Annual and Quarterly Reports

So I haven’t written anything in a while, because really, there wasn’t anything to write about. I still don’t have much remarkable to say that I didn’t say already, but I’ll go over the freshly released results for the companies that I find interesting or that I’ve written about before in order to compare how my expectations aligned with reality. So let’s go.

ZVZD – A barely negative result in a quarter that is usually negative. Nothing great, nothing horrible, still boring and cheap.

KOES – Mild downsizing, but improved profitability. My guess is that the downsizing is a fairly temporary transition from CEFTA to EU markets. I believe the overall sales volume will increase in the future as new deals are made with EU grocery chains. Fundamentals are simply amazing – P/E 7, P/B and P/S below 1, debt 75%, EV/EBITDA 4.5…

SNBA – Still the cheapest bank on the Croatian market, but profitability is still low. At least it’s not negative, so I still consider it to be a good buy.

VPIK – A bit of disappointment here, getting to profitability may take longer than expected.

PTKM – A surprisingly good report (considering that mildly negative earnings are really good when measured by the standards of this company). What stands out is that their core business could actually be profitable if they weren’t stuck under a big pile of debt. Perhaps through some restructuring they could actually turn profitable, but that profitability will likely stay low for years to come considering the fact that their debt is huge.

RIVP – It looks as this year they may earn enough money to actually be forced to share some with their shareholders. I wouldn’t count on it, however, considering their good skills in hiding actual profits.

SAPN – C/P Koestlin, except with marginally worse stats, primarily in the form of higher debt.

BLKL – One of the best buys on the market IMHO. The stats are great. No debt whatsoever, good profitability, dirt cheap..what more to ask for?

RIZO – Starting to show some profitability, but not nearly as cheap as last time I mentioned them.

(The rest to come)


End of year results

By now most companies on the Zagreb Stock Exchange have published their yearly results for 2014, and here I will give my opinion on the results of the companies that I have or that I find interesting. So here we go, in no particular order. This list will likely be updated as new ones come about.

1. ZVZD – A pretty good report that reduced this stock’s P/E ratio to about 13. Considering the fact that the stock is still selling for 0.3BV and that cash itself makes up around 50% of the market value, this is as strong buy as any. There is a downside, however, and it’s related to the fact that it’s a part of the larger Agrokor concern. I believe that’s what’s behind their pretty wild cash flows, since Agrokor needed a lot of money to buy the Slovenian grocery chain Mercator. Still, the stock is pretty much as solid as ever, and not much is different from 2007 when it was going for approximately 8 times the current price.

2. KOES – It seems that nobody really cares about this stock aside from me and the current owners, but it is basically the same story as with ZVZD. P/E below 10, P/B and P/S around 0.3 make this company seriously undervalued. As it has happened with another company, ZVCV, KOES also made a deal with TESCO regarding the placement of their products on foreign grocery store shelves. Unlike ZVCV, however, this stock isn’t as loudly represented in the blogosphere, and as a consequence it seems that nobody even noticed that fact. Still, one day or another someone will notice, and the company price is unlikely to linger this low when that happens. Although the company is withdrawing from the CEFTA countries because of its EU membership, the same event caused its sales to grow significantly in many EU markets such as Poland. The net result is still somewhat lower sales, but the profitability is finally up, and it is likely to expect that sales will ultimately surpass those of the pre-EU era.

3. SNBA – the end result is more or less neutral. Although there is some marginal profitability at the end of the year, it pretty much amounts to 0. What is important, however, and what has nothing to do with the annual reports, is that the company won a hugely important lawsuit yesterday, in which another bank from Serbia, Jugobanka, demanded a hefty amount of money from SNBA. With that lawsuit out of the way, SNBA seems to be a really underappreciated stock with cash/share ratio of 75% and P/B value of less than 0.2. Their real estate alone is likely to be valued higher than the whole company.

4. VPIK – Still a cheap company, but with bad results. It is still in the process of restructuring though, and if history is any guide, Mr Todoric who now owns the company (as well as ZVZD) will most likely bring it up to par with the rest of his Agrokor portfolio.

5. DDJH – Horrible results, as I have expected. Half the money gained through recapitalization 3 months ago is already lost, and to make the matters worse, the state is now the majority owner. If this company loses the APC job, it will go bankrupt within days. If it wins, it will linger on with zero profitability for a year or so and go bankrupt then. What’s even more concerning is the fact that all avalilable cash has been transfered from DDJH (holding) to DDJ SV (special vehicles). I’m not quite sure what to make of this, but it may be that the government is trying to save what’s worth (DDJ SV) by sacking DDJH. In other words, DDJH will go bankrupt, and the creditors will get their appropriate shares in the DDJ SV. DDJH shareholders will lose all their money, but the banks will be partially compensated by gaining ownership of the new company. It will also be a way to privatize it, since no one in his right mind would give any money to buy the current DDJH stock. A bankrupcy, on the other hand, will force the banks to become owners. Keep in mind that this is just one of the many possible scenarios, but it’s one that would explain many things.

6. PTKM – A bad stock with bad results. Not much else to say here. I warned of this stock when it was over 300, and when many bloggers who are way more popular than me implied that it could go to 900. Well, it didn’t go to 900. It didn’t stay at 300. It’s 15 or something like that. Close enough to 0 that I don’t really care, it’s as good as bankrupt.

7. RIVP – Hey guess what? Count Eltz doesn’t really want to share his profits with anyone. So even though the hotel business is hugely profitable for him, it’s not really that profitable for the other shareholders. Whichever way he thought of to suck the money out of the company for himself is working, and I’m doubtful the company will ever post huge profitability, meaning that the shareholders are unlikely to ever get a significant dividend. I may be wrong on this one, but that’s the way I see it.

8. SAPN – The story here is similar to KOES (it’s also owned by the same Mepas group), but the debt level is higher at 220%. Still, it’s an undervalued company with decent results.

9. BLKL – I just recently found about this stock. Although I read about it on the same blog that used to root for DDJH and PTKM, the stock seems pretty cheap and profitable by all means. It’s basically in the same category as KOES.

10. RIZO – I don’t really follow the stock that much, except for one time I wrote about it when the price skyrocketed because of media attention. However, it seems to be a fundamentally good stock. One thing to worry about, however, is the fact that there’s a big lawsuit against the company organized by former workers for allegedly unjust layoffs. The amount of money they ask is quite large, so if that lawsuit succeeds, the company might end up in big trouble.

11. KOKA – Just copy and paste whatever I said for KOES here. Fundamentally, these two companies are almost exact equals.


This is a stock that used to show great potential back in 2007. However, years of state corporate mismanagement have made it an utterly horrible investment. Although a significant (for Croatian terms) activist investor bought the stake in the company, it seems that he hasn’t been capable of creating a turnaround, which is not surprising as the state still controls more than 50% of what’s left of the company.

The reason why I’m writing about this stock is twofold, but it is most certainly not going to be a buying recommendation. This is the stock that has been trumpeted for years as a magnificent investment, especially by the aforementioned activist, and I must admit that even I bought the story for a short period of time. The first reason is basically an illustrative example of how TA helped me identify the growth phase as well as avoid the crash in the midst of a flurry of optimism. My old readers know that they were not post hoc conclusions, but things I managed to identify in advance. The second is a nice pattern that formed afterwards which suggests some pretty gruesome targets.


There are quite a few things we can see on this chart. First of all, we can see a rising wedge (blue) from 2009 to 2012 which had a significant breakout with almost doubling in price. What we can also see, however, is that the peak resistance of 360 showed to be a strong barrier that wasn’t breached (except for one or two intraday trades). Now, remember, this was a time when the activist investor (I’m intentionally avoiding his name because I don’t want personal conflict, but everyone knows who he is) constantly implied the value of around 900kn between the lines, based on several year old market data. I believe it wasn’t an unintentional mistake, because when I warned of the drastic price fall in the fertilizer price and the resulting price mismatch, he erased my comments and banned me from commenting on his blog. Whether that was wishful thinking or price manipulation, I don’t really know or care, but in retrospect it was actually good thing, as it was one of the reasons that caused me to think more with my own head and focus on a blog of my own.

Anyway, what happened afterwards was something I warned of, and something not many people in the optimist crowd realized. Basically, the stock broke two supporting trendlines (the wedge trendline and another one colored green) and stared a dramatic downfall. Fundamentally, the fall was more than justified, as it turned out the company earnings were horrible without any realistic chance of improvement.

What’s nice about this whole situation is that we can see two totally different mechanisms (media hype and fundamental weakness) appearing in the charts one after another. The company wasn’t really that much better in 2011 than it was in 2012, but the hype made it seem so. If an investor went by fundamentals only, he’d never be able to gain on the initial price growth. If he based his actions on media hype and activist writing, he’d lose a pretty significant sum of money. TA is a great tool that helps us pinpoint when the change between the two trends might occur.

That being said, what’s the future of the stock in mention? Not too good I’m afraid. What we can see is a huge double top, starting its way all the way back in 2004 and lasting whole 10 years. This year it briefly stuck at the 60kn mark, which was the formation resistance line. After the resistance was breached, there was really no other way to go but down. Now, even though the target price of such a top looks to be somewhere between zero and a number too small to measure, I believe the line at the 15kn mark could be an interesting support point.

I do not believe the company has any serious chance of making it if it were left to market devices only, but since the state holds a significant share, I think it is likely that it may step in at one point and make yet another bailout (I believe it would be the third in the last few years). Now, if it manages to pack that with a company sale, I believe the investors who buy at slightly above 15 may stand to gain a significant profit, depending on the terms of the sales agreement. On the other hand, if the terms are unfavorable or if no buyers show up, it may as well go down to 0.

The fundamentals can be seen here , and they’re downright horrible. I won’t even bother with translation, because numbers speak for themselves. Just one hint – red is bad.