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Hits and misses of 2016: DNCA’s Chebar talks stock specifics

Hits and misses of 2016: DNCA’s Chebar talks stock specifics

Opportunities for value investors are ripening as we approach the New Year, according to Citywire A-rated Isaac Chebar.

The manager of the DNCA Value Europe C fund has been buying more stocks over the past three months as more opportunities are rising compared with the beginning of 2016.

Many investments made in 2011 and 2012 are coming to fruition, he explains, as prices continue to climb.

The value manager takes Citywire Switzerland through some of the funds best and worst bets of 2016 – here’s a closer look.

Top plays

Stainless steel company Aperam has been one of the portfolio’s best investments, Chebar said.

In 2012, when he first bought into the global stainless steel firm, it was bearing €1.2 million of debt in a cyclical sector.

The the sector was consolidating in Europe and there were 1.6 million tons of stainless steel that were going to be out of the market because of closures.

Since then, the stock has almost tripled. Forming 3% of the portfolio in 2013, today it accounts for 1.7%, as the manager has cashed in on the investment.

There is still some upside, Chebar said, perhaps around 20%-25%.

French rail transport company Alstom has been one of 2016's biggest winners for the DNCA portfolio as the stock is up 30% since Chebar bought into it in May.

From €21.45 on May 13 2016, the share price is now up to €26.05 on December 12 2016, and the stock represents 2.53% of the portfolio.

Unfruitful investments

Chebar is an outperformer in his sector, but that doesn’t mean there haven’t been investments that didn’t go in his favour, he explained.

Recently, the manager has had to scale down on three or four companies, he said: ‘We take losses, it’s part of life.’ 

‘We think buying stocks is not a collection, we need to have a clearance on a portfolio construction and so we accept the fact that there will be some companies in the portfolio that aren't going to do really well.’ 

Here are a few the manager revealed haven’t performed to their best.

Pearson: According to the manager, their investment over the last nine months into Pearson was not a good one. In fact, it was a ‘disaster’, as he puts it. Despite ongoing difficulties, Chebar sees a margin of safety for believing that the share price can go back up so the money has been kept on the British company.

Ericsson: The manager was forced to cut his losses at 20% over three years in the face of difficulties in the firm’s management.

Unicredit: Chebar also cut losses on his investment in the Italian bank despite still thinking it is undervalued.

Big on banks

Banks are a big play for Chebar, who has been increasing his position in the sector despite it being the portfolio’s most macro call.

‘We chose to buy banks that were in situations where managements are taking harsh measures to restructure and improve their capital position.’

The tremendous stress in the banking sector is a result of the pressure of interest rates and capital regulations, Chebar said. It was for this reason it was time to start nibbling into the space, he explained.

‘It was too asymmetric not to have banks in the portfolio considering there was such a dislocation in the market between north and south.’

Nordic banks, which are a safe havens according to Chebar, are trading at 1.2x, 1.3 x book, and banks in Benelux are trading at 1.2x.  

The dislocation is between those and Southern European banks and German banks, which are trading between 0.3x and 0.7x.

‘It's tough, it's leveraged, and it's not comfortable but there's a lot of risk premium embedded on it.’ 

One of the ‘uncomfortable’ names in the portfolio includes Germany’s Commerzbank.

The portfolio also holds Société Générale, which represents 2.7% of the portfolio according to the fund’s latest factsheet from November 30.

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