Dear Mr Cheicheiar,
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Dear Mr Cheicheiar,
I’m a 10-year-old boy. When I was born, my grandfather gave me some of his Telecom Italia shares. Savings shares which, my grandfather told me, always give a dividend that could help me pay for my studies one day. But I would like to buy a PlayStation.
Grandpa bought them almost 20 years ago for his old age, but when he told me about it he made a strange expression.
I don’t know much about stocks, but I like them. Dad is crazy about them and spends his Sundays reading the financial papers. Mother doesn’t seem happy. She’d rather go to Ikea or Zara.
Dad told me that the shares Grandpa gave me are no good. He says Grandpa is old and doesn’t understand much about stocks. Dad says that Grandpa’s shares have gone down so much and that I’d better sell them and buy apple. This made me very sad. Also because it seems that what I have left is not enough to buy a PlayStation.
Grandpa says the company makes us talk on the phone. With Mum, Auntie Ginetta, and Auntie Assuntina. And it also lets us watch Disneyplus, which I really like. All this, Grandpa says, for the monthly cost of a lunch at the deli down the street. I really like the stuffed peppers they make there.
I think that’s good. Talking to the aunts and watching Disneyplus all you want for the monthly cost of stuffed peppers, ice cream and a barley water drink sounds good to me. Dad replies that Tim doesn’t make money at these prices though, but they can’t raise them because of Mr. Regulator. I didn’t quite understand who he is, but I think he’s a bad guy, because he punishes good companies.
Dad says that the only ones who make money are the bosses at Tim. They stay for a short time and make millions. I wish daddy was the boss of Tim.
Daddy then says that you, Mr Cheicheiar, want to buy Tim by paying much more than it’s worth now. So much so that I’d get the money for the PlayStation. I’m not sure why you’re doing this, but I’m glad. It’s good.
At the same time, the current boss of Tim, Mr Alessio, and his friends who run the board with him, say that the company is worth almost five times what it is now and almost three times what you offered, Mr Cheicheiar. But if it’s worth so much, why is it that if I sell it I can’t even buy a PlayStation for it? I don’t really understand the difference between price and value. For the PlayStation, the two values seem to coincide.
I asked Dad why anyone would say the bid is low even if it’s twice the price I can sell the stock for today. He didn’t answer me.
Grandpa then told me yesterday that the boss of Tim decided not to pay a dividend to my savings shares otherwise he would pay tax on them. Apart from the fact that Grandpa says that paying taxes is the right thing to do in order to keep hospitals and the police functioning, I wonder if the head of Tim is lowering his salary in order not to pay taxes. Of course this gentleman is strange. Even stranger than Mr. Regulator.
I, Mr Cheicheiar, would be very happy if you bought Tim and made a lot of money. I’d still be talking to my aunts who I love. And I would buy a PlayStation.
Sincerely
Ukraine and China
Edvard Munch “Anxiety” (1894)
As the bombings tear apart Ukrainian cities, the media tammy continues, creating anxiety and volatility. We believe the market is now afraid of two events. The first is an extension of the conflict to NATO. The second is that sanctions will be extended to China, which is guilty of helping Russia. In the first case, talking about asset allocation does not make much sense, whereas it would make sense to start making arrangements to move to the mountains or the cellar. In the second case, recession would be certain. As we have already said, although mistakes are always possible, we believe the first scenario to be very unlikely because of the consequences it would bring. We also believe the second scenario, which would see a China with negative economic growth that would in turn bring risks to the stability of the Chinese regime, is unlikely. In China, citizens give up democracy in exchange for the journey to prosperity. Today, however, wealth is concentrated on a minority and it is Xi Jinping’s goal to redistribute it. A recession would weigh on the weakest (who are also the most numerous and the most angry).
If the likelihood of the two events recedes over time, we believe the market can slowly return to normal. Oil and gas will gradually fall and so will commodities. And equities, particularly value stocks, would recover. Even if the conflict were to become chronic.
If there is a credible ceasefire in the near future, the readjustment would be rapid. But we realise that a certain amount of optimism is required to assume this, an element that we do not lack today…
Cybersecurity and paranoia
Our IT has decided that a Russian-originated cyber attack is imminent and that we must further strengthen our security. This is the slightly paranoid air that now circulates in the environment and we, although hesitant, comply. The damage, though remote, would be too great otherwise. We would not be surprised if tobacconists and perfume shops started installing cybersecurity programmes and processes.
Atos, an IT consultancy that we have mentioned several times and which is going through a difficult transition phase (it recently came out with yet another profit warning), has a division called BDS. The acronym stands for big data and cybersecurity. This division is considered one of the leaders in cybersecurity and is clearly the first choice of the thousands of customers of Atos’s other divisions. The BDS division has sales of around 1.5bn EUR and has been valued at 3 to 4bn EUR. It recently received an initial bid from Thales of 2.7bn EUR, which was rejected.
We value the BDS division on the basis of what THALES offered. If we also value the Atos infrastructure division at 50% of where the market is (i.e. only 0.1x sales), the digitalisation division at a 40% discount to where the market is (i.e. 1x sales) and subtract the modest debt, the stock would be worth around €60 per share. With cautious assumptions. Today it is worth only 25. If you want to invest in the growing fear of cyber war, poor, scrappy Atos seems to be the quality value player with one of the most attractive risk/benefit profiles on a global basis.
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