Nordfyns Bank second update

Congratulations to those who bought.

After Middelfart Sparekasse entered the ring to merge with Nordfyns Bank, the original bidder, Fynske Bank, returned to the drawing board and revised its offer for a new merger agreement, already approved by the banks' boards.

This updated offer is 3.5 shares in Fynske Bank per 1 share in Nordfyns Bank, up from 2.7 shares in the original agreement. Based on Fynske Bank's Friday closing price, this prices Nordfyns Bank at DKK553/share — pretty close to my appraisal. Amusingly, the new offer is justified by suddenly raising expected pre-tax synergies from DKK60mn/year to DKK80mn/year plus "significantly lower one offs". No further explanation is provided in the press release. I guess this is what happens when you got to cover up a low ball bid (Nordfyns Bank's board is largely to blame here) after increasing it 30% (the exchange ratio) in one month.

Provided the deal is voted through — as I expect it will be — this represents an 18% return in a little over two weeks since my writeup (try calculating the annualized rate for that). Congratulations to those who bought it. I stubbornly didn't, eyeing what I believe to be a better prize. I continue to think that this remarkably similar setup is the best bank to play the Danish bank consolidation story right now. Even without an acquisition/merger, this bank is a rerating waiting to happen with a 60% upside.

Anyway, I’m also working on a deep value idea reminiscent of Charlie Munger’s early 2000s investment in Tenneco — the one he said was his only investment from 50 years of reading Barron's, earning him $80mn with “almost no risk”. This thing trades at 0.4x book, 0.07x sales, and has a 40% FCF yield (company claim; my estimate is closer to 25%). FCF should grow this year. It’s levered but has a clear debt paydown catalyst with asset sheds, moving the market cap towards EV over time. The stock is liquid and trades in a major European country. Full writeup is coming tomorrow or Monday (behind the paywall).

Cordially,
Oliver Sung

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Oliver Sung is the founder of Sung Capital. Sung Capital picks underpriced stocks, usually in pockets of the market where large pools of capital (funds and institutions) can’t or won’t invest. Sung Capital picks stocks only, uses no leverage, and requires a significant margin of safety in every investment. Oliver can be reached at oliver@sungcap.com.