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Doing our own Research on shares of VTG AG was worthwhile.

Friday 18 March 2016

Europe's largest rail car rental company has at last been noticed on the stock market. Two prominent investors have shown an interest. An example that timely research was worthwhile.

With over 80,000 railway wagons for industrial goods, the VTG Group which has its headquarters in Hamburg, is the largest privately owned Rail Car supplier in Europe. The company was for many years part of Preussag, and was then acquired in 2005 by an American private investor Wilbur Ross. He listed the shares on the stock exchange in 2007, and remained the only major shareholder.


In the early years the VTG shares did not draw much attention in the stock market.The business model of hiring rail cars, a balance sheet with a high level of debt and many other points of this very special business made many investors uncomfortable. Investors were not familiar with this business.


I followed VTG closely from 2008 onwards. Our proprietary research performed by the Value Fund "ME Fund - Special Values" showed a very different picture: A significant undervaluation and an attractive as well as stable business model, with little competition.The few bank analysts who bothered to cover VTG, continued to maintain their price targets which were still far too low. When the price was € 13.50 the analysts from the banks gave a price target range of € 15.50 to € 17.00. Their targets were similar - what a coincidence? A few years ago I wrote in the financial magazine, “ The Shareholder” that this was a blatant mis pricing and that the shares of VTG were worth € 35.00


In summary: For many years you could confidently buy the VTG shares at a price far below book value! It was therefore possible to build a meaningful position in the stock. This is a typical example that separate, independent and thorough research is worthwhile. Whoever waits for 'pennies from heaven' and only feels safe buying with the so-called “mainstream” will simply pay much higher prices. A lot can be achieved in the stock market by maintaining a stable mind and exercising patience.


A lot has changed in VTG since 2004 and it took some time for the good news to come out. The Management and Supervisory Board as well as the major shareholder Wilbur Ross in particular deserve praise for the expansion and shareholder-friendly measures they adopted.


In a first step, the company increased the rail car count from 50,000 to 80,000 by absorbing the Andreas Goer company and simultaneously removing

the second largest stake holder from this industry sector. That was a very important move.


Now the Joachim Herz Stiftung (Tchibo-Umfeld) has taken a 10 percent stake while the M. M. Warburg & Co. private bank took up a 5 percent position in the company.


I consider this as a vote of confidence. The one sided view by shareholders has significantly improved: Four main shareholders control about 64 percent of the shares while the free float is 36 percent The stock closed yesterday at about € 27.50


I cannot predict stock prices. The stock market, reflects prices depending on supply and demand. In "ME Fund - Special Values" we focus more on the business prospects and opportunities of VTG in the market as well as the quality of management of the company. In our view, the lights are now on green. We will closely watch further developments with interest.