During the first quarter, the Causeway International Value (Trades, Portfolio) Fund added three new stocks to the portfolio, and sold out of four other positions. The quarter-over-quarter turnover was 5%, according to GuruFocus Real Time Picks.
The fund invests primarily in stocks of developed countries outside the U.S. At least 80% of the total assets are invested in at least 10 foreign countries, and up to 10% may be invested in emerging markets.
Causeway is led by Sarah Ketterer (Trades, Portfolio) who serves as CEO and portfolio manager of the fundamental and absolute returns strategies. In addition, she is responsible for investment research across all sectors.
In April 2014, Ketterer joined GuruFocus for an exclusive interview to answer questions from readers. That Q&A can be found here.
New buys
Causeway’s largest purchase during the quarter was 4,151,713 shares of SSE for an average price of £15.50 per share. The new holding has a 1.47% portfolio impact.
SSE generates and distributes electricity for the production and distribution of gas and other energy services. The stock price did not change much over the past year, increasing by only 1%. The current P/E ratio is 47.9, while the P/S ratio is 0.51.
Over the past five years, the revenue growth rate was 3.7%, while EBIT grew by 8.6%. In 2014, EBIT per share was £1.00, up from £0.87 the year before.
The dividend yield is 5.47%, close to the five-year low. SSE’s payout ratio is a very high 434%, indicating the company must further cut its dividend unless earnings increase.
Baytex Energy Corp (TSX:BTE, Financial)
Causeway purchased 3,729,900 shares of Baytex Energy, which traded for an average of C$19.73 during the quarter. The holding has a 0.94% portfolio weighting.
Baytex develops oil and natural gas in the Western Canadian Sedimentary Basin and the U.S. The stock plunged 55% over the last year due to weak oil prices around the globe. It is currently priced at C$21.37 with a forward P/E ratio of 208.33 and P/S ratio of 2.34.
The company reported a loss for the first time last year, with net income of C$-133 million. The graph below shows the income trend over time.
Baytex has a weak balance sheet with a current ratio less than 1, indicating the company cannot cover its short-term obligations.
Volkswagen AG (XTER:VOW3, Financial)
Causeway also initiated a new position in German car manufacturer Volkswagen, buying 40,014 shares for an average of €216.09 per share. The purchase had a 0.17% portfolio weighting.
The stock price increased 8% over the last year, and is now priced at €210.75, with a P/E ratio of 9.2 and P/S ratio of 0.5. Based on first quarter earnings, the Peter Lynch earnings line is at €335.70, meaning the stock is undervalued.
Over the past five years, EBIT per share increased almost 10%, and recorded at €25.59 in 2014. This was up from €23.99 the year before.
Volkswagen’s dividend yield is 2.31%, while the payout ratio is 18%.
Sold out
REXAM PLC (LSE:REX, Financial)
Causeway sold all 7,542,363 shares of its stake in REXAM for an average price of £5.14 per share. The graph below depicts the fund’s holding history.
REXAM manufactures beverage cans, the majority of which are made of aluminum. The stock increased by 6% over the past year, and is now priced at £5.57. The current P/E ratio is 11.6 and the P/S ratio is 1.08.
The company has struggled to increase its revenue and earnings over the long term, with revenue declining -2.3% over the past 10 years, and EBIT declining 3.4%.
In 2014, REXAM reported net income of $357 million, a large improvement from the $95 million in the previous year.
Royal Dutch Shell PLC (LSE:RDSA, Financial)
The fund also sold out of 1,074,038 shares of Royal Dutch Shell for an average price of £20.90 per share. The stock declined 20% in the past year, and is now priced at £18.83 with a P/E ratio of 13.2 and P/S ratio of 0.5.
When comparing the stock price to the Peter Lynch earnings line, it appears Royal Dutch Shell is undervalued.
The business predictability is rated as 3 out of 5 stars based on revenue and earnings predictability. Over the last five years, the revenue growth rate was 7.2%, while EBIT grew by 4.3%. The DCF calculator also estimates the stock is undervalued with a 12% margin of safety. The calculator estimates a fair value of £21.32.
The dividend yield is 6.39%, which is close to the five-year high, and the payout ratio is 84%.
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