Friday January 04, 2013
by Carl Delfeld, editor Pacific Rim Confidential
Our top conservative idea for 2013 is Sweden's Nordea Bank (NRBAY); the bank is focused on customer relationships, with a keen attention to risk and costs. Our top aggressive pick is MTR Corporation (MTRJY); this subway operator enjoys the benefits from being a legal monopoly in Hong Kong.
Some 85% of Nordea's loan portfolio is from northern Europe and Baltic. Its balance sheet is AA rated, with very low loan losses and capital growing at 9% annual clip
It has a dominant market position, with 10 million retail customers, 520,000 corporate clients, 1,000 branches and Nordea is two times larger than nearest regional competitor
96% of revenue comes from non-trading activities, which equals very low volatility in operating profits which have doubled over last decade.
Nordea's lending growth rate is 16% and its latest quarterly earnings show growth of 69.8% year over year; meanwhile, the stock is trading right at book value. A record of 40% of net income was paid out as dividend. The current dividend yield is 4.1%
MTR Corporation has 218 kilometers of subway and light rail track and 84 stations plus it’s a leading land developer with over 29 million square feet of commercial and residential space.
Of particular interest is that while it shares in the profits with its property development partners, it doesn’t share the losses.
MTR’s new CEO is the former head of New York's Metropolitan Transportation Authority, Jay Walder. The company is expanding outside HK, especially into main land China.
Over the last five years MTR has been aggressively expanding internationally, winning contracts to operate the Stockholm subway, a new rail line that served the London Olympics, and lines in Melbourne, Daxing, Shenzen and Beijing.
About 60% of MTR’s revenue now comes from the Hong Kong rail system, including fare revenue with an overall operating margin at 39%. Property development and management has also become a pretty big part of their business, making up about 25% of their operating profit.
MTR has a great balance sheet with cash roughly equal to total debt. It has a dividend yield of 2.5% and has raised dividends every year over the past ten years.
Learn more about this financial newsletter at Carl Delfeld's Pacific Rim Confidential.