“Trading diary”: Danske Andelskassers Bank

So, I keep trading diary of (almost) all investment decisions to keep track of them and to remember why I did what I did.

This is not “polished” blog post but quick thoughts on what was running at my head at the time of my decision. I usually don’t publish them because they are not mostly readable, but this one I decided to publish to keep the blog alive and it became readable with quite little editing:

28.8.2017 Bought additional 5% position of DAB shares @ 5,45

Today I bought additional 5% position of Danske Andeelskasser bank @ 5,45 €/share because 2017E P/E was under seven and PB 0,64.

Earnings have increased significantly as loan write downs have decreased significantly, on back of improved situation in agriculture market.

The bank has horrible underwriting history and it almost went under in financial crisis and had to be bailed out by government and later by new shareholders.

The thesis is that the bank is worth 10x earnings(2017E) or book value or 7,9-8,5 € share, vs. the 5,65 closing price. With the target prices the upside is 40-50 %.

The earnings forecast is based on Q2’17 net interest and fee income, 2016 OPEX and slightly lower net write downs than annualized H1’17 net write downs would indicate (this because they are trending down and were actually zero in Q2’17).

The risk is that the agriculture economy turns back to declining trend as opposed to improving trend, thus affecting net write downs.

The positive risk is that the improving trend continues and there is significant write down reversals, which would improve book value.

Other risk is owners and management. DAB was “cooperative bank of cooperative banks”, or something like that, and now majority holders are some funds owned by the owners of the old cooperative banks(31%). The board is selected for two years and the same guy has been the chairman for ages.

The annual reports look like political campaigns to serve the local agricultural communities, which are DAB’s main customers.

There are regional “shareholder committees” which I don’t know what they are. It’s probably some reminiscence of the old cooperative system for the mostly local shareholder-customers to “communicate with the bank”.

The bank uses its own funds and time to arrange some concerts and parties for the committee.

For non-Danish outsider it seems that the shareholder-customers hang out together occasionally and then give loans to themselves to keep their (mostly agriculture) businesses running, but I’m probably exaggerating.

Positive is that there is activist investor, Lind Invest, as a shareholder (20%) but they failed to get their rep to the board recently.

Positive is also the recent improvement in performance, which seems to have some wings. At least the management has positive outlook.

If so, there is some serious potential for multiple expansion. Someone on twitter calculated that if Q2 core earnings are annualized the P/E 4 (thank you for the idea!). My forecast is based on higher write downs so “my” P/E 7.  Nevertheless, the multiple looks low.

The business model is based on high net interest and fee income, high OPEX, high write downs and low leverage as opposed to Handelsbanken which has low net interest and fee income, low opex, low write downs and high leverage, so some discount to good bank multiples is certainly warranted, but I’m not sure it should be this high.

DAB is a local bank with 10,9 BDKK balance sheet and most of its loans are for local agricultural communities.



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