“Grahamanddoddistan” and Kazakh Margin of Safety


It’s been interesting to see that we’re getting a broader international spectrum of ideas at this Value Investing Congress than in years past — so far we’ve seen Iraq and the UK … and India, Mongolia, Korea, Israel and probably others are on the way. Isaac Schwartz from Robotti & Co. tried to lull us out of our lunch coma with his pitch about a large investment his company has made in Kazakhstan.

This is a well-respected value investing group, and we’ve seen some interesting value ideas presented by Robotti himself in the past, he spoke at the last Congress in New York about the Canadian fraccing name Calfrac (CFW in Toronto, CFWFF on the pink sheets), which has done reasonably well (though of course, you’ll rarely find a value investor who wants to judge his picks based on just a few months of price movement) — and it has recently outpaced the competitor I’m invested in (Canyon Services, FRC.TO CYSVF).

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Over the last decade or so, Schwartz said he’s been moving attention to foreign markets where you can find “a more manic, erratic Mr. Market” can present more great ideas. All professional investment managers talk about having an “edge” whether it’s from information or analysis that’s different from everyone else, but Robotti often speaks about having a behavioral edge — buying stocks where you know you can lose quite a bit of money before the “real” potential of the business re-emerges.

Halyk Savings Bank of Kazakhstan (HSBK in London, again a tough one to buy if you can’t trade in London), a good size company with a market cap of about $2 billion. It’s the largest bank in Kazakhstan, not super-leveraged, very low PE of 4.2, 10% discount to book value.

There’s a competitor called Kazkommertsbank which is more of a commercial bank — and it’s larger, but Halyk has the advantage of consumer deposits and loans dominating the books.

Halyk is, we’re told, in a great position to consolidate and to grow organically because it survived the weak years very well — loan growth of 11%, trades at book value, consumer loans were up 30% last year, wouldn’t be available at this price in a developed country.

Kazakhstan is an emerging country with numbers on par with Mexico or Turkey after their 20-year oil boom — and they’ve built ...

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