CTT - Correios De Portugal SA: A Journey That Has Continued To Compound For Us

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CTT - Correios De Portugal SA has added 4.4% to our performance in the first half of this year.The company recently re-confirmed its 2025 profit targets of €100-120 million, which we believe will just...

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Class A"},"translate_title":"CTT-Correios de Portugal SA：我们的旅程不断复杂","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CTT":1,"CTTPY":1},"content_text":"CTT - Correios De Portugal SA has added 4.4% to our performance in the first half of this year.The company recently re-confirmed its 2025 profit targets of €100-120 million, which we believe will just be one step of a journey that has continued to compound for us.A sense of purpose has always underpinned the executives transforming CTT.It's the reason why BancoCTT is the fastest growing bank in Iberia and CTT Express is the fastest-growing parcel company in Iberia.StockPhotosArt/iStock Editorial via Getty Images The following segment was excerpted from this fund letter.  Waiting on… CTT \"The big money is not in the buying and selling, but in the waiting.\" Charlie Munger Last but not least from our coinvestments, CTT (OTCPK:CTTPY) has added 4.4% to our performance in the first half of this year. We are very cognizant that our journey here began five years ago in May of 2019, when we took a board seat and partnered with a new CEO to transform the company. For both of us, the sense of urgency is high to finish the job that started back then. Back then, we had the idea that separating the bank from the logistics company would not only simplify the equity stories of each side of the house, but it would also simplify regulatory considerations - all while unlocking a \"sum of parts\" story. Unfortunately, interest rates converged to zero during 2019, and then went negative in 2020. Bank valuations in Iberia fell from 1.0x book, when we started buying shares, to well less than half of book value by 2020. While the concept had merit, market conditions wouldn't allow for this dream to become a reality. Exhibit 1: Iberian Bank Valuations Data Source: CapIQ. Iberian bank comps include UNI SM, SAN SM, BKIA SM, CABK SM, SAB SM, SAB SM, BCP PT Since then, the company has rebuilt its profit stream outside of mail with the transformational growth drivers that excite us most - namely being an e-commerce leader in Iberia, and disrupting the incumbent financial services industry. While investors seem to be myopically focused on CTT's treasury certificates distribution lately, the executives have kept their head down, and continued to execute in the areas under their control, which will grow profitability at least 40% this year. The CEO recently admitted that the company is considering \"all possibilities\" on the bank's future, and it is doing so in a very different environment from 2019 & 2020. Of course, the company recently re-confirmed its 2025 profit targets of €100-120 million, which we believe will just be one step of a journey that has continued to compound for us. Exhibit 2: Industry Profit & Share Price CAGRs Data Source: CapIQ for TSR & EBIT Estimates While the market has been concerned with themes and fashions other than profitability, eventually a company's profit returns to focus. When the focus returns, CTT will have fewer and fewer shares to divide those earnings by. The company recently began its fourth share repurchase program, with plans to shrink the share count at least another 4%, and is now accessing volume on a wider array of trading venues. This should provide an avenue to conclude this program more quickly than the prior programs. The compounding effect from shrinking the share count, for us, is helping make the wait worth it. We maintain our high sense of urgency nonetheless. The Other Secret To Compounding \"You have to make a bloody difference! If you have this goal in mind, whatever your job, the satisfaction, even economic, will come during your career.\" -Sergio Marchionne The secret of compounding is not just in the waiting, but applying consistent pressure on a daily, habitual basis. In past letters, I've often talked about the importance of management teams having a sense of urgency. Of course, in the case of Fiat, waiting through the significant volatility was worth it for the investor, because Marchionne and his team never stopped working to improve the outcome. It rarely showed up in the valuation, and sometimes it would not even show up in the financial results, but over time, it showed up in both. The sense of purpose that he and his team had fueled a work ethic that defied normal conventions, which in turn, generated outlier returns for a banal industry. A sense of purpose has always underpinned the executives transforming both CTT and Leonardo. They have routinely said \"no thank you\" to job offers that provided far more in compensation and in some cases, much more prestige. Having a great sense of purpose is more powerful than any compensation scheme. It motivates daily behavior to reach for better outcomes, and to have an impact. In interviews, Sergio would consider a manager's desire to have a fundamental impact on outcomes to be the sole characteristic he needed to work with someone. This sense of purpose is key to driving consistent, daily effort that make these companies hard to compete against. This daily execution, applied at a near constant level of effort, is key to harnessing the power of compound interest - \"the most powerful force in the universe,\" according to Albert Einstein. For investors to have the patience of waiting for compound interest to work its magic, they must have tangible evidence that they are investing in cultures and managers that are applying this consistent effort - and are building companies that are harder and harder to compete against. It's the reason why BancoCTT is the fastest growing bank in Iberia and CTT Express is \"the fastest-growing parcel company in Iberia, indeed in Europe,\" as the CEO noted on the most recent earnings call. The effort is compounding while the denominator, or the share count, continues to shrink.   Disclaimer: This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author's opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC. Past performance is no guarantee of future results.  Click to enlarge  Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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