Stranger Things
Investing in more exotic places and assets
Inspired by Undervalued Shares’ “Weird shit investing ideas” (from which I’ve also taken a couple of the names), I’ve put together a list of some more “unusual” companies listed on various European exchanges.
These are not necessarily “bizarre” (most of them are in pretty boring businesses, like banking or agriculture), they are just not frequently discussed in social media, often because they operate in more exotic jurisdictions: an example would be Fondul Proprietatea, discussed here). What they all have in common is that they are typically ignored by big funds, are almost always illiquid (very few daily trades), are difficult to access and often are cheap (sometimes for the reasons just mentioned, sometimes because they are forgotten or completely ignored).
Going through my files to check these names, I was surprised by the number of unusual companies that I have collected over time: what started as a quick list became A VERY LONG POST, with lots of numbers to double check to make sure I didn’t say anything stupid (that’s why it took me so much time to publish it). There are dozens more “weird” stocks out there (I’ve left out some like African banks listed in London, for example): feel free to add your favourites!1
Note: with the exception of the three Georgian stocks (which I have looked into in the past), I haven’t really done any deep dive into these companies or created detailed financial models. I just skimmed their fundamentals, so I can’t attest to their quality - or lack of it - and whether they are good investments or even easy to trade or not. I might decide to further investigate some of them at a later date: as always, do your own research.
Financial companies
Why would anyone be interested in Eastern European banks, when even their Western European counterparties are not that good?
Here are few reasons:
Most if not all the activity in the local economies flows through the banks (not much private credit over there yet), and these countries are still under-banked compared to Western Europe —> structurally higher asset growth
Often times they are the best regulated/managed businesses in the country
They have very simple business models: high NIMs are driven by strong demand for growth, and profits are made from traditional banking activity, not derivative trading and excessive risk taking
An accommodative competitive landscape: prior to 2008, Western European institutions saw Eastern Europe as an almost certain source of profitable growth. As a result of acquisitions, Scandinavian, Italian and Austrian banks controlled as much as 90% market share in the Czech Republic, the Baltic states and elsewhere in the region. But the Global Financial Crisis exposed issues in the domestic balance sheets of the parent banks, which were forced to repatriate cash and leave their Eastern European subsidiaries to fend for themselves. Locally owned SME lenders like Banca Transilvania in Romania and Šiaulių Bankas in Lithuania used this opportunity to grow into the void opened by foreign banks withdrawing from the market. Western European institutions have now re-started cautiously growing their books, but loan approval powers remain at the head offices in Stockholm or Vienna, keeping the banks at a disadvantage to local players who can provide faster decisions and better customer service
All the banks mentioned below provide much more information and granularity of details (on loans, deposits, NPLs, cost of funding, cost of risk, …) than I’ve seen for the typical Western European bank: these are not obscure outposts in the middle of nowhere with little transparency
To summarise:
Eastern European Banks can be great compounders
But macroeconomics and management matters – a lot
So only buy the best…