Our Latest Piece For Reuters.

Bollore Group, a fine French Bordeaux for your Financial Collection

By Edward Strafaci

‘De la discussion jaillit la lumiere’ … about good discussion and foundational investments.

As stated so eloquently in our disclaimer “The Thoughtful Arbitrageur” is not an investment advisor and you should not be seeking investing advice from a blog. We are attempting to inform, sometimes amuse,and hopefully give you the benefit of our fortunate experiences. Our subject this week is Bollore Group.

Our belief is that a sound portfolio is grounded by a core of strong fundamental holdings such as Bollore. Bollore is the type of equity that can anchor a portfolio for many years. Around these investments could be an array of various strategies designed to take advantage of a particular trend. Still you must seek, and go long, keystone holdings. Just as a good wine cellar requires everyday table wines combined with the more rare harvest.

One other caveat before we move on: Our ideas may not always turn out as anticipated. Still, we believe that our thesis leading to them is always well-thought-out. A smart investor could use our concepts in three ways: Agree with it, despise it or embrace the logic and find a similar play. For example, it is akin to informing a sommelier that while you agree with his recommendation of a California Pinot Noir, you would rather choose another label. In this way, you will derive the most benefit from our private communiques.

Bollore Group was founded in 1822 and is one of the 500 largest companies in the world. The company employs over 28,000 and is listed on Euronext in Paris. It is controlled by the Bollore family and is dedicated to freight forwarding and international logistics,with a focused interest in Africa. Among its other pursuits are fuel distribution, plastics, batteries, super capacitors and electric vehicles. Bollore also manages a number of financial assets including plantations producing rubber and palm oil. Finally, the company has media, advertising and telecommunications interests. This by virtue of its 28 % stake in Havas, 29% stake in Aegis PLC,and 90% interest in Bollore Telecom, a French WiMax operator. Media, Wi-Fi and battery-powered cars are the more sensational parts of the Bollore story. Nevertheless, it is logistical services and fuel transportation, especially on the African continent, that is the raison d’être of Bollore. Those comprise more than 95% of its revenue base. Started in 1927, Bollore controls the largest integrated logistics network in Africa. It is present in 43 African countries, with more than 22,000 employees and 8 million-plus square meters of offices, warehouses and container yards. To say that Bollore is the heart that pumps the commercial blood throughout Africa may be an understatement. Although we love the idea of diversifying into media for the influence it affords, and electric cars as a concession to green technology, make no mistake this is a logistics play. If you agree with the notion that these folks know something about a trade that they have plied for almost 90 years, and believe in the future commercial prospects of Africa, then this is your stock.

Let’s swirl this around our glass and take a look at the overall numbers. Bollore has a quite reasonable price-to-earnings ratio in the 9 area. This compares admirably with other stocks of its kind that trade at almost double that ratio. Its price-to-book is in the 0.8 range; again, half as much as the norm. The company pays out a near 2% dividend and traded at €157.85 (about $206.21) per share as of Jan. 20, 2012. It has traded recently as high as €178 and seems to be unfairly victimized by the entire European contagion. There is quite a bit of upside. Bollore has a market capitalization near €4 billion and has a great deal of potential. You should be aware that it is very thinly traded. This is why we see it as a vastly unrecognized long-term play of the buy-and-hold category. Patience will definitely be a virtue with this investment.

We feel that given its enormous natural resources, as well as its room for growth, Africa is the financial story of the next global economic period. While Africa has experienced disturbing incidents such as the civil war in Angola, and the more recent war in Darfur, the number of armed conflicts has steadily declined. Given more prominence to political associations like the African Union, which promotes peace and advanced living conditions in the continents’ poorer countries, Africa can realize its tremendous potential. There are, of course, obvious impediments to investing in Africa, not the least of which is finding the proper vehicle. However, Bollore offers the astute investor a sensible way to enter the region.

The management story is intriguing. Through numerous holding companies, the Bollore family controls the voting power. There is certainly no agency risk in this investment, as the family’s providence is tied to your interests. Led by scion Vincent Bollore, it is leadership reminiscent of traditional European dynasties that have ruled and guided that continent for generations. Vincent Bollore has proven to be a sharp, intuitive and aggressive manager. While in some instances family leadership may be a detriment, in Bollore it is a powerful asset. He is also a comic book aficionado with an extensive collection and we like that type of whimsicality. His guidance is all the more reason to favor this pick.

Thus, our latest choice—a precious French vintage that would sit proudly in your vault: Le Group Bollore 2012 .

Au Revoir,
The Thoughtful Arbitrageur

Edward Strafaci is not an investment adviser. Nothing he writes should be construed as investment advice or an endorsement of any particular security. From time to time, a family trust with which he is associated may have positions in the securities he writes about. When it does, he will tell you. What he writes is meant to inform and in some cases to entertain and amuse. HedgeWorld’s Alternative Reality is not an investment advisory site. As a general rule you should not take investment advice from blogs, anyway. Consult a financial professional for investment advice, not a blog.




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