March 2, 2012 at 3:31 pm #17588
I question the choice of PBR shares for the Portfolio. While I do not doubt that PBR is potentially undervalued if one figures the claimed reserves into the company value, my hangup with PBR is that it’s a nationalized enterprise and will always be used as a cash cow for the government and never permitted to perform for the minority share owners.
There is ample precedence for that with the government requiring PBR to pay billions in arbitrary licensing fees.
I wonder what others have to say having been unable to get some reply to my questions out of Rob.
avkMarch 5, 2012 at 12:15 pm #27178
Dear Angelo von Koschier.
My name is Emma Walsh and I am the Bonner & Partners Family Office Member Liaison. Just a note to advise that we did indeed pass on your comments a few months back to Rob, but he is unfortunately not allowed to respond to members directly about listed securities because of legal considerations.
I will make him aware of your most recent comment posted here, and he may be able to respond in a more generalized member communication if appropriate.
Emma WalshMarch 5, 2012 at 2:39 pm #27179
Thanks, I did not expect a direct response – since this should be of interest to all members- a generic, why PBR is good even though a goverment owned business, would be really all I was hoping for.
avkMarch 5, 2012 at 2:46 pm #27180
If you have a look at the original Legacy Report from DECEMBER 2010, which you can download from the Legacy Reports section of our website http://www.bonnerfamilyoffice.com/wp-content/uploads/2010/12/5_OilMajor.pdf, there is some information there on this issue. Particular reference is made to this under the section titled “Great Performance..Yet Government Owned”.
I hope this helps. Please feel free to post any other questions you may have and I’ll see if I can find the answer for you in materials already published.
Emma WalshFebruary 21, 2014 at 3:45 pm #27345
Angelo, having the hindsight of 20/20 right now gives me an unfair advantage. I agree with your comments about PBR and the disadvantage tis company carries, that it is subject to manipulation by government folks. This is a pattern that has been seen in many government owned firms, in varying degrees. Politicians and political appointees controlling a business is never a great situation. Rarely are the results good. The culture of the country plays a role.
I have seen this type of abuse in multiple cases during my latin american career, in government owned banks, for instance.
Brazilian oil is a nice macro story, and there will be an eventual benefit to Brazil. It provides a fundamental long term underpinning to the country’s financial/economic future.
I have not invested in PBR and don’t plan to.
In these Brazilian and latin american countries, I prefer privately owned companies with active ownership. FWIW.February 24, 2014 at 9:35 pm #27347
Jay, good to see somebody agrees with me even though it looks like Rob is still convinced it was a good long term investment. I did unfortunately follow his early advise assuming he knew something I did not. Large government controlled business have an inherent problem – they are filled with people who’s forte are the political connection and not their competence. If you add to this a majority government ownership and a culture where bribes are the norm and where property rights are poor its another reason to stay away. This is the case with Russian giants like Gazprom, another of Robs choices. Yes, money is being made there – however it does not benefit the shareholders. Just look at what’s going on in the Ukraine right now. Here you have a basically rich country which is broke. Thanks to Oligarchs and corrupt lawmakers starting at the highest level.February 27, 2014 at 3:26 pm #27351
I agree with you, Gazprom is in the same category as PBR. I do not feel comfortable with the leadership or the management, whose skin is not in the game, and whose objectives do not seem to be fully aligned with mine.
There are so many other pipeline and gas and oil plays in the private sector and closer to home. I judge certain valuations in our (US) energy sector at least as attractive, though multiples are higher.
I mentioned culture playing a role. Perhaps this is why Statoil (67% govt owned) is a better citizen to its public shareholders? I do not own Statoil shares, and do not plan to but its a case that is interesting to contrast to the others.March 5, 2014 at 3:05 pm #27352
Even though Statoil is as you say 67% government owned – Norway as a country is not broke as many other countries are. Unemployment is also low so there is no need to fill the company with “voters”. I would say Statoil as a resource company appears to be not a bad choice. No idea what their reserves are and what partnerships they have to continue staying in business though.March 6, 2014 at 3:06 pm #27354
I wonder how much Russian gas goes through pipelines in Ukraine?March 12, 2014 at 3:21 pm #27356
I am limited in investment experience – use company 401K….and am just now researching these investment concepts.
With that being said, here is a question – what do these companies look like in 2015? 2020? 2025? 2045?
Will the concerns that are expressed today – apply to these companies in the out years?
How much exposure presents the point of deminishing returns….i.e…if asset allocation is 20% stocks/markets, do you limit your exposure to such companies with “emerging market opportunity) to 1% or 5% or some other “limited exposure” of this 20% allocation to offset these concerns? I believe what I am hearing from your personal experience is that doing business with companies that have government control introduces unacceptable risk (i.e…nationalized enterprise, goverment owned business, subject to manipulation by government folks, Politicians and political appointees controlling a business is never a great situation – rarely with good results; political connection vs competence; government ownership with culture of bribes; poor property rights; money made is such investments does not benefit the shareholders….etc…etc…).
What actions by the company or government owners would cause you to change your opinions from “walk away from this pick” to “invest in this pick”?
Thanks for sharing your thoughts. SWMarch 18, 2014 at 2:29 pm #27357
They will have to become share holder friendly.
If they divest some of the holdings to decrease the government share the divestments should be at a fair price and not another insider deal where politically connected cronies get businesses at a below market fair prices-
It will require a lot of homework
The easier part is to just stay awayMarch 26, 2014 at 2:19 pm #27358
This article makes a compelling case for Gazprom being valued cheap enough to provide adequate risk mitigation. The possibility that the dividend will rise, combined with the low valuation, are compelling reasons to buy it. We will see the new dividend in May if historical data is a guide.
I continue skeptical of government ownership. The valuation for this huge resource company is low, as Mastrand and others have suggested. I am grateful for Mastrand, Bonner and Hunt raising the flag for consideration on this opportunity at these levels.
Despite my clear dislike for government run companies, this does feel inexpensive at this level compared to similar alternatives and compared to private sector companies.March 26, 2014 at 4:07 pm #27359
* Hunter (sorry, spelling error)April 25, 2014 at 6:43 pm #27360
Looking through a recently received Brazilian investment bank comment about the Brazilian economy I saw a chart that was relevant, and thought I would share the highlights:
Petrobras share Price/Book Value:
during Fernando Henrique Cardoso (FHC) presidency 1996 to 2002.
during Lula’s presidency 2002- 2010:
during Dilma’s presidency 2010- 2014:
The current state is that P/B is at its low point.
During FHC presidency much was done that allowed PBR to be managed for the benefit of the shareholders. Subsequent Workers Party presidents, Lula and then Dilma have leaned on PBR for the benefit of the party, IMHO.
Perhaps a political change in this years elections will be a positive catalyst for PBR?April 28, 2014 at 2:46 pm #27361
PBR and Gazprom are both interesting ideas from Rob and I am pleased to read the rationalization for owning them. I immediately discounted PBR because of their form of government corruption, but Gazprom is much more interesting to me. I did not buy it when it was first recommended but I am tempted now. The reason I have not yet bought is because I think gas prices will decline once the US and European markets start to de-lever. There will be a lot of people who can’t pay their bills and that could quickly turn ugly in Europe. We are seeing the beginning of hostility in Ukraine now. I think the US is mistaken in picking a fight with Russia (not that they will actually do anything) when the real threat is China. Russia could easily shut off those nice pipes that go to Europe through Ukraine and divert the gas to China, then the US can sell its excess gas to Europe, nice move. It will then be hard to get any money out of Gazprom.
So, I am not yet a buyer because I see too much risk. After the US and European markets decline, we will be able to get a better perspective on Gazprom. In the meantime it is on my watch list.
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