Hi Spekulatius,
With regard to AXA, I share your concerns. The current context is challenging. Nonetheless, they have a diversified business both in their segments and geographies. The non-life insurance business is a significant source of income. Moreover, if AXA's Net Income drops 20% for a couple of years, at current valuation it's still likely to deliver a nice shareholder return. Therefore, in the current context, I think it offers a nice risk/return profile. Nonetheless, I keep tracking both the fundamentals and technicals, in order to try to minimize some potential downside.
With regard to NN.AS, I don't see what is the advantage it has... It has a lower contribution to income of non-life insurance segment and it has a significant exposure to Japan in Life-insurance. Plus, historical performance has been weaker...
With regard to Navigator, in the last 10 years, its ROIC ranged between 5.75% and 12.74%. It is not great but it is consistent, provided that pulp is subject to commodity pricing. Stora Enso ranged from -7.21% to 10%. So here's my theory. Pulp and Paper is a though business which is only attractive for the low cost player. In my view, Navigator is the low cost player. It has low cost sourcing of raw materials and cheap labor available in Portugal (electricity is a different story but its impact appears to be limited). Moreover, they have done a strong paper brand (though paper consumption is decreasing) and are entering the tissue business with a low cost approach optimizing the production cost by integrating the pulp and tissue production. With regard to the current market valuation, in my view one should expect an equity IRR of about 10%. That's probably the cost of equity, nowadays, provided Portugal's country risk in most models... Nonetheless, Navigator SA is an exporter. Therefore, Portugal risk offers some upside in labor costs and some downside in the fiscal side. In realistic terms, the fiscal downside cannot be more than 300 bps in the cost of capital... that is more than 25% of CoE which would imply an additional tax burden of 20% or more over income... With regard to debt, its Net Debt/EBITDA is below 2, which for an industrial in Portugal may affect traditional rating models (note, however, that Navigator's rating is similar to that of Portugal Sovereign debt). In my view, those debt levels, for company with consistent ROICs overtime, are perfectly acceptable. Summing up, according to CAPM model the stock is probably fairly priced. According to my risk/return perspective, the stock is currently an attractive buy for the long term, in the European context... |
