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Value Investing Seminar: Ciccio Azzollini on Surviving the Meltdown

Ciccio Azzollini, CEO of Cattolica Partecipazioni SpA and host of the Value Investing Seminar in Molfetta, Italy, gave a presentation today, entitled Surviving: The Name Of The Game. Our notes from his speech follow:

Benjamin Graham's three timeless ideas for investing:

  • Evaluate stocks as part-ownership in the business
  • Make Mr. Market your friend by taking advantage of prices he quotes you when these prices deviate substantially from fair value
  • Invest with a "margin of safety" --> build a bridge able to withstand 15,000 pounds if you're going to drive a 10,000 pound truck across it

Investment-related observations:

  • Equity markets around the world show disappointing 10-year track records with major indices in US and Europe down 30-50%
  • Now a good time to look for investments and review value investing toolkit
  • Ciccio favors "investing with flexibility" meaning can invest in undervalued stocks, risk arbitrage, special situations, distressed securities --> all can have different risk/reward and time horizon profiles but value investing basis for investing is the same (look for situations with motivated sellers and missing buyers leading to large price dislocations)

Understand your edge when making an investment:

  • Information?
  • Analysis?
  • Psychology?
  • Time horizon?

Do a few things well when evaluating an investment:

  • Understand the business
  • Understand the people running the business
  • Get safety from the price paid
  • Concentrate on best ideas
  • Discipline, rationality and patience are key

Investment Idea: Banco Popolare (Milan: BP)

  • 4th largest Italian commercial bank with market share of approx. 10% in 6 regions of northern Italy 
  • Network of approx. 2,200 branches
  • Business model focused on retail banking
  • Sound balance sheet and liquidity: loan/deposit ratio of 0.91 as of 3/31/09; funding needs covered until 2011
  • Asset base is low-risk: focus on local domestic market (where no real estate bubble); merchant banking portfolio valued at market; strong diversification and strict loan provisioning
  • No investments in toxic assets: no exposure to subprime mortgage sector or structured products
  • Ciccio estimates intrinsic value per share of €8.5-11 (based on 10-12x normalized EPS of €0.85-0.95 assuming €1.4B of pre-tax, pre-provision earnings, €300-400M of losses, 45% tax rate and 640M shares outstanding) vs. current market price of ~€5 and tangible book value of €7 per share

About Ciccio Azzollini

Beniamino Francesco Azzollini (Ciccio) attended University of Bari and has a degree in Business and Economy. After graduating in 1997, he obtained a diploma as “Financial Analyst” at the European Association of Financial Analysts. He worked from 2001 through 2003 as Fund Manager in “Abax Bank” Milan. Since 2003 he is CEO of Cattolica Partecipazioni S.p.A,  an investment vehicle; he is also founder of the first “Value Investing Seminar” in Italy. Ciccio was born in 1974 and lives in Italy, city of Molfetta (Bari) with his wife Linda.

Disclosure: No positions.