Systematic Ideas : Long IBM & Short Prosieben Media (PSM GY) - 6 July
New Longs: IBM US
New Shorts: PSM GY
Closing Positions: BAYN GY, DISCA US, WPG LN, SJM US, POP SM : UHR VX, ADSK (Flip Book Closes)
Long IBM (IBM US)
IBM has been a massive underperformer for the last 6 years as growth and margins shrank in the commoditised legacy businesses. Warren Buffet’s stake sale earlier was the slap on the wrist that management needed to step things up.
The company has been selling off low margin units and focusing on higher end products and services. IBM is making a significant push towards analytics, cloud & mobile. With enterprise cognitive computing, Watson puts IBM ahead of the competition and has the potential to be a game changer. With newer products already up to 42% of IBM’s revenue (last 12 months), further growth may be just around the corner.
IBM currently trades at the lowest premium to peers on a P/BV (last filing) than anytime in the last 5 years, these levels rarely persist for extended periods so we recommend buying IBM here.
Short Prosiebensat Media (PSM GY)
Prosiebensat reduced German TV ad market guidance for 2017 in May and has been underperforming the broader market since then. The company has been struggling to hold on to margins which have been on a steady decline for over 5 years.
PSM has been making investments into digital in an attempt to reduce their reliance on traditional TV advertising. However, the digital and content production verticals generate lower margins so the margin contraction should continue.
The departures of their CIO & CFO raises questions about their M&A effort which has been the driver of the company’s digital strategy.
The stock is now entering the lagging quadrant vs both the SXMP as well as SXXP INDEX (Fig.2). This suggests the stock is most likely headed into a period of underperformance. So we short here.
Deydun Markets
Deydun Markets, founded in 2010 and based in London, is a specialist quantamental research boutique. The client base includes institutional equity investors across the spectrum audience primarily from fundamentally driven long term investors to long / short high turnover hedge funds. Deydun covers all global markets through a macro lens as well as bottom up stock picking with the major overlay being the proprietary quantitative models that we have built over the years. The models are rebalanced to suit clients specific needs including quarterly, semi-annual and up to annual rebalance.
Deydun specialises in providing real-time securities recommendations including providing market timing advice and actionable short-only strategies. They use robust quantitative approaches to help isolate alpha for their clients. The systematic models attempt to be:
Right at the right time
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The differentiated suite of empirical models that Deydun has developed adapt dynamically to mean reversion and momentum states.
The Deydun service is delivered through notes, “Key Thoughts”, that highlight new stock ideas and track the real-time performance of all the Live Book as well as those in the (unique) Flip Book when they have changed the side of the recommendation. These prove outstanding records of divining alpha in very liquid global equities. The models typically achieve 15% to 35% CAGRs in blind forward and real time proofing over one to two business cycles.
Deydun endeavours to provide each client with independent and relevant ideas and transparently track all their calls. Tier one clients receive a bespoke portfolio service and often share their positions to enhance the impact of the Deydun service.
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