Q3 Update

Disclaimer: This is not investment advice. The author owns most of the stocks mentioned in this update. He may buy or sell shares of any company without further notice. His views may be biased or wrong, so do not rely on them but pleae do your own research.

In a fairly excited and optimistic market, the Augustusville portfolio indeed did not do much in Q3 - a least in terms of performance. We generated a modest return of 1.1% in EUR (at least a positive one), bringing the YTD to about 8.8% (in EUR and pre-tax). The portfolio has been updated as of 30 September so you can see what we own. While higher and more exciting returns were generated elsewhere, we try to focus on our own game and not get distracted, inclunding taking the freedom to search for interesting ideas in unpopular corners of the market. Relativ underperformance is not pleasant but if others generate their outperformance in investment which we find to expensive or do not understand, there should no be too much sorrow. We just have to live with it and carry on.

Our most positive contributors in Q3 were Fairfax Financial (once again thanks Prem!), AO Johansen (which we slightly reduced in the high 80s) and a fairly new position in Paypal. Milliocm/TIGO was a winner aswell.

On the losing side, our native Germany is represented a lot with our new-ish positions in Amadeus Fire and Hermle as well as Funkwerk all in the red, like Nilorn and Hortico. The market did not love European microcaps this last quarter, or at least not the ones we own.

Paypal is a rare large cap tech company in our portfolio. We are fairly flexible in terms of market cap and sector and while there may be more pearls to be found in small & micro land, there are sometimes opportunities in large caps. The difference is that while small companies are sometimes somewhat undiscovered and ignored by the market, this is never the case for large and mega caps. Instead, at occasions and even in a generally bullish environment, large caps the consensus opinion may turn to irrationally dislike or even hate companies, making it possible to pick them up cheaply. If these companies are fundamentally sound, growing and generate consistently high returns on capital, you stand pretty good chances to win here. The price is you have to buy something which has diappointed other investors in the last years and if you look chart it seems like the only way is down. You essentially have to have the courage to go against the prevailing opinion. In 2012/13, I was able to pick up shares of Microsoft and HP following this pattern. I certainly did not expect or foresee the development of MSFT back then and sold the position in 2016/17, far too early with hindsight. But at the time Microsoft had delivered essentially negative returns for more than a decade. They had just launched the WindowsPhone with limited success andAzure was only getting started. Still, this was a fantastic business with a quasi monopoly in operating systems and business applications, mission-critical to companies around the globe - and even than growing. The situation was worse at HP which had seen instability at the C-suite (anybody remember Leo Apotheker?) and the disastruous Autonomy acquisition. Picking up a few shares during this time of the year when tax loss selling is going on was good for a double in six months and a four-bagger in 2 years. So a beaten-down and disliked large cap can be worth a look. Another great example (which I was not involved in) was Meta which has 5xd since November 2022. I am not expecting the same for Paypal, but when the share price came down from 300 to 60 for a business which I expect to keep growing, the chances for a reasonable investment were decent in my view.

In Q3, we diversified the holding in the Bolloré Galaxy, selling some Odet shares to buy Bolloré SE with the proceeds. A lot is happening in the Bolloré world. The two “Tramway” companies have been integrated. As a next step, the remaining formert Rivaud entities (Cambodge and Moncey) are supposed to be entirely taken over by Bolloré SE. It is notable that the price offered to the remaining miniorities means a premium to where this was previously traded, but still means a steep discount compared to lookthrough fair value, since Bolloré SE and Odet themselves are so heavily discounted. And while it may be value-accretive for Bolloré SE to get the remaining 1% or so of Moncey and Cambodge for cheap, this course of action underlines the risk of a potential take under for the remaining parts of the Bolloré galaxy. In my view, a merger of Odet and Bolloré SE is absolutely in the cards for next year, but it is not clear to me which way it will go and there is a risk of a takeunder price. For this reason, we diversified the holding. In addition, the 4-way split of Vivendi appears to be going ahead and it will be interesting to watch if it helps to reduce the SOTP discount for Vivendi and if Bolloré will, as expected soon add to its position in some of the new entities, potentially taking advantage of forced selling. At the same time, Bolloré SE remains involved in repurchasing its own stock at discount prices. The complex remains interesting.

We added to our position in Amadeus Fire, a leading German recruiting and professional training business. Amadeus Fire has a long history of profitable growth and adapted well to the ups and downs of the labor market. Given the current economic stagnation in Germany, the temporary staffing and recruiting business have come under pressure, causing declines in sales and profit. Unlike this cyclical part of their business, the training business has been doing really well I expect for this to continue. The stock is down about 60% from its all-time high 3 years ago and trades at 6x EV/EBITDA or 9x EV/EBIT on in my view fairly depressed earnings. It has been a clear lose for me so far, but I plan to hold as they will turn the corner at some point. Sometimes you are wrong, sometimes you are just too early. If interested in Amadeus Fire, you can read two excellent write-ups by V&O and Serching4Value.

We continue to see value in a number of European micro and nano caps. One of these companies is Piscines Desjoyaux, a French producer and distributor of swimming pool and adjacent equipment. The family-owned has expanded into many European countries and performed well in a growing part of the construction industry. Consistently profitable since the 2000s, the Desjoyaux expanded its margins in the late 2010s before becoming a clear beneficiary of Covid. The company invested in its capacities, production facilities and distribution network, but the raise in interest and slowdown in building activity caused a decline in revenue over the last two years. I believe that this cycle will turn again and Desjoyaux will continue its successful journey. The balance sheet is well-protected with a net cash position, at the same time, capacity investments have just been made and construction is starting to look better. Desjoyaux may benefit from an upturn in this sector.

Another European company we bought is Tier1 Technology. Tier1 is a Spanish software company focused on the retail sector. Rather than going into details, I will refer you to great write-ups from FinancialSkeptic and Isaac , both of whom are worth following.

Hope you enjoyed this short portfolio update. The year-end one should be more detailed.