"Still see opportunities in Samsung"
Samsung Electronics is still a positive contributor to the funds, despite the company's decision to withdraw their Galaxy Note 7 smart phone for good.
Media around the world have been reporting on the mobile which suddenly bursts into flame. It has been an issue since August this year, but things took a new turn on Tuesday when the company decided to withdraw the above-mentioned model from the market.
"It is always negative when a company withdraws a model – both in terms of reputation and financially speaking. However, we must put the news into perspective. Based on Samsung's own estimates, they produce and sell 75 million smart phones a quarter (and 324 million a year). The recall applies to 10 million of these," says Alexander Stensrud, portfolio manager in SKAGEN Vekst.
A sharp fall in the price of a single stock has only a minor impact on the funds. The day after the model was withdrawn from the market, the Samsung shares that we own have gained 4.3 percent. The week before, Samsung was up 7 percent in one day.
Substantial gain year to date
Despite the sharp fall in share price over the past few days, Samsung Electronics has been one of the best investments so far this year for SKAGEN Vekst, SKAGEN Kon-Tiki and SKAGEN Global. In total after the recent drop in share price, SKAGEN Funds has still made a profit of around EUR 30 million so far this year.
"Our Samsung shares have provided a return of between 16 and 17 percent year to date. The return has come after a substantial rise in the Samsung Electronics share price so far this year and SKAGEN Vekst has taken advantage of the increase to sell around 40 percent of the shares we have in the company," says Stensrud.
It is still uncertain what the consequences of the recent events will be for the company, and indirectly for shareholders.
"Galaxy Note 7 phones have been sold to a value of around USD 1.5 billion up to now. Samsung Electronics' turnover was USD 183 billion last year. It is thus a small proportion of the business, although we should not forgot that the market expected them to sell 10 million units next quarter. Samsung has still not clearly disclosed what the costs of the withdrawal will be. Yesterday's fall in share price of 8 percent seems on the high side, although it takes into account weakened reputation," says Stensrud.
Value for clients
The company is still cheap relative to the value it creates – and we should not forget the values they have created for our clients so far.
"For SKAGEN Vekst, the preference shares that we own are still up almost 12 percent measured in Norwegian kroner after yesterday's fall in share price. Depending on several factors, we now anticipate a negative effect on earnings of 4-6% for 2016," says Stensrud. He adds: "We still see significant opportunities in Samsung Electronics. Over the past two years the company has worked hard to increase earnings in segments other than mobile phones at the same time as they have improved their corporate governance."
Samsung Electronics has an extraordinary general meeting scheduled for 27 October. They are expected to provide more details about the generation shift in the company which was announced a long time ago.
SKAGEN has long been a shareholder in Samsung (first investment made in 1997) and the high-technology company has demonstrated a remarkable ability to change and come up with new products of better quality over the years. There is no indication that this will no longer be the case in future too.
"In the short term, it appears as though the market is overreacting. If we take a general and long-term view, we still see significant opportunities in Samsung Electronics and look forward to the company starting sales of the more commercial Galaxy 8 mobile phone at the beginning of 2017," says Stensrud.