7. Looking at "daily losers"

In this article we will briefly introduce you to the company of interest and say a couple of words why it can be interesting. SHORT OVERVIEW of the Company: Silvano Fashion Group AS design and manufacture of women’s underwear Silvano Fashion Group AS (SFG), formerly PTA Grupp AS, is an Estonia-based company, engaged in the design, manufacture .marketing of women”s apparel and lingerie. The Company owns such brands as Milavitsa, Alisee, Hidalgo, Aveline, Lauma Lingerie and Laumelle. The Company is active domestically and abroad in such countries as the Russian Federation, Belarus, Ukraine and the Baltic States, where the Company sells its products through its retail chains, such as Milavitsa and Lauma Lingerie. Silvano Fashion Group AS operates five subsidiaries, located in Estonia, Belarus, Latvia, France and the Russian Federation. In addition, it has three affiliated companies. In January 2014, it sold a 100% stake in Linret EST Plc. ____________________________________________________________________________________________

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??? The change between opening and closing exchange rates applied in translation to presentation currency was disclosed as effect of translation to the presentation currency. Our comment: It used to be included into the profit until 2011 ____________________________________________________________________________________________

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____________________________________________________________________________________________ SHORT Comments: One of the interesting and high potential methods of finding undervalued companies in the market is to look at the list of daily price “losers”.  Of course, not all the companies that lose in the price dramatically during the day/week or month immediately become attractive, but at some point you can start investigating whether the market is too severe to the company or not. Today, I looked at Silvano fashion group. The situation is as follows: from the beginning of the year the company lost in price from around 2.7 EUR to (1.97-1.93) EUR per share, and during the last day it lost in value something around 3%. Such drops themselves (without any public news) do not say anything, so let’s look at the company’s position. Short company overview says the following:

• Silvano has more or Restoring annual credit report free worthiness is not just a breeze. less growing revenues, based on diversity of operations in different countries, strong brand name;
• Competition is presented by local producers and retailers;
• Practically no debt, relatively much cash – around 0.5 EUR per share;
• Profits, though, varying and decreasing still show a high yield on the Enterprise value, moreover the cash flows support this view (21%);
• So called Net Nets (value to the owner of the business if he pays all debts, gets all receivables, sells inventories and pockets cash) is positive which is a good sign, but not really indicates a bargain issue. The situation with Net Nets gets interesting when the market capitalization of the company(share price * #of shares) is smaller than Net Nets value, which actually means that you can profit from buying all the shares of the company and then selling all its business. In our situation Net Nets is  around 41mln while market cap is 78mln.
• Predictions of future sales get trickier with the current situation in the Ukraine (5% of sales), not saying about economic situations in Russia and Belarus (86% of sales for both). Such variations are partially reflected in the translation effects which influence our free cash flows. However, the competiveness of such business, its nature (people need underwear) and attractiveness might give Silvano the advantage when smaller players will lose and go out.

What looks the most attractive now is that you get a business with the established brand name, which showed good signs of sales growth just recently and now is traded at 21% of free cash flow yield (much better than deposits in the bank). Admittedly, the situation might get worse in the nearest future: sales might decrease because of the conflicts in Ukraine, economic situations in Russia and Belarus, but this would only allow adding shares to your portfolio at a smaller price provided we believe in the power of Silvano.  Note that it was just a brief look at the company, so if you know something more about Silvano or/and its current potential, feel free to share. Investigate more on free cash flows yield, its pros and cons, net nets, and of course on Silvano and its competitors.