Considerable risk for price corrections

Helga Kern is a member of the Advisory Committee of the Swiss Active Alpha Fund

Despite the current boundless optimism on the markets, the current situation carries risk for price corrections, says Helga Kern, Swiss Active Alpha Fund. Overall, however, the Swiss Active Alpha Fund has gained 4.4.

"By +4.4% increase in the value of the Swiss Active Alpha Fund since the beginning of the year the SPI Extra Index (+ 8.0 percent) was not achieved. Over the past five years, the fund has still 11.8 % p.a. in value. The defensive strategy is taking its toll notwithstanding the optimism that currently prevails, the current market valuation holds a PER of>18.0 considerable risk of price corrections, which is also supported by our DCF valuation model. In addition, we do not want to hide the fact that we were wrong with our short positions in the real estate sector and, on the other hand, that we have not been consistent enough in taking advantage of some opportunities in recent months.

The 2014 half-year results have so far been at the lower end of expectations. In recent months, we have expressed concern on several occasions that EBIT margins will not continue to increase as expected. Optimism is boundless at present, but the facts speak a different language. Thus, Swatch's EBIT margin of 22.7% to 20.3 % down. According to reports, the company has refrained from price increases in order not to fleece its clientele over the masses and thus create goodwill for future growth since we just say rofl (rolling on (the) floor laughing) ! At Clariant, the EBIT margin of 7.5 % to 5.6 % decline, despite years of successful and costly rebuilding and trimming for greater efficiency. But in the coming months, according to management, despite the difficult trading environment in Europe, everything will be much better again rofl! UBS delivered a supposedly solid result and proved that its strategy of focusing on stable and low-risk wealth management was the right one. The only silly thing is that it is precisely in this area that the operating result fell from CHF 1743 million to CHF 1523 million and the unloved investment banking business, which according to prevailing opinion should be largely abandoned, performed surprisingly well. As the bank, which has been conservatively positioned in the meantime, is also involved in legal disputes (Libor, foreign exchange, US mortgages) with a potential risk of CHF 6000-7000 million, we comment on the success story only with a further rofl!

Helvetia (+ 9.4 %) benefited in July 2014 from announcing a takeover offer for National Versicherung for CHF 1800 million. The purchase price is to be financed by a capital increase of CHF 500 million (15 %) and ordinary/hybrid debt capital. The purchase price is based on a demanding price/book ratio of 1.9 and a PER of 17, on the other hand, the new group rises to become the no. 3 on and can achieve synergies of CHF 100-120 million p.a. use. The Liechtensteinische Landesbank (+ 6.0 %) partially recovered from its share price slump after reporting a profit of 40.0 CHF million after 13.CHF 6 million in the same quarter of the previous year. The IT distributor Also (+5.2 %) increased sales to 3279 (3040) million euros and profits to 20.9 (16.3) Euro million. Irrespective of the challenging environment – the IT consulting company Gartner assumes a stagnating IT market in Europe – the company expects an annual profit of 50-55 million euros, which corresponds to a PER of 11. From 2016, the absence of goodwill amortization of 13 million euros will lead to a jump in profits to 70 million euros.

The automotive supplier Autoneum (-11.6 %) suffered from profit taking. With sales 9% lower at CHF 981 million due to currency and divestment effects, EBIT increased by 20% to CHF 67 million and profit by 28% to CHF 40 million. Uncertainty was caused by the management, which did not hold out the prospect of further margin improvements. Our investment in the machine tool manufacturer Starrag (-12.1 %) we have reduced. The 5% increase to 189.CHF 7 million drop in sales and 11% lower order intake make expected earnings improvement a distant prospect. The company generates around 10% of its sales directly and indirectly with Russia, a business that is suffering from the economic sanctions."

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