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HHFA.DE - Hamburger Hafen Logistik AG


no_free_lunch
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A holding company that owns a large sea port in Germany as well as various transport businesses.

 

I don't know this one at all other than a few facts.

 

Down over 30% for the year. PE is around 11 or 12 (assuming earnings revert to prior years).  Maybe even lower post covid. Core business is low to no growth but near monopoly.

 

Seems safe , boring , decent return potential.

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I bought into this one.

 

Some random notes:

 

4% dividend yield

Historically grows earnings high single digits

Has traded above 20pe in the past

Possible to double over next 4 to 5 years if reversion to historical pricing

A lot of focus on tech

Has self driving loading machines at Port

Is working on a Hyperloop with ability to xfer cargo at 1000 kph

AI initiatives w local university.

Expanding from port to adjacent transport businesses

Is investing towards eastern Europe

 

 

Risks include lower volume due to stagnant local economy

Not without issues, earnings peaked at around ~$110m in 2018 and declined in 2019.  Obviously 2020 will be a disaster, i think they are forecasting $40m profit.

I don't know their full history, their was destruction of shareholder value during GFC.  It is still down by 70% from 2007.

However, earnings have been growing since ~2013 which is the earliest data I have available.

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A couple of belated comments on this - I don’t think the PE is 11-12, at least not any more. I have owned the competitor Eurokai, but just recently sold out into the surge. I initiated the position pre COVID-19 and added a little to lower my cost bases so I exited flat, but it wasn’t a great investment.

 

EuroKai has stakes in neighboring harbors Bremen and Bremerhaven as well as some assets in Hamburg Harbor and other European harbors too, but they were hit pretty hard by COVID-19 . HHFA operationally has outperformed Eurokai though.

 

FWUW, all the German Harbors have struggled to compete with Rotterdam, which is one of the largest Harbors in Europe. One problem is that the largest container ships can’t get into Hamburg (or Bremen) due to size and depth do strained, but they can get into Rotterdam, which gives them an advantage. Hamburg city a few years finally get through the permits to extend the waterways and negate this issue, but it will take a couple of years until the work is done and the facilities are upgraded.

 

HHFA is majority owned by the city of Hamburg, so a buyout is unlikely but on the other hand, stuff like extending the waterways may be way harder without this. I think at some point down the road, Hamburg an Eurokai will merge and rationalize their German Harbor assets but the ownership structure makes this hard.

 

No position.

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The PE would be about 10 at '18 earnings and 12 at '19 earnings.  I am assuming reversion to normal earnings.  I will update my post.

 

I just look at it like the competitive dynamics have presumably been in place for years and yet they have managed to grow earnings over the past decade.  They are also investing in new ports and businesses in eastern europe.  Perhaps they can continue to print some profits and invest elsewhere?

 

Their past growth pas been in spite of a dividend which is currently at a healthy 3.7% yield

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Sorry for the high level comment. I do not have any insights on this company. Do you factor in German corporation tax when coming to an intrinsic value? Its 30% versus the UK for example at 20%. An additional 10 cents of a euro/pound in pre-tax earnings being diverted away from shareholders is not immaterial. I do not think differences in capital allowances or allowable expenses offset the differences.

 

As an overarching point I am always conscious and careful that my negative opinions over Corporate Germany's attitude towards shareholders do not escalate into bias. That said, I have close business partners in Germany and have had a fair amount of interaction with managers there. On the whole, I increase my margin of safety - sorry if that offends anyone. To invest in German companies over other countries with the comparable solid legal infrastructure such the UK and US, the opportunity has to be so much more compelling. Huge generalisation here....Germany's view of minority/public shareholders is a problem for me. Do not get me wrong, love the longer-term mindset but capital allocation policies and executive pay that sh**s on shareholders is not my idea of fun. Cash hoarding, labour throwing its weight around, regulations failing to modernise, corporation tax hikes, massive social security, old-money shareholders and families refusing to change, failure to digitise......... I could go on.

 

Like Charlie says, I just do not think Germany is where the fish are. Its not cheap and there are so many turn offs.

 

Again, sorry for butting in and sorry for generalisations. But we all have some country-risk that goes into margin of safety

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