Updates on Positions

Asseco Central Europe

Asseco Poland is tendering for the remaining  6.49% shares of Asseco Central Europe, they do not currently own.
The tender offer price is 23.5 PLN.
This compares to a 52w high of 26 and a current bid of 23.8.
I see no reason to tender my shares at this price. The premium is not there. If Asseco Poland wants to delist the shares so be it, but they will still have cost to provide for minority shareholders. Better for them to pay more.

tender price	23.5
bid	23.8
ask	24
52 weeks high	26
P/BV	1.12
P/E	10.3
Dividend yield (%)	9.4

The company still has more cash than debt. Although it is not as cheap as when bought around 16 PLN.

IMW Immobilien

IMW immobilien is tendering for its own shares at €7.50 per share. The company is still delisted, but share traded on the local Hamburg stock exchange for a short while around €7.50.
The offered price is too low. Their residential real estate in Berlin has increased in value, but this does not show up in the numbers. Book value per last report is €111 million using the conservative German HGB accounting, but economic value is higher. Remember the rents are at the low end of the spectrum and it is impossible to built new objects economically at such rates. This means the rents will increase sustainably for their kind of real estate. I sold all my shares above €9 before repurchasing. Fundamentals for their properties just kept improving and now comes this offer. I would be fine with many other shareholders accepting, so they can pay a real price next time for the rest and still make an unjustified killing for themselves in the future. After all it is dumb German money. So who knows how much shares will be tendered.

KWG Komunale Wohnen
The bok value per 3/31/2016 reached €10.95. I think this is the minimum one should get for the shares. operations are improving and costs are shrinking.

In April/2016 Conwert acquired 7.5% shares via their tender offer for €10.80 per share and reached 87% of shares.

In the meantime German DAX constituent Voniva expressed their intent to take-over Conwert.  Conwert shareholders are to receive 74 Vonovia shares per 149 Conwert shares.

conwert Immobilien Invest SE

VIE:CWI

16.200

1.40%

-1.38%

15.98

Vonovia SE

ETR:VNA

32.170

With Vonovia's shares falling over the last month, the current ofer is €15.98 and the spread is negative (ignoring potential dividends).

When Vonovia acquires Conwert the more synergies to be of benefit to KWG. This will lower cost of debt via cash pooling. Banks are simply willing to lent larger sums at lower interest rates. I do not like this, but for now this are economies of scale for such capital intensive companies like real estate companies.

Hornbeck Offshore
My last blog post is from June. I just did not have the time and the blog did produce almost no feedback except spam comments. So I did not update. In the meantime I have sold my HOS shares for more than double the current price of around $8 at a loss. For now the equity is in distress. It is more like a call option on higher and stable oil prices, which would increase activity in the Gulf of Mexico. The publicly tradable bonds could be the fulcrum and trade at equity like yields. I may rather buy the debt here if at all. The company has Jones act vessels. Could even benefit from Trump.

I have some other positions in my portfolio. Please let me know if you are interested in me keeping to write posts.

Update: Asseco Central Europe

The net cash position is actually 3.8m better than expected for 1Q2014.

The remaining financial liabilities relate mainly to the purchase of the shares of Asseco Solutions AG (principal EUR 6,000 thousands + interests EUR 48 thousands, interest rate 6M EURIBOR + 1.3% p.a., maturity in December 2014).

The selling price of 51 shares of Slovanet a. s. has amounted to 11m. Asseco Central Europe shall receive payment in cash in three instalments within three months from the date of the transaction.
At 30.06.2014 there were 10m receivables, which are lower now and have been added to cash in the following table:

	1Q2014	1Q2014 ex Slovanet	1H2014
Cash and cash equivalents	36.0	45.8	28.9
receivables sale Slovanet			10.0
Total liquidity	36.0	45.8	38.9
financial liabilities	16.4	16.4	6.5
Debt	10.0	1.5	0.5
Minorities	3.7	-0.3	0
Total interest bearing liabilites	30.2	17.7	7.0
Net interest bearing liabilites	-5.8	-28.1	-31.9

As you can see the performance from continued operations deteriorated in H1 2014, but Q2 is already improved y-y. The restatement for 2013 excludes 0.8m Ebit and 0.3 net profit from the sold company Slovanet.

With mcap of 80.5m (08/15/2014) and EV of 80.5-31.9=48.6m and H1 2014 EBIT from continued operations of 6.2m:

EV/2x H1 2014 Ebit = 3.9

I think this looks very promising. Keep in mind two major logistics projects were sold in 3Q 2013 and did not contribute in 2014. Because of this logistics and outsourcing services dropped significantly in 1H 2014 by EUR 2.5 million (5% and 11.5% proportion on total revenues in 1H 2014 and 1H 2013).

Additionally Asseco Solution's integration may bring some benefits in the future:

"Aim of the transaction is to utilize the synergic effects of combining the forces in ERP business. Cross-border collaboration – particularly in implementing new trends – can shorten development cycles and allow innovative concepts to be turned into reality more quickly. Moreover, it creates a solid foundation for preparing and making strategic acquisitions in the future."

ASSECO CENTRAL EUROPE: Software House from Slovakia

Profile

The company has been listed listed on the Warsaw Stock Exchange since 2006.

The main activities are:

• software and computer hardware consultancy
• production of software
• supply of software and hardware.

It provides comprehensive IT solutions and services for international financial institutions (Erste, Allianz, UniCredit, etc.), for the private sector enterprises, as well as for the public institutions of central and local administration. Its product portfolio comprises information systems for banks, insurance companies and construction firms, card transaction systems, healthcare information systems, data warehouses, Business Intelligence and e-Commerce solutions, reporting systems, and turn-key projects [Annual Report 2013 Asseco Poland].

The company is primarily active in Slovakia, the Czech Republic, Hungary.

The capital group of Asseco Central Europe incorporates the following companies:

structure [1Q2014 report]

Slovanet was sold at the end of June, 2014 for €11m. The aquisition of Asseco Solutions from Asseco Dach S.A. for €13.8m in January, 2014 has added footprint in Germany, Switzerland and Austria.


Maybe the activitites become clearer with the following picture. It is sometimes difficult to understand what a software company actually does.

solutions and services [annual report 2013]

P&L

	TTM	2013	2012
total revenues	134.9	131.3	134.4
Gross Profit	34.5	35.1	41.0
Gross Profit Margin	25.6%	26.7%	30.5%
EBITDA	24.3	25.9	28.0
EBITDA Margin	18.0%	19.7%	20.8%
Ebit	13.0	14.5	17.6
Ebit Margin	9.6%	11.1%	13.1%
Share in profits of associated companies	0.3	0.3	0.3
Net Income	9.8	11.3	14.2
Operating Cash Flow before WC changes	22.7	25.0	27.8
Net Capital Expenditures	?	-2.0	0.3
Free Cash Flow	22.7	27.0	27.4

Net capital expenditures are capital expenditures-depreciation+intangibe addition-intangible depreciation. Asseco CE is not growing at the moment. Necessary investments and depreciation seem to offset one another. I therefore use FCF=operating Cashflow before working capital changes for TTM period.

A breakdown of P&L per subsidiary looks as follows. Slovanet was sold.

"The negative phenomenon is decreasing project profitability. Last year we fully recorded the intensive pressure of the customers to reduce their own costs, which was negatively reflected in the reduction of our hourly rates, dropped revenues and change in the structure of revenues to the detriment of the lump sum payments. We had to deal with this reduction more intensively than in the past and focus rather on new customers and new projects of the existing customers. At present the income from the new projects amounts to 35-45% from the annual revenues when compared to 15-20% in the period from 2008 to 2011. New customers and new projects must be or had to be won in the tenders, while the main or even the only relevant criterion is the price (even with the commercial customers). It is extremely difficult to win such tenders and deliver the work for such low invoiced income and to avoid loss; this becomes even more difficult every year. For the reasons above our EBIT decreased when compared to 2012, i.e. our economic results dropped by almost 15%, a decrease of EUR 15 per invoiced EUR 100. It's a trend that we will have to face in the future. To achieve the same economic result in the absolute amount means to try to increase annual revenues compared to the past with lower profitability. And that means winning more and more new projects every year. "

"Sales revenues [for 2013] dropped as a consequence of the difficult economic situation in the region, and especially the political situation in the Czech Republic. The resulting stagnation in public administration procurements weighed on the financial results of Asseco Central Europe. Macroeconomic conditions caused the erosion of profit margins achieved on products and services. Therefore, Asseco Central Europe is now focused on looking for new customers."

The problem with reduced revenues from public institutions in the Czech Republic can bee seen on the revenue breakdown per sector:

Leverage

	1Q2014	2013	2012
Cash and cash equivalents	36.0	34.9	26.4
Total liquidity	36.0	34.9	26.4
financial liabilities	16.4	2.2	2.4
Debt	10.0	8.8	9.2
Minorities	3.7	4.0	4.1
Total interest bearing liabilites	30.2	15.0	15.7
Net interest bearing liabilites	-5.8	-19.9	-10.7
NIBL/EBITDA	-0.24	-0.77	-0.38

Increase of financial liabilities in 1Q2014 resulted from increase in liabilities due to acquisition of shares:

Financial liabilities Asseco CE 1Q2014

 Debt is mainly from the now sold subsidiary Slovanet:

debt

The newest annual report for Slovanet, I could find, was from 2012. Which shows the following balance-sheet:

balance shhet Slovanet 2012

As of 31.12.2012 debt was €8.8m, cash €1.2m and equity €8.2m. The €8.8m debt approximately equalled the €9m Slovanet related debt on Asseco CE's balance sheet at the end of 2012. I will therefore assume all Slovanet related debt (€8.5m) as of 1Q2014 were parted with when Slovanet was sold. I don't know how much cash was on the balance of Slovanet and will assume €1.2m, which is the same as at the end of 2012. EBITDA of Slovanet was €7.0m. this would result in the following leverage:

	1Q2014	1Q2014	ex Slovanet
Cash and cash equivalents	36.0	45.8	plus €11m -1.2m cash
Total liquidity	36.0	45.8
financial liabilities	16.4	16.4
Debt	10.0	1.5	minus €8.5m
Minorities	3.7	-0.3	minus €8.2m*49%
Total interest bearing liabilites	30.2	17.7
Net interest bearing liabilites	-5.8	-28.1
NIBL/EBITDA	-0.24	-1.62	minus 7m EBITDA

This looks even better. Asseco CE is nearly gross debt free.

Valuation

	TTM	ex Slovanet
Shares Outstanding	21.36	21.36
Price PLN	16.3	16.3
Price EUR	3.9	3.9
Market Cap	83.6	83.6
Net interest bearing liabilites	-5.8	-28.1
Enterprise Value	77.7	55.4
EBITDA	24.3	17.3	minus €7m
EBIT	13.0	11.5	minus €1.5m
FCF	22.7
Net Income	9.8	9.0	minus €0.8m
EV/EBITDA	3.2	3.2
EV/EBIT	6.0	4.8
Cash flow yield	29.2%
PE	8.5	9.3

One might have to adjust for the one-off sale of non-IT logistics projects in September 2013 with the impact on the net other operation income in the amount of €1.7m. The projects generated annual revenues in the amount of EUR 3.8 million and represented 115 employed persons in Czech Republic:

	TTM	ex Slovanet
Shares Outstanding	21.36	21.36
Price PLN	16.3	16.3
Price EUR	3.9	3.91
Market Cap	83.6	83.6
Net interest bearing liabilites	-5.8	-28.1
Enterprise Value	77.7	55.4
EBITDA	22.4	15.4	minus 1.9m
EBIT	11.1	9.6	minus 1.9m
FCF	20.7		minus 2.0m
Net Income	8.1	7.3	minus 1.7m
EV/EBITDA	3.5	3.6
EV/EBIT	7.0	5.8
Cash flow yield	26.6%
PE	10.3	11.4

The company looks cheap. After the sale of Slovanet EV/EBITDA coincidently stays constant but EV/EBIT gets even lower. This looks like the future for Asseco CE is bad or Mr Market is wrong.

Asset allocation is not the problem either as the company pays a healthy dividend:

Date	Dividend per share (EUR)	yield @3.91€
4/14/2014	0.37	9.46%
16/04/2013	0.47	12.02%
24/04/2012	0.66	16.88%
5/5/2011	0.22	5.63%
6/5/2010	0.22	5.63%

Remuneration of Members of the Board of Directors for 2012 was €1.745m and €0.025m for the supervisory board.

Reasons for being cheap may be:

• Asseco Poland owns 93.51%, which leaves a float of just 6.49%*€83.6m mcap=€5.4m
• low liquidity of shares
• related party transactions may not be at arm's length at the expense of the minority investor
• revenue recognition may be too optimistic: "The progress of contract execution is measured as a percentage of the total estimated contract execution costs incurred from the date of contract conclusion to the date when the related revenues are determined, or as a proportion of the work completed out of the total work effort planned." 
• customer's focus on price has already negatively impacted profitability and the company expects this trend to continue 
• bad results 1Q2014 in Czech republic

The aquisition of Asseco Solutions from Asseco Dach S.A. for €13.8m in January, 2014 is already reflected in the EV calculation above, but potential benefits are not fully reflected yet. Asseco Solutions D made a net profit of €0.4m in 1Q2014.
My assumptions regarding cashflows (no net expenditures, ignoring WC changes) may be too optimistic but in my opinion Asseco CE is a cash cow. The increase in receivables is a little bit troubling though. The company is interesting for a basket approach of statistically cheap companies. A concentrated position is not warranted due to the lack of a moat.

I am long Asseco Central Europe.

Links 

Asseco Central Europe
Asseco Poland