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Portfolio Managers Review

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PORTFOLIO MANAGER’S REVIEW
A Monthly Publication of BeyondProxy LLC



September 30, 2010



Subscribe at www.manualofideas.com

When asked how he became so successful, Buffett answered: “we read hundreds and hundreds of annual reports every year.”
Edited by the

Manual of Ideas
Research Team
“If our efforts can further the goals of our members by giving them a discernible edge over other market participants, we have succeeded.”

Top Five Ideas In This Report
Lavendon
(London: LVD) ………………… p. 16

Nokia
(Helsinki: NOK1V, NYSE: NOK) .. 20

OMV
(Vienna: OMV, OTC: OMVKY) …. 24

OPAP

THE EUROPEAN VALUE ISSUE
► Snapshot of 100 European value opportunities
► 45 European “magic formula” companies
► 45 book value bargains by country
► 20+ companies profiled by MOI research team
► Top 5 ideas, based on proprietary MOI methodology
► Plus: Superinvestor holdings update
► Plus: Favorite stock screens for value investors
► Plus: Exclusive interview with Ciccio Azzolini

(Greece: OPAP, OTC: GOFPY) .. 28

Premier Foods
(London: PFD, OTC: PRRFY) ….. 32

Also Inside
Editor’s Commentary …………….. p. 4
Superinvestor Holdings Update …. p. 9
45 European MF Companies …… p. 10
Interview: Ciccio Azzollini ……… p. 12
Top 5 European Ideas ……………p. 16
Other European candidates …….. p. 36
Euro Book Value Bargains ……. p. 100
100 Cheap European ADRs …….p. 114

About Portfolio Manager’s Review
Our goal is to bring you investment ideas that are compelling on the basis of value versus price. In our quest for value, we analyze the top holdings of top fund managers. We also use a proprietary methodology to identify stocks that are not widely followed by institutional investors.
Our research team has extensive experience in industry and security analysis, equity valuation, and investment management. We bring a
“buy side” mindset to the idea generation process, cutting across industries and market capitalization ranges in our search for compelling equity investment opportunities.

European companies mentioned in this issue include
ABB, Acergy, AEGON, Ahold, Air France - KLM, Akzo Nobel, Allianz,
Allied Irish Banks, Anglo American, ArcelorMittal, ARM Holdings,
ASM International, AstraZeneca, AXA, Babcock & Brown,
Banco Santander, Bank of Ireland, Barclays, BE Semiconductor,
BG Group, BP, British American Tobacco, British Sky Broadcasting,
BT Group, Commerzbank, Credit Suisse, Daimler, Danone, Delhaize,
Diageo, Drax Group, DSM, E.ON, Elbit Systems, Electrolux, Eni, Ericsson,
Formula Systems, France Telecom, FreeSeas, Fresenius Medical,
GlaxoSmithKline, Hellenic Telecom, ICON, Imperial Tobacco, ING Groep,
International Power, Lavendon, Lloyds Banking, Logitech, Lufthansa,
LVMH Moët Hennessy, Magyar Telekom, Mobile TeleSystems, Natuzzi,
Nokia, Norsk Hydro, Novo Nordisk, OMV, OPAP, Partner Communications,
Pearson, Philips Electronics, Premier Foods, Repsol, Rexam, Rio Tinto,
Roche, Royal Bank of Scotland, Royal Dutch Shell, RWE, Sainsbury's,
Sanofi-Aventis, SAP, Shire, Siemens, Smith & Nephew, Societe Generale,
Spirent Communications, StatoilHydro, STMicroelectronics, Stora Enso,
Swedbank, Swiss Re, Swisscom, Syngenta, Tate & Lyle, Telefonica,
Telekom Austria, Ternium, Teva Pharmaceuticals, Tomkins, TORM,
TOTAL, Turkcell, Unilever, United Utilities, UPM-Kymmene, Vodafone,
Wessanen, Wienerberger, Wolseley, and more.

(analyzed companies are underlined)

Copyright Warning: It is a violation of federal copyright law to reproduce all or part of this publication for any purpose without the prior written consent of
BeyondProxy LLC. Email support@manualofideas.com if you wish to have multiple copies sent to you. © 2008-2010 by BeyondProxy LLC. All rights reserved.

Table of Contents
EDITORIAL COMMENTARY ..........................................................................4
SUPERINVESTOR HOLDINGS UPDATE ......................................................9
45 EUROPEAN “MAGIC FORMULA” COMPANIES .................................. 10
EXCLUSIVE INTERVIEW WITH CICCIO AZZOLLINI ................................. 12
TOP 5 EUROPEAN INVESTMENT IDEAS .................................................. 16
LAVENDON (LONDON: LVD).................................................................................................... 16
NOKIA (HELSINKI: NOK1V, NYSE: NOK)................................................................................ 20
OMV (VIENNA: OMV, OTC: OMVKY) .................................................................................... 24
OPAP (GREECE: OPAP, OTC: GOFPY) ................................................................................ 28
PREMIER FOODS (LONDON: PFD, OTC: PRRFY) .................................................................... 32

OTHER EUROPEAN INVESTMENT CANDIDATES ................................... 36
ARCELORMITTAL (EURONEXT: MT, NYSE: MT)....................................................................... 36
BP (LONDON: BP, NYSE: BP) ............................................................................................... 40
DAIMLER (FRANKFURT: DAI, OTC: DDAIF) ............................................................................. 44
DRAX (LONDON: DRX) ........................................................................................................... 48
ENI (MILAN: ENI, NYSE: E) ................................................................................................... 52
GLAXOSMITHKLINE (LONDON: GSK, NYSE: GSK) .................................................................. 56
MAGYAR TELEKOM (BUDAPEST: MTELEKOM, NYSE: MTA) ................................................... 60
NORSK HYDRO (OSLO: NHY, NYSE: NHYDY)........................................................................ 64
ROCHE (ZURICH: RO, OTC: RHHBY)..................................................................................... 68
ROYAL DUTCH SHELL (AMSTERDAM: RDSA, NYSE: RDS.A) ................................................... 72
ST MICROELECTRONICS (PARIS: STM, NYSE: STM)............................................................... 76
TORM (COPENHAGEN: TORM, NASDAQ: TRMD) ................................................................... 80
TOTAL (PARIS: FP, NYSE: TOT) .......................................................................................... 84
UNILEVER (LONDON: ULVR, NYSE: UN) ................................................................................ 88
WESSANEN (AMSTERDAM: WES, OTC: KJWNY) .................................................................... 92
WIENERBERGER (VIENNA: WIE, OTC: WBRBY)...................................................................... 96

BOOK VALUE BARGAINS IN 12 LOCAL MARKETS .............................. 100
BELGIUM ............................................................................................................................. 100
FRANCE .............................................................................................................................. 101
GERMANY ........................................................................................................................... 102
ITALY .................................................................................................................................. 104
NETHERLANDS .................................................................................................................... 105
NORWAY............................................................................................................................. 106
PORTUGAL .......................................................................................................................... 107
SPAIN ................................................................................................................................. 108
SWEDEN ............................................................................................................................. 109
SWITZERLAND ..................................................................................................................... 110
TURKEY .............................................................................................................................. 112
UNITED KINGDOM ................................................................................................................ 113

100 CHEAP EUROPEAN COMPANIES TRADED IN THE U.S. ............... 114
IN ALPHABETICAL ORDER ..................................................................................................... 114
BY MARKET VALUE .............................................................................................................. 116
BY SECTOR......................................................................................................................... 118
BY STOCK PRICE PERFORMANCE ......................................................................................... 120
BY FREE CASH FLOW YIELD ................................................................................................. 122
BY ESTIMATED FORWARD P/E .............................................................................................. 124
BY PERCENTILE RANK IN INDUSTRY ...................................................................................... 126

FAVORITE STOCK SCREENS FOR VALUE INVESTORS ...................... 128
THIS MONTH’S TOP 10 WEB LINKS ....................................................... 138

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September 30, 2010 – Page 3 of 141

Editorial Commentary
A couple of months ago it appeared as if the European Monetary Union could unravel any day. The question was not whether there would be another Greece, but which country (or countries) were next. The only thing holding together the Euro, it seemed, was the generosity of Europe’s main economic engine — Germany. But even Germans’ willingness to carry the burden of their more profligate European brethren seemed to be wearing thin. One could sense that many speculators were jumping on the “short Euro” ship, hoping the endgame was near.
Well, the worst was averted — for the time being at least — and we must say thank goodness, not just that the economic and political stability of Europe was preserved but that the fragile global recovery could go on.
To be sure, this remains a treacherous time for investors, regardless of their geographic focus. Governments and central banks around the world managed to avert the worst, but the price tag has yet to be paid, likely in the form of (much) higher inflation down the road. Fortunately, inflation is not an evenly distributed tax, and smart investors can prepare today for what may lie ahead. Avoiding long-term government bonds seems to be a good place to start. But we digress.
In preparation for this month’s report, we combed through multiple countries across the European continent and the UK, researching inexpensive locally traded companies as well as those with ADRs or ADSs trading on U.S. stock exchanges.
We were able to identify quite a few opportunities that deserve closer consideration.
Not surprisingly, the bargains are not evenly spread among countries and industries.
For example, finding screaming bargains in Switzerland proved an effort in futility.
Meanwhile, certain industries threw up many potential investment ideas — the latter were concentrated primarily in banking, shipping, and major pharma.
If you decide to dig deeper on just five companies mentioned in this report, the following may constitute a good list of prospects:
Lavendon (London: LVD; £0.52 per share; MV £87 million)
800p
700p
600p
500p
400p
300p
200p
100p
0p
Sep 03

Sep 04

Sep 05

Sep 06

Sep 07

Sep 08

Sep 09

Sep 10

Lavendon is the market leader in the rental of powered aerial work platforms in western Europe and the Persian Gulf States. Members may be more familiar with the company’s American comparable, United Rentals (URI), which Bruce Berkowitz has owned in size in the past. Lavendon trades at an enterprise value to trailing adjusted
EBITDA multiple of 3.5x, compared to 5.9x for United Rentals. While Lavendon’s low enterprise valuation reflects high financial leverage and troubled recent history,
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September 30, 2010 – Page 4 of 141

it ignores the likelihood that Lavendon will meet its obligations and reduce debt. As the deleveraging process unfolds, equity holders should reap disproportionate rewards — not only should equity value grow quickly in percentage terms as enterprise value remains constant, but enterprise value could increase as well in response to a growing perception that Lavendon is no longer a distressed investment.
How did this potential opportunity come about? Management had embarked on an acquisition spree in 2006, doubling the rental equipment fleet within two years and nearly bankrupting Lavendon amid weakening demand. Fortunately, one of the levers at management’s disposal has been the ability to age equipment by reducing capex, thereby amplifying cash flows in a difficult business environment. Such “runoff” cash flows provide some downside protection for shareholders, but due to stabilizing fundamentals, investors should start evaluating Lavendon on a goingconcern basis. Chairman David Hollywood stated in a letter dated August 27th,
“For the first time since the middle of 2008 there is greater visibility of demand patterns in most of the Group’s markets. As we entered the second half, we have seen year-on-year growth in weekly revenues returning in a number of our European territories, with the notable exception of Germany, and we remain very positive about the fundamental strength and position of our business in the Middle East, despite the frustrations of delays in projects which still form part of our capacity planning for the region.”
He also wrote that management was “confident that due to our traditionally strong second half cash flows and our ability to control capital expenditure, net debt levels will reduce significantly over the balance of the year…”
With shares trading in line with tangible book value, we believe the risk-reward tradeoff is attractive for this European and Middle Eastern market share leader in powered access equipment. To give you a sense of the upside assuming improvement in operating results, consider this: If Lavendon shares tripled in price, the enterprise would still trade at only four times the EBITDA reported in 2008.
Nokia (Helsinki: NOK1V, NYSE: NOK; $10 per share; MV $37 billion)
$60

$50

$40

$30

$20

$10

$0
Aug 01

Aug 02

Aug 03

Aug 04

Aug 05

Aug 06

Aug 07

Aug 08

Aug 09

Aug 10

Nokia is the world’s market-leading maker of mobile devices, with close to 1.3 billion people worldwide using a Nokia handset. The company has seen margins squeezed due to low-cost competition and the lack of a high-end device to challenge
Apple’s iPhone and RIM’s Blackberry.
Nokia’s just-released N8 smartphone, which runs on the new Symbian 3 operating system, has received mixed analyst reviews and has suffered some prelaunch glitches. Nonetheless, pre-orders for the N8 have been the highest in Nokia’s
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September 30, 2010 – Page 5 of 141

history, and there seems to be a reasonable probability of the phone outperforming low analyst expectations.
Our thesis does not depend on the success of the N8 in particular. Rather, our analysis suggests the market is undervaluing Nokia’s vast global distribution network and the place the Nokia brand occupies in the minds of ordinary consumers, especially in emerging markets. When Nokia comes up with a hit device, whether it’s the N8 or a future phone, the market will be ready to embrace it, in our view.
In the meantime, the company appears likely to maintain an “installed base” of well more than one billion users. Investors buying the shares at a 13% FCF yield
(including 5+% dividend yield) should therefore have little fundamental downside while waiting for the substantial upside to be unleashed when a turnaround in business performance becomes evident.
The recent hiring of company outsider and former Microsoft executive Stephen
Elop to become CEO sends the message that the Board is determined to turn around the business.
Despite Nokia’s large size, the stock seems to lack a natural constituency: growth investors apparently rather own Apple at a market value of $250+ billion
(Nokia is “worth” less than $40 billion). Meanwhile, value investors cannot seem to get comfortable with the technology aspects involved. In our view, the uncertainty caused by the difficulty of predicting future technology trends affects the magnitude of the upside in Nokia. The downside appears protected, as the company’s unrivaled distribution, global brand recognition and strong FCF more than justify the recent market valuation. It will be interesting to see whether our value-oriented thesis proves correct, or whether the pundits, many of whom have written off Nokia, are right after all.
OMV (Vienna: OMV, OTC: OMVKY; $36 per share; MV $11 billion)
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Jul 02

Aug 03

Aug 04

Aug 05

Aug 06

Aug 07

Aug 08

Aug 09

Aug 10

OMV is an Austrian oil and gas company with a market-leading upstream and downstream presence in Central and Southeastern Europe, including a number-one position in refining, marketing, and gas logistics. The company’s differentiated assets make it more than just a commodity player.
Nonetheless, OMV shares recently traded in line with tangible book value and at
6-7x annualized earnings (based on earnings for the first half of 2010). This P/E strikes us as quite low given OMV’s relatively strong balance sheet. At recent oil prices, returns on tangible equity should remain around 20%, confirming the attractiveness of a valuation that approximates book value.

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On the reserve side, OMV’s proved oil and gas reserves amount to 1.2 billion barrels of oil equivalents (boe), with 80% developed, while proved and probable reserves are nearly 2.0 billion boe (the split between oil and natural gas is 60/40).
OMV’s recent production has run at 318,000 boe per day, an improvement over the year-ago period.
While margins for the large refining operation “will remain the key challenge” this year according to management, refining margins are a mean-reverting series and would therefore appear highly likely to expand in 2011 and beyond.
An Austrian state holding company owns 31.5% of OMV, with another 20% owned by Abu Dhabi’s International Petroleum Investment Company. While these shareholdings make it impossible for an activist investor to pressure management to take aggressive steps to unlock the intrinsic value of the underlying assets, the longterm orientation of the controlling holders does allow management to take a multiyear view toward maximizing value. This may be an advantage in an environment of low natural gas prices and depressed refining margins, as some managements might feel tempted to divest assets at an inopportune time.
Greek Organisation of Football Prognostics (OPAP)
(Greece: OPAP, OTC: GOFPY; $8 per ADR; MV $5 billion)
€35
€30
€25
€20
€15
€10
€5
€0
Sep 03

Sep 04

Sep 05

Sep 06

Sep 07

Sep 08

Sep 09

Sep 10

OPAP holds a monopoly on lottery and sports betting games in Greece due to an exclusive concession from the government expiring in 2020.
While concerns around the Greek economy, higher corporate tax, and the potential for competition have pressured the shares, we view the recent valuation as providing an opportunity. With shares trading at a 15% dividend yield on a cash-rich balance sheet, the risk-reward is attractive assuming sustainability of the dividend.
Based on OPAP’s current economics, the company can easily support a 10+% dividend, as free cash flow amounted to €712 million in 2009 and €512 million over the past twelve months. The recent decrease in FCF does not appear to constitute a trend, though we cannot be categorical in this assertion. After all, OPAP generates cash flows within Greece, depending on the spending patterns of the unpredictable, financially squeezed Greek populace.
As the Greek state owns 34% of OPAP and collects taxes from the company, politicians’ incentive to pressure OPAP is somewhat lessened. Nonetheless, a potential future decision by Greece to strip OPAP of its special status as the manager of the state-approved lottery remains the key long-term risk to the investment thesis.

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Premier Foods (London: PFD, OTC: PRRFY; £0.17 per share; MV £400 million)
400p
350p
300p
250p
200p
150p
100p
50p
0p
Sep 04

Sep 05

Sep 06

Sep 07

Sep 08

Sep 09

Sep 10

Premier is the largest food company in the UK, with 7% share of the £25 billion shelf-stable grocery market, ahead of Nestlé (5%) and Cadbury (4%). Premier has roughly one-quarter of the value share in the categories in which it competes, including dried soup/noodles, gravy, pickles/relishes, jelly, cakes, and Asian meals.
The company is still recovering from a near-bankruptcy in 2008-09 as it struggled with debt from an acquisition spree in prior years. Following an equity raise and debt restructuring, Premier’s survival chances have increased markedly.
With the share price near all-time lows, investors stand to benefit handsomely as expected deleveraging transfers enterprise value from debt to equity holders.
Management’s target to reduce net debt, which recently amounted to nearly £2 billion, by “at least” £100 million annually appears achievable, as trailing FCF is
£110+ million. The latter represents a 25+% free cash flow yield, implying an enticing risk-reward for equity holders.
While clearly a situation with non-negligible downside risk, the attractive riskreward tradeoff has not gone unnoticed by at least two investment firms: In May,
Warburg Pincus bought another 3+ million shares of Premier at 20p, bringing its equity ownership to 16%. Paulson & Co. owns another 12%.
Finally, an opportunity to learn from one of Italy’s up-and-coming investors…
We are pleased to bring you an exclusive interview with Italian value investor
Ciccio Azzollini, CEO of Cattolica Partecipazioni. Ciccio is co-founder of the Value
Investing Seminar in Molfetta (Bari), Italy, the premier annual event for value investors in Europe. In the interview, Ciccio provides valuable insight into European investing and highlights several investment ideas. Enjoy!
Sincerely,

John Mihaljevic, CFA and The Manual of Ideas research team

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September 30, 2010 – Page 8 of 141

Superinvestor Holdings Update
In the August issue of Portfolio Manager’s Review, we profiled the top holdings of 50+ investment managers, based on thenavailable Schedule 13F-HR filings with the SEC. On this page, we provide an update on the latest disclosed purchase and sale activity by the same set of investors. This information is based on Schedule 13G or 13D filings and Form 3 or 4 filings made by investors when changes in holdings require disclosure with the SEC.

Increases in Superinvestor Holdings

Latest
Trade/
Filing

Filing
Type

Investor

Company / Ticker

Market
Value
($mn)

9/10-9/20

4

Icahn

Take-Two / TTWO

849

9.99

9.60

4%

9.9

5%

3%

9/22

4

Second Curve

CompuCredit / CCRT

186

5.19

4.96

5%

4.1

11%

12%

9/22

4

Second Curve

Primus Guaranty / PRS

177

4.65

4.65

0%

6.4

6%

17%

9/22

4

Second Curve

Taylor Capital / TAYC

9/17

13D

Fairholme

AIG / AIG

9/10

13D

Harbinger

Harbinger Group / HRG

8/24

13G

Lone Pine

Vanceinfo / VIT

8/23

13G

MSD

Domino's Pizza / DPZ

8/12

13G

Lone Pine

Dick's Sporting / DKS

8/12

13G

Lone Pine

Equinix / EQIX

Stock Price ($)
Latest Filing ∆ since
Date
Date
Filing

Shares Owned
Latest ∆ since
(mn)
6/30/10

Holdings as % of
Company

205

11.20

10.88

3%

2.0

25%

11%

4,919

36.47

35.64

2%

32.9

0%

24%

106

5.47

5.95

-8%

3.9

19%

21%

1,290

32.54

26.79

21%

2.6

128%

7%

790

13.35

13.15

2%

3.7

new

6%

3,285

28.35

27.14

4%

5.1

new

4%

4,660

102.24

89.96

14%

2.7

54%

6%

Source: SEC filings, The Manual of Ideas compilation and analysis.

Decreases in Superinvestor Holdings

Latest
Trade/
Filing

Filing
Type

Investor

Company / Ticker

9/20

4

Berkshire

Moody's / MCO

9/1

13G

Pabrai

Harvest Natural / HNR

8/31

13G

Fairholme

8/31

13G

8/31

13G

Market
Value
($mn)

Stock Price ($)
Latest Filing ∆ since
Date
Date
Filing

Shares Owned
Latest ∆ since
(mn)
6/30/10

Holdings as % of
Company

6,040

25.77

25.99

-1%

28.9

-6%

12%

266

7.93

7.19

10%

4.5

0%

13%

Hertz / HTZ

4,627

11.16

8.51

31%

10.8

-63%

3%

Fairholme

Humana / HUM

8,500

50.25

47.79

5%

7.1

-46%

4%

Fairholme

Winthrop Realty / FUR

269

12.69

13.70

-7%

3.9

-8%

18%

Source: SEC filings, The Manual of Ideas compilation and analysis.

The Manual of Ideas follows the portfolio moves of the following investment managers: Bill Ackman, Pershing Square; Lee Ainsle, Maverick; Chuck Akre,
Akre Capital; Zeke Ashton, Centaur Capital; Brian Bares, Bares Capital; Bruce Berkowitz, Fairholme; Richard Breeden, Breeden Capital; Tom Brown,
Second Curve; Warren Buffett, Berkshire Hathaway; Francis Chou, Chou Associates; Chase Coleman, Tiger Global; James Crichton, Scout; Ian Cumming and Joe Steinberg, Leucadia; Boykin Curry, Eagle; David Einhorn, Greenlight; Phil Falcone, Harbinger; Alan Fournier, Pennant; Glenn Fuhrman and John
Phelan, MSD Capital; Jeffrey Gates, Gates Capital; Tom Gayner, Markel Gayner; Kian Ghazi, Hawkshaw; Ed Gilhuly and Scott Stuart, Sageview; Glenn
Greenberg, Brave Warrior; John Griffin, Blue Ridge; Howard Guberman, Gruss; Andreas Halvorsen, Viking Global; Mason Hawkins, Southeastern; Lance
Helfert and Paul Orfalea, West Coast; Chris Hohn, Children’s Investment Fund; Carl Icahn, Icahn; Rehan Jaffer, H Partners; Seth Klarman, Baupost; John
Kleinheinz, Kleinheinz Capital; Eddie Lampert, ESL Investments; Dan Loeb, Third Point; Steve Mandel, Lone Pine; Sandy Nairn, Edinburgh Partners;
Mohnish Pabrai, Pabrai Funds; John Paulson, Paulson & Co.; Boone Pickens, BP Capital; Mark Rachesky, MHR; Lisa Rapuano, Lane Five; Larry Robbins,
Glenview; Bob Rodriguez and Steven Romick, First Pacific; Wilbur Ross, WL Ross; Chris Shumway, Shumway Capital; David Tepper, Appaloosa; Peter
Thiel, Clarium; Prem Watsa, Fairfax; Wally Weitz, Weitz Funds; and David Winters, Wintergreen.

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September 30, 2010 – Page 9 of 141

45 European “Magic Formula” Companies
We have looked across Europe (ex. Russia) to find companies with high returns on capital (over a five-year period) and high earnings yields (trailing twelve months). We exclude some commodity businesses, such as oil companies, whose returns are highly dependent on commodity price cycles. Financial firms also do not qualify under the “magic formula” methodology.
The following table ranks companies based on their combined score in the categories “return on capital” and “cheapness.”

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45

Company
Netgem
Record
Ipek Matbaacilik
Golden Ocean
OPAP
MCI Management
Adel Kalemcilik
Co. Maritime Belge
PayPoint
Completel Europe
Mobistar
Drax Group
PV Crystalox
Education Dev.
Jumbo
Bijou Brigitte
DreamNex
Melker Schorling
Turcas Petrol
Mardin Cimento
Stalprodukt
Unye Cimento
Dealogic
FW Thorpe
AstraZeneca
Nopec Geophys.
Belgacom
Velosi
Phoenix Solar
Orzel Bialy
Betsson
Sepura
Lifosa
Camaieu
Anglo-Eastern
Ocean Wilsons
Kernel Holding
F. Olsen Energy
H Lundbeck
New Britain Palm
RWS Holdings
Next
Fala
Ford Otomotiv
Amadeus Fire

Industry
Software
Investments
Printing Services
Transportation
Gaming
Investments
Office Supplies
Transportation
Bus. Services
Communications
Communications
Electric Utilities
Semiconductors
Bus. Services
Retail (specialty)
Retail (specialty)
Retail (catalog)
Investments
Gas Utilities
Construction
Construction
Construction
Software
Furniture
Biotechnology
Oil Services
Communications
Bus. Services
Semiconductors
Waste Mgmt
Gaming
Communications
Chemicals
Retail (apparel)
Crops
Transportation
Food
Oil Services
Biotechnology
Food
Bus. Services
Retail (apparel)
Food
Autos & Trucks
Bus. Services

Market
Value
(£ mn)
96
90
186
422
3,150
81
60
619
199
427
2,220
1,500
182
54
536
670
67
1,290
329
360
575
227
128
70
47,550
966
7,420
51
154
66
338
57
239
818
231
390
953
1,310
2,000
822
108
3,710
52
1,840
96

52Wk
Price

2%
-56%
39%
28%
-32%
38%
121%
0%
-39%
-9%
0%
-13%
-31%
-13%
-36%
-17%
-11%
60%
40%
46%
-23%
28%
48%
13%
22%
5%
6%
25%
-21%
102%
4%
-7%
37%
-1%
71%
48%
58%
-10%
-7%
42%
-8%
17%
2%
36%
73%

P/B
2.8x
3.5x
1.3x
1.2x
7.4x
1.3x
2.0x
1.0x
2.8x
.8x
9.0x
1.6x
1.0x
3.4x
1.5x
3.2x
1.8x
1.1x
1.4x
4.1x
2.0x
2.5x
2.0x
1.5x
3.3x
1.8x
3.3x
1.2x
1.6x
1.4x
6.0x
1.3x
1.1x
3.8x
1.6x
1.2x
2.3x
1.8x
1.7x
2.7x
2.2x
>9.9x
3.1x
2.7x
4.0x

Trailing
P/E P/CF
4x
3x
8x
7x
3x
1x
4x
4x
8x
7x
6x
-7x
7x
5x
4x
9x
7x
1x
1x
10x
6x
8x
6x
9x
7x
9x
8x
7x
6x
11x
9x
8x
7x
3x n/m 10x
10x
11x
10x
11x
10x
11x n/m 9x
7x
8x
7x
9x
7x
9x
4x
7x
4x
8x
-6x
6x
9x
8x
12x
10x
7x
3x
10x
8x
11x
8x
9x
7x
9x
4x
9x
8x
8x
5x
7x
6x
9x
8x
12x
11x
12x
8x
12x
-10x
7x
12x
9x

Div.
Yield
3.4%
11.3%
5.4%
14.3%
-4.7%
4.5%
7.3%
4.8%
5.7%
4.5%
2.1%
4.6%
6.2%
8.6%
.8%
1.8%
9.6%
2.0%
8.8%
6.5%
3.4%
4.6%
4.5%
5.8%
.9%
.7%
-3.1%
5.0%
.6%
2.5%
5.2%
3.2%
4.7%
3.2%
6.0%
13.1%
6.4%

∆ Rev.
(tot.)
70%
44%
90% n/m 11%
-38%
15%
-3%
17%
22%
3%
19%
19%
21%
20%
12%
38%
0%
-52%
23%
14%
11%
9%
7%
9%
23%
2%
61%
48%
15%
33%
18%
10%
14%
18%
17%
48%
23%
7%
21%
12%
4%
-8%
0%
--

5-Year
GM
ROA
(avg.) (avg.)
34%
24%
99%
66%
54%
22%
30%
24%
20%
51%
23%
20%
51%
20%
40%
18%
29%
24%
42%
16%
46%
24%
44%
18%
35%
20%
72%
19%
53%
16%
85%
32%
30%
16%
68%
14%
5%
22%
53%
35%
29%
28%
48%
24% n/m 19%
42%
16%
79%
16%
96%
17%
67%
14%
24%
15%
13%
14%
17%
17%
84%
24%
51%
13%
19%
17%
59%
22%
42%
15%
86%
15%
28%
15%
99%
14%
81%
13%
53%
15%
42%
22%
28%
21%
97%
19%
14%
15%
41%
18%

ROE
(avg.)
40%
97%
19%
103%
102%
31%
26%
37%
46%
21%
44%
69%
32%
36%
33%
40%
30%
16%
24%
39%
37%
30%
24%
20%
39%
24%
39%
24%
22%
26%
34%
31%
20%
37%
21%
24%
33%
35%
22%
22%
32%
239%
21%
26%
25%

Rev./
Empl.
(£'000)
891
496
136
13,590
4,400
97
142
626
420
n/m
860
1,540
492
188
153
99
911
n/m
773
298
120
339
131
95
345
550
305
-2,330
138
481
273
202
115
30
69
n/m
430
276 n/m 125
96
-366
45

Country/
Ticker
FR/NTG
GB/REC
TR/IPMAT
NO/GOGL
GR/OPAP
PL/MCI
TR/ADEL
BE/CMB
GB/PAY
FR/CPT
BE/MOBB
GB/DRX
GB/PVCS
GB/EDD
GR/BELA
DE/BIJ
FR/DNX
SE/MELK
TR/TRCAS
TR/MRDIN
PL/STP
TR/UNYEC
GB/DL.
GB/TFW
GB/AZN
NO/TGS
BE/BELG
GB/VELO
DE/PS4
PL/OBL
SE/BETS
GB/SEPU
LT/LFO1L
FR/AMA
GB/AEP
GB/OCN
PL/KER
NO/FOE
DK/LUN
GB/NBPO
GB/RWS
GB/NXT
FR/FALA
TR/FROTO
DE/AAD

Country codes: BE (Belgium), FR (France), GB (Great Britain), DE (Germany), DK (Denmark), LT (Latvia), NO (Norway), PL (Poland), SE (Sweden), TR (Turkey).
Sources: Various European stock exchanges, Company filings, Financial Times, Manual of Ideas analysis and estimates.

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September 30, 2010 – Page 10 of 141

We take a quick look at selected companies in the above table in order to identify opportunities that warrant further inquiry:

1

5
11

16

25

38

Company
Netgem
netgem.com

Industry
Software

OPAP opap.gr Gaming

Mobistar mobistar.be Communications

Bijou Brigitte bijou-brigitte.com Retail (specialty)

AstraZeneca astrazeneca.com Biotechnology

F. Olsen Energy fredolsenenergy.no Oil Services

Market
Value
(£ mn)
96

52Wk
Price

2%

P/B
2.8x

Trailing
P/E P/CF
4x
3x

Div.
Yield
3.4%

∆ Rev.
(tot.)
70%

5-Year
GM
ROA
(avg.) (avg.)
34%
24%

ROE
(avg.)
40%

Rev./
Empl.
(£'000)
891

Country/
Ticker
FR/NTG

Netgem provides IPTV technology that enables telecom operators to offer convergence services. The company develops hybrid broadcast and broadband TV middleware software and the Netbox series of set-top boxes (STBs). It has shipped three million boxes and milddleware and is the #1 IPTV STB vendor in Europe (22% market share) and #3 in the world. Netgem posted sales of €146 million (+46%), EBIT of
€31 million (+100%), net income of €20 million, (+1%), and EPS of €0.56 (-2%) in 2009. The company spun off VideoFutur at the end of
2009 and paid an extraordinary cash dividend of €0.70 at the start of 2010. The regular dividend is €0.11 per share in 2010 (paid in June), up from €0.10 in 2009. In the first half of 2010, Netgem reported sales of €74 million (-5%; +6% adjusted for VideoFutur spinoff), EBIT of
€26 million (+65%; +34% adjusted for VideoFutur), net income of €20 million, (+128%; +54% adjusted), and EPS of €0.53 (+125%; +53% adjusted) (these figures confirm that VideoFutur was a money-losing business for Netgem). The company generated operating cash flow of
€15 million in 1H10, bringing the net cash position to €35 million as of June 30th. The sole analyst covering Netgem has the company earning €0.72 per share for the full year 2010, following a result of €0.53 in 1H10 and €0.56 for the full year 2009. It is unclear why the analyst appears to expect a result of only €0.19 per share in 2H10 versus €0.32 in 2H09 – this should be further investigated. Management commentary in the 1H10 press release dated September 1st does not hint at any expectation of a decline in profitability in 2H10 versus
2H09, so the analyst may simply have failed to update the 2010 EPS estimate. More likely, the analyst estimate excludes any non-recurring items. In 1H10, the company had a €5 million non-cash gain due to the VideoFutur deconsolidation and a €1 million charge for financial and equity associate losses. Excluding these items, 1H10 net income would have been €15 million or €0.41 per share. Assuming that this 1H10
EPS number is embedded in the €0.72 per share analyst estimate for 2010, the 2H10 estimate is €0.31 (versus €0.32 actual EPS in 2009).
In the September 1st press release, management does state an intention to “expand its marketing and business development teams” and to “sustain its investments policy and assess any opportunity that would permit it to accelerate its growth.” Whether or not these are hints that profitability may suffer in the near term remains to be seen. In any case, Netgem seems to be a situation worthy of further inquiry by those able to invest in a company with a market value of only about €120 million. The recent share price of €3.25 compares favorably to
2010E EPS of €0.72 — even more so when the net cash balance of €35 million is taken into account. In fact, these numbers appear almost too good to be true, so careful investigation of the company’s accounts and business prospects is in order. (The company’s 2009 annual report — or any recent full financial statements for that matter — were unavailable on the company’s website when we visited it.)
3,150

-32%

7.4x

8x

7x

14.3%

11%

20%

51%

102%

4,400

GR/OPAP

44%

860

BE/MOBB

Idea that warrants further inquiry – see our profile and valuation analysis of OPAP elsewhere in this report.
2,220

0%

9.0x

10x

6x

4.8%

3%

46%

24%

Mobistar, 53%-owned by France Telecom, provides mobile and fixed telephony and data services in Belgium and Luxembourg. It has 1,500 employees and four million customers. The company’s 1H10 operating income was flat year-over-year at €198 million, bringing EBIT for the twelve months ended June 30th to €403 million. This implies a trailing EBIT-to-EV yield of 13%, based on recent EV of roughly €3 billion.
While the company employs €600 million in long-term tangible assets in the business, working capital is negative, resulting in a capital-light overall business model. Mobistar’s business continues to grow, but regulatory pressure negatively affects the company’s profit outlook. For example, the Belgian regulator BIPT reduced the mobile termination rates for Mobistar from 9.02 eurocent to 5.05 eurocent effective
August 1st. Management expects this regulatory action to negatively impact profitability by €33 million during the remainder of 2010. We would want to better understand the future impact of regulatory pressure on Mobistar before giving serious consideration to an investment.
670

-17%

3.2x

11x

9x

6.2%

12%

85%

32%

40%

99

DE/BIJ

Bijou Brigitte provides fashion jewelry via 1,137 stores, 36% of which are located in Germany, with the remainder primarily in other
European countries. The company had 300 stores ten years ago and 100 stores twenty years ago. It has a strong balance sheet, with €197 million of cash and investments and virtually no debt. Operating income of €35 million in 1H10 was down from €44 million in 1H09. Over the past twelve months, the company generated operating income of €98 million, implying a trailing EBIT-to-EV yield of 15% (enterprise value of €654 million). The company generates high returns on capital employed, though returns would come down significantly if the company owned rather than leased the underlying store real estate. Clearly, Bijou Brigitte has the wherewithal to weather extended weakness in consumer spending, but we do not find an EBIT-to-EV yield of 15% sufficiently compelling given continuing demand-side challenges.
47,550

22%

3.3x

9x

7x

4.6%

9%

79%

16%

39%

345

GB/AZN

AstraZeneca is an integrated biopharmaceutical company with $33 billion in annual sales. Operating income rose 11% to $6.7 billion in
1H10. Over the past twelve months, the company has generated EBIT of $12 billion, implying a trailing EBIT-to-EV yield of 15% (enterprise value of $81 billion includes $3.5 billion in retirement obligations). Similarly to other large pharma companies, AstraZeneca employs relatively little capital in the business. Consensus analyst estimates have the company generating flat revenue and earnings in 2011, which likely explains the low valuation (less than 9x 2010E EPS) of this high-quality business. While we have no special insight on AstraZeneca’s near-term prospects, it seems that the company’s long-term growth should roughly track the growth of the biopharmaceutical market in general. The latter should benefit from an ageing population and continued high demand for drugs that improve and extend life.
1,310

-10%

1.8x

8x

5x

5.2%

23%

99%

14%

35%

430

NO/FOE

Fred Olsen Energy is a Norwegian company with 150 years of experience in exploration and production services to the offshore oil and gas industry. The company generated EBIT of NOK 1.0 billion in 1H10, down from NOK 2.1 billion in 1H09. Over the past twelve months, EBIT has amounted to NOK 1.9 billion, implying a trailing EBIT-to-EV yield of 10% (based on enterprise value of NOK 18.7 billion). Given the company’s sharp drop-off in profitability and the uncertain outlook for oil well services companies, we do not find a 10% trailing EBIT-to-EV yield sufficient to warrant closer consideration.

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September 30, 2010 – Page 11 of 141

Exclusive Interview with Ciccio Azzollini
We are pleased to host Ciccio Azzollini, CEO of Italy-based investment firm
Cattolica Partecipazioni and co-founder of the annual Value Investing Seminar in Molfetta (Bari), Italy. Ciccio is a graduate of the University of Bari and has completed the Value Investing Program at Columbia Business School.

The Manual of Ideas: When you were thirty years old, you founded the Value
Investing Seminar in Italy, which recently held its seventh annual event. How did you become interested in value investing?
Ciccio Azzollini: I’m self-taught so it was very tough because no one in my family had an investing background, and a value investing course didn’t exist in
Italy. When I bought my first shares at the age of 16, attracted by the freedom of this business—if you’re successful, of course—I was foolishly doing technical analysis, momentum investing, etc., and within four years had lost all the money my father gave me to invest. Fortunately, near the end of this period, I happened to read an article on Warren Buffett that was published in an Italian financial newspaper. In 1996 on my first trip to the U.S. and Canada with my parents, I visited a bookstore in Toronto and bought my first book about Warren Buffett,
The Good Guy of Wall Street. This was how I first learned about value investing.

“Through Cattolica
Partecipazioni I try to acquire assets or cash flow at a discount — the proverbial fifty-cent dollar…”

Thanks to the Internet, when I returned home I was able to learn much more about Buffett, including the fact that he attended Columbia Business School.
Unfortunately, my English wasn’t (and still isn’t) very good, but I did email Joel
Greenblatt. I had read his first book, You Can Be a Stock Market Genius, and he was teaching a value investing course at Columbia, and he kindly said it would be okay with him if I sat in the back of his classroom. So, speaking barely any
English, I moved to New York in the spring of 1999 at the peak of the Internet bubble, when value investing was deeply out of favor to learn the art of value investing from one of my heroes. At the end of the course, Greenblatt suggested
I sit in on Richard Pzena’s class, which I did, and then I attended Prof. Bruce
Greenwald’s Executive Value Investing Program. I owe a debt of gratitude to these three great men.
In addition to the three men who taught me at Columbia, I owe a debt of gratitude to Ben Graham, Warren Buffett, Charlie Munger, and Seth Klarman, from whose books and shareholders’ letters I learned a great deal. Special mention also goes to Whitney Tilson and Glenn Tongue, who are mentors and like brothers to me.
MOI: Tell us more about your investment vehicle Cattolica Partecipazioni. How did the firm get started and what are its objectives?
Azzollini: After attending the value investing classes at Columbia, I spent three years in Milan as a fund manager with my friend Roberto Russo and then in
2004 returned to my hometown of Molfetta, where I founded Cattolica
Partecipazioni. It’s a long-only investment vehicle with permanent capital

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September 30, 2010 – Page 12 of 141

seeded mostly by a little foundation called Cattolica Popolare that is involved in many businesses. My father is the Chairman, and thanks to his trust in me I had the opportunity to start my experience in the value investing world. Through
Cattolica Partecipazioni I try to acquire assets or cash flow at a discount — the proverbial fifty-cent dollar — and, in addition, almost 40% of the capital is in private equity investments in the area of my hometown.
Value investing is very much an experience-based business and having lived through the worst decade of financial history and survived it, I’ve learned a lot, especially from my mistakes and from others’ mistakes. I would like to have another two or three years of experience and then open up to outside investors.
MOI: Cattolica Partecipazioni is “built upon the application of principles of value investing” articulated by Graham and followed by Buffett. Are you a
Graham-type “net-net” investor or do you place more emphasis on great businesses and good corporate leadership?

“I look at areas of maximum pessimism because of the resulting distressed prices.
We try to take advantage of panicky and short-sighted investors.” Azzollini: I have a disciplined, long term-oriented opportunistic value approach, meaning I look everywhere to find value and the best risk-adjusted returns. In the beginning, I was a quantitative value guy looking for statistically cheap stocks (low P/E, P/B, etc.). Today, my public investments are divided into two categories with different risk-reward profiles and time horizons. The first consists of generally undervalued securities where we try to buy a fractional interest in a business at a low multiple of normalized free cash flow. We usually have fairly large positions (5-10%) in 4-5 companies, with smaller positions in another 5-10 stocks. The second category is “workouts”, where we try to buy securities affected by corporate actions such as mergers, liquidations, reorganizations, spin-offs, etc. At any given time, we may have 10-15 positions.
MOI: Could you illuminate your investment approach by way of a few examples of companies you have invested in or decided to pass on?
Azzollini: We consider ourselves bottoms-up stock pickers and, as a general rule, we follow Buffett’s timeless principle of be “fearful when others are greedy and greedy when others are fearful.” I look at areas of maximum pessimism because of the resulting distressed prices. We try to take advantage of panicky and short-sighted investors.
The five pillars that underlie our investment approach are:
1) Focus on risk. We think of risk as the probability and amount of potential permanent loss of capital. We start with an assessment of valuation risk: Are the assumptions conservative? Where are we in the cycle of value? We then look at earnings risk: we think in terms of regression to the mean and figure out where are current free cash flows relative to the average of the previous ten years. Then we look at operating leverage and balance sheet risk: What is the leverage?
What is the quality of the assets? Finally, we look at timing: Is there a catalyst?
2) Business owner mentality. When we buy stock we don’t thing of just buying a piece of paper, but we think we are buying a fractional interest in a business, so we try to think like a businessman that is going to buy the whole company. 3) We have a long term investment view.
4) Demand a huge margin of safety.

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September 30, 2010 – Page 13 of 141

5) Psychology is also very important because in the short term stock prices are often driven by emotional aspects of human behavior. As Buffet wrote, “you should look at market fluctuation as your friend rather than your enemy; profit from folly rather than participate in it.” This view was best expressed by Ben
Graham who posited the existence of Mr. Market.
Finally, we use a checklist, asking questions such as, What is our investment thesis? Is it a good business? Do we have confidence in the managers? What are the implied expectations in the stock price? Why is it cheap? What might I have missed?

“…we use a checklist, asking questions such as, What is our investment thesis? Is it a good business? Do we have confidence in the managers?
What are the implied expectations in the stock price? Why is it cheap? What might I have missed?”

Today, Europe is surrounded by fears regarding the sovereign debt of many nations, so we are examining the relationship among psychology, price, fundamentals, and probability. We are finding some asymmetric risk-reward situations in Greece, Spain, Italy, and Germany in sectors ranging from banks to industrials. For example, you can buy well-known Italian banks like Unicredito,
Monte deiPaschi di Siena, Intesa San Paolo, and Banco Popolare at 4-5 times normalized earnings power and in some cases for less than tangible common equity, with the quality of the asset increasing dramatically. Another favorite is
Fiat, which is going to spin-off its industrial business and trades at a 40% discount to its various pieces, based on ultra-conservative assumptions. Or you could own the stock of Italy’s second-largest publishing group, Caltagirone, at less than excess cash and get the operating business for free. Finally, you could buy a fractional interest in the Greek Organization of Football Prognostics
(OPAP), the state-run lottery, at an after-tax earnings yield of 14%, collect a
12% dividend, and get the near term expansion into online gambling for free.
MOI: What are some of the lessons you have drawn from investments that may not have worked out as expected?
Azzollini: I try not to let mistakes bother me but rather learn from them and move on. We are in the business of making probabilistic decisions, so some mistakes are inevitable. The most important lesson I have learned is to focus on risk first and be conservative in my assumptions, taking special care not to make optimistic forecasts to justify the expected value.
The second most important lesson is don’t trust anyone making forecasts.
MOI: Have you had to adapt your value investing methodology when investing in Italy or other European countries?
Azzollini: Yes. In Europe, especially in Italy, the market is less efficient than in the U.S., which is a great advantage, but I find that in general you have to increase the time horizon of investments and demand more margin of safety.
MOI: How have currency considerations played into your investment strategy?
Are you looking to diversify outside the Euro?
Azzollini: No. I don’t make macroeconomics bets. I invest where I think I’m getting the best value. For instance, right now half of my investments are in the
U.S. market, mostly special situations like General Growth Properties and
Liberty Acquisition, and some small-cap Chinese companies, because I like the risk-reward profile and potential IRR, not because I needed to diversify away from Europe.

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September 30, 2010 – Page 14 of 141

MOI: How do you generate investment ideas?
Azzollini: I’m always checking the new low list, not just stock prices but also lows based on P/E, P/S, etc. I also find ideas by reading constantly — I regularly read the Wall Street Journal, Financial Times, New York Times, Barron’s,
Fortune, Forbes, Value Line, SPACAnalytics, Gemfinder, Value Investor
Insight, Superinvestor Insight, The Manual of Ideas, Outstanding Investor
Digest, Value Investors Club, SumZero, Distressed Debt Investing, Merger
Arbitrage Investing, Magic Formula, and Grant’s Publishing. I’m always eager to read shareholders’ letters, news and interviews with some of my favorite investors, including Whitney Tilson, Bill Ackman, Lloyd Khaner, Seth Klarman,
Joel Greenblatt, Mohnish Pabrai, Rich Pzena, David Einhorn, John Paulson,
Marty Whitman, Howard Marks, Bill Miller, Bob Olstein, Francisco Parames,
Eddie Lampert, Jeremy Grantham, and of course Munger and Buffett. Finally, I always attend the Value Investing Congress in New York and Los Angeles, which is a great place to find new ideas.
MOI: You live and work in a relatively small city in southern Italy. How has this location affected your investing mindset? Do you try to meet with company management before making an investment?

“…living in a small city – along with the size of my firm and its permanent capital – is a real advantage because I’m very far from the noise so I can tune it out and concentrate on what’s most important.” Azzollini: I think living in a small city – along with the size of my firm and its permanent capital – is a real advantage because I’m very far from the noise so I can tune it out and concentrate on what’s most important. Regarding meeting with management, I’m not opposed to it on principle, but so far have never done it. I think one can analyze management by looking at how they’ve managed the business, allocated capital and treated shareholders over time, especially what kind of return they’ve had and what their compensation looks like.
MOI: What is the one mistake that keeps investors from reaching their goals?
Azzollini: In my opinion the biggest mistake people make is having an ultrashort-term view, seeking results in a matter of weeks. Furthermore, I think that the reallocation process is something that you have to think about constantly if you want to outperform.
MOI: Have you read any non-investment related books that have helped you become a better investor? What books would you recommend?
Azzollini: Recently I’ve been reading a lot of books about investor psychology, especially Robert Cialdini’s Influence: The Psychology of Persuasion because it helps me understand how people think or react when they’re in a group.
At the moment my greatest “wealth” is my library, and I highly recommend
Klarman’s Margin of Safety, Greenblatt’s books, Tilson and Tongue’s More
Mortgage Meltdown, Graham’s The Intelligent Investor and Security Analysis,
Munger’s Poor Charlie’s Almanack, Cunningham’s The Essays of Warren
Buffett, Thornton’s Quality of Earnings, Gawande’s The Checklist Manifesto,
Lynch’s One Up on Wall Street, and Whitman’s Distress Investing.
MOI: Ciccio, thank you very much for your time and insight.

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September 30, 2010 – Page 15 of 141

Top 5 European Investment Ideas
Lavendon (London: LVD) www.lavendongroup.com Leicestershire, UK, 44-1455558874

Rental Equipment
Trading Data

Consensus EPS Estimates

Price: £0.52 (as of 9/24/10)
52-week range: £0.43 - £1.86
Market value: £86.7 million
Enterprise value: £254.4 billion
Shares out: 164.4 million
Ownership Data

Valuation

This quarter
Next quarter
FYE 12/31/10

Latest n/a n/a n/a Month
Ago
n/a n/a n/a

# of
Ests
n/a n/a n/a

P/E FYE 12/31/09
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/31/12
EV/ LTM revenue

n/a n/a n/a n/a 1.2x

FYE 12/31/11

n/a

n/a

n/a

EV/ LTM EBIT

21x

Insider ownership: 1

LT growth

n/a

n/a

n/a

Insider sales (last six months): 0
Institutional ownership: n/a

EPS Surprise n/a Actual n/a Estimate n/a Greenblatt Criteria
LTM EBIT yield
LTM pre-tax ROC

5%
4%

Operating Performance and Financial Position
(£ millions, except per share data)
Revenue
Gross profit
Operating income
Net income
Diluted EPS
Shares out (avg)
Cash from ops
Capex
Free cash flow
Cash & investments
Total current assets
Intangible assets
Total assets
Short-term debt
Current liabilities
Long-term debt
Total liabilities
Common equity

12/31/04
108
36
(9)
(13) n/m 37
24
2
22
8
34
1
202
16
33
81
127
75

12/31/05
100
41
7
1
0.02
37
25
8
17
8
32
1
177
14
32
56
99
78

Fiscal Years Ended
12/31/06
12/31/07
125
186
55
87
13
26
7
15
0.18
0.42
38
42
30
49
36
50
(6)
(1)
10
17
44
69
3
10
268
426
25
41
67
119
84
161
174
306
94
119

12/31/08
260
110
39
17
0.35
46
54
59
(5)
15
80
15
571
55
116
265
423
148

LTME
6/30/10
219
80
12
(7)
n/m
105
49
16
33
6
68
6
414
46
89
127
244
170

12/31/09
227
87
(25)
(43) n/m 56
56
13
43
76
135
7
514
44
98
214
340
174

6ME
6/30/09
114
43
(31)
(37)
n/m
47
20
5
15
10
72
9
466
52
99
231
360
105

6ME
6/30/10
106
36
6
(0)
n/m
164
13
8
5
6
68
6
414
46
89
127
244
170

Ten-Year Stock Price Performance and Trading Volume Dynamics

800p
700p
600p
500p
400p
300p
200p
100p
0p
Sep 03

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September 30, 2010 – Page 16 of 141

BUSINESS OVERVIEW

SELECTED OPERATING DATA1

Lavendon provides mobile, elevating work platforms used for aerial access in construction, repair and maintenance. The company owns ~20,000 rental units of which ~50% are scissor lifts, ~45% are booms and ~5% are truck/van mounts.

INVESTMENT HIGHLIGHTS










Largest provider of powered access equipment in
Europe and the Middle East. Lavendon’s market share in the U.K., Germany, and the Middle East is
~25% (3x the next largest firm), ~20%, and ~60%.
Downside appears protected as recent EV approximates 60% of rental fleet at cost. The implied EV per unit is ~£12,500, which is roughly in-line with the price Lavendon paid to buy 300+ units from a bankrupt U.K. competitor in 2009.
Intrinsic value may be twice recent share price based on an EV-to-trailing adj. EBITDA of

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