1 June 2014

Which formula? Over the past 5 years we gathered quite a few screens and ratios. We started off with Joel Greenblatt’s Magic Formula, based on his bestseller ‘The little book that beats the market’. Greenblatt explained in very simple words that you should buy companies with above-average return on capital at below-average prices. We were the first to test this formula on European data and make the formula available globally.

Greenblatt wasn’t the only one with a working formula. We discovered a paper written by Joseph Piotroski in which he explained another very simple formula with incredible results. Piotroski found that if you invest in low price-to-book companies, but filter out the ones with poor prospects using his own F-Score, you will beat the market with a considerable margin. James O’Shaughnessy on the other hand liked to search for value stocks but he combined this with a momentum component. His tiny titans strategy looked for low price-to-sales micro caps of which the share price increased significantly.

We used all these valuable insights to test some alternative strategies. We designed the ERP5 factor, combining Greenblatt’s ranking with price-to-book and ROIC of the last 5 years. Our tests also showed that if you combine the Greenblatt Magic Formula with F-Score, returns increase while reducing risk. In our last paper, the tests showed that the best strategies are multi-factor and have either a momentum factor or price-to-book as primary factor. The strategy with the highest return was to take the top 20% of stocks with the highest 6 month price index and then order this by price-to-book. We redesigned our screener from the ground up so everyone could put these strategies into practice.

Last year we added another screen, called Trended Value, described by O’Shaughnessy in the 4th edition of his bestselling quant book ‘What works on Wall Street’. According to his tests, this strategy showed an annual return of 21% annually during the test period. (1964-2009). Instead of focussing on particular ratios, he combined 6 value ratios into 1 and ranked stocks based on this value composite.

�1SVI Newsletter - June 2014

Content

p1: Which formula?

p3: Agfa-Gevaert

p4: Supremex

p5: Portfolio update - Europe

p6: Portfolio update - North America

p7: Recommendations sold - Europe

p8: Recommendations sold - North America

p8: Sources

p9: Disclaimer

!!!Publisher

MFIE Capital bvba Bunderakker 31 9270 Kalken VAT: 0448.752.385 Author: Olivier Dambrine info@valuestockscreener.com !!

SYSTEMATIC VALUE INVESTOR

MFIE Capital | June 2014

1 June 2014

He took the top 10% and sorted the results by 6 month price index. We were one of the first to adopt this screen and make it available on the most important markets. We also adopted a variant of this screen as the basis for our newsletter. Our study showed that putting the price index as primary factor increased returns, so that’s what we used to select stocks.

These screens were not the only ones, we added the Altman Z-score, Beneish score,… and many other factors that showed predictive power in different studies.

With all these screens in place, you might be wondering which ones are the most popular? Well, our stats show that during the last 3 month, our members ran 102.000 screens in total. Most screens start with selecting the 6M Price Index (28%) or book-to-market (12%) as primary factor.

What you can also see in the table above is that the Magic Formula is still very popular at 11%. The ERP5 factor is almost as popular and the VC2, which was only launched a few months ago already took 5th place. This seems to indicate that a lot of members use the trended value screen to find their bargains.

Now, 28% of the screens use the 6M Price Index as a primary factor, but what do they use as a secondary factor? Well, most people sort those results based on earnings yield.

!!

�2SVI Newsletter - June 2014

With all these new figures and stats, what screen should you use? Well, it depends. Selecting the top 20% 6M Price Index stocks and then sorting by earnings yield seems to be the most popular choice, but we will keep all other strategies so you have the option to look at our stock universe from different angles. All formulas have been proven to be very effective so you’re bound to find excellent stocks in each one of them.

This month we present a Belgian company providing printing and healthcare imaging systems. We also found a Canadian company that manufactures all types of envelopes and related products.

Profitable investing

Olivier

!!

1 June 2014

Agfa-Gevaert"

Business summary!Agfa-Gevaert is a Belgian multinational corporation that develops, manufactures and distributes analogue and digital products and systems, as well as IT solutions. It has 3 divisions: (1) Agfa Graphics offers prepress and printing systems, (2) Agfa Healthcare supplies medical imaging systems and related IT solutions to mainly hospitals and (3) Agfa Speciality Products supplies traditional film products and other specialist products.

How did I find this company?!I discovered this company by taking the 20% companies with the highest 6 month price index, sorted by VC1.

Business update!Agfa-Gevaert reported a 11,8% lower turnover in Q1 impacted by weakness in emerging markets and currency effect. The company management had to deal with a multiple week strike but nevertheless has been able to increase its gross profit margin. The Q1 net result was €1m compared to €-12m in Q1 2013. Thanks to a positive cash flow, the company has been able to reduce its debt by 12%, from €217m to €191.

Management expects challenging conditions to continue in the second quarter, but it’s committed to deliver a double-digit EBITDA percentage in the medium term. The company should be able to benefit from the declining price of silver. Every drop in the price of silver of $1 results in an increase of gross profit by €4,5m.

Summary!Agfa-Gevaert is a Belgian company with a long and rich history. It has managed to weather quite a few storms in the last few years and has reinvented itself. Its management is focussed on improving fundamentals which should eventually be reflected in the stock price.

!!!!

�3SVI Newsletter - June 2014

Ratio Company Industry

P/B 1.2 3.46

P/S 0.14 5.37

P/E 7.28 54.92

Div Yield - 0.55

EBITDA/EV 37.74% -

FCF/EV 17.95% -

EY 29.61% -

ROIC 19.88% -

Valuation ratios

Share details

Share price (30/5): €2,3

ISIN: BE0003755692

NYSE Euronext Brussels

Shares outstanding: 171.85m

Free Float: 171.85m

Market Cap: €395.6m

Average volume: 361.47k

52wk Range: €1.32 - 2.83

1 June 2014

Supremex Inc."

Business summary!Supremex Inc. manufactures and sells a range of stock and custom envelopes, and related products in Canada and the United States. It offers all types of stock envelopes and custom envelopes for instance for direct mail. It also offers related products such as membership cards and labels.

How did I find this company?!I found this company by using the ERP5 Best Selection Screen, ranking companies based on ERP5 and filtering out companies with a Piotroski score less than 7.

Business update!The company reported a slight increase in revenues in Q1 of 0.7% to $33.9m. Sales in the US increased by 55.8% while in Canada it declined by 4.2%. EBITDA increased to $7.3m compared to $7m in Q1 2013. Earnings per share amounted to $0.12. Cash flow from operating activities increased to $5.3m compared to $4.9m last year. The company launched a share repurchase program to buy up to 5% of its shares in the next 12 months.

The company plans to grow by continuing its expansion in the US and by improving its product mix in Canada. It also keeps bringing out new innovative solutions such as the RFID payment card protector, a protective sleeve that block unauthorised RFID readers.

Summary!Supremex is a small and relatively cheap envelope manufacturer in Canada that has been showing good profitable growth. Through dividend payment and share repurchases, management is trying to return value to its shareholders.

!!!!

�4SVI Newsletter - June 2014

Share details

Share price (30/5): $2.65 CAD

ISIN: CA86863R1055

Toronto Stock Exchange

Shares outstanding: 28.96m

Free Float: 12.96m

Market Cap: $76.75m

Average volume: 17.7k

52wk Range: $1.18 - $2.75

Valuation ratios

Ratio Company Industry

P/B 1.2 0.77

P/S 0.59 0.42

P/E 7.57 16.44

Div Yield 6.04 2.15

EBITDA/EV 22.27% -

FCF/EV 14.55% -

EY 13.72% -

ROIC 37.55% -

1 June 2014

Portfolio update - Europe

The performance of the portfolio YTD stayed flat at 13,5% YTD (vs 13,4% last month). The performance was most heavily influenced by:

Staffline Group. Very pleased about keeping this company in the portfolio. The company confirmed its 2014 guidance and said it experiences strong demand from both new and existing customers. Different analysts increased its price target, one of them to GBX1.178.

Linedata Services gained 17%, Montupet 11% and MGI Coutier 14%.

Biggest loser was Reply which only fell 5% but has a 6,6% weight in the portfolio. Le Belier fell back 8% and Trinity Mirror dropped 13% but then recovered after it got a target price increase by Numis Securities to GBX280.

This month we keep Montupet and MGI Coutier in portfolio. They were the top performing stocks last month. Sell Impellam Group (+34%) Keep Cegedim as it’s still in the model.

!!!!!!!

�5SVI Newsletter - June 2014

1 June 2014

!!Portfolio update - North America

The performance of the portfolio dropped from 2,5% last month to 1,8% (TWR). The main culprits are: (1) ITT Educational Services released disappointing Q1 results as student enrolment fell 6,4%. Management also withdrew its full year guidance. The share price plunged 36% to 17.22. (2) Alliant Techsystems had been rising steadily during April and especially the first week of May since it announced it would spin-off its sporting rifle business. It reported Q4 earnings above analyst expectations, but Goldman Sachs reduced the stock rating from buy to hold. Magellan Aerospace Corp released good Q1 results and got a target price increase by Paradigm Capital to $13,5. Vecima posted great quarter results and improved its cash position considerably. The stock price went up by 16%.

This month we sell 6 stocks:

- Leidos and its spin-off Science Applications International Corp (7% total return - 1 year).

- Trans World Entertainment due to weak momentum. (-15% - 1 year)

- Inteliquent (+47% - 2 years). Momentum strong but not cheap.

- Salem Communications Corp (+78% - 26 months) Weak momentum.

- L-3 Communications Holding (+79% - 31 months). Strong momentum but not cheap.

!!

�6SVI Newsletter - June 2014

1 June 2014

Recommendations Sold - Europe

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�7SVI Newsletter - June 2014

1 June 2014

Recommendations Sold - North America

!!!Sources

- Stock charts & Financials: www.reuters.com

- Financials: www.ft.com

- Portfolio stock prices: www.yahoo.com

- Agfa-Gevaert: www.agfa.com, www.wikipedia.com, www.standaard.be, www.reuters.com

- Supremex: www.supremex.com, www.wikipedia.com, www.stockhouse.com

- Portfolio calculations and charts: www.profitmapper.com

!

�8SVI Newsletter - June 2014

1 June 2014

Disclaimer This newsletter and its content are provided to you for informational purposes only and any discussion of past performance of any security, other investment or investment strategy should not be considered as being indicative or a guarantee of future performance.

It does not constitute personalised financial advice nor an endorsement or solicitation to make any investment.

Please do your own due diligence or hire a financial advisor before making any investment decisions. It’s your money and your responsibility.

The information herein is not intended to be personal, legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.

The price and value of securities referred to in this newsletter will fluctuate. Loss of all of the original capital invested in a securities discussed in this newsletter may occur.

Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

You acknowledge that you understand that, due to many factors over which neither we, actual and subsequent events, performances and/or outcomes may differ substantially from any estimates, projections or predictions that might have been made in this newsletter.

�9SVI Newsletter - June 2014

This research is, to the best of our knowledge, based on generally accessible sources which are reliable and accurate. However, no liability can be accepted for any errors or inaccuracies in information derived from these sources. The information in this publication has not been checked for accuracies or relevance to current events. Consequently, no liability can be assumed for the completeness and accuracy of this report.

MFIE Capital has a subscription and advertising based revenue model and it or the analyst will not receive any compensation for providing specific information, data, opinions, estimates and projections as well as recommendations in this report.

The author received no compensation and is not affiliated with the company reviewed in this report with the possible exception of being a shareholder.

Company Specific Disclosures!This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time of this publication on 01.06.2014.

Indicated time horizon of recommendation is 12 months.