Compass Asset Management SA
“High Yield: in between Bonds and Equities”
Speaker: Corrado Capacci
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Compass Asset Management
2003 - Becomes Investment Advisor to
CompAM Fund Sicav, Ucits III
domiciled in Luxembourg.
1998 - Compass AM begins by managing assets
for private clients through discretionary
management mandates
30
25
Evoluzione Forza Lavoro
20
15
10
5
0
1998
2003
2005
2006
2007
2008
2009
2010
2007 - Authorized by the Swiss Federal Banking
Commission (now called FINMA) to manage
and distribute foreign funds under the Collective
Investment Schemes Act
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
2011
2012
2012 - Compass AM moved to its
new offices at Via Calprino 18
Lugano - Paradiso
When more than 20 years ago we were studying finance we were taught a
theoretical framework that has its foundation on the
RISK FREE INTEREST RATE
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Then 2008 came along and we learn that:
THERE IS NO RISK FREE
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
The policy response to 2008 led to another consequence:
THERE IS NO INTEREST RATE
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Welcome to the era of:
Risk - Free Yield
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
High Yield: returns in perspective
300.0
European High Yield
250.0
Stoxx 600 dividendi reinvestiti
US High Yield
200.0
S&P total return index
150.0
100.0
50.0
0.0
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
High Yield: yields in perspective
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
High Yield: historical perspective
 Equity like returns
 Lower volatility
 Faster recovery of drawdowns because:
 Bond mature at par
 Do not have to wait for someone to pay your purchase multiple
 Cannot disregard earnings generation
 Recent fund flows
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Current Themes
 Monetary base expansion fighting deflationary deleveraging
 No bankrupcies is allowed in Europe (France-Peugeot, banking sector)
 Financial repression way out of government debt issue
 Low (zero) rates sustaining longest duration assets (commodities –
gold, equities) and money flows to EM
 Some segments of financial markets are racing ahead of sensible
valuations
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Recent issues we have trouble understanding
 SCANIA (A-) 1.625% 2017 issued in September 2012
 NUMERICABLE (B) issuing bonds in the middle of merger talks
 LANXSESS (BBB) 2.625% 2022 issued early November 2012
 BOLIVIA (BB-) 4.875% 2022 issued end October 2012
 URUGUAY (BBB-) 4.125% 2045 issued early November 2012
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Investment Process - Example
Wind SpA projections and equity valuation
Company Rating
(S&P, Moody's, Fitch)
Last Update:
BB, Ba3, BB+
10-Apr-12
Source:
Currency:
Company Data, FY12 E
EUR mln
4Q10
1,543
1Q11
1,351
2Q11
1,399
3Q11
1,396
4Q11
1,424
FY11
5,570
FY12 E
5,468
LTM
5,570
549
35.58%
497
36.79%
526
37.60%
550
39.40%
533
37.43%
2,106
37.81%
2,081
38.06%
2,106
37.81%
Adj EBITDA
549
Adj EBITDA Margin
35.58%
Comment for EBITDA Adjustment:
--
497
36.79%
526
37.60%
550
39.40%
533
37.43%
2,106
37.81%
2,081
38.06%
2,106
37.81%
Revenues
Wind SpA Capital Structure FY2012E
12000
EBITDA
EBITDA Margin
Capex
Cash Interest
Cash Taxes
FCF (before WC chg)
FCF (after WC)
5.4x
10000
4.7x
8000
(411)
(163)
(44)
(69)
154
(146)
(212)
(0)
139
130
(234)
(169)
123
159
(125)
(189)
(33)
203
202
(1,532)
(142)
(49)
(1,190)
(929)
(2,037)
(712)
(82)
(725)
(438)
------
(2,037)
(712)
(82)
(725)
(438)
395
750
9,741
9,346
10,344
395
750
9,741
9,346
10,344
------
395
750
9,741
9,346
10,344
4.6
4.4
4.9
6.0
3.0
4.6
4.4
4.9
6.0
3.0
--
---
4.6
4.4
4.9
6.0
3.0
5.4
--
5.4
4.2x
6000
4000
Cash & Marketable Securities 406
Short Term Debt (STD)
341
Total Debt
8,821
Net Debt
8,415
Adj Net Debt
9,285
Comment for Net Debt Adjustment:
Adj for PIK
389
316
8,565
8,176
9,106
607
300
8,680
8,073
9,091
600
50
8,745
8,145
9,128
3.0x
2000
0
Assets
Total Leverage
4.0
3.9
4.1
4.1
Net Leverage
3.9
3.7
3.8
3.8
Adj Net Leverage
4.2
4.2
4.3
4.3
Net Debt/(EBITDA - Capex)
7.6
7.6
7.6
7.6
Interest Cover
2.5
2.6
2.5
2.9
(EBITDA-Capex-Cash
Interest)/Net STD
Neg Net STD
Neg Net STD
Neg Net STD
Neg Net STD
Subgroup
TelephoneTELEFONICA S.A. € SPAIN
Integrated
DEUTSCHE
TelephoneTELEKOM AG €
GERMANY Integrated
FRANCE TELECOM
TelephoneSA €
FRANCE
Integrated
TELECOM ITALIA
TelephoneSPA €
ITALY
Integrated
VODAFONE GROUP UNITED
Cellular
PLC GBP
KINGDOM Telecom
Web
ILIAD SA
FRANCE
Portals/ISP
KONINKLIJKE KPN NETHERL TelephoneNV €
ANDS
Integrated
TelephoneBELGACOM SA €
BELGIUM Integrated
Averages
1
0
Wind SpA
Equity Cushion
=
0.2
1
1
1
2 1 21
2
2 21
0 2
0
0
0 0
0
0.4
0.6
0.8
1
Multiple x
Ebitda
Mkt Cap
Net Debt
Senior credit facilities
Hy Bond
PIK
Equity
Wind SpA Bond vs Equity Peers Market performance
EV/Sal EV/EBI
es FY TDA FY
63,625
22,364
51,231
59,551
1.74
4.95
120
56,836
17,816
37,111
42,196
1.40
4.45
110
42,739
13,590
27,853
30,381
1.36
4.29
100
30,493
12,258
15,862
33,768
1.63
4.05
90
45,919
14,217
84,270
31,420
2.52
8.14
3,050
868
5,513
969
2.13
7.46
12,594
4,749
9,753
12,109
1.74
4.60
6,288
1,791
7,254
1,616
1.41
4.95
1.74
5.36
1.74
5.36
Index
Country
5.4
Liabilities
EV
80
70
60
50
1.2
5,468
-Net Debt =
2,081
1,378
1,378
9,781
40
Ju
l-0
7
N
ov
-0
7
M
ar
-0
8
Ju
l-0
8
N
ov
-0
8
M
ar
-0
9
Ju
l-0
9
N
ov
-0
9
M
ar
-1
0
Ju
l-1
0
N
ov
-1
0
M
ar
-1
1
Ju
l-1
1
N
ov
-1
1
M
ar
-1
2
Name
Revenue Ebitda
s FY
FY
4.2
4.7
PIK
Equities
New Sen Sec
New HY
Current Portfolio Positioning
 High cash balance
 Using govt credit (Italy, Ireland, France)
 Opportunistic on primary
 Some high conviction ideas with still interesting yields
 Selectively seeking shelter in CHF bonds
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
CompAM Fund Sicav - Funds
Oct.
12
CompAM FUND
Net
3
6
Inception
Return
Months Months
date
YTD
Bond Funds
Bond Euro
0.62 %
1.21 %
1.87 %
3.97 %
Mar.03
Bond Risk
2.06 %
6.53 %
4.45 % 18.51 %
Jan.05
Emerging Market Corporate
1.04 %
3.91 %
5.84 % 13.81 %
Apr.03
Bluesky Global Strategy
(USD)
1.01 %
4.57 %
5.09 % 11.88 %
Dec.07
-0.46 %
3.59 %
1.40 %
Mar.03
Equity Funds
European Equity
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
6.51 %
Awards
Via Calprino 18, 6900 Lugano - Paradiso
Tel. +41 091 960 39 70 - Fax +41 091 960 39 89
www.compass-am.com
Compass AM - Contacts
www.compass-am.com
[email protected]
Via Calprino 18,
6900 Lugano - Paradiso
Tel. +41 091 960 39 70
Fax +41 091 960 39 79