ODIN Norge. Fund comments October New all time high for Norwegian shares - more to come

Transcription

1 ODIN Norge Fund comments October 2013 New all time high for Norwegian shares - more to come Great results and new dividends policy give lift to Gjensidige More restrictive investment policies from oil companies?

2 Substantial value increase in Odin Norge Stabilisation of the global economic situation, combined with the prospect of interest rates remaining low and high supply of central bank liquidity, are driving international stock markets upwards. The Norwegian fund index reached new heights and rose by more than 6% in October. Odin Norge also experienced a good month, with a value increase of 4.5%. So far this year, the rate of return has been close to 12.5%. Great quarterly results and a successful capital market day made Schibsted the largest contributor to our returns in October. For Gjensidige, the catalyst was a combination of great results and a new dividends policy. SRBank and Sparebanken Midt Norge also delivered great results - margin increases being the main reason. During October we utilised the price increase to reduce our holdings in Schibsted, Nordic Semiconductor, Atea, Farstad and Norsk Hydro whilst adding Olav Thon and Marine Harvest to the portfolio as new investments.

3 Peak levels for Norwegian shares - more to come The Norwegian stock market, measured using the OSEBX benchmark, set a new record of nearly 540 points in October. It has been more than five years since the last peak. Norwegian companies have increased equity by 160% during this period. At the time of the previous record, the ratio between price and equity (P/E) was 2.7, whilst now we are only at 1.6. With prospects of interest rates remaining low, the P/E multiplier may rise from current levels. The companies' expected rate of return on equity (12-13%) will cause the threshold to rise. In other words, there is still further potential in the Norwegian market (see graph). Statoil is among the shares that have not been able to keep up with recent market developments. As illustrated in the bottom graph, the company has always, until now, had a higher P/E than OSEBX. As with other oil companies, Statoil has increasingly experienced criticism for prioritising production growth ahead of return on equity and cash flow. The company has indicated that changes will be made. If investors gain confidence in these indications, Statoil could become a Norwegian winner going forward.

4 Focus on energy A more restrictive approach to investment among oil companies is resulting in reduced activities for seismic companies, amongst others. These activities are considered to be "early in the cycle" in relation to the oil companies' investment decisions - whilst the effects for rig, construction and logistics companies are felt later on. The stock market has therefore drastically decreased the price of shares in seismic companies. Of course, a higher oil price may "solve" the issue once more, but we have chosen to keep our primary exposure for construction companies (SUBC/BWO) within the oil services field. Hafslund delivered good quarterly results, following increased energy prices and improved income from the grid business. The latter was caused by a government-sanctioned base rate increase at the start of 2013, which in turn determines earnings. Hafslund also has further earning potential if the government allows the energy industry to increase regulation levels in the river Glomma in order to utilise an even greater proportion of the traditional spring flood. Share prices have not changed much in HAFSLUND-A SHS Electric Utilities Market Value (mill) Price 45,90 Currency NOK Enterprise Value (mill) Exchange rate to NOK: E 2014E Sales (mill) EBIT (operating Income) (mill) Net Income (mill) Price/earnings 0,56 62,32 67,16 12,89 13,32 Price/Book Value 1,10 1,13 1,06 1,13 1,18 EV/EBITA 20,31 20,24 13,82 15,19 16,83 12,42 12,16 Return on Equity (%) (79,6) 1,7 (3,6) (7,5) (0,6) 9,5 Dividend yield (%) 3,3 3,5 4,4 5,3 5,4 5,7 5,8

5 Cost cutting across the board Norsk Hydro experienced a significant price increase in its 3Q13 results, following surprisingly low costs (USD 1,550/t), which compensated for low aluminium prices. The company anticipates an improved market balance. We are, however, uncertain as to whether aluminium prices are low enough to drive the most unprofitable players out of the market. We are also uncertain as to whether legal requirements will force the owners of the larger aluminium warehouses to release metal more quickly. This could potentially affect prices for a period. Norsk Hydro has a strong enough balance sheet to handle such a situation, unlike large American and Russian manufacturers, who oppose such liberalisation y performance NORSK HYDRO ASA OSE MUTUAL FUND INDEX NORSK HYDRO ASA Aluminum Market Value (mill) 55,325 Price Currency NOK Enterprise Value (mill) 53,578 Exchange rate to NOK: #VERDI! E 2014E Sales (mill) 88,643 67,409 75,754 71,500 64,181 63,426 66,396 EBIT (operating Income) (mill) 3, ,782 11,266 1,939 2,289 4,178 Net Income (mill) -3, ,888 6,705-1, ,336 Price/earnings Price/Book value EV/EBITA Return on Equity (%) (7.3) (1.7) Dividend yield (%)

6 Cost cutting across the board, cont The IT supplier Atea experienced positive share price reactions to its results. The underlying growth in earnings was marginally positive, whereas the operating margin was modestly declining. This is in part due to disappointing sales figures for new Windows products and in part due to the economic slowdown in Denmark and Norway. The company is however showing initiative by announcing staffing cuts, but surprisingly chose to tone down certain financial targets YTD Performance OSE MUTUAL FUND INDEX (NOK) ATEA ASA ATEA ASA IT Consulting & Other Services Market Value (mill) Price 66,50 Currency NOK Enterprise Value (mill) Exchange rate to NOK: E 2014E Sales (mill) EBIT (operating Income) (mill) Net Income (mill) Price/earnings 8,75 12,63 9,40 10,35 13,19 17,29 12,20 Price/Book Value 1,32 1,67 1,43 1,59 1,75 1,97 2,03 EV/EBITA 4,67 10,95 9,59 7,37 8,72 15,44 10,40 Return on Equity (%) 17,4 13,5 16,1 16,4 13,1 10,4 16,7 Dividend yield (%) 2,5 2,5 4,0 8,1 8,3 11,8 9,6

7 Great results and new dividends policy give lift to Gjensidige Gjensidige delivered great results for Q3, with claim costs remaining low and positive effects from premium increases as the main causes. In addition, continued high liquidation profits from previous insurance years were also credited to income. Impressively, the combined ratio, which shows claims and operating costs in relation to premium income, is below 90%. This is also due to costefficient operations and automation. After having been a customer-owned company for more than 160 years with a fixed finance structure, Gjensidige announced a surprisingly streamlined dividends policy. The company was converted to a company limited by shares in 2010 and has now defined the necessary equity to meet the requirements for having a S&P rating of A-, plus a safety margin of around 10%. Excess capital will be paid out. The aim is for a dividend level of 70% to be paid out regularly. A single dividend of NOK 6 per share will be paid out in addition to the ordinary dividends in spring. After a significant price increase, Gjensidige now has a price/book ratio of more than 2 and is getting close to Topdanmark and Tryg YTD Performance OSE MUTUAL FUND INDEX (NOK) GJENSIDIGE FORSI

8 Return and risk Return over the past 3 years (EUR) Risk measure Portfolio Benchmark Alpha Beta 0.95 Tracking error 6.07 Information ratio Sharpe ratio 1) Standardavvik 2)

9 Contributors past 12 months Five best companies Contribution in % Contributions per sector Contribution in % SalMar 3.09 % Schibsted 2.93 % Sparebank 1 SR-Bank 2.39 % Gjensidige Forsikring 1.61 % Wilh. Wilhelmsen Holding B 1.42 % Five weakest companies Contribution in % Electromagnetic Geoservices % Petroleum Geo-Services % I.M. Skaugen % Financials 4.62 % Consumer discretionary 4.03 % Consumer staples 3.52 % Industrials 2.53 % Information technology 1.78 % Telecommunication services 0.94 % Health care 0.35 % Utilities 0.27 % Materials % Energy % Aker Solutions % Norgesinvestor IV A-Aksjer %

10 10 largest shareholdings Company Country Sector % of total Statoil Norw ay Energy 9.02 % Yara International Norw ay Materials 8.85 % Sparebank 1 SR-Bank Norw ay Financials 6.62 % Schibsted Norw ay Consumer discretionary 5.47 % Det Norske Oljeselskap Norw ay Energy 4.70 % Gjensidige Forsikring Norw ay Financials 4.68 % Telenor Norw ay Telecommunication services 4.54 % Sparebank 1 SMN, Egenkapitalbevis Norw ay Financials 4.39 % Subsea 7 Norw ay Energy 4.17 % Hafslund B Norw ay Utilities 3.66 %

11 Sector allocation Sector Portfolio Benchmark Diff. Energy 28.30% 34.33% -6.03% Financials 16.59% 17.40% -0.80% Materials 11.92% 8.43% 3.48% Consumer discretionary 10.37% 8.80% 1.57% Industrials 9.32% 7.02% 2.30% Information technology 7.24% 4.06% 3.18% Consumer staples 5.39% 9.92% -4.53% Telecommunication services 4.54% 8.41% -3.87% Utilities 3.66% 0.11% 3.54% Health care 0.60% 1.51% -0.92% Annet 2.08% -0.00% 2.08% Total % % 0.00%

12 About ODIN Norge ODIN Norge is an actively managed equity fund that invests in the Norwegian stock market. The fund s long-term goal is to produce a higher return than the Norwegian stock market, measured by the fund s benchmark. Facts about the fund Manager Carl Erik Sando Manager since Benchmark OSEFX Oslo Stock Exchange Mutual Fund Index Basic currency NOK Management fee 2% Subscription/redemption fee Minimum subscription amount 0% NOK 3,000

13 About the manager The manager responsible for the fund, Carl Erik Sando, joined ODIN in March He has an MSc in Business and Economics and sound experience from working as a financial analyst (Elcon Sec, Alfred Berg, Pareto) from 1987 to 2006, and as a manager of Norwegian and Nordic share portfolios with the Government Pension Fund Norway (Folketrygdfondet) from 2006 to Carl Erik s long working life and broad experience of the Norwegian financial market have made him a recognised expert on the Norwegian stock market.

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15 Please remember Past performance is no guarantee of the future return, which will depend on such things as market developments, the manager s skill and the fund s risks as well as on the costs of buying shares and managing the fund. The return may be negative as a result of share prices falling. Statements in this report reflect ODIN s views on the market on the date when the report was prepared. We have quoted sources who are considered to be reliable, but we cannot guarantee that the information from these sources is either precise or complete. Employees of ODIN Forvaltning AS may trade in several types of financial instruments for their own account. This means that ODIN Forvaltning AS employees may own securities in companies that are referred to in this report as well as units in ODIN s mutual funds. Employees own-account trading must take place in accordance with ODIN Forvaltning AS s internal guidelines for employees own-account trading, which have been prepared in accordance with the Norwegian Securities Trading Act and the Norwegian Fund and Asset Management Association s industry standard. You can find more information at

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