market folly

We're posting notes from the London Value Investor Conference 2016.  Next up is Anne-Mette De Place Filippini of Burgundy Asset Management who pitched long Cielo.


Anne-Mette de Place Filippini London Value Investor Conference Presentation

Anne Marie advocated ‘winning by not losing’ in emerging markets (EM). Like tennis players investors should try to minimise unforced errors. Only invest within your circle of competence. Be independent in thought and research. Focus on quality. Chose partners carefully. Invest with a margin of safety.

If you invest in an emerging market ETF you will have to partner with Chinese, Brazilian and Russian government entities that own stakes in many of the largest companies e.g., Petrobras, Vale. She suggested that it was better to ignore the EM index altogether. Most of the index is un-investable. Burgundy’s EM portfolio only has a 3% overlap with the index.

Burgundy prefers to invest in family run businesses that are too small to be included in the index. 

She warned against overpaying for EM stocks. Obviously high quality companies are expensive with the best Asian companies trading on a P/E 43x. EM investing is risky anyway so do not take on extra financial risks by buying expensive stocks.


Investment idea – Cielo 

The payments industry in Brazil boasts a number of attractive characteristics. A small fee is taken on each transaction. As consumption grows and more spend gets done on plastic the payments industry benefits. Card payments in Brazil remain below half the level in the US.

Three players dominate with 90% of the market. With over 50% of the market Cielo is Brazil’s largest provider of services related to payment cards. Cielo has an inflation proof business model which is important when investing in an inflation prone country.  Capital requirements are used mainly to buy electronic equipment to lease to merchants.

Burgundy bought Cielo stock in 2008, 2009, 2013 and 2016. The stock market has kept serving up opportunities. Since 2008, Cielo’s growth revenue has compounded at 21% and gross profit at 18%.



Be sure to check out the rest of the presentations from the London Value Investor Conference.