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Outlook for Emerging Europe
 Ventspils Nafta (VNFT-Riga)
One of the most brilliant trades over the last five years was the "Euro-convergence" trade. All you had to do was find the most corrupt, marginal, debt-ridden countries scheduled to join the Euro. Spain and Italy fit the bill in 1995--and returned huge profits to visionary contrarians. Greece was the Euro- convergence play of 1996. The Athens Stock Exchange is still hitting new highs.
In my view, the next Euro-convergence plays are the fringe Eastern European countries, including Latvia. Greek equities rose 500% in dollar terms over the last four years. I anticipate the same kind of performance from the Baltic markets.
To join the Euro, the Baltic governments will need to restrain fiscal spending, improve tax collection, recapitalize the banks, privatize state-owned enterprises, clean up corruption, improve the legal system, and build up capital markets... This process will have an incredibly bullish effect on Baltic stocks. Interest rates will also trend down, as high Baltic rates converge with low Euro rates. Declining rates will boost stock prices and lower the cost of capital, improving overall economic conditions. I believe that a virtuous circle will emerge in the Baltics, as rising stock markets will create the conditions to support rising stock markets...
Recently, Latvia's Economy Minister requested that the privatization regulators draw up proposals to protect minority shareholders. VNFT was cited as an example of an undervalued company hurt by corporate governance concerns. This is consistent with my belief that VNFT is too important to the Latvian economy to remain in questionable hands.
Ventspils Nafta (VNFT-Riga) is a major oil transshipment terminal on the Baltic Sea. VNFT reloads 14% of Russia's oil exports onto tankers for delivery to Western markets. Based on VNFT's unique geographical position, I believe that VNFT will be able to maintain its quasi-monopoly status for another 40 years.
VNFT is valued at just 2x earnings. The market cap is less than the net cash pile on the balance sheet. VNFT has zero debt and outstanding margins. In fact, VNFT has so much cash management may be skimming through an inexplicable diversification strategy.
VNFT is not a good situation that might go bad. VNFT is a bad situation that might take a turn for the better. At current rock-bottom prices, VNFT is an excellent high-risk, long-term bet for contrarian speculators. It makes sense to get in before the government creates ADRs. VNFT remains a long-term Speculative Buy.
 Uproar Ltd. (UPRA-Austrian OTC; UPRO-EASDAQ)
I don't get it. I love the Internet, I use it every day, but I have trouble fathoming the public valuations awarded to incomprehensible business models like AMZN. But there's no point in playing the role of a financial Don Quixote in the face of the invincible Internet bubble. I would rather turn a profit at the expense of the deranged masses.
Uproar (UPRO-EASDAQ) remains my top play on the Internet bubble. Since I initiated coverage, UPRO split 20-for-1 and achieved an EASDAQ listing (the European NASDAQ). The stock participated in the mild September-October 1998 U.S. market correction, pulling back as low as US$18.90. UPRO has subsequently rallied as high as US$30.
UPRO has launched an aggressive market campaign to build Internet brand awareness in the U.S. You may have seen uproar.com commercials on TV. The marketing campaign seems to have succeeded in drawing traffic to the website and attention to the low stock price.
Uproar's master plan is to own the concept of "fun" on the Internet. UPRO's media properties include uproar.com, prizepoint.com, and gamescene.com. UPRO's registered user base has ballooned to 3.5 million. Uproar has penetrated 5.7% of the total Internet user population. And Uproar is ranked #5 in the world in terms of stickiness (or the total minutes spend online per day by the average registered user).
It's free to play games on Uproar. Currently, UPRO generates sales from advertisements. Advertisers pay UPRO for every "clickthrough" to an ad. Sales will rise 470% in FY99 to US$9.2 million (according to projections from ICE Securities).
Using prizepoint's e-merchandising technology, UPRO will soon monetize its registered user base by offering game-related merchandise. Uproar users will win "points" that they can use to buy merchandise on-line. If the value-added e-commerce marketing takes off, UPRO's sales will absolutely explode.
UPRO's fully diluted market cap of US$400 million is extremely low relative to comparable companies in terms of popularity and stickiness. The only problem with UPRO is its low visibility. As a European-listed enterprise, UPRO does not attract flow-of-funds from daytraders.
| Stickiness |
| Website |
(average minutes spent per month) |
Market cap (US$) |
| Ebay.com |
123.3 |
$19,290,000,000 |
| Yahoo.com |
73.9 |
$47,850,000,000 |
| Uproar properties |
38.3 |
$390,000,000 |
| AOL.com |
28.6 |
$134,207,000,000 |
| Ivillage properties |
17.2 |
$817,000,000 |
Management is currently evasive on the issue of NASDAQ listing. However, I expect that management is quietly preparing for a NASDAQ listing. NASDAQ has very similar listing requirements to EASDAQ. Once UPRO lists on NASDAQ, it can be compared immediately to its peers.
I don't know if UPRO will ever turn a dime. But you don't buy Internet stocks for near-term profitability. UPRO is an extremely high risk bet on the Internet. The company is bleeding cash from both operations and discretionary marketing. However, I believe that a NASDAQ listing would unlock the value in the stock.
Please read on...
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