more information than published that support our analysis but we do not want to overload our report. The DCF-models are based on Aswath Damodaran models concerning stand-alone valuation of companies(FFCF). Furthermore we tried to have as conservative models as possible, all growth rates are reasoned by market-circumstances and growth factors given by the companies’ past years fundamentals and are including inflation rates (2%). The WACCs were calculated with up-to-date numbers, additionally the Re was increased given risk factors concerning the companies, such as dependency on clients, suppliers, management, reputation, illiquidity, etc. Thus we can say calculating the WACC is influenced by Private Equity WACC calculations given our field of illiquid small and mid caps.

Sincerely,

Aeneas Investment Team