Time is Money, or my Personal Note on E.ON and Uniper

I stated in a prior post on portfolio construction with a focus on position sizing that I want to sell some of my positions. I have a high number of rather small (legacy) positions that I bought without performing serious research. So I want to take a look at two of my poistions …

I started writing this post without knowing if I will sell or hold on to the discussed positions. But I will not analyze the businesses in any detail, so if you are looking for that save your time and read something else.

This is not investment advice. Please read the disclaimer.

Background: I originally bought into E.ON SE without doing proper research years ago and later received some Uniper SE shares in 2016 when they performed a spin-off. You can read more about the businesses and the spin off at valueandopportunity.com here. (one of my main goals of writing this blog is to only invest into companies after performing decent research, which I did not always do back then, before my searching4value blog)

My personal current situation: E.ON is a small position (<1%) and Uniper is even much smaller. The former trades at a small loss (-18%), but Uniper currently trades much higher (+140%) than my historic buy or recognition price of € 12.26 and would trigger a potential capital gains tax payment if not set off by other realized losses if sold.

The possible scenarios for both legacy positions are: (i) selling them now, (ii) holding forever, or (iii) holding now and sell later. I would not buy more shares of either company before doing enough research on them. This I will probably not do since I do not have the feeling that I am able to get an edge on these businesses.

i) Selling now would reduce the number of my portfolio positions (stated goal) and give me some new capital to invest elsewhere (hopefully with better returns). Trading costs would be my rather high trading fees of ~10 euros per trade. (for the Uniper position it would amount to 7% of market value and ~2% for the EOn position. Share prices of both companies are high compared to recent years, currently.

ii) Holding on to one or both positions is my second option. The holding scenario could be made up by the following charateristics: earning a dividend yield of ~4.5% on E.ON and ~3.9 to 4.5% on Uniper (tax issues neglected here). Dividends could rise or fall in future years, but my guess here would be exactly that, only a guess. My personal dividend yield on liquidation value (after fees, taxes) would be higher than that and this is what to compare other investment opportunities against. Holding on to portfolio positions always comes with opportunity costs, resulting from the alternative to pursue other investments, with potentially higher returns on invested capital. Personally, I would most certainly incur additional costs in the form of further distractions, stealing valuable time. Furthermore, these small legacy positions distort my portfolio reportings. 

iii) Selling later could enable me to capture some more upside potential from Uniper, whereas Unipers downside risk seems limited, since Fortum wants to increase its Uniper stake. For Eon’s prospects are even less clear to me.

I decided to sell both positions today (option i) after getting the required approval from my compliance department. I sold since the involved costs (opportunity and distraction) are too high and prices seem rather high currently. Performance for both positions is positive, but far short of targeted returns.

I purchased the E.On shares in January 2013 at a price of € 13.487 per share and sold for € 9.981 (-26%, including trading costs). During that time I received dividends of € 4.10 per share (30%). I addition, I received one Uniper share per ten E.On shares with an initial value per Uniper share of € 10.02 (worth € 1 per E.On share). Taking this into account, my E.On investment returned a lackluster 11.8% over a total holding period of 7.5 years. Accounting for the Uniper return (see below), increases this metric to 27.4%.

I sold the Uniper shares for € 27.71 per share (+176%, including trading costs) and received € 3.34 in total dividends per share during a holding period of 4 years, bringing the total return to +210%.

I reduced my total portfolio positions to 23.

I hope you enjoyed my writing.
Best, s4v


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