RV Capital: Business Owner TGV vs. the DAX

RV Capital business owner V dax RV Capital
RV Capital

Dear Co-Investor,

The NAV of Business Owner was EUR 272.74 as of 30 June 2014. The increase in NAV was 13.7% since the start of the year and 172.7% since inception on 30 September 2008. The Dax was up 2.9% and 68.6% respectively.

RV Capital: Business Owner – How did our companies fare in 2013?

The best way to track the development of the fund is not through a six month change in the share price (which is random), but in the development of the earnings of the key holdings. My aim in this letter is to bring you up to speed on them. I will then explain how to get a free ski pass – the proverbial 100 Dollar bill hidden in the letter to test who has been reading it!

RV Capital: Business Owner holdings

Here is a table showing the earnings development of all companies as of year-end in order of importance to the fund:

RV Capital Business owner holdings

I will discuss the five largest holdings at the end of 2013 which were in the fund at the end of 2012: Grenkeleasing AG (ETR:GLJ) (FRA:GLJ), Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), Bayerische Motoren Werke AG (ETR:BMW) (FRA:BMW), Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), and Baidu Inc (ADR) (NASDAQ:BIDU). If I were to exclude the restriction that the companies have been in the fund for the whole year, the only change would be Novo Nordisk A/S (ADR) (NYSE:NVO) for Baidu. Collectively, the five companies accounted for 58.3% of the fund. If I included Novo, which I discussed a length in my last letter, the amount would go up to 74.4%, so I think this pretty much covers the waterfront.

RV Capital: Business Owner – Grenkeleasing grows and builds out its international network

Grenke, a provider of small ticket IT leasing, continues to go from strength to strength. Its new business, i.e. the sum of new leasing contracts, totalled EUR 1.2 bn in 2013, up 16% from the prior year. As in previous years, a growing share of its business is international and it continues to provide access to funding to small businesses in some of the most capital starved regions in Europe.

As in previous years, Grenke prefers to spend part of its increased revenue in building out its network in existing countries as well as in new ones. After stepping outside Europe for the first time in 2012 by adding Brazil, in 2013 it added Canada and Dubai. Furthermore, it added new offices in Madrid, Cluj-Napoca (Romania), Lugano, Rennes, Treviso, Antwerp, Graz, Glasgow, Geneva, Rio (Franchisee), as well as adding factoring to the UK. It is going global.

As a result of these investments, earnings growth lagged growth in new business at 10.6% whereby this is a more than respectable level. The natural operating leverage in this business will come through when its investment in expanding its network tails off. Perhaps this year could be the year..0

RV Capital: Business Owner – Free Ski Passes

Over the last couple of years, I have accumulated shares in Bergbahnen Engelberg-Truebsee-Titlis AG (SWX:TIBN), a ski resort operator in Engelberg, near Lucerne. In addition to paying a cash dividend, the Company gives its shareholders free one-day ski passes according to the formula, one pass per 61-300 shares and an additional pass for every 300 shares beyond 301 shares up to 15’000 shares. The upshot of this is that we are now the proud owners of 40 one day passes which are valid until 25 May 2015. If you would like a pass, please send me a brief email with the address to send it to. There should be just enough to go round, assuming not everyone takes up their allocation.

Shame on you!

Now, I know what you are thinking… “Rob only bought shares in the ski lift company to get hold of the free lift passes.” Shame on you!

Actually, the thought is not entirely implausible. Ski lift companies are generally awful businesses. There are nearly 100 listed ski lift operators in Switzerland and virtually all of them are loss-making and heavily indebted. The reason is obvious. They are of critical importance to tourism, upon which their local economies depend. Probably correctly, they are kept alive (and invested in!) even though many have little hope of making money. The result is chronic overcapacity and permanently low returns on capital.

It is no coincidence that ski lifts companies are generally thought of as “Liebhaberaktien” – meaning literally “lover’s” or “fan’s” shares – the implication being that you own the shares for emotional rather than financial reasons.

So why on earth are we invested in Bergbahnen Engelberg-Truebsee-Titlis AG (SWX:TIBN)? When I buy a stake in a company, I am looking for four and only four characteristics: a) a business which will be around and flourishing 10 or more years from now; b) a sustainable competitive advantage (“moat”); c) a management which is talented and honest; and d) an attractive price.

See full RV Capital: Business Owner TGV vs. the DAX in PDF format here.