VALUE: After Hours (S07 E18): Bank Holdings and European Valuations

During their recent episode, Taylor, Carlisle, and Tim Travis discussed Bank Holdings and European Valuations. Here’s an excerpt from the episode:

Tobias: So, Tim, before we came on, you were selling down some of your bank holdings earlier in the year. What prompted you to do that?

Tim: Well, valuation started getting pretty stretched. I’ve been pretty long the banks for quite some time. We tend to buy them, especially when they’re trading at discounts to tangible book value as long as profitability looks good. We finally were able to cash in on some of our European banks. So, BNP Paribas, Deutsche Bank, Barclays, they had really good runs. I still like a lot of those. I think the fundamental outlook’s pretty good. But the valuations finally caught up to our estimate of intrinsic value.

Whenever the market catches a cold, the banks get pneumonia. And so, for us, once they get close to fair value– I don’t think they’re the greatest businesses in the world. So, it was an attractive time for us to sell. Citigroup’s another one. I think intrinsic value is probably close to maybe a slight discount to tangible book, which is around 90. We sold in the 80s, probably, high 70s to 80s, just because that stock, whenever something happens, it gets clobbered. I think it did dip in the 60s again or whatever.

We sold some puts, we took advantage of volatility and so we’re established some types of conservative positions in them again, but not really playing it too much. I think that they’re pretty close to fair value right now. But it’s interesting finally seeing Europe catch that bid. I know you guys have been talking about it and I have too. The value nerds. Just the arbitrage between European valuations and US valuations, and it’s finally see that come to fruition a little bit.

Tobias: I saw just not even on European valuation, but someone was comparing BYD and Tesla. BYD’s revenues now I think exceed Tesla’s-

Jake: Wow.

Tobias: -and the market valuation for Tesla is like 10 times BYD.

Tim: Is it still? Wow, I’m a little bit surprised to hear that. I know BYD has been such a monster for so long.

Tobias: That was a tweet that I read that from. I haven’t independently verified that.

Jake: So, that’s as good as truth.

Tim: You’re probably right.

Tobias: Repeating falsehoods here.

Jake: Yeah.

Tobias: So, what do you think is interesting, Tim? You’re saying there’s a lot of overvaluation, but what’s relatively interesting?

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