Europe’s Banking Union

Interesting! After years of bailouts in unconscious risk-takers there is a chance of "Huge change". Will this lead to a split of "universal banks" to what they used to be in the past?

The talks for a European Banking Union have started a few months ago. The alternative "Bail-in" strategy has been tested on Cyprus leading a healthy economy in recession.
Will depositors continue to keep their money in "Universal" banks or this movement will result in the split of banks according to their operations' nature?

Bloomberg Article:
Europe’s Banking Union
Breaking Out of the Vicious Circle
http://www.bloomberg.com/quicktake/europes-banking-union/

Financial crisis of 2007-2008: A psychological perspective.

The financial crisis of 2007-2008 had severe impacts on both financial markets as well as the real economy. Thus, an explanation of the reasons that caused this crisis is of great importance. Behavioural finance is a field that can provide as with insightful information regarding the psychological reasoning behind the behaviour of agents of the economy.

The creation of a bubble or the overvaluation of an asset can be explained by theories based on investor beliefs or investor preferences. Regarding the investor beliefs, there are three theories:

1. 1.     Assets are becoming overvalued because there is a big divergence between the bullish and bearish investors and there are short-sale constraints.
2. 2.     Assets are becoming overvalued because people are overconfident and overestimate the reliability of their analysis.
3. 3.     Representative heuristic: Bubbles are formulated because of the tendency investors have to extrapolate past outcomes too far into the future. According to this heuristic, investors make inferences for the population having analysed only a small sample of data.

In addition, there are two theories from the investor preferences perspective:

1. 1.     A bubble is created because investors that experienced gains on an asset become less risk averse; any future losses will be covered by the prior gains.
2. 2.     Bubbles in new technology stocks are more likely to occur because the human brain overweights low probabilities.

The recent real estate bubble is more likely to be explained by the representative heuristic approach. This is because home buyers based their decision to buy a new house on past returns of the real estate market. This has found people buying overvalued houses with high “loan-to-value” ratios.

However households’ over-extrapolation is only one part of the story. One could argue that the over-supply of credit, in the form of sub-prime loans, to home buyers has also contributed in the formation of the housing bubble. This oversupply of credit has been the effect of the over-extrapolation on behalf of rating agencies’ analysts. As analysts were trying to convince themselves that house prices will continue to rise, they were giving AAA rating to sub-prime securities implying that the risk involved in those securities was minimal. This was greatly appreciated by investors who were fascinated about those securities. This practise led to easy access to credit which as we have already mentioned, pushed the real estate prices up.

Furthermore, the huge amounts of sub-prime loans and securities held by banks had as a consequence, the real estate bubble influencing not just individual investors but also the whole banking system. But why had banks been holding large amounts of those securities?

Banks may had held those securities for two reasons: either because they were doing the securitisation and they had to hold them until the process was over and/or these securities were offering a high return so why shouldn't they benefit from holding such securities? Nevertheless, the risk that those securities contained has not been taken into consideration.

The answer is simple; they could hold such securities for operational or speculative reasons but what about the risk they were exposed? Three explanations are being provided: The banks had large positions in sub-prime securities because of “bad incentives”, using “bad models” or simply “bad luck”.

Of course it is difficult to believe that banks base their decisions on luck or that they use bad models. But even the bad incentives approach does not seem to be plausible. This is because of the basic idea that people do not care about money but they also want to feel good about themselves.

An alternative hypothesis is that traders on mortgage desks were little aware of the risks and they manipulated their beliefs so that they think their actions were not posing anyone in risk. From a psychological perspective people manipulated their beliefs when their positive self-image is threatened.

The reason that real estate bubble drifted the prices of other risky assets classes down is more straight-forward. One explanation is that banks were holding sub-prime securities which have been declining in value and they had to sell other securities to meet margin requirements and deleverage, forcing the prices of other risky assets down.

The psychological view is related to loss and ambiguity aversion. There was an increase in both loss and ambiguity aversion for investors who experienced losses from their risky asset holdings, which drove the prices of those assets even lower. Investors found themselves in a situation where they were thinking they are less competent which led to increases in their ambiguity aversion. 

Frigoglass: Brief on a stock that has been left behind.

Athens Stock Exchange General Index has yielded to a YTD return of 24% outperforming all emerging markets which have experienced a negative return as a result of fears that fed tapering will have a negative impact on these markets.

Athens Stock Exchange General Index Graph

However, Frigoglass, a Greek company which produces and markets refrigeration equipment for industrial and commercial applications with presence in Europe, Africa and Asia, has seen its stock offering a YTD return of -19%.  

While Q3 sales had left analysts with a disappointment, according to Reuters earnings are expected to be 0.17 this year which suggests a P/E ratio of 27. Furthermore, Eurobank Equities expects EPS to climb to 0.47 in 2015. This will leave the stock with a P/E of 10.

Frigoglass Stock Price Graph

The company’s diversified geographical exposure could prove to be a catalyst for sales growth and profit margins expansion. Emerging markets are expected to grow this year but in a low rate and this could be a risk as Frigoglass is exposed to emerging markets.

**The information contained in this post as well as any information within this website is intended for informational purposes only. This is not a recommendation, offer or solicitation to purchase or sell any stock or other securities.

Bitcoin: Is it really a “currency”, an “investment” or just a gamble?

Bitcoin’s price reached that of gold’s ($1250) on December 4^th, offering a year-to-date return of 9,159%. Central banks and regulators started paying closer attention to the “currency” as soon as its price growth accelerated amid publicity and acceptance of bitcoin from e-commerce. The publicity bitcoin gained in such a short period of time forced central bankers, economists and investment professionals to express their views in the matter.

While certain individuals like Fred Wilson, Bill Gates and David Woo, are positive for bitcoin’s progress, others (such as Roger Willis, Alan Greenspan) still have doubts for the future of the “currency”.

The Central Bank of China was the first central bank which required banks to decline any transactions with companies having any relation to bitcoin. In addition, Bank of France stated that bitcoin is not “legal money” and stressed that individuals holding bitcoins should be very cautious as if a hacker steals their money they will not be able to take any legal actions.

On the other hand, Bank of America-Merril Lynch initiated coverage on bitcoin giving a target price of $1300.

Supporting and opposing arguments:

The bitcoin.org states the following benefits of Bitcoin:

• Global accessibility
• Control against fraud
• Cost efficiency: A Bitcoin transaction can be much cheaper than its alternatives and be completed in a short time.
• Crowdfunding: Bitcoin can be used to run Kickstarter-style crowdfunding campaigns
• Dispute mediationg: possible for a third party to approve or reject a transaction in case of disagreement between the other parties without having control on their money.
• Multi-signature accounts: Multiple signatures allow a transaction to be accepted by the network only if a certain number of a defined group of persons agree to sign the transaction.
• Flexible transparency: All Bitcoin transactions are public and transparent and the identity of the people behind the payments is private by default.

Drawbacks:

• High Volatility: According to Wall Street Journal, the annualised volatility of bitcoin was 139% which is 7½ times as volatile as gold and more than eight times as volatile as the S&P 500.
• Bid-Ask spread is huge. Today, Localbitcoins.com shows a bid price of £500 and an ask price of £540. This yields to a spread of £40 or 7.5%.
• No historical bitcoin’s performance during a crisis. We cannot be sure how the “currency” will react in case of a financial crisis like the 2008 financial crisis.
• Fears that bitcoin may be used in “black market” transactions and for money laundering.
• Security issues: Incidents of unauthorized mining of bitcoins. Numerous exchanges have been hacked.
• No fundamentals behind bitcoin. No intrinsic value. Extremely difficult to estimate its value.
• Its price could easily be manipulated even with a small amount of money and there is no authority to control such actions.

Bitcoin cannot be defined as a “currency” and possibly not even an investment as long as its price volatility remains at such high levels. The lack of regulation, control and security concerns also make it difficult for bitcoin to be considered as a “safe” product. The risks associated with bitcoin are obviously numerous and the alternative “currency” called bitcoin will not be clearly safe unless those issues are addressed (which could probably take many months or years).

Links:

http://www.forbes.com/sites/kashmirhill/2013/12/05/bank-of-america-analysts-say-bitcoins-value-is-1300/

http://en.wikipedia.org/wiki/Bitcoin#History

http://online.wsj.com/news/articles/SB10001424052702304607104579212101356897382

http://www.theregister.co.uk/2013/12/06/bank_of_america_says_bitcoin_could_become_the_currency_of_ecommerce/#!

http://www.bitcointrust.co/#Deck

http://bitcoin.org/en/bitcoin-for-individuals



**The information contained in this post as well as any information within this website is intended for informational purposes only. This is not a recommendation, offer or solicitation to purchase or sell any stock or other securities.

A brief analysis on Cambria Automobiles Plc

Cambria Automobiles Plc.

www.cambriaautomobilesplc.com

Ticker:                          CAMB:L

ISIN:                                         GB00B4R32X65

FTSE sector                 General Retailers

FTSE sub-sector          Specialty Retailers

Market:                       AIM

Share Price:                 47.00 (GBp)

Market Cap:                47 (£M)

Business Description

Cambria Automobiles Plc operates as a retailer of new and used cars, commercial vehicles and motorbikes. It offers its products under Doves Volvo, Grange Jaguar Croydon, Dees Croydon, Dees Wimbledon, Invicta Motors, Motor Park, and Pure Triumph brand names. The company also supplies parts on behalf of the brands which the company represents and as a supplier to other car dealers and independent traders and repairers. It also provides accident repair facilities for its customers either through its own accident repair centre in Kent or by sub-contracting to other accident repair centres. Cambria Automobiles was founded by Mark Lavery on March 23, 2006 and is headquartered in Swindon, in the United Kingdom.

Strategy

Cambria has established a strategy to grow through acquisitions and via the turnaround of underperforming businesses. The board seems to have managed to follow this strategy so far having only £0.3m of goodwill on balance sheet.

Mark Lavery, the CEO of Cambria stated that several acquisition opportunities are currently under review and the strong financial position of the company will allow for actions to be taken in a timely manner.

The company’s target is to achieve group revenues of more than £1bn. However the management has not set a deadline or forecast when this target is expected to be achieved.

The company also has a sustained focus on Associate (staff) training and a premium Guest (customer) experience. That is why the company introduced the Cambria Academy.

2012 Results (Fiscal year ending on March 2013)

Cambria has recently announced its full-year  results for 2013. The company reported 12% growth in revenues to £395M and 32% growth in the underlying EBT.

Specifically, “New Vehicles” sales rose 19.5% and “Used Vehicles” sales rose 7% representing 40.4% and 47.7% of total revenues respectively.  

Earnings per share (EPS) rose 49% from 2.34p to 3.49p. The return on Shareholders’ funds in 2013 was 16.6% compare with 13.5% a year earlier.

The management is positive for next year’s outlook and has mentioned that the first two months (September and October 2013) were better than management’s projections.

Balance Sheet

The balance sheet remains in good shape with an increase (28%) in cash and cash equivalents reserves which were £14.8M in 31^st Aug 2013. However this increase was because of a new loan received (£1.9M) and increase in trade payables (£13M).

Cash Flows

Cash from operating activities was £8.4M compared to £3M a year ago which is mainly (as stated before) due to the increase of payables. Cash outflows from investing activities increased 307% while cash outflows from financing activities were £0.2M compared to an outflow of £2M last year.

Net Operating Cycle

Cambria is doing really well in terms of operational efficiency and managerial competency. It has a net operating cycle of -4.77 days. In this respect Cambria is beating almost all of its competitors who have a cash conversation cycle (CCC) of from 5 to 77.7 days. This results from low credit sales (the lowest among competitors), the days of inventory in hand is also one of the lowest figures (64.9 days). The aforementioned show great inventory management.

Competition and Market

Cambria operates in a very competitive sector. The company is competing not only with retailers offering the same brands but also with retailers offering other brands. The main competitors of Cambria are Inchcape (INCH.L), Lookers (LOOK.L), Pendragon (PDG.L), Caffyns (CFYN.L) and H.R. Owen (HRO.L).

The brands Cambria has in its portfolio have a UK market share of 47% approximately. Thus Cambria has a variety of Brands to offer to its clients.

Market Growth: The Society of Motor Manufacturers and Traders (SMMT) expect new car registration to rise 1.7% next year. On the contrary Cambria’s management expect its new vehicles sales to rise much faster. 

Valuation based on P/E

Cambria’s forward P/E is the lowest compared with the competitors included in this analysis. Forward P/E is 13.8 indicating that the company is “cheap” compared to the competitors (Inchcape, Lookers, Pendragon and H.R Owen). In addition, as can be seen from Table 1, current P/E (ttm) is also one of the lowest P/Es. According to Reuters the current P/E for the industry is17.95; based on that figure the relative “fair” price of the stock is 62.6p. Thus the stock could offer a capital return of 33%.

Stock Performance

The price of the shares for the period 2010 (when the stock was listed) to 2013 is illustrated on the graph below. The stock price was under pressure from the time of the float until September 2012. Since then there is a positive trend in the stock price, offering a return of 261% (from 13p to 47p). However, so far, the stock price has never been above that shown on its first day of trading.

**The information contained in this post as well as any information within this website is intended for informational purposes only. This is not a recommendation, offer or solicitation to purchase or sell any stock or other securities.

6 Greek small & mid-cap stocks (Brief Analysis)

Further to my previous post, I am compile some information for the companies (mid and small cap). The first section presents the companies’ profile and main activities while the next sections relate to the stock performance and the recent financial results.

Company Profiles:

PLASTIKA KRITIS. One of the largest Greek plastics manufacturers and one of the leading European producers of masterbatches and agricultural films. manufactures plastic foils for agricultural uses and polyethylene pipe used to transport water, natural gas and telecommunications wires. The Company is also involved in renewable energy projects. It has a strong international orientation with affiliate companies in France, Romania, Poland, Russia, Turkey and China and exports to more than 50 countries around the world.

IKTINOS quarries, cuts, and processes marble and granite. The Company markets decorative stone products. Iktinos sells its stone in Greece and exports to China, Italy, Germany, France, the United States, the United Arab Emirates, Taiwan, and Bangladesh.

Sarantis Group constitutes one of the leading consumer companies both in Greece and Eastern Europe where it has an important presence. It retails and wholesales perfume, beauty aids, personal hygiene, pharmaceuticals, sunscreen and baby care products. The Company produces beauty aids, detergents, children's wear, pet food and aluminium foil.

THRACE PLASTICS The main activity of the Company is the production and distribution of Polypropylene (PP) products. The group operates in the production four basic product categories: Synthetic woven fabrics, synthetic non-woven fabrics, construction of F.I.B.Cs and rigid packaging products. The Group maintains production and trade facilities in Greece, Scotland, Northern Ireland, Ireland, U.S.A., Sweden, Norway, Serbia, Bulgaria, Romania and Australia.

Elton Group is the leading agent and distributor of industrial raw materials in Greece and the Balkan market. It wholesales chemicals and products used in the production of pharmaceuticals, cosmetics, detergents, paints, food, and alcoholic beverages.

Plaisio Computers is a multi-product, multi-channel provider under one brand in the area of IT and office supplies. The Company imports, manufactures and retails computers, peripherals, IT network products, office supplies, and telecom products. Plaisio also offers customer service.

Stock Performance

The table below shows the 1-month, 6-month and year-to-date return for the stocks. While the first two stocks’ performance does not seem to be satisfying, ELTON, PLAISION and SARANTIS had outperformed the MID&SMALL Cap Index and offered 35.14%, 60.86% & 46.5% return respectively. IKTINOS just tracked the benchmark offering approximately the same return (19.2%). 

Financial Results and Multiples

The 9-month period earnings information below suggest that companies have achieved a two digit growth in their net profits expect for the Crete and Thrace plastics.

The table below shows a few valuation metrics for the aforementioned companies.

The most noticeable example is that of IKTINOS. The company has managed to increase its earnings by 69% for 9-month period, has a ROE of 11% and the highest profit margin among the companies analysed. In addition the company has a “good” interest cover ratio and is not heavily exposed to the Greek market (78.5% of its sales come from exports). However the stock has underperformed the mid&small cap index.

Furthermore, Plaisio computers seems interesting investment as the company’s earnings rose 75% and it offers a Return on Equity of almost 20% and a quite low P/E ratio (9.46). The financial health of the company is excellent considering the interest cover ratio which is as high as 13.09.

**The information contained in this post as well as any information within this website is intended for informational purposes only. This is not a recommendation, offer or solicitation to purchase or sell any stock or other securities.

Greece: Recent Earnings announcements (150.6% growth in the 9month to Sept, 2013)

Beta Securities, a Greek financial institution offering boutique services, in a recent research found that the aggregate net profits of Greek listed companies (85.8% or 206 of 240 in total) showed 150.6% rise at 5.797 billion euros for the 9 months period ending in September. Although the aggregate sales declined 5.1% at 54 Billion euros and operating profits 18.9%, the companies managed to generate higher net profits. 

39% of these companies had shown positive earnings and the rest shown losses. Beta noticed that the rate was 30:70 two months earlier and the improvement was a result of companies going private and bankrupt.

The profitable companies were the following: Aegean Airlines, Hellenic Exchanges, PLAISIO, SARANTIS, METKA, IASO, OLP, KYRIAKIDIS, KANAKIS, FFGROUP, KANAKIS, IKTINO, MLS, PERSEA, KARATZI, ELTON CHEMICALS, PLASTIKA KRITIS, OTE, PLASTIKA THRAKIS, COCA-COLA, EUROPAIKI PISTI, TITAN, FOURLIS, HELLENIC PETROLEUM, MOTOR OIL.

The next few days I am going to post more details about the financial results of the companies above.

The last two months, the Greek stock market is offering not only high returns but also volumes that haven not been seen since 2008.

The information contained in this post as well as any information within this website is intended for informational purposes only. This is not a recommendation, offer or solicitation to purchase or sell any stock or other securities.