Weekly Notes #1

A new series of weekly observations on companies and the market

Stocks in this article:

Berkshire Hathaway (BRK-A), GFT Technologies (GFT.DE), Airbnb (ABNB), Activision Blizzard (ATVI), Markel (MKL), PayPal (PYPL), Ford (F), AT&T (T) and Anheuser-Busch InBev (BUD),

Hi there and welcome to my new weekly series, where I summarize for you my weekly observations of the market and interesting topics I found across a wide range of disciplines. If you find this interesting, please subscribe and follow me on Twitter for more updates.

Without further ado:

Berkshire Hathaway Shareholder meeting

Saturday was of course the highlight with the Berkshire Hathaway AGM. By attending, I realized a dream of mine to see two of my idols live. The atmosphere in the arena is unique and it is unbelievably impressive how fit Warren and Charlie still are at 92 and 99 years respectively. In addition to the many words of wisdom on the subject of investing, I now appreciate Charlie in particular more and more when it comes to life wisdom and the whole subject of philosophy of life.

GFT Technologies:

GFT Technologies is a German smallcap in the area of consulting, with a focus on digitization projects especially for banks and insurances. I bought my position in spring 2020 and added to it during summer of 2020. Needles to say, I am very happy with the performance since then (more than 3x).

This weeks earnings where fully in line with the expectations. But for some unknown reason the stock lost 13% during the day. This is my take on the earnings:

Compared to Q1/22: +10% in revenue as well as EBIT and EPS. All business divisions grew and I like the industrial business with +24% as this makes GFT more independent from banks and insurance companies.

Employee utilization decreased by one percentage point, which is likely due to the increased headcount (+8% FTE).

The outlook for 2023 was confirmed. I myself took a more detailed look at the company and business development yesterday and came to the conclusion that I will continue to hold my relatively large position, as GFT is super positioned.

I can't explain what triggered the share price drop. Therefore, I looked for news and saw this wonderful comment. Without words 😀

“One analyst saw his expectations as slightly missed and one trader pointed out that some investors might have hoped for an increase in the outlook.”

Interest rates and Balance Sheets:

I have always been a friend of companies with strong balance sheets. Right now, the change in interest rates shows another advantage: cash is earning interest again.

For example, Airbnb generated 146m of interest income in Q1/23 compared to 5m in Q1/22. Without this strong interest income, net income would have been negative in Q1/23. There is now 10Bn of cash on the balance sheet plus 7.7Bn of restricted cash held on behalf of customers.

Activision Blizzard has 12.5Bn in cash and short-term investments and earned 126m in Q1/23. In Q1/22 it was only 1m.

What applies positively to cash-rich companies, however, also applies inversely to heavily indebted companies. Here, the upcoming refinancing will be considerably more expensive and for some companies the additional interest burden will eat up all the profits. Ford, AT&T and Anheuser-Busch InBev, my thoughts are with you.

Markel and Tom Gayner:

I joined the Markel Omaha Brunch on Sunday last week in Omaha and was deeply impressed by Tom Gayner. The name Mini-Berkshire is fully justified and I will dig more deeply in the stock. Currently I am only holding a small position and will most likely increase my share in this outstanding managed company. His thoughts on inflation as an inversed curfew where quite entertaining.

A high interested rate is like a curfew at 6pm. Nothing bad will happen. The further you stretch out the curfew (10pm), the more interesting or stupid things will happen. If there is no curfew (read close to 0 interest rate) then a lot of things will happen.

Paypal:

Paypal presented strong numbers and the stock took a beating (yet again). I have increased my position in Paypal after earnings and I am surprised to see such a well running company at a forward PE of 11.5 and an EV/FCF of 13.5.

This reminds me of Meta a couple of months ago, when the world was mourning the death of the stock and that META will never recover. I was buying shares back then and the only regret I have, is not having bought more shares.

Activision Blizzard:

The sword of the UK regulators is still dangling over the announced takeover through Microsoft. Despite all of these political topics, we are looking at a very interesting case here:

Either Activision Blizzard is taken over at 95$ a share, which would be a smooth 24% arbitrage play,

or the takeover will be blocked, in which case Microsoft has to pay Activision Blizzard 3bn in cash. With 3bn of cash, Activision’s cash pile would grow to 15.5bn and the EV/FCF multiple would come down to 23.5 for probably the best game publisher outside of China. I have used this chance and increased my position earlier this week.

That’s it for this weeks newsletter. I hope you enjoy the content and I would be more than happy if you subscribe and follow me on Twitter. See you next week.

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Invest at your own risk, this is not financial advice!