Pzena Investment Management, Inc (NYSE:PZN) Q3 2019 Earnings Conference Call - Final Transcript
Oct 18, 2019 • 10:00 am ET
Richard S. Pzena
high net worth clients that is growing faster than global GDP. Further, 15% of their business is in Asia, the fastest growing region of the world, growing at our 10% per year. Their capital position is 5 times what it was prior to the financial crisis.
Over the past five years, UBS' earnings have grown by 32%. They have generated a shareholder return from dividends of 21% and yet their valuation has collapsed, driving the total return negative over the five-year period.
Compare these facts with market darling Nestle, over the same past five years, Nestle's earnings have shrunk by 1.5%. Their shareholders have only earned 16% from dividends and yet the total return to shareholder is over 70% over that five-year period. How can that make sense? Even more startling is the free cash flow yield for UBS in a negative environment. If we apply the same loan loss conditions to UBS today, that existed at the worst point of the great recession and the global financial crisis, UBS still would have a free cash flow yield of 8%. Compare that to a German 10-year bond of negative 40 basis points, hard to understand.
We also own Volkswagen stock in our portfolios. VW is the largest automaker in the world with brands expanding the consumer demand spectrum. They enjoy leading market share in China and Europe, and their cash position gives them a margin of safety that blights the current recession fears. Our analysts says that VW's strong market can be summed up in just three words, leaner, cleaner and greener. Leaner, if cutback on unproductive R&D spending, they are planning to use common parts across platforms under the VW family of brands.
Cleaner, they have paid for their past sense, paying out $25 billion for their diesel gate fiasco. They are improving their competitive reputation and expect to be at breakeven in the Americas in 2020, up from down at $1.5 billion. And greener, they are already offering electric vehicle versions of their premium brands, while pricing is high enough to enable the profitable distribution of electric cars and this is giving them the opportunity to leverage their premium, their brands to reach scale in this important segment. And we get this all at a price that it is just over 6 times consensus estimates of next years earnings.
In short, these are the environments that Tri-Asset owner sold, and these are the environments that bring excitement to value investors. We share the frustration that the waiting time for reward, this cycle has been extreme, but that has led to these kinds of opportunities that we believe will make the way worthwhile.
On the business side, we experienced a net outflow this quarter of approximately $800 million. Almost all of these outflows stemmed from our sub-advisory channel, where we attribute -- which we attribute to the reality of a skittish retail end-client. Our sub-advisory partnerships remained strong.
I will now turn the call over to Jessica Doran, our