Everything has to change because nothing changes.

Here we are,

Goldman Sachs yesterday and JP Morgan today are making plenty of money and the newspapers are already talking about new record in terms of bonuses...

As Is -> To be -> As before
:-)

Financial crisis are unfortunately useful to the sistem to consolidate, to purge the inefficiencies and, furthermore, are necessary to make the market makers richer and richer.
Since you cannot create, but just transfer money from people to the system you have to create speculative bubbles in order to sell dreams to common people and make huge profits with commissions, management fees, titrisation and so on.

The big question is: where will be the next bubble?

Two basic ideas/possible candidates:

-Green stocks, supported by the 'green wave' which is hitting the plane
-Commodities, supported by the growing production in China and India.The famous BRIC; B and R will support the I and C with their huge amount of commodities in order to overlap the old players

Which is your idea about that?

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Picture from http://www.aeronautique.ma/

The Master and the Disciple

Wheneve you start an activity, playing tennis, chess, painting, is important to hav someone to look at as a Master, someone who you like and appreciate.

When I started to approach myself to the Stock Exchange I've found this master in th person of Warren Buffett, the greatest investor ever.

I've always liked his investment approach and techniqus, his deep look in the value of the Business more than the 'craziness of the Market'.

It has been a sort of awards for me when I've seent hat he had choosen to buy Constellation Energy, the US leader in nuclear energy production (bridge for EDF and, much more important to Value Finance portfolio, Areva).

Buffett's interest in this company shows that the new wave of nuclear energy generation is seen by him as a huge potential of growth: as we've already written in this Blog in the post Power from the Atom.

Furthermore, to improve our believe about Areva as great potential investment for next years long term growth, we can highlight the great financial result of the first semester of 2008 and the recurrent nomination of Anne Lauvergeon, Areva's CEO, as one of the most influent and powerful business woman in the world.

Q Cells Financials

Q-Cells is the World Leader in solar cells productions. We have seen in one of last posts the strategic point that has made it a good investment for our portfolio. Now it is interesting to dig a little bit and discover what is interesting to see about financial statements.
Analysing the CFO’s speech during last shareholders meeting we can easily appreciate the good financial condition of Q-Cells and the excellent perspectives for a long term durable growth.
Long term growth that has been designed with long term contracts with silicium suppliers and with the 5billion Bond that will be used mainly to finance the new production plants building in Malaysia and Mexico .

Looking at financial year 2007 we see the main figures:
-Production + 54%
-Sales +59%
-Operating Income 146 mill€ +52% on previous year (23% EBIT margin, good result, stable in comparison with previous results)
-Net Income +69% (17% of net income margin, good and increasing by previous years)

These data justify, on my opinion a P/E ratio quite high: 42.

Looking at the Relative cost graphics we appreciate the progressive lowering of the costs that shows the efficient cost cutting policy adopted by management. The relative cost of raw materials has had an extremely high reduction thanks to the management skills in signing long term contracts with the global silicon suppliers.
Looking at balance sheet we appreciate the current liabilities/current assets ration equals to 23% that guarantee strong solvability over short period and an excellent equity ration of 71% that guarantees an high level of stability over long period.
Looking at the expenses (investing) we appreciate the good effort make to enlarge the R&D department, to build an education & training center with the expansion of Q-Cells academy, all these things shows the desire to improve the research and the development of new technologies.

First Quarter 2008 keeps showing excellent performances with a plus 65% on sales and +50% of the production compared to first quarter 2007. It is furthermore interesting to see that Net income margin is stable despite a price reduction (one of the objectives ot Q-Cells is to sell cheap solar material to everyone, so it is normal a price reduction).

The outlook for next years is extremely ambitious with a sales target > 2,000million of Euro in 2009 and with an increasing production target for 2010 of thin film business (the future in this sector) of 400-600 MWp compared to the targeted 1,5GWp of the core business.

Of course, these are just projections and speeches, but there are some other things that should let you understand why Q-Cells is happily in value Finance portfolio (with a weight of 18% of total assets at today): its Investor Relations department has been ranked as 1st in TecDAX and 2nd in germany stock exchange. We like when company management likes to easily share informations with investors, that means they don’t need to cover anything.

One last reason to invest in this company? Stock Option plan for employees.
All Q-Cells employee can obtain stock option according to company results:
1)Q-Cells share has to outperform TecDAX at least 10% p.a. and
2) Achievement of company-specific targets, ie:
Improvement of cell efficiency
Reduction of cell thickness
Securing of raw matrial supply…

When people share the company’s success they work better and they allow the company to grow. I wish more companies will look at Q-Cells as example of how to treat employees.

German Sun for high returns

As we have seen in one of the past post Solar Energy is the less exploited of renewable energy sources. That means huge possible profits over next years.
Renewable energies seem to be the next big investment bubble (as telecom in late 90s), there are some companies trading with P/E ratio of over 300, especially in Wind energy and bio fuel production sectors.

On the other hand, in solar energy you can still find some company with low (relatively speaking) P/E.
Imagining a lower cost for solar equipments over next years, meaning a larger market for these energy productions, the companies who are leading the market of solar equipment production will made an enormous development and they’ll represent an excellent investment opportunity.
In 2007 there is a company who has become the number one in Solar cells production: Q.Cells.

This German company has overtaken Sharp in solar cells productions and it has become the World leader in this sector.

2007 has represented an incredible year for this industry with an overall market growth of 69%, despite of shortage of silicon, with an increasing of the significance of new technologies.

The estimation for next years growth are extremely favourable thanks to:
-increasing energy demands,
-increasing oil prices;
-climate changes problems
-promotion of PV becoming a global issue with many governments law adopted in order to help its developments

Q.Cells AG is a great opportunity to invest in this fast growing market; their vision is to give a cheaper PV system, with the best technologies, products and solutions to rapidly drive solar energy up.

As usual, before investing in a company we have to trust not only its business model and market potential, but we have to look into its management and believe in their skills and integrity. Q-Cells managers are young and driven by a strong passion for what they are doing, furthermore the employers policy is absolutely great and we can easily see that looking at the prizes they have won in 2008 and 2007 as ‘Best place to work’ and ‘Fair Company’ Awards.
Markets potential, management skills are part of Q.Cells successful history.
Stay tuned to discover the strong financial statements and strength and see with us why Q.Cells is part of Value Finance portfolio!

Sunny opportunity!

I publish a short post just to say that Solar Energy stocks are going down and down after some Government subventions reductions (Germany and Spain) and after the last month market crisis. So you have to jump on this sector as soon as possible if you were still out!

Stock prices are very interesting, with an average P/E far below the average of other alternatives energies. Government subvention reductions were already expected by everyone, this does not change the Sunny forecast on the long term growth of this industry. Furthermore we have to consider that a slow down when you are running very fast makes you running ‘only’ fast and not 'very fast' anymore.

A lot of portfolio manager all over the world are saying what I have already said in one past post: oil crisis could be a big opportunity of making money!

Solar Industry: keep bullish on long term!

Renewable Energies

Which is one of the less exploited renewable energy source?

The direct solar radiation.

Photovoltaic effect is the capacity of some materials to transform photon coming by the Sun directly into electricity. Looking at the total amount of energy generated by renewable sources we see that photovoltaic is by far the less important of the contributors.
On the other hand we have to think that 100 km2 of photovoltaic material placed in the middle of Sahara desert will supply the World demand of energy.

So, why this source is not exploited more?

The cost of photovoltaic material, solar panels, is the main answer. So far the dollar / watt for solar energy has not been attractive because of high prices compared to oil prices.

During last years some important changes have occurred:
-Germany and other nations has given important financial helps to people who wanted to buy and install solar systems
-Oil price incredibly rising
-Solar cell efficiency is improving thanks to new materials and new techniques (thin film, polycrystalline, ..)
-A great number of competitors have entered the market

A BBC research has shown that the global solar market is expected to grow from $13 billion to $32 billion by 2012, with thin film expanding 45% a year.
This seems to be a kind of gold mine for investors?
Or maybe it is only the next market bubble? Looking at last years index linked to these companies they have shown great grows and big returns over one years (100/200 % for some of them). Is that too late? Is it too dangerous to invest in this sector?
In every investment we know there is a risk, th great investor Hates taking risks and try in every possible way to avoid them.

Let’s have a fast look on this energy niche, let’s start with the CONS:
-solar energy is by far the most expensive of renewable energies
-solar index has already rocketed last two years according to the big earnings estimations, so all the main companies in this sector have had big over performances over last years
-Governments seem to be ready to reduce/eliminate the subventions and this will cause a big shock for the companies, is that shock already taken into account by today’s stock prices?
-There are a lot of little competitors, mainly because it is easy to enter the market because the technology needed is not too expensive/complicated.
-If you invest into Google or Goldman Sachs you will be sure to invest in two great investors in this kind of energy and you can profit of their search and analysis strength.

The PROS:
-even if the market has already rocketed, if we compare solar companies P/E with Wind companies P/E we see that by far the first one are much more cheaper than the seconds
-the market is a niche and it is so little but with a so huge potential that it’s easy to foreseen a multiple doubling of his % on total renewable energies market over next years
-there are some companies with already a good customer portfolio and international credibility with strong contracts with the main silicium suppliers for the next years.
-during the January stock exchange crisis these companies has lost a lot in terms of stock price pushing the P/E ration down, close to the fair value.

Analysing the risks of the CONS and trying to find out the best companies with the best financial statements and characteristics among the PROS the Value Finance portfolio has selected two companies working in this fields and they are part of our assets.

Power from the atom

Waiting for a totally clean and renewable energy source, capable to fulfil whole world energy demand, there is source which is pushing and demanding new spaces. Nuclear energy: this kind of CO2 free energy which is supplying about 17% of world production is becoming more and more important in our days and the forecasts show us a growing weight in next years.
Italy and Great Britain have joined recently France in the nuclear supporters’ lines and China is working hard in its nuclear plants system.
This energy niche has an absolute World Champion who is called Areva (CEI.PA): the French state owned reactor makers which is the absolute leader of nuclear supply chain.

Areva is extremely interesting because they’re covering the whole supply line by the mining to the recycling and radioactive wastes treatment, passing through reactors design and production.
Looking at the financial statements we can identify some weak points:
Balance Sheet: total current assets are increasing among last years but they are 2 billion less than Current Liabilities, this is not good for company solvency. By the way total equities are positive and increasing during last years. Total Debt/Total Equity=0.70 is good.
Cash flow shows stable cash from Operation which is insufficient to pay the company investment needs, that causes an issue of debts of 1,700 millions of euro to cover investments (the UraMin acquisition). By the way looking at the last 5 years we see that is the first big issue of debts and along years they do not put more stocks to raise funds and they have always paid dividends.
Income Statement: Total revenues are increasing of 8.4% over last year and 31% over last 5 years. Good but not excellent. Net Income has almost doubled over last 5 years. Return on Equity is only 10.8% and the Operating margin is 6.28%
P/E: 36.66
Dividend yield: 1.10%
After this analysis I would not choose to invest in this company: the financial picture of the business just sufficient: nothing exceptional.
So why has Value Finance portfolio decided to invest in this company?
Because I trust in the management: Anne Lauvergeon has a great vision and passion to work and promote the company all around the world, defending it by possible takeovers actions. French government is a great promoter of its jewels and Nicholas Sarkozy has always helped to sign new contracts all over the World during his first years of presidency. Furthermore: a possible additional IPO is possible in order to rising up the necessary funds in order to financ new investments: a bigger percentage of floating shares in the market, with its leading position, will push stock prices higher and higer.
New contracts every week, a global recognised leadership position from US to China, good management, a great recruiting strategy that shows positive outlook for future make Areva one of the leading lines of Value Finance portfolio with 18% of total assets at 23/06/08. Entering date into portfolio 14 feb 08.

Energy: old business model, great player.

The first company we are ready to talk about is E.ON AG. The German based energy supplier is one of the European leaders of Energy production and Gas distribution for industrial and retail market .
A long success history during last years, with increasing revenues and stock values, mixed with an extremely good balance sheet and a forward-looking management makes this company the must-have for Value Finance, till things will stay as now, of course.
Let’s start our analysis on financial data.

<- Stock price evolution during last years.

Tangibles data

Balance sheet: Looking at current assets and current liabilities, we can see that there should not be any cash problems in next future. In long terms analysis the amounts of total assets is increased of 10 bil euro last year, mainly for new plants building. Interesting indicators: Total Debt/Total Equity: 0,45 and Total Debt/Total Capital 0,31, both these indicators show a good financial situation.
Cash flow: the total cash from operation (which indicates the money amount generated by the compnay's core business) is increasing from 7,2 to 8,7 billion over last year. E.On AG has invested about 8,8 billions over last years in new plants and market development. It’s good to see that the amount of cash form operation and investing are almost the same, that means that investment could be almost all covered with Operations cash. Cash from financing is positive, 1,8 billion, mainly coming by a Debts issuing (bonds) to cover the investments. Good news by the buy-back of stocks (that’s makes shareholders more important adding value to single stock) and high level of paid dividends (one of the highest of German stock exchange).
Income statements: Looking at last years data there is a continuous strong Revenues and Net Income after tax growth; On long term, taking into account data from 2004 with forecast to 2009, the Average Growth rate has been of +13.24%.

Other key figures are: P/E : 14.01 (good in comparison to other competitors such as EDF 20 or Iberdrola 15.18)
Dividend yield 3.19%
Return on Equity: 11.93%
Renevue (5yr Growth Rate) 16.47% much more higher than Edf (4.28) Enel (8.44) and better than Iberdrola (13.38).

Intangible assets & Management

E.On is the market leader in central Europe with a strong position in UK and Italy too. Furthermore links between E.ON and Gazprom (i.e., Bergmann Burckhard, E.On Board Member, is Gazprom board member too) put E.On in a great advantage for Gas deal and distribution business. The management is extremely open to governance matters and HR management: E.On has been awarded as one of the Best Place to Work in Europe for several years, and employees productivity is one of the highest in this sector: revenue/employee of 893k euro, second only to Iberdrola with 928k euro. That means that E.On people are happy to work there and they produce well, this is very important in order to have a winner team. Management’s long term looks and sensitivity to the crucial problem of CO2 emission is extremely strong too and they have challenged the company to reach the 50% free CO2 energy in 2030.

These keys factors have induced me to put this company into Value Finance and it is worth 15% of the total portfolio’s assets. Entering date into portfolio: 31 jan 08
Last month performance :

Oil price running up: tragedy or opportunity?

Every day, if you switch on television or open newspapers, you can hear the same news: new oil price record. Old record breaks down!
If you have to full you car or take a plan, with the extra charges for fuel you are looking at this running up as a tragedy.

The point is that, as in everything, in every bad thing there is a big opportunity.

In this case the oil crisis could be seen as an opportunity to push with alternative energies, clear energy that could became more and more interesting fore the price comparison with oil and oil derivatives prices. This means a great advantage for planet because these alternatives sources are normally less polluting and, for people who will be able to surf the wave of alternative energies stocks identifying the best companies operating in this sector, a niche of investment market where you can look at hoping to find out big opportunity of return.

Looking at energy sector I have found out four companies to invest my money, money of Value Finance portfolio. These companies cover three different step of the evolution of this sector, or at least, the three steps I think will characterise next years:

1 old model based company. I have looked around in order to find out an old company with great tradition in this fields, with long success track made of dividends, strong management and good year by year return: the old winner.
2 in very next years I am sure there will be a source of energy, already known but not very clear and removable, that will be the reference all over the world because it is alternative to oil and with less pollution; I have chosen the best player worldwide in this niche of energy sector: the next winner.
3 between all alternative energy I have found out which, according to my ideas, hopes and analysis will guarantees the highest margin of return on investment and large market improvement; I have identified two future energy champions.

Let’s discover post by post these 4 companies.