Takeaways from the Wilhelmsen Capital Markets Day

I attended the Wilhelmsen Capital Markets Day in Oslo last week and it turned out to be fruitful in many respects. More than 100 people showed up and it was great to have the chance to exchange ideas with other investors and to meet management for the first time in a format that allowed plenty of time.

While there weren’t any ”breaking news” (plenty of those leading up to the event) Wilhelmsen’s investor day turned out to be a smörgåsbord of relevant information, and not exactly of the blue sky scenario garbage variety that is often dumped on investors at similar events. Those following the Wilhelmsen companies may have already seen the slide presentations but I will just add my 2 cents in a note-to-self format as things were said that weren’t in the slides.

Notes from Wilhelmsen CMD

The holding company, WWH (stock ticker WWIB):

  • The merger will add ”at least” 50-100 MUSD to the bottom line of WWL, primarily due to the utilization rate of the vessels improving. “At least” was new information to me.
  • Major reasons for the merger: Quicker decisions, less stalling = more manuverability in a market where margins are under pressure.
  • Share buybacks is not on the table currently. The overarching goal is ensuring long term value creation and survival by keeping the holding company net debt free as it is now (no bond debt to use for share buybacks in other words). Subsiduairies can potentially assume more risk in the form of debt – all at an arm’s length away from the mother.
  • Aquisitions targets need to be close to debt free (I like the sound of that!), dominant in their field and have an underlying positive cash flow. No experimentation that will endanger equity in WWH.

WMS:

  • Margin pressure. Outlook in the near term is cloudy.
  • Low customer credit default risk despite shipping customers hurting perhaps more than ever. Partly due to WMS being able to withhold vessels until payment has been obtained, meaning bills from WMS are not the ones you want to stall.
  • Interesting Survitec deal. 20% in a company that is a dominant market leader in all segments they enter into. High margins and nice pricing power. IPO potential in 2-3 years.

WWASA:

  • Margin pressure going forward. Merger to offset some of that.
  • Supply/demand under pressure as there is very little scrapping potential for the next 10 years world wide and the world fleet is younger than ever (Chinese boom 5-10 years ago to blame for that). Scrapping/new building-ratio does not look favorable many years out unless new building cancellations start to take place.
  • WWASA best in class? Utilization rate of 85-90% is above industry average of 80% and EBIT-margins seem to be better than their biggest competitors, though it is difficult to measure as the competitors are not pure RoRo players only and do not specify their margins by segments in their financial reports.
  • Mining is finally showing signs of improvement (Rio Tinto capex expanding again) and big opportunity for growth particularly in Australia where WWL has a strong inland logistics network.
  • WWL’s land based logistics business is asset light and has grown rapidly. Revenue now about the same as ocean transportation (although most of it comes from the low-margin distribution business). Margins from Terminals and Tech Services, which currently accounts for 40% of inland logistics revenue) are handsome in the 10-15% range. Long term contracts and cash flow is stable. In my opinion this change in revenue stream will lead to a repricing of WWASA further down the road.
  • The inland and ocean based businesses are separate financially, meaning should one experience difficulties it will not drag down the other.

Conclusion – what has changed?

Wilhelmsen Holding’s prudent capital allocation strategy means one can view an investment in the company as a storage of value with almost bond like safety while also getting the benefit of a lot of upside potential due to the generous discount-on-discount effect, which I find to be counterintuitive. A simple sum of the parts-valuation (based on mark-to-market pricing of WWASA, Treasure and Qube, book value of NorSea and EBITDA*6 for WMS) gives an upside of about 100% from the current market price. Added to that both the holdings in WWASA and Treasure appear undervalued (hence the discount-on-discount). Both of those companies probably have sharper upside potential in the near term but at greater risk, in my opinion, particularly WWASA.

Adding monetary experimentation and mindboggling politics into the equation

The current non-tested central bank experimentation, the weird political scenes around the world and high valuations in general leads me to believe that one ought to focus on safety rather than going for that extra percentage point here and there while exposing oneself to the enormous risks lurking out there. So in general I think defense is the play right now. In life the mindset of not losing is often equal to losing. But in investing there are times when not losing is a way to set the stage for winning…

9 thoughts on “Takeaways from the Wilhelmsen Capital Markets Day

      1. Thanks for the information! Investment vehicle you say… Would have like to get a more detailed description from TW about that and also what “further down the road” means 😉

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      2. When asked he emphasized the words “might be used”, as in possible but not very likely (my interpretation – I’d be interested to hear from others who were there). I take it to mean that aquisition targets that don’t suit the risk profile of WWI (which is very anti leverage) could potentially find a way into Treasure.

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      3. Thanks, couldn’t agree more on the reward vs risk of WWI vs underlyings TRE and WWASA. I am still confused what to own more of. I think owning a large chunk of one’s portfolio in WWI for longer term will be better than a smaller portfolio allocation trying to time TRE/WWASA. I currently own 5% portfolio in TRE and 20% portfolio WWI class B.

        Potentially used as an investment vehicle??
        –> After an “event” he might be waiting for at Glovis I suppose = Positive on the probability of this event.
        –> if they aren’t liquidating after getting cash for Glovis = Negative on the return of the event

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      4. Yes, I am thinking along the same lines. Either a larger position in WWI or a smaller one in WWASA and/or TRE depending on one’s near to mid-term worldview. I see danger and risk and therefore I opt for WWI primarily, though I also have a smaller stake in TRE.

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  1. Hi thanks for all your work on this blog.

    How do you feel about WWIB at 192nok currently?

    I’m really interested in this company due to the price/book value and possibly understated book value. However looking at earnings the current price is as high as it’s been since 2009 without earnings really trending one way or the other (ignoring the provision for the fine in 2015 earnings) and analyst aren’t expecting higher earnings between now and 2018. So I feel like we are requiring an expansion of the P/E multiple which doesn’t appear to be any lower than it has been in the past.

    Also if you were buying now would you opt for the A class or B class shares? The spread doesn’t appear that big to me at 192nok vs 197nok.

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    1. Hi Clark, I appreciate your comments. Still by far my biggest position so obviously I like WWIB at 192 though I took some chips off the table following the Trump victory over trade war concerns. A 50%+ weighting is just too much when the skies aren’t completely clear… But I don’t see how you can not have a multiple expansion given how the company continues to grow the shareholder equity by a healthy rate year after year. I see fair value around 300 NOK (other estimates I have seen out there are all higher) but the market prices the stock asif there is great danger to their business model and as if equity will be shrinking.

      With regards to a possibly understated book value… I actually did some work on that in this video from July of this year (from 26:00-40:00): https://hammerinvesting.wordpress.com/2016/07/10/video-post-wilhelm-wilhelmsen-holding-analysis-part-2/ The conclusion I arrived at was that yes, book value is understated but only on the margin (5% or so).

      I would buy the B share wehenever the difference is more than 2 NOK. In the past year the difference has often been 7-8 NOK and I see no reason for that given family control. Liquidity is only slightly worse in the B share. The only argument I can find for the A share is if you are a hedgefund looking to accumulate a big position.

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  2. Thanks a lot to Hammer for all good analysis. I started to buy WWIB in summer 2015 mostly for the same reasons, which I later found Hammer to confirm by his thoughts. Now I would like to add my opinion concerning the value of WWIB share. I believe that the most important reason, why WWIB is and has been so cheap, is simply that the investors are considering ro-ro shipping business as a slow growing or non growing one. P/E numbers for those companies or busnessies, which are expected to grow, are easily higher than 20, while WWIB has that normally between 4 and 5.

    What is very remarkable is that according to the last announcenent of Wilhelm Wilhelmsen the management believes that moving toward land-based logistic will be the key for the growth, which has been missing lately. In addition to that synergies due to the merge thing plus Survitec deal are supposed to improve earnings as well.

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