Jan Hummel: Long WashTec & Ekornes (Sohn London Conference) ~ market folly

Monday, November 26, 2012

Jan Hummel: Long WashTec & Ekornes (Sohn London Conference)

Continuing our series of notes from the Sohn London Investment Conference, next up is Jan Hummel of Paradigm Capital.

Jan Hummel is the founder of Paradigm Capital Partner AG, a privately owned investment manager. He is also the portfolio manager of the Paradigm Capital Value Fund. Paradigm invests in equity markets across the European Union region with a focus on the Nordic countries, German speaking regions, and the United Kingdom.

Hummel looks to invest in companies that:

- Can compound over time
- Produce a high return on capital
- Have managements that can allocate capital intelligently
- Are cheap

Long WashTec

WashTec AG is a German based developer and provider of vehicle washing systems – in-bay car washes. The Company offers roll-over wash equipment, self-service wash equipment, commercial carwash equipment, wash tunnels and water reclaim systems.

67% of its customer base is from large oil companies. Supermarkets and independent entrepreneurs are also important customers.  The in-bay car wash business has high fixed costs and the company makes much of its income from  keeping the car washes going.

For example, it offers call-out service, wash chemicals, spare parts  and servicing packages.  Hummel argued that in recent times WashTec had failed to allocate capital intelligently as they had  made some poor acquisitions.

He gave the impression that Paradigm had recently been involved in  a successful activist campaign to replace a WashTec board member and that as a result in July the company had agreed to introduce a share buyback policy.

Long Ekornes

Ekornes is a Norway based company engaged in the manufacture of furniture. Its most important  product and brand is the “Stressless” chair.

Hummel pointed out that a Norwegian furniture business was unusual and counterintuitive. Most  furniture these days is manufactured in China and certainly not in Norway, one of the highest “high  cost” countries.

- Ekornes return on capital is high though
-  It is a resilient business that grew throughout the financial crisis
-  The marketing strategy is good
- The business is cheap trading at 7x enterprise value to EBIT
-  The production process is highly automated with a great ability to vary output up or down according to demand
-  Production staff are paid in accordance to their skill and output

Hummel believes Ekornes’s share price has lagged recently due to Orkla, a large Norwegian branded  consumer goods company, selling down their stake. Orkla’s selling has acted like a “wet blanket”  on the Ekornes’s share price and is producing a buying opportunity.

For the rest of the hedge fund presentations from this event, head to notes from Sohn London Investment Conference.

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