Business

Fransisco Garcia Parames Likes BMW Preferreds

Francisco García Paramés

 


Fransisco is Managing Director at Bestinver. He is commonly called the Warren Buffett of Spain

Fransisco Garcia Parames, Bestinver Asset Management (Spain) – Two Decades of Finding European Value’, 

  • Keys
  1. Companies with
  • High ROIC
  • Sustainable
  • Correct attitude with cash flow
  1. Austrian School of Economics
  • Economic general structure
  • Human behavior
  • Euphoria & panic
  • Non predictable consequences in stocks
  1. Good profits due to
  • Share structure (family owned)
  • Type of shares
  • Geographical reasons (shareholders in different zones)
  • Long term (impatient markets)
  • Small caps (unnoticed)
  • Asset organization (holdings)
  1. Time
  • Patience
  • Psychological preparation
  • Client education
  • Austrian concepts
    • Markets never in equilibrium
    • Growth from division of labor and savings to finance
    • Government manipulation of interest rates leads to bubbles
    • Natural state of economy is deflation (more goods with same money)
    • Lack of anchor currency
    • General
      • Profit from growth in China is sustainable
      • Avoid countries not dealing with overinvestment
      • Most probable outcome is inflation
      • Avoid monetary investments – depreciation
      • Own real assets 9equities, commodities, real estate)
      • Economic scenario
        • Est. GDP growth in China 2012 7x higher (+599) than potential combination in southern Europe countries (-89)
        • How China grows
          • Average growth 4% 90′-08′
          • Growth due to internal development
          • Exports net of imports now little to economic growth (1% in 2011)
          • Despite surge in investment, capital stock per capita not even 15% of Korea
          • Outside of state owned (30% of economy), world’s most flexible and dynamic market
            • China’s rail network is less than U.S. in 1880
  • High savings rate
  • Financial system has little borrowing
    •  Loans/Deposits 0.66 (Spain 1.40)
    • In China bank crisis 2000 it was 0.90
    • Reasonable interest rates (mortgage 6% & 13% of all loans)
      • Borrowing from bank to buy land not allowed
      • Europe vs. USA
        • Europe less efficient
        • Less developed financial culture
        • Fewer value investors
        • Significant public family owned companies
        • Long term view (80% of Bestinver Investments)
        • Organic growth & productive M&A
        • Example BMW (BIT:BMW)  Preferred shares

                                                                            11           12           13e

  • Ordinary Shares P/FCF           5.8x        4.1x        5.7x
  • Preferred Shares   P/FCF        3.0x        1.5x        1.5x
  • 2013
    • Norm operating profit 8.2%
    • Company guidance 8%-10%
  • Why Preferred?
      • No liquidity, no voting rights
      • Employee incentives through preferred
      • Slightly higher dividend
      • Average discount of 5 largest German stocks with dual share 4%

    Value Investor Conference: Omaha, Nebraska – May 4th, 2012

    Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com)

    (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)