Gehlen Bräutigam Capital - Small Caps. Great Value.
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Gehlen Bräutigam Capital
Small Caps. Great Value.
Equities fund focused on deeply undervalued European small & micro caps
Gehlen Braeutigam Value HI; ISIN: DE000A2JQHQ2 (R) / DE000A2N8119 (I)
January 2020
Presentation suitable for professional investors and eligible counterparties. Presentation suitable for professional investors and eligible counterparties.
Small Caps. Great Value? Exactly!
• Small & micro caps make up the largest segment by number of listed companies. However, they are at the same time the most neglected
amongst investors despite the fact that this segment promises the highest returns for long-term investors
• With the Gehlen Braeutigam Value HI we have developed a tailored and strictly limited solution in order to most effectively exploit the
high return potential of this extremely attractive market segment together with our co-investors
• The Gehlen Bräutigam Capital GmbH was founded in 2018 as a specialized fund boutique. It acts as the initiator and advisor to the European
equity fund Gehlen Braeutigam Value HI
Note: The prospectus and other investor information about the Gehlen Braeutigam Value HI fund can be found at www.hansainvest.com.
Presentation suitable for professional investors and eligible counterparties.
1
Passionate value investors …
High-performing, experienced team
Daniel Gehlen Marc-Lennart Braeutigam
• Since July 2017: Founder and Managing Partner of Gehlen Bräutigam Capital GmbH • Since July 2017: Founder and Managing Partner of Gehlen Bräutigam Capital GmbH
• 2015 – 2017: Investment banking at Barclays in Frankfurt. Advised German and • 2015 – 2017: Investment banking at Barclays in London. Origination and execution of
European corporates as well as private equity investors on strategic decisions with a equity capital markets transactions (IPOs, rights issues, block trades) for corporates as
focus on mergers and acquisitions well as private equity investors in the German-speaking and broader EMEA region
• Previously, investment banking at Goldman Sachs, portfolio management (European • Previously, investment banking at UniCredit, portfolio management at a value investing
small and mid cap equities) at Union Investment as well as equity and macro research boutique and equity capital markets as well as equity research and equity sales at
at DZ Bank Commerzbank
• Studied at London School of Economics (MSc Finance, 2015 best student of the year) • Co-op degree programme with Commerzbank at DHBW Stuttgart (BA Hons) and the
and at Frankfurt School of Finance and Management (BSc) as well as Harvard University of California in San Diego, including two academic studies on value
University and MIT investing
Presentation suitable for professional investors and eligible counterparties.
2
… focused on deeply undervalued European small & micro caps
Investment philosophy
• Actively managed public equities fund, focused on deeply undervalued European small & micro caps
• Bottom-up selection of single stocks
What is the • High conviction, concentrated portfolio consisting of 20 – 30 single stocks
fund? • Independent, not benchmark driven
• Alignment of interests through co-investments from Daniel Gehlen and Marc-Lennart Braeutigam
• Limitation of fund volume to c. € 100m (-R- & -I- class are currently open for investments)
• Long-term oriented deep value approach
• Focus on value characteristics and contrarian situations in the idea generation process
• High effort in the selection of single stocks through in-depth due diligence
How is it
• Supported by industry experts, including from our own investor base
managed?
• Tailor-made financial models, always based on conservative assumptions
• Buying at substantial fundamental undervaluation (margin of safety of at least 30 – 40%)
• Investments only in industries and companies we are able to understand
Our goal is to profit from the highest possible value growth in the long-term
Note: The prospectus and other investor information about the Gehlen Braeutigam Value HI fund can be found at www.hansainvest.com.
Presentation suitable for professional investors and eligible counterparties.
3
We find value where others see none!
Differentiated positioning in the asset management landscape
Growth
“Small cap specialists” “Active core”
Focus on Main playing field for most
hidden champions institutional investors
Quality
“Value specialists”
Value
Gehlen Bräutigam Capital
“Sweet spot“
Deep value
“Distressed” and other
specialized funds
Micro caps Small caps Mid caps Large caps Mega caps
Note: Own diagram.
Presentation suitable for professional investors and eligible counterparties.
4Why small & micro caps?
“Fish where the fish are!” – Unknown
Presentation suitable for professional investors and eligible counterparties.
5Small & micro caps offer a rich hunting ground …
European equities (I/II)
Approximately 85% of all listed companies in Europe are small or micro caps
3.6%
12.7%
6.3%
77.4%
Segment Market capitalisaton (€ bn) No. of companies % of companies Market capitalisaton (€ bn) Market capitalisation (%)
Large caps >10 264 3.6% 8,782 70.0%
Mid caps 1 – 10 925 12.7% 3,054 24.3%
>5x
Small caps 0.5 – 1 452 6.3% 324 2.6%
Micro caps… for mispriced investment opportunities
European equities (II/II)
Average number of research analysts of banks / brokers per listed company by market capitalization (EUR)
20
16
16
13
12
9
“Sweet spot”
8
5
4
4 3
2
0
< 100m 100m - 200m 200m - 500m 500m - 1bn 1bn - 3bn 3bn - 5bn > 5bn
Our goal is to discover mispriced small and micro caps through our own independent analysis
Source: FactSet, as of 30 June 2017.
Presentation suitable for professional investors and eligible counterparties.
7How do we identify undervalued equities?
“Small & micro caps from a refreshingly different perspective.” – Sven Hoppenhoeft*
* Managing Director, Pro BoutiquenFonds GmbH (previously: Department head of Vermögensverwalter Office, Joh. Berenberg, Gossler & Co. KG).
Presentation suitable for professional investors and eligible counterparties.
8Strong focus on net assets and current earnings power
Tailored deep value framework
Competitive advantages Barriers to entry
Market
Bargaining power
outlook/prediction
Positioning Profitability of growth
Corporate Visibility of
governance growth
Promising and
Hidden assets
innovative products
Further growth
Book value
potential & disruption
Safety Speculation
Margin of safety
“Prediction is very difficult, especially about the future.” – Niels Bohr
* Danish physicist and Nobel Prize winner.
Note: Our value framework is significantly influenced by B. Graham, B. Greenwald, H. Marks and S. Klarman.
Presentation suitable for professional investors and eligible counterparties.
9Structured multi-level approach
Investment process
1 2 3 4 5
Portfolio Decision making /
Idea generation Due diligence Valuation
construction Monitoring
Tailor-made Bottom-up selection of Structured decision
Value characteristics In-depth analyses
financial models ~20-30 stocks making process
Management, client & Conservative
Contrarian situations Not benchmark driven Team discussions
expert interviews assumptions
Adequate
Variety of sources Onsite visits High margin of safety Ongoing monitoring
diversification
We have a long-term investment horizon - and only invest in companies that we can understand and evaluate – “easy ones!”
Note: Own diagram.
Presentation suitable for professional investors and eligible counterparties.
10We uncover opportunities that others overlook …
1. Idea generation (I/II)
What are we looking for? How do we find what we are looking for?
Value characteristics Specialised value screens / filters Small & micro cap research / newsletters
Low P/B(2)
High returns
Low P/E(1)
on capital
Strong corporate
governance Hidden winners
Contrarian situations Access to management Network
Current losers Index Fund managers
Spin-offs exclusions
PE(3) and VC(4)
Management
Pending litigations Crises investors
“Unlucky” Unpopular
IPOs Meetings & Industry experts Bankers & lawyers
sectors Further conferences
calls
We add ideas to our watchlist, from which we select the most promising situations for our in-depth due diligence process
1. P/E = Price/earnings ratio. 2. P/B = Price/book ratio. 3. PE = Private Equity. 4. VC = Venture Capital.
Presentation suitable for professional investors and eligible counterparties.
11… and successfully pick stocks in contrarian situations
1. Idea generation (II/II)
Automotive sector faces major challenges Share price development of European automotive stocks in the past three months (in%)
EURO STOXX Total Market Auto & Parts Top 1 – 25 Top 26 – 50
Picked 2 out of top 3
EUR < 1bn market capitalisation
• Our philosophy: bargains are much more likely to be
found in times of uncertainty than in times of certainty
• The automotive industry faces numerous structural and
demand-driven challenges
• Through our multi-layer and in-depth due diligence
process we aim to separate the long-term winners from
the losers
• We were able to acquire two excellent companies at a
discount price and already benefited substantially
Source: STOXX; Stockopedia; Gehlen Bräutigam Capital; as of 11 December.2019.
Presentation suitable for professional investors and eligible counterparties.
12Better understanding of investments through in-depth analyses
2. Due diligence
Company analysis Market analysis Competitor analysis Site visits(1) and expert discussions(2)
~5-7 days ~2-3 days ~3-5 days ~2-5 days
Selected parts of the due diligence
Very thorough due diligence: at least 10 to 20 days before initial investment
1. Selected example: visit of production facility of truck and trailer supplier SAF-HOLLAND in Bessenbach (Bavaria) in November 2019. 2. Discussions with management, industry experts, competitors, clients, suppliers, consumers etc.
Presentation suitable for professional investors and eligible counterparties.
13The price always makes the difference
3. Valuation
Tailor-made financial models … … based on conservative assumptions
1 Upside case
2 Conservative case
Margin of safety
Share price
3 Buy range
Downside case
• We discuss potential investments without regard to our egos – we always see each other as sparring partners, not competitors
• We only invest with a high margin of safety of at least 30 – 40%, based on conservative assumptions in our financial model
• Prior to an investment decision, we always assess and discuss the portfolio allocation of the single stock
“Anything can be a good idea at one price and time, and a bad one at another.” – Howard Marks
Note: Own diagram.
Presentation suitable for professional investors and eligible counterparties.
14Individual weighting of single stocks in a concentrated portfolio
4. Portfolio construction
What are we looking for on the single stock level?*
Margin of safety
Cyclicality (fluctuation with the market) Balance sheet quality
Company-specific risks Corporate governance
Conviction
What we are looking for on the portfolio level?
• Bottom-up selection of absolutely attractive investment opportunities (never relative)
• Concentrated portfolio consisting of 20 – 30 single stocks
• Only investments in industries and companies whose value drivers we can understand (1)
• Appropriate diversification across regions and industries
• Active avoidance of cluster risks(2)
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” – Benjamin Graham
* Selected key criteria. 1. This inevitably causes us to hold few to no investments in some (sub-) industries, e.g. in Biotech or parts of the Energy / Power & Utilities / Oil & Gas sectors. 2. Additional use of derivatives to selectively hedge currency risks.
Presentation suitable for professional investors and eligible counterparties.
15Continuous and dynamic process
5. Decision making & monitoring
Due diligence & valuation
Team discussion
Follow-up needed Decision made
Entry price & Continuous
Further analysis Back on watchlist
weighting monitoring
Note: Own diagram.
Presentation suitable for professional investors and eligible counterparties.
16Portfolio allocation, track record & case studies
Case studies illustrate our investment approach.
Presentation suitable for professional investors and eligible counterparties.
17Focus on deeply undervalued European small & micro caps …
Portfolio allocation
Allocation by free float market capitalisation (EUR) Top 10 holdings(1)
9.9% 1 Daejan Holdings 6.8% 6 Ferronordic 4.9%… in order to achieve the highest possible value accretion in the long-term
Track record
Performance since inception(1) Performance -S- tranche(1)
2018 2019
Period -S- tranche -R- tranche
-2.9% +10.4%
Since inception +7.2% +6.7%
110
2019 YTD +10.4% +9.4%
+7.2%
2018(2) -2.9% -2.5%
105
Positive performance of all tranches since inception
100
Relatively stable performance in 2018 despite market
crash in the end of the year
Performance in 2019 with c. +10% / +9% 95
rather subdued Jul-2018 Aug-2018 Oct-2018 Dec-2018 Feb-2019 Apr-2019 Jun-2019 Aug-2019 Oct-2019 Dec-2019
Great upside potential due to very significant discounts to intrinsic value of our current holdings
Source: Hansainvest, as of 30 December 2019.
1. Gehlen Braeutigam Value HI; net return, after deduction of all costs, incl. dividend.
2. About 6 months for -S- tranche (inception on 2 July 2018) and about 4 months for -R- tranche (inception on 7 September 2018).
Presentation suitable for professional investors and eligible counterparties.
19Expected long-term return of >10% p.a. …
Selected examples (I/II)
Operational development Cash generation (Re-) Investments (Special-) Dividends Growth M&A Share buybacks
• Family-run manufacturer of • Founder-run operator of • Global airline and event • Global leading manufacturer
Company
automotive and vehicle solar parks in Germany catering company based in of aluminum vehicle parts
description
components Vienna based in Bordeaux
Selected • Challenges in the car market • Low sell-side coverage • Loss of the largest customer • Challenges in the car market
reasons for since mid-2018 • Small free float • Challenging environment in since mid-2018
under- • Very little known among • Low liquidity Turkey • Declining sales in the short
valuation investors and low liquidity • Short sellers term
Operational development, Operational development, Operational development Operational development,
sentiment increased interest in sector (strong growth) sentiment, M&A
Possible
reasons for • Strong operational • Sharply increased investor • Positive development • Swift and effective cost
unlocking development despite interest in companies from including winning of several reduction program
value challenging market the renewable energy sector large orders implemented
• Relatively small exposure to • Strong management team • Recovery of the largest • Takeover bid from Chinese
China and excellent execution customer competitor
Share price
increase(1)
+37% +34% +67% +22%
Source: Gehlen Bräutigam Capital, as of 30 December 2019.
1. Share price increase since first inclusion in the portfolio.
Presentation suitable for professional investors and eligible counterparties.
20… with significant additional return potential through revaluations
Selected examples (II/II)
Operational development Cash generation (Re-) Investments (Special-) Dividends Growth M&A Share buybacks
• Largest non-US pizza • #1 provider worldwide for • Leading European online • Turnaround investment
Company
delivery service worldwide online poker (including broker based in Germany company based in London
description
with a focus on the Spanish PokerStars)
speaking market
Selected • Operational development • Regulatory challenges • Short-term operational • No road show activities
reasons for after IPO did not fully meet • Relatively high debt level challenges • Low market capitalization,
under- investors’ expectations • Untypical structure with • Change in strategy high illiquidity
valuation regards to listing venue • No broker coverage
Strategic partnership, Operational development,
Sentiment, M&A M&A, share buyback
M&A M&A
Possible
reasons for • Strategic deal with Yum! • Cooperation agreement with • “Evaluation of strategic • Disposal of several holdings
unlocking Brands to accelerate FOX Corp. in the US options" (incl. potential sale • Share repurchase offer to
value expansion and strategic partnerships)
• Takeover bid by British existing shareholder base
• Takeover by leading US competitor Flutter • Value accretive acquisition
private equity firm KKR Entertainment Plc of toughest competitor
Share price
increase(1)
+9%(2) +69% +36% +38%
Source: Gehlen Bräutigam Capital, as of 30 December 2019.
1. Share price increase since first inclusion in the portfolio. 2. Substantial top-ups at lower prices. Return on average entry price: +17%. Holding period:Already realized
investment
An investment philosophy we share
Sample Investment: Volvere (I/III)
A turnaround investment company ... ... with a flawless track record
• Volvere (Latin: roll, turn) is a London-based turnaround investment company
founded in 2002
Vectra 3.6x
(2003 – 2007)
• Volvere is able to provide capital very quickly in case of acute financing needs. Sira Test &
5.8x
Certification
In such situations, there are often no alternative investors as they are not suitable (2005 – 2009)
for traditional private equity investors
2.5x
• The prices are correspondingly attractive. According to Volvere’s management, they (2008 – 2013)
often do not exceed 10-20% of the net book value of the target companies
16.5x
• Volvere prefers to acquire 70-80% of the companies and prefers the existing
(2013 – 2015)
management to co-invest so that there is an alignment of interests
• Volvere's management is extremely selective in its investments. If necessary, 19.0x
(2015 – 2018)
they can wait a very long time for the right opportunities, partly because they
themselves are the largest shareholders in their company
(1)
500x
(2006 – 2019)
Source: Volvere PLC; press releases, also from acquiring companies.
1. Particularly high multiple due to extraordinarily low purchase price (GBP 5,000.00).
Presentation suitable for professional investors and eligible counterparties.
22Already realized
investment
Undervaluation even under very conservative assumptions
Sample Investment: Volvere (II/III)
Low risk due to high net cash(1) How can such an opportunity remain undiscovered?
in GBP Mio.
Low free float
(Very) low market capitalization
(38.5% held by Mgmt.)
Market capitalization 33.7
Low trading volume
(low liquidity)
(2)
Net cash 18.5
No broker coverage No marketing / roadshow activities
(3)
Impetus Automotive > 20.0
Limited reporting
(Annual report with only 60 pages)
(4)
Shire Foods > 5.0
Sira D & S
(5)
? Long-term investment horizon required
Discount to fair value is highly attractive in the light of managements’ track record
Source: Volvere PLC; Impetus Automotive; Shire Foods; assumptions by Gehlen Braeutigam Capital.
1. Valuation at date of first opening of position. 2. Incl. short-term liquid investments. 3. Estimated value of Volvere’s stake (~83%) after deducting estimated transaction costs. Volvere generated a pre-tax profit of GBP 3.6 million in 2017 and has grown strongly
in recent years. From the study of press releases on the website, new case studies on successful projects with clients and the open job advertisements, we were convinced that Impetus is able to grow further. 4. Estimated value of Volvere’s share (~80%). Shire
generated a pre-tax profit of GBP 600 thousand in 2017. 5. Sira Defence and Security.
Presentation suitable for professional investors and eligible counterparties.
23Already realized
investment
Extraordinary track record
Sample Investment: Volvere (III/III)
Share price evolution since IPO (2002) and during holding period within the fund
Share price in GBp
1,350 (1)
1,400 Sale 1,290.00
(2)
1,250
+40.2%
1,200 1,150 1,215.00
1,050 ~16.5% p.a.
1,000
950
800 850
Purchase
750
600 Jan/ 18 Jun/ 18 Dez/ 18 Jun/ 19
400
200
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Volvere PLC
Source: Yahoo Finance, last update: 30 June 2019.
1. Tender of all shares in the public repurchase offer at a price of GBP 1,290.00 per share. 2. Development of the position in the fund compared to the average entry price.
Presentation suitable for professional investors and eligible counterparties.
24USPs & fund information
Presentation suitable for professional investors and eligible counterparties.
25We are in the same boat, out of conviction!
USPs
Excellent investment opportunities through focus on attractive universe
Concentrated and focused portfolio. In-depth understanding of our investments
Investments only at deep undervalues
Sustainable strategy through early limitation of fund volume*
Alignment of interests through co-investments from Daniel Gehlen and Marc-Lennart Braeutigam
Fundamental, long-term, concentrated, thorough due diligence, deep value… active management delivering value-add!
* Fund volume is limited to approx. EUR 100m.
Presentation suitable for professional investors and eligible counterparties.
26Invest with us!
Fund information (I/II)
Fund Gehlen Braeutigam Value HI
Investment objective Achieving the highest possible value growth over a complete cycle
Recommended minimum investment period Min. 5 years
Category European equity fund (min. 51% stocks)
Legal form UCITS
Classes -R- -I-
WKN / ISIN A2JQHQ / DE000A2JQHQ2 A2N811 / DE000A2N8119
Inception date 7 September 2018 2 January 2019
Currency EUR
Utilization of returns Distributing
Minimum investment No minimum investment EUR 200,000
Offering premium Currently 0.00%
Redemption fee None
Management fee % p.a. 1.60% 1.20%
Performance fee 15% of the performance above 4%, with high-water mark*
Order acceptance deadline for issues / returns 4pm (CET) of the previous day (forward pricing); Closing day (t): T + 5
Review frequency Daily
Partner
KVG HANSAINVEST Hanseatische Investment-GmbH
Custodian Joh. Berenberg, Gossler & Co. KG
Liability umbrella BN & Partners Capital AG
* 15% per year of positive performance above the reference value 4% p.a. (absolute positive share performance) calculated as a performance fee, but a maximum of 15%. A negative performance must be reversed first.
Note: The prospectus and other investor information about the Gehlen Braeutigam Value HI fund can be found at www.hansainvest.com.
Presentation suitable for professional investors and eligible counterparties.
27Risk / return profile
Fund information (II/II)
Typically low return and low risk
The Gehlen Braeutigam Value HI is classified in category 6 because its unit price has
fluctuated sharply and therefore both risk of loss and opportunity can be high.
This indicator is based on historical data – a forecast of future developments is not possible.
The classification of the fund may change in the future and does not constitute a guarantee.
Typically high return and high risk Even a fund classified in category 1 is not a completely risk-free investment.
The following additional risks may be significant to the fund:
• Liquidity risks: The fund invests a substantial part of its assets in financial instruments, • Custody risks: Custody of assets, especially abroad, may involve a risk of loss resulting
which are not traded on the official market on a stock exchange or on a similar market or from bankruptcy, breach of duty of care or abusive conduct by the custodian or sub-
that are otherwise difficult to sell and for which it may not be possible to find a buyer in the custodian
short-term. This may increase the risk of suspension of the unit redemption of the fund
• Operational risks: Human or technical failure, both internally and externally, but also other
• Default risks: The fund concludes transactions with various contractual partners. There is events (such as natural disasters or legal risks) may cause losses to the fund
a risk that contractual partners can no longer meet payment or delivery obligations
Note: The prospectus and other investor information about the Gehlen Braeutigam Value HI fund can be found at www.hansainvest.com.
Presentation suitable for professional investors and eligible counterparties.
28Contact us
In value we trust
Phone: + 49 (0) 69 6677 48118 | Email: info@gbcvalue.com
Bockenheimer Landstrasse 2-4 | OpernTurm | 60306 Frankfurt am Main | Germany
www.gbcvalue.com
Presentation suitable for professional investors and eligible counterparties.
29Disclaimer
This document is a customer information (“CI”) in the sense of the German Securities Trading Act (WpHG). Responsible as the author for the content is the tied agent listed below. This “CI” is used
exclusively for information purposes and cannot replace an individual suitable investment advice. This “CI” does not constitute a contract or any other obligation or kind of contractual offer. Furthermore, the
content does not constitute investment advice, an individual investment recommendation, an invitation to subscribe for securities or a declaration of consent or a solicitation of an agreement on a
transaction in financial instruments.
This “CI” is intended only for professional customers and eligible counterparties with a habitual residence or domicile in Germany and has not been written with the intention of giving legal or tax advice.
The tax treatment of transactions is dependent on the personal circumstances of the respective customer and may be subject to future changes.
Recommendations and forecasts are non-binding estimates of future events. They can therefore prove to be inaccurate regarding the future development of a product. The information contained in this
document is based exclusively on the date on which this “CI” was provided. A guarantee for the actuality and correctness cannot be given. Past performance is not a reliable indicator of future performance.
This information is protected by copyright, no reproduction or commercial use is permitted. Date: December 17 th, 2019
Author/Issuer: Daniel Gehlen, Marc-Lennart Braeutigam – Gehlen Bräutigam Capital GmbH, Bockenheimer Landstraße 2-4, 60306 Frankfurt am Main, Germany acting as a tied agent (§ 2 section 10
German Banking Act) in the order, in the name, for account and under the liability of the responsible liability holder BN & Partners Capital AG, Steinstraße 33, 50374 Erftstadt. BN & Partners Capital AG
has a authorization from the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) pursuant to § 32 German Banking Act for the provision of investment
advisory service pursuant to § 1 section 1a no. 1a Banking Act and the investment brokerage pursuant to §1 section 1a no. 1 German Banking Act.
The above content only reflects the author's opinions, which may differ from those of BN & Partners Capital AG. A change of this opinion is possible at any time, without it being published. BN & Partners
Capital AG assumes no liability for the content, correctness and up-to-dateness of the information contained therein and does not accept any liability for damage resulting from the use of the “CI” or parts
thereof.
Presentation suitable for professional investors and eligible counterparties.
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