James Hanbury (Odey) Long Plus500: Sohn London Conference

We're posting up notes from the Sohn London investment conference.  Next up is James Hanbury of Odey Asset Management who presented a long of Plus500 (LONG:PLUS).


James Hanbury's Sohn London Conference Presentation

Long Plus500 (LON: PLUS)

Plus500 is a CFD trading business. Its main competitors are IG Group, Saxo bank, CMC. It’s a fintech business and very much a technology company. In the last 3 years: revenue 38% CAGR, EPS 58% CAGR, EBIT margin 59%. It is best in class with a very high return on equity. Cash conversion has been excellent. At the IPO in 2013 they raised £22m in primary net proceeds. Since then, they have returned nearly £850m to shareholders, mainly in dividends. Over and above this, there is £200m excess cash on the balance sheet.

Can Plus500 keep generating this level of cash and what are the barriers to entry? Plus500 offer negative balance protection to all customers. As a customer with Plus500 you can use lots of leverage but not lose more than your deposit. The competition does not offer balance protection because it’s difficult and expensive requiring good risk control. Plus500 also offer spreads that are 10% to 15% inside other CFD brokers.

Hanbury said that you can tell a good disruptive business by its revenue / employee. Plus500 £1.5m/ employee compared to the two strongest competitors: IG Group £300,000/ employee and CMC£200,000/ employee.

Plus500 has good marketing. It has invested in machine learning and artificial intelligence to produce algorithms that place adverts on Google, Twitter and other web sites. It spends more on marketing in absolute terms than competitors and more as a percentage of sales. Even though they spend more on marketing their fixed costs are lower: Plus500 12%, IG Group 50%, CMC 60%. Plus500 has been taking market share every year. It is the market leader in the UK, Germany, Spain, Australia.

What are the risks? Plus500 has been hit by ESMA regulatory changes over the last year that have reduced customers’ ability to take on high levels of leverage. The European area represents 70% of its revenues. There are also similar regulatory changes taking place in Japan and Australia. Hanbury believes that in a tough regulatory environment the tough will get stronger and the weak will get weaker. Expect the number of operators to decline. Having less leverage will be better for customers. Since the ESMA changes, Plus500 have reported falling customer acquisition costs, churn has hit record lows and the win/lose ratio for customers has been improving.

Part of the bear case for Plus500 is that customers are often inappropriate, low value and don’t last long. However, the percentage of customers who have been with Plus500 for more than 1 year is high at 73%. Expect that number to improve further in the new regulatory environment.

It’s important to remember that one of the most important drivers of revenues for a CFD trading business is market volatility. Plus500 do well in difficult markets.

Another aspect of the bear case is that the business is high risk. Plus500 now has a full listing on the main market and has the best transparency in the industry. The market has not fully appreciated that it doesn’t hedge its positions. Instead they limit customers’ position sizes. They are very happy to have whale traders, but they don’t like single whale trades. Their profile of winning/ losing days is extremely impressive: 85% of days are winning days. They do have big losing days. The biggest one came on a day in the Crypto craze in Oct 2017 where they lost £3.5m. Hanbury’s view is that is easily coverable by the £200m cash on the balance sheet. When there are high levels of downside volatility, Plus500 tends to make back money that it has lost quickly because volatility stimulates activity elsewhere.

Plus500 has started to buy back stock. In the current market there is potential for them to make a good acquisition. They could move into new markets like stockbroking, ISAs and new geographies. It is the best business in the industry yet it has the cheapest valuation 2.3x EV/EBIT 2020. PE 5.3x 2020.


Be sure to check out the rest of the presentations from Sohn London conference 2019.

Maverick Capital & Odey Out Buying AO World Shares

Lee Ainslie's hedge fund firm, Maverick Capital, has disclosed a holding in London listed online retailer AO World (LON:AO).  Due to trading on March 16th, Maverick hold the equivalent of 3.31% of AO's voting rights via a total return swap.

AO World recently traded around 330p / share and now trades at 182p.  Maverick first disclosed an interest in AO in November 2014 but sold enough shares to go below the 3% disclosure threshold a few weeks later.  You can view other past portfolio activity from Maverick here.

Crispin Odey's firm Odey Asset Management have held AO stock for over a year but due to trading on March 13th, 2015 increased their stake substantially from 5.03% to 10.09%.  About 40% of Odey's holding is held via derivatives.

Per Google Finance, AO World is "an online retailer of domestic appliances. The Company sources, sells and delivers domestic appliances, including washing machines, washer dryers, tumble dryers, dishwashers, refrigerators, freezers, ovens, range cookers and microwaves, as well as a range of small domestic appliances, including vacuums, floor cleaners, coffee machines, mixers and food processors. The Company’s sales activities are focused primarily on sales of appliances through the Company’s branded Websites, principally AO.com. The Company also offers ancillary services to its AO Website and third-party branded Website customers, including delivery, installation, removal and recycling services and sales of third-party product protection plans."

Odey Reveals Tungsten Corporation Stake

Crispin Odey's Odey Asset Management has disclosed a new position in London listed Tungsten Corporation (LON: TUNG).  Due to trading on July 21st, Odey hold 5.21% of Tungsten's voting rights.

Other large investors in Tungsten include Wellington Management with 5% and GLG Partners with 3.63%.  Tungsten is a relatively young business which floated on AIM back in October 2013.

Per Google Finance, Tungsten "is the holding company of OB10 Limited and its subsidiaries. The Company together with its subsidiaries is engaged in the provision of electronic invoice delivery (e-invoicing) to suppliers and buyers. OB10 Limited provides services, such as e-invoicing, where suppliers can send electronic invoices to their customers, eliminating the need for paper documentation; purchase order services, where buyers can send purchase orders to their suppliers; invoice status services, where suppliers can establish the approval and payment status of the invoices they have sent to their customers, and payment services, which includes solutions to enable supply chain financing. The Company operates in European Union, America and Asia."

Odey Adds to Epistem Holdings Position

James Hanbury's Odey Absolute Return hedge fund has more than doubled its stake in London listed Biotechnology support company, Epistem Holdings (LON:EHP).

Due to trading on January 31st, Hanbury's fund increased their holding from 6.46% to 15.51%.  The Odey group of funds often share positions but in this case it looks as though Hanbury's fund is the sole owner.

Hanbury's fund also disclosed a new position in Wolfson Microelectronics last week.

Per Google Finance, Epistem Holdings is "a holding company. The Company is engaged in  provision of services to the biotechnology and pharmaceutical industries, covering pre-clinical   testing and gene biomarker and diagnostic services and the development of novel therapeutics for   partner companies. The trading activity of the Company is principally undertaken in the subsidiary   undertaking, Epistem Limited. The Company operates in three segments: Contract Research   Services, Personalized Medicine and Novel Therapies. Contract Research Services provides pre- clinical testing services. Personalized Medicine specializes in molecular measures of biological effect   and point of care molecular diagnostic testing. Novel Therapies is discovering key regulators of   epithelial stem cells.”

Odey Starts Wolfson Microelectronics Stake

Crispin Odey's firm Odey Asset Management has disclosed a new position in London listed Wolfson Microelectronics (LON:WLF).

Due to trading on January 28th, Odey own the equivalent of 5.95% of Wolfson's voting rights.  The whole position is held via CFDs/derivatives.

James Hanbury's Odey Absolute Return hedge fund appears to be the main holder.

Per Google Finance, Wolfson Microelectronics is "a semiconductor company.  Wolfson is principally engaged in the design, manufacture and supply of high performance mixed- signal integrated circuits for the consumer electronics market. It segments include Audio Hubs and   Discrete and Power Products. Audio Hubs includes the supply and sale of Wolfson’s Audio Hubs   high performance audio integrated circuit solutions. Discrete and Power Products includes the   supply and sale of integrated circuits, which are discrete components, such as Analogue-to-Digital   Converters; Digital-to-Analogue Converters, This segment also includes those components which   are power management integrated circuits and the silicon microphone devices based on Micro- Electro-Mechanical Systems (MEMS) technology. The Company focuses on high definition (HD) audio   systems-on-chip (SoC), and noise reduction and sound enhancement software. During the fiscal year   ended January 1, 2012 (fiscal 2012), it acquired Dynamic Hearing Pty Ltd.”

You can view other recent portfolio activity from Odey here.

Odey Disclose Arrow Global Stake

Crispin Odey’s Odey Asset Management has disclosed a new position in London listed Arrow Global (LON: ARW). Arrow made its stock market debut in October, raising £139m.

It looks as if Odey picked up most of their shares in the secondary market due to trading on and before November 26th. Odey hold the equivalent of 4.94% of Arrow’s voting rights. About 35% of the position in nominal terms (not delta) is held via derivatives. The Odey Absolute Return fund managed by James Hanbury is the main holder. 

Per Google Finance – “Arrow Global Limited is a provider of debt purchases and receivables   management solutions. The Company’s portfolio consists of a range of consumer and commercial   credit, including credit card, personal loans, utilities, retail, second liens and telecommunications.   The Company includes the development of its Collections Bureau, which is available for use industry- wide.”

We've covered other recent Odey portfolio activity here.

Odey Adds to Shanta Gold Position

Crispin Odey’s Odey Asset Management has been adding to its holding of London listed Shanta   Gold (LON: SHG). Due to trading on October 10th,  Odey now own 16.1% of Shanta’s voting rights.  

It has been nearly a year since Odey first disclosed a stake in Shanta. Since then, they have filed eight times to disclose an increased holding. Odey seem to have bought between £17 and £9 per share, adding to their position as the price has moved downwards.

Although it has moved down considerably, Shanta’s stock price has not been as volatile as many other gold miners during the last year.

Per Google Finance - “Shanta Gold Limited is engaged in gold exploration, development and mining in Tanzania. The Company’s properties include New Luika, Lupa Goldfields , Singida, Mgusu, and Songea. The Company’s portfolio of properties includes approximately 35 prospecting licenses, which covers a total surface area of approximately 962 square kilometers. Its flagship project, New Luika Gold Mine has approximately five prospecting licenses covering approximately 199 square kilometers.”

You can view a recent interview with Crispin Odey's market outlook here.

Interview with Crispin Odey on Market Outlook, Strategy & Delta Airlines (DAL)

Crispin Odey of Odey Asset Management was recently interviewed by Killik & Co and talked about his general view of markets, his strategy in his funds, and one of his favorite stock picks: Delta Airlines (DAL).


Odey's Strategy

On his strategy: "The whole idea was to protect people's capital, but to take advantage of any opportunities that were coming along."

Odey likes to look for new trends.  While it's a global fund, it has a high European bias due to the fact that that's where their expertise lies.


Odey's US Market Outlook

His medium-term outlook has been more optimistic than most about the US and he mentions he's worried about the recent mention of tapering, saying it would be "difficult for equities and the stock market."  So he's not quite as optimistic as he was.


Delta Airlines (DAL)

One of the ideas Odey likes is Delta Airlines (DAL) "because it's making a 6% return on sales and valued at 60% of sales."  The airline industry hasn't made money in the States but things have changed now due to all of the industry consolidation.  He likes that there's full capacity on the planes these days and fancies the stock over the next 2-3 years.

Embedded below is the interview with Crispin Odey:



For more on this manager, we've posted up some of Odey's portfolio activity here.

Odey Starts Enterprise Inns Position

Crispin Odey’s hedge fund Odey Asset Management has disclosed a new position in London listed Enterprise Inns (LON: ETI).  Due to trading on July 22nd, Odey hold the equivalent of 5.1% of Enterprise Inns' voting rights, all via contracts for difference (CFDs).  We say ‘equivalent’ because CFDs do not confer voting rights.     

In the past, at least one of Odey’s funds has held a short position in Enterprise Inns.  Back in 2009 the Odey UK Absolute Return Fund, managed by James Hanbury, was short ETI as part of a bet that the UK consumer would suffer from a lack of spending power.   

Larry Robbins’ Glenview Capital had also held a large position in Enterprise Inns held via total return swaps.  The last filing by Glenview on Enterprise Inns that we have seen was made in March 2010 when they held the equivalent of 12.27% voting rights.   

Per Google Finance – “Enterprise Inns plc is engaged in the operation of public houses under the leased and tenanted pub model. This involves the granting of leases to Publicans who operate the pubs as their own businesses and who must pay rent to the Company, purchase beer and other drinks from the Company and enter into income sharing arrangements with the Company in relation to income generated from leisure machines. All of the Company’s public houses are situated in England and Wales. The Company’s subsidiaries include Unique Pub Properties Limited, which is engaged in the ownership of licensed properties, and The Unique Pub Finance Company plc, which include financing acquisitions of licensed property. On December 23, 2011, it completed the sale and leaseback of a portfolio of 17 pubs. In March 2012, Fuller, Smith & Turner P.L.C. completed the purchase of 15 freeholds, tied and tenanted pubs from the Company.”

For more on this fund, head to some of Odey's other recent portfolio activity.

Odey Discloses Ocado Group Position: Hedge Fund Battleground Stock

Crispin Odey’s Odey Asset Management has disclosed a 5.04% holding in London listed Ocado Group (LON: OCDO).  Whilst it was known from their letters that Odey were long Ocado, the size of the stake was unknown until now. 

Fellow UK-based hedge fund Lansdowne Partners also hold a large portion of Ocado stock, with a 5.72% holding that they disclosed in November 2012.   


Ocado: Hedge Fund Battleground Stock

Ocado has been somewhat of a battlefield for large hedge funds.  While the UK funds listed above are long, numerous big US-based funds are short, including Jim Chanos' Kynikos Associates at -3.44% and John Griffin's Blue Ridge Capital at -1.17%.   

The longs have had the best of it in recent months.  A short covering rally since December has seen     the net short position in Ocado shares decline from 17% to 11% and the stock rise by over 3 times from 80p to 260p.   

Late last year, we highlighted hedge fund short positions in the UK for those interested.


About Ocado Group

Per Google Finance – “Ocado Group plc is a United Kingdom-based holding company. The Company is an online grocery retailer. The principal activity of the Company, along with its subsidiaries, is retailing and distribution of grocery and consumer goods within the United Kingdom. The Company owns Ocado Holdings Limited, which holds the entire interest in Ocado Limited. The principal activity of Ocado Limited includes retailing and distribution of grocery and consumer goods. On February 9, 2010, the Company acquired Ocado Limited. The Company's wholly owned subsidiaries include Ocado Holdings Limited, which is an holding company; Ocado Limited, which is engaged in retail and distribution; Ocado Information Technology Limited, which is engaged in intellectual property, and Ocado Cell in Atlas Insurance PCC Limited, which is an insurance company. Ocado Holdings Limited is a 100%-owned subsidiary of Ocado Group plc.”

Odey Asset Management Reveals Epistem Holdings Stake

Crispin Odey's UK firm Odey Asset Management has disclosed a new position in London listed Epistem Holdings (LON:  EHP). Due to trading on the 12th of April, Odey hold 5.02% of Epistem's voting rights. It appears that the Odey UK Absolutue Return Fund, managed by James Hanbury, is the main holder of the position with 4.2% of voting rights. 

Per Google Finance - "Epistem Holdings Plc is a holding company. The Company is engaged in  provision of services to the biotechnology and pharmaceutical industries, covering pre-clinical  testing and gene biomarker and diagnostic services and the development of novel therapeutics for  partner companies. The trading activity of the Company is principally undertaken in the subsidiary  undertaking, Epistem Limited. The Company operates in three segments: Contract Research  Services, Personalized Medicine and Novel Therapies. Contract Research Services provides pre-  clinical testing services. Personalized Medicine specializes in molecular measures of biological effect  and point of care molecular diagnostic testing. Novel Therapies is discovering key regulators of  epithelial stem cells."

You can read about other recent portfolio activity from Odey here.

Crispin Odey Starts Car Phone Warehouse Position

Crispin Odey's hedge fund, Odey Asset Management, has disclosed a new position in London listed Car PHone Warehouse (LON:CPW).

Due to trading on January 29th, Odey hold the equivalent of 5.03% of Carphone Warehouse's voting rights.  They hold 2.77% via contracts for difference (CFD) which are explained via that link.

Odey typically buy stocks that have undergone a large price decline or at least a significant pullback, but in this case they purchased Carphone Warehouse around its 12-month high.  CPW does trade on a very low trailing P/E ratio and this may have been one of the factors that attracted Odey.

For more activity from this hedge fund, see Odey's portfolio activity.

Per Google Finance, Carphone Warehouse Group plc "principally consists of a 50% interest in the  Best Buy Europe Group and a 46% interest in Virgin Mobile France. It is involved in the management  of these businesses. The Company’s other assets consist of property, cash and loans receivable. The  Company’s Property comprises four freehold properties in London and the north of England. During  November 2011, it launched the Global Connect business, which is a profit share agreement with  Best Buy Co., Inc.”

Odey Discloses Regus Stake

Crispin Odey’s hedge fund, Odey Asset Management, has disclosed a new position in London  traded Regus (LON: RGU). Due to trading on January 4th, Odey now own 5.15% of Regus’s voting rights.

Odey hold the equivalent of 1.88% of Regus’s voting right via contract for difference (CFD), something we've explained in the past via that link for those unfamiliar.

In terms of shorts positions in the UK property sector, Odey also has a -0.91% short in Capital Shopping Centres (LON: CSCG).  CSCG is a real estate investment trust (REIT) that owns 14 regional shopping centres in the UK.

For more information on Odey’s recent activity in UK markets see our posts on their stakes in Shanta  Gold (LON: SHG) and fellow hedge fund, Man Group (LON:EMG). 

Per Google Finance – “Regus plc is a provider of global office outsourcing services. Its primary  activity and business segment is the provision of global workplace solutions. There are three parts  to the Company’s business: Mature, New and Third Place. The Company’s products and services  include outsourcing, workplace recovery, business lounges, businessworld, meeting rooms, video  communications, offices and virtual offices. It offers bespoke packages for starting a business,  home based business, mall and medium business, international business and corporate workspace  solutions. It has some 1,203 locations across 550 cities in 94 countries serving more than a million  customers. Its principal geographical segments include Americas; Europe, Middle East and Africa  (EMEA); Asia Pacific; and the United Kingdom. During the year ended December 31, 2011, it opened  139 locations, and added 62 centers, including a center in Omaha, Nebraska. In September 2012, it  opened a new business center in Rwanda, Kigali.”

Odey Starts Shanta Gold Stake

Cripsin Odey's hedge fund Odey Asset Management has started a new position in London listed Shanta Gold (LON: SHG).  Due to trading on November 14th, Odey Asset Management now hold 6.69% of Shanta's voting rights.  

Per Google Finance, Shanta Gold Ltd "is a Guernsey-based company engaged in gold exploration and gold production investment in Tanzania. The Company's subsidiaries include Shanta Gold Holdings Limited, a holding company; Chunya Gold Holdings Limited; Shanta Mining Company Limited, Mgusu Mining Limited and Nsimbanguru Mining Limited, engaged in exploration and mining; Chunya Resources Limited, and Songea Resources Limited. Shanta Gold Ltd's major shareholders are Aurora, Export Holdings Limited, Lynchwood Nominees Limited and Redmayne (Nominees) Limited, among others."

We've also recently revealed some of Odey's short positions for those interested.

Hedge Fund Short Positions in the UK: Lone Pine, Greenlight, Kynikos & More

New EU rules that came into force at the beginning of November on short selling are leading to wider disclosure of shorts positions.  For example, the UK's Financial Services Authority (FSA) have implemented the EU's Short Selling Regulation and are now publishing a list of short positions on a daily basis.

New UK Short Selling Disclosure Rules

Before the implementation of the new Regulation funds and individuals only had to disclose short positions in UK financial companies and companies involved in a rights issues.  Now short positions have to be declared across all sectors.

The new rules require that where a fund's net short position reaches 0.2% of the issued share capital of a company they need to privately notify the FSA. Notification is also required again at each 0.1% increment after that. This is in relation to both increases and decreases of the position.   The obligation to privately report positions also extends to net short positions in sovereign debt and positions in uncovered sovereign credit default swaps (CDS).

ESMA has published a list of the different thresholds for each Member State in these instruments.   Public disclosure is required for net short positions of shares that reach 0.5% of the issued share capital of the company concerned and each 0.1% increment above that.  Additionally disclosure is required publically when the position subsequently falls below 0.5%.


Hedge Fund Short Positions in the UK Revealed

Today's list of short positions published by the FSA is provided below.  All of the following positions are disclosed as of November 1st, 2012 and represent the percentage of the company's shares the hedge fund is short:

Lone Pine Capital: Short -1.05% Home Retail Group

Greenlight Capital: Short -4.43% Daily Mail and General Trust

Kynikos Associates: Short -2.52% ASOS, -0.61% African Minerals

Maverick Capital: Short - 1.26% ITV plc, -4.45% Home Retail Group

Pennant Capital: Short -0.98% William Hill plc

Lansdowne Partners: Short -3.42% Weir Group, -3.27% APR Energy, -0.62% Tesco, -1.81% British Sky Broadcasting Group, -1.87% Petrofac, -2.28% Aggreko, -2.51% WM Morrison Supermarkets, -2.59% Provident Financial, -2.73% WH Smith, -1.09% Ophir Energy, -1.33% Tullow Oil, -1.71% Man Group, -0.85% Prudential plc,

Och-Ziff Management: Short -0.92% Lancashire Holdings, -1.20% International Consolidated Airlines Group, -0.82% Glencore International,

Elliott Management: Short -2.65% Stagecoach Grou, -1.65% First Grou, -0.71% Glencore International,-0.59% Reed Elsevier,

SAC Global Investors: Short -1.11% Electrocomponents

SAC Capital Advisors: Short -0.74% Ocado Group

Odey Asset Management: Short -1.43% Lonmin, -1.44% Dignity, -1.77% APR Energy, -0.84% Capital Shopping Centres Group, -0.59% Serco Group

Joho Capital: Short -4.03% CSR

Luxor Capital: Short -1.82% Blinkx, -1.32% WH Smith,

D.E. Shaw: Short -0.52% TUI Travel, -0.64% WPP

Marble Arch: Short -2.05% Dixons Retail, -1.79% Home Retail Group

Axial Capital: Short -0.55% TUI Travel


For all our other coverage of hedge fund short positions, click here.


This initial slew of disclosures is a bit overwhelming, but we'll continue to monitor the filings and post about notable changes and new short positions taken by prominent hedge funds on an individual basis.

You can track all other hedge fund activity in UK markets from what we've posted in the past via that link.

Odey Takes Stake in Fellow Hedge Fund Man Group

Here's something you don't necessarily see everyday: a hedge fund taking a stake in another hedge fund.  Crispin Odey's UK-based hedge fund firm Odey Asset Management has purchased 5.1% of the voting rights of peer Man Group (LON: EMG) in a disclosure on October 25th.

The breakdown of their position is 3.03% ordinary shares and 2.12% contract for difference (we've previously explained contract for difference here).  This move makes Odey the second largest institutional shareholder of Man Group.  It will be interesting to follow the situation to see if anything develops further.

Another recent example of hedge funds buying stakes in one another is David Einhorn's Greenlight Capital purchasing shares of Howard Marks' Oaktree Capital earlier this year.

Odey Asset Management Buys More Lookers

Crispin Odey's UK-based hedge fund, Odey Asset Management, has added to its holdings of car dealer Lookers (LON: LOOK). Due to a filing made on October 13th, Odey now owns 5.19% of Lookers shares.

Odey has fancied UK car dealers for some time. In Crispin Odey's January 2010 letter for his flagship fund, Odey European, he said that he in particular liked London listed car dealers Pendragon and Lookers. Odey wrote,

"I have bought well managed businesses, where management have taken the necessary action to live in a world in which demand remains excessively weak. Where management have demonstrated the ability to take advantage of further dislocation –for instance if interest rates were to rise, they would be able to exploit this as an opportunity to buy their rivals.

In the UK this has put me into the likes of Lookers and Pendragon, both car dealers. Current new car sales are running at 1.8 million cars a year, some thirty percent below the replacement rate of 2.8 million cars. Money is being made in used car sales and servicing, both of which are benefitting from the ageing of the fleet. On a P/E for this year of 5x, I find shares that are on discount to a level of profitability which already discounts the worst. That double discount gives me a great deal of comfort.”


Odey Likes Pendragon Too

Since then, Lookers shares have traded more or less sideways whilst Pendragon shares have lost over half of their value. As Pendragon's shares fell in 2010 and 2011, Odey doubled-down, building a large ownership stake of 21.09% of the company. Odey's last purchase of Pendragon stock was in mid-August 2011.


Other Recent Activity

Odey also recently added to his holdings in London listed business services company RSM Tenon. You can also view Odey's latest market outlook.


About Lookers

Per Google Finance – “Lookers plc is a motor retail company. It is a multi-franchise main dealer group with franchises for many car manufacturers. It operates 122 retail outlets across 32 franchises operating from 73 locations. And was organized into two main business segments: motor division and parts distribution."

Odey Add to RSM Tenon Group Position

Crispin Odey's UK based hedge fund Odey Asset Management have been adding to their position in London listed RSM Tenon Group (LON: TNO). Back in June we reported that Odey had purchased 5% of RSM Tenon's outstanding shares.

Fast forward to the recent disclosures on September 26th and October 3rd and you see that Odey have increased their position to 6.92% of RSM Tenon Group's shares initially, and then even higher to 8.19% of the company. It's clear they fancy TNO shares at recent levels.

For more from this hedge fund, you can read Crispin Odey's latest market outlook that we posted yesterday as well.

Per Google Finance, RSM Tenon Group PLC "provides a range of professional and business services. The Company has five segments: audit, taxation and advisory; turnaround and corporate recovery; risk management; financial management, and specialist tax. It provides solutions to clients that range from individuals and entrepreneurially-led owner-managed businesses to corporations and public sector organizations. In December 30, 2009, the Company completed the acquisition of RSM Bentley Jennison. Its subsidiaries include RSM Tenon Limited, RSM Tenon Corporate Finance Limited, RSM Tenon Financial Services Limited and Premier Strategies Limited."

Hedge Fund Manager Crispin Odey's Market Outlook

Odey Asset Management's founder Crispin Odey has released his most recent market outlook. Odey is a prominent UK fund manager and he believes that equities are attractive (yielding 5-6%) with earnings yields of 20-33%.

In particular, he singles out one stock he likes: BP (BP). We've highlighted in the past how David Einhorn's Greenlight Capital likes BP as well.

While Odey is constructive on equities, it should be noted that he has maintained this stance since before the most recent market turmoil. His previous commentary from back in May said that stockpicking is still working. So with the latest downturn, it seems he's gained even more conviction that equities are the right place to be but he's surely felt some pain along the way.

Below is Odey's latest commentary:

"Equities continue to trade badly, but this is no surprise. They have disappointed for 11 years; indeed most indices are where they were 15 years ago. However in a world where the geopolitical outlook is unresolvably bad, shareholders are not only being paid to be patient by high dividend yields but also pricing in a very high margin of safety.

The example I like is BP. When BP suffered from the Macondo rig disaster, the company's market capitalisation fell by $120 billion, the company set aside $30 billion in provisions and recently announced actual claims of about $5.5 billion. Has the share price recovered the missing $114.5 billion? Of course not. Presumably investors are pricing in more Macondos and, given that they actually cost just over $5billion each, they are expecting 20 such explosions. As an investor in the shares today this gives me a great deal of protection - a margin of error. It also convinces me that the stockmarket is a better historian than it is a forecaster or a mathematician.

So why are markets so depressed? Some European markets are down c. 27% this year. Firstly this is structural. Zero interest rates have an unusual effect in Europe. Compared to the Anglo-Saxon world, Continental European banks are funded through bonds and interbank lending, not deposits. Since interbank and bond borrowing rates have not fallen below 2%, corporate loans in Europe should be at 4.5% not at 2.5%. In fact corporate loan rates have failed to rise in Europe. Lending is therefore unprofitable. Banks are shrinking their loan books. The easiest loan books to shrink are the corporate loan books and that means rights issues for indebted companies as equity replaces debt. All this depresses equities, especially those with borrowings to roll.

The equity markets now act and behave like corporate bond markets. Equities yield 5-6% and many are on earnings yields of 20-33%. They are mouth-wateringly attractive because unlike debt they do not mature.

But the worries that look down on them from on high reflect the fact that whereas Continental European banks were not exposed to the excesses of America and the UK, they are over-exposed to the excesses of Southern Europe. At some point they will need recapitalising. Rather than dreading this, the default should lead to lending rates rising in Europe, even as banks are recapitalised.

Meanwhile this crisis has brought all shares down. It has brought down UK and US bank shares, despite the fact that since 2008, they have done much to improve their balance sheets. Loan to deposit ratios have fallen by 30% to around 120%, loan margins are up fivefold, provisions have risen sharply and, thanks to retained profits and rights issues, cash equity is up fourfold. They are all strong buys for me.

It may be confusing to find someone who believes that a crisis is on its way but is also happy to buy equities ahead of the crisis. My reason is that the worries have been there for so long, the causes are so obvious and the valuations are so cheap that this is a case of buying early. For me the crisis will bring resolution and with it higher prices.

Little wonder that volumes have been exceptionally light. Despite all of this volatility the only question that clients have been asking us is 'When should we buy the market?'

In the short term everything points to the fourth quarter of this year being strong in the USA. There is a restocking cycle taking place as the effects of the tsunami recede. Quantitative 'oil' easing and commodity price falls are helping consumption growth. The fall in bond yields is feeding through to refinancing of existing mortgages that could add 1.3% to GNP.

So yet again we may be entering a period when markets do not get a Greek default and the US economy strengthens. Cyclicals which have all been sold off will rally and banks, which have led the market down, will catch a bid.

I feel a bit like Sarah Bernhardt who said 'I eat myself to feed my work.' 31st August 2011"


And for more euro-centric commentary, head to the biggest fears of 15 European portfolio managers.

Crispin Odey's Latest Market Commentary: Stockpicking Is Still Working

Crispin Odey of UK hedge fund Odey Asset Management is out with his most recent market commentary, advocating that it is still a stockpicker's market.

Earlier this morning we posted that Odey started a stake in RSM Tenon and his missive below reveals additional purchases in shares of AXA and Zurich Financial.

His commentary also draws comparisons between the cost of home ownership in the US and UK and he implies that house builders are good value in the UK.

Crispin Odey writes,

"Over a month most of the macro-economic news has appeared to be disappointing. The unemployment rate in the USA has failed to fall, China has slowed down, the Japanese tsunami has turned out to have a greater influence on world industrial production than was hoped and banks have produced worse numbers than anticipated. The stockmarkets are down, government bonds are up and people are generally more nervous.

Equity markets have performed better than I could have expected in the face of these uncertainties, especially with Greece still being a problem. Stock picking is still working.

Our thesis of steamy convergence of third world to developed world incomes remains the template by which we measure recovery. The overheating of the emerging market economies, thanks to the rise in energy costs, has now been followed by a slow down but we still remain happy that the 20% wage increases in emerging markets against the flat wage growth in the west will continue to power world growth. The 5% cost inflation in the west that we suffer for now, will ultimately rebalance the world economy.

I continue to find companies to invest in. This quarter saw Henri de Castries of Axa approve the sale of their Canadian life business, and pull out of the life business in the UK, too. With such a new commitment to a 12% return on capital across all business lines so evident in management's mind, a discount to book value of 25% seems harsh. Meanwhile Zurich Financial, who have long practiced virtue, yields 8% in Swiss Francs.

Banks are as yet not allowed to have a business model but they are certainly cheap enough if a business model evolves in the future. House price moves in the USA which have ensured that the average house sells on only 2.4 times disposable incomes makes this an interesting market for bottom feeding. The ending of Fannie Mae / Freddie Mac's reign in the third quarter of this year should allow commercial banks to re-enter this market. Even if net interest margins rose to 400bp, buyers would still be paying less than they would be if they were renting, and that after paying a 4% redemption yield!

In the UK, affordability is still a problem with house prices 4.4 times disposable income vs. USA's 2.4 times, but interestingly prices only reflect the fact that in the USA, mortgage repayments include a 4% repayment of principal and so average cash costs are 7% of 240 or 16.8% of disposable incomes. In the UK, interest only mortgages are around 4%, and 4% of 440 =17.6% of disposable incomes. Rent typically costs around 22% of disposable incomes. So in both countries it is cheaper to own than to rent, provided that interest rates do not rise before wages rise. Since this is our view it makes sense to investigate further.

House building is running at around 110,000 down from 220,000 three years ago. Supply is running far behind national demand. House prices are no longer at a premium to old house prices, despite much lower running costs. With the house builders you are seeing 27% profit margins of 2007 now down to 7%, thanks to the need to swallow a 10% loss on 3 year old land banks. The shares are typically trading on 70% of sales, 10 times pre-tax profit. New land purchases at lower prices, should allow margins to rise to 17%. To find a business which is doing okay now, when real wages are falling, and not having to overpay, makes me excited. The day that we become competitive globally, these house builders should benefit from rising wages.

Meanwhile, the good news with the fund is that companies in our portfolio continue to be bid for. News of Avis, the American 'parent', bidding 60% more than the last share price for its European 'child', was welcome news for a holding that was worth just over 1.3% of the fund. No hooks, no fish. 31st May 2011."

For more insight from this hedge fund manager, we've also previously posted up Odey's thoughts on agricultural commodities and farming.