6. jan. 2013

Oslo Bors VPS ASA (OSLO:NS)


Oslo Bors VPS ASA @ NOK 43/share: Boring, neglected, stigmatized and misunderstood. Screens incredible well given 7.5x EV/FCF (severely depressed FCF with worst-case adjustments on both equity trading and VPS settlement fees), ~50% of current market cap in cash (much of the cash is currently trapped which has been reflected in the conservative estimate of EV). With a sustainable dividend yield of ~10%+ you`re also getting paid handsomely while waiting for activity levels to pick up. Terrific implied market odds, - nothing great needs to happen despite plenty of positive triggers going forward.  

To summarize: A very favorable risk/reward proposition.

Update April 19, 2013

What attracted me to OSLO initially were double digit FCF yields where essentially all of the cash flows are being shared with shareholder via dividends. I also loved the fact that you end up with a mid-single digit EV/FCF multiple despite being very conservative on free cash in the estimate of EV as well as using a very depressed FCF in the denominator assuming current depressed activity levels will remain the same for a long time (despite the cyclical nature of this business, although pre-2008 levels are probably gone forever). Moreover, the news flow surrounding OSLO lately has turned from being very negative to quite positive with a number of potential IPO candidates and more optimism in general towards equities (It will also be interesting to eventually see the “good side” of operational gearing if activity levels turns positive again, this time with a leaner cost structure).

Triggers going forward (which in my opinion still are not discounted in the current share price):

1) Norwegian parliamentary election in September this year where the Conservative Party have done really well on recent polls The Conservative Party have had several meetings with Oslo Bors VPS in the past and they`ve brought forth many of the arguments made by Oslo Bors VPS historically related to the need for softening of the merger conditions from 2007 and the competitive environment in general. They actually made a very compelling case, but the Labour Party have so far not been willing to initiate any measures to improve the competitiveness of Oslo Bors VPS. Some of the conditions they want to soften include the current prohibition of outsourcing core business functions, right now they have major overlap of similar business functions (e.g. three IT departments, two legal departments and so forth), and they need to run more clean and efficient to be able to compete with their European peers. There are also some excessive capital requirements imposed on VPS and the “trapped” cash in particular. However, there is going to be an election in September this year and the Conservative Party is doing really well on recent polls and this could be a major trigger for Oslo Bors VPS if The Conservative Party wins the election, given their willingness to actually improve the competitiveness of Oslo Bors VPS. A softening of the merger conditions from 2007 could mean significantly lower fixed costs and lower capital requirements.

2) Change in current ownership rules of Oslo Bors VPS (the current 20% ownership rule are now being changed and if it disappears entirely OSLO could become a much more likely buyout/merger candidate

3) New application for listing on its own exchange post parliamentary election (should screen very well on most screens if the shares were listed on a real exchange, i.e. available for more institutional investors) I do think there still will be competitive pressures on the VPS business going forward, especially the revenue streams related to VPS settlement fees, however, I don`t perceive this to be a significant threat to the overall thesis.

The VPS business or rather the “infrastructure” part of OSLO has different types of revenue streams including investor and issues products, annual issuer and member fees, information revenue as well as mutual fund products. These revenue streams have held up quite well historically and as long as Oslo Bors remain the main gatekeeper for companies within seafood, shipping and energy, we should be ok.

Feel free to contact me if you have any questions regarding the OSLO case.

Update 13 april 2014 - Q1: Utbytte og Dagens Risk/Reward

Fikk spørsmål rundt mulighetene for ekstraordinært utbytte etter salget av Oslo Clearing som forhåpentligvis blir sluttført neste uke. Kanskje det er interessant for flere.

Slik jeg har forstått det så var under 1 NOK eller ca 35M av fjorårets utbytte distribusjon av kapital fra Oslo Clearing som alltid har vært overkapitalisert. Etter denne distribusjonen så er kapital knyttet til Oslo Clearing på rundt 135M. Avtalen med SIX er at Oslo Børs VPS mottar 180M forutsatt en kapitalbase på 120M. Siden clearing businessen faktisk tjente noen kroner i 2013 så vil kapitalbasen være > 135M og pengene som Oslo Børs VPS (holdingselskapet) vil motta fra SIX, vil bli 195M forutsatt ingen skatt. 195M / 43 = 4.5 kr / aksjen som kan bli distribuert til aksjonærene i tillegg til de 7 kronene (300M) som kommer nå i mai. Tilsammen snakker vi da om 11 kr i utbytte i år hvis de distribuerer 4 for clearing. Det er ikke garantert at disse blir betalt ut men alt annet ville vært rart. De kan evt kjøpe tilbake aksjer men det også ville vært overraskende.

 Dagens selskapsverdi er på rundt 3,1 mrd der fri distribuerbar cash på ~180 mill er fratrukket mcap. Fri cash =(1992,274+446,524-1420,352)-146,507*0,72-135-110-240+42,3*(1-0,28)+195-473. Det meste fremgår av balansen i Q1-rapporten som kom i dag men legg merke til at 146M er pensjonsgjeld etter skatt, 135M er låst (men snart frigjort) kapital knyttet til Oslo Clearing, 240M er låst kapital knyttet til VPS og 110M er låst knyttet til Oslo Børs og de siste 42M er gevinst etter skatt ifm. overgangen fra ytelse til innskudd. 195M er distribusjon fra Oslo Clearing og de 473M er totalt utbytte på 11kr/aksjen. Alle oppkjøpene er hensyntatt (fishpool, burgundy og evolution).

Dagens risk/reward er selvfølgelig ikke like asymmetrisk som den var desember 2012, men så har EPS vekst fra et depressivt nivå, godt hjulpet av solid operasjonell gearing, gjort sitt til at OSLO egentlig aldri har blitt spesielt dyr. Gitt dagens EV på 3,1 mrd handles OSLO på rundt 11 ganger inneværende base-case-FCF (etter skatt) fallende til 10x på 2015 estimater. Run rate tall basert på Q1 tilsier lavere multipler. Dette er altså post utbytte på 7+4=11 kr. Ser man på EV/EBITA snakker vi om ~8,5x for inneværende år (base-case). 80M av inntjeningen i 2013 var ekstraordinær fra Burgundy og dette bidraget stort sett bort i 2014 ifg guidance i Q1-rapporten (Burgundy ble kjøpt for ingenting og kom med 52M i cash).

En måte å tenke valuation på er å se på ren utbyttekapasitet og IRR frem til utgangen av 2016 (utbytte på 11 i 2014, 6,5 i 2014 og 7 i 2016) og kjører en exit-multippel på 11x på base-case estimater i 2016 er oppsiden rundt 50 %. Hvis man strekker utbyttekapasiteten en del (11 kr 2014, 7,5 i 2015 og 9,5 i 2016) med en exit-multippel på 12,5x på optimistiske tall i 2016 + net cash, så snakker vi om en dobling fra dagens kurs.

 kjetil