ValueInvestor September 30, 2011

Betting on the SystemTaking its original cues – literally – from Ben Graham, Tweedy, Browne hasproven adept at applying timeless wisdom to modern-day investing challenges.

Inside this IssueF E ATU R E S

Investor Insight: Tweedy, Browne

Applying timeless principles to today’sopportunity set and finding bargainsin Roche, G4S, United Overseas Bankand NGK Spark Plug. PAGE 1 »

Investor Insight: David Nierenberg

Sifting through small-caps for poten-tial homeruns and finding candidatesin RadiSys, Electro Scientific, MBACFertilizer and Multiplus. PAGE 1 »

Strategy: Europe

Value-investor dream or nightmare?How three top international moneymanagers are responding to ongoingmarket turmoil in Europe. PAGE 16 »

Editors' Letter

Shorting is hard for a variety of rea-sons, as exemplified by this mini-casestudy of OpenTable, Inc. PAGE 22 »

INVESTMENT HIGHLIGHTS

Other companies in this issue:

Abbey, Accor, Arca Continental, Asset

Acceptance Capital, Axel Springer,

Bangkok Bank, BNP Paribas, Carrefour,

Cisco, Daimler, Electro Scientific

Industries, Heartland Payment Systems,

ING, Natus Medical, Philips Electronics,

Power-One, QuinetiQ, SK Telecom, Total

The Leading Authority on Value Investing INSIGHT

INVESTMENT SNAPSHOTS PAGE

Credit Suisse 17

Ferrovial 19

G4S 5

MBAC Fertilizer 14

Multiplus 12

NGK Spark Plug 7

RadiSys 11

Roche 4

Ryanair 21

United Overseas Bank 6

Walk through Tweedy, Browne'sPark Avenue offices in NewYork and you'll see little of the

frenetic activity often associated with man-aging money in today's rough-and-tumblemarket. “It's almost like a library,” saysManaging Director Thomas Shrager.

Such a studious approach has servedinvestors quite well. Tweedy now managesmore than $12 billion and its flagshipGlobal Value Fund has since inception in1993 earned a net annualized 9.7%, vs.4.8% for the MSCI EAFE index.

Intrigued by the market's recent volatil-ity but only selectively finding what theyconsider great bargains, Shrager and hispartners see opportunity today in suchareas as pharmaceuticals, security, Asianbanks and spark plugs. See page 2

www.valueinvestorinsight.com

I N V E S TO R I N S I G H T

Tweedy, Browne Company(clockwise, from upper left) Will Browne, John Spears,

Tom Shrager, Bob Wyckoff

Investment Focus: Seek companiestrading at a 35-40% discount to what aknowledgeable buyer would pay for acompetitively acquired 100% position.

Tweedy, Browne Global Value Fund

1 Year 3 Years 5 Years 10 Years 15 Years

SinceInception(6/15/93)

TB Global Value Fund -3.06% 5.26% 0.41% 6.27% 8.36% 9.27%

MSCI EAFE (Hedged) -10.92 -2.59 -5.29 1.57 3.05 4.12

MSCI EAFE (US$) -9.36 -1.13 -3.46 5.03 3.27 4.26

Annual Total Returns For Periods Ending 9/30/11 (%)

Total Annual Fund Operating Expense Ratio as of 3/31/11: 1.40%

www.tweedy.com

I N V E S TO R I N S I G H T : Tweedy, Browne

Value Investor Insight 2September 30, 2011 www.valueinvestorinsight.com

Investor Insight: Tweedy, BrowneWill Browne, Tom Shrager, John Spears and Bob Wyckoff of Tweedy, Browne Company describe why they're often“aggressively inactive” in managing positions, why tamping down volatility is overrated, where they like banks andwhere they don't, and why they see unrealized value in Roche, G4S, United Overseas Bank and NGK Spark Plug.

Tweedy, Browne is certainly not alone inapplying the principles of BenjaminGraham in how it invests. How does thatmanifest itself in your strategy?

Will Browne: Our entire process is rootedin Ben Graham’s simple philosophicalframework for investing. He believedthere were two values for every stock, thefirst being the current market price, andthe second what the share would beworth if the entire company wereacquired by a knowledgeable buyer or ifthe assets were liquidated, the liabilitiespaid off and the proceeds paid to stock-holders. He called that the intrinsic valueand argued that the time to buy was whenthere was a large spread between the cur-rent price and that value, and the time tosell was when that spread was narrow.Our work every day is essentially directedat valuing what businesses are worth.

The initial process is largely statistical,which enables us to focus our time onideas with better probabilities of makingthe final cut. Most of our investments willhave several of the following investmentcharacteristics: low stock price in relationto book value, low P/E ratio, low price-to-cash-flow ratio, above-average divi-dend yield, low price-to-sales ratio com-pared to other companies in the sameindustry, low corporate leverage, pur-chases of a company’s own stock by insid-ers, company share repurchases, and astock price that has declined significantlyfrom its previous high. In each case,research has indicated a historical statisti-cal correlation between these investmentcharacteristics and above-average invest-ment rates of return over long periods.

With that philosophical base, ourstrategy has evolved. We’ve put greateremphasis on business quality, as opposedto the cigar-butt approach traditionallyassociated with value investing. If youpay a good price, getting into a good

business that compounds earnings doesyour work for you while you sleep. As myestimable colleague John Spears puts it,“You can sit on your assets.”

We also starting in the late 1980s con-cluded, as the types of information weneeded became more available, that itmade no sense to only apply our valueprinciples to U.S.-traded stocks. Theunderlying process is universal and time-less and can be applied anywhere.

By necessity – as well as opportunity –we have also invested more in larger-capstocks than was our heritage. There areplenty of reasons stocks of all sizes getcheap – our job as analysts is to deter-mine which of those reasons are of lastingimport and which are more temporary.

Describe some of the more common rea-sons stocks that attract you get cheap.

Bob Wyckoff: Often it’s an external eventto which the market overreacts. When theDurbin amendment regulating inter-change fees on debit cards was introducedin Congress last year, shares ofMasterCard [MA] got hit hard, but if youlooked closely, the potential impact of thechange affected less than 15% of its busi-ness. If you analyzed what happenedwhen a similar law was passed inAustralia, you saw that issuers offsetlower debit-card fees by raising fees on avariety of other products, limiting theimpact on MasterCard. Balancing thatagainst a secularly growing, high-margin,high-barrier global business, we conclud-ed that at around $200 – just over 7x for-ward EBIT – the stock was a buy. [Note:MA shares now trade at around $328.]

Tom Shrager: Another example of anexternal event creating opportunity is lastyear’s public unrest in Thailand. Stockssold off because people thought the coun-try was falling apart, but throughout its

W. Browne, J. Spears, T. Shrager, B. Wyckoff

Wall Street’s Pawnbroker

You'd be hard-pressed to name a firm with

a more illustrious value-investing history

than Tweedy, Browne. Founded in 1920

to make markets in inactively traded secu-

rities, its top customer by the 1940s was

Benjamin Graham. In the go-go 1960s it

frequently traded – including early pur-

chases of Berkshire Hathaway – for up-

and-coming client Warren Buffett. John

Train's classic book, The Money Masters,

devoted significant attention to the firm,

affectionately dubbing it the “pawnbroker”

of Wall Street due to its expertise in mak-

ing markets in stocks acquired from des-

perate sellers.

By the 1970s Tweedy started shifting its

emphasis to investing over trading and

has never looked back. From less than

$10 million in assets in the mid-1970s,

the firm now manages more than $12 bil-

lion. The secret to its longevity? Says Will

Browne, one of four firm Managing

Directors: “A primary question all investors

should ask of an investment firm is

whether the strategy is based on a repeat-

able process or on the particular intuitive

gifts of an individual. We can categorical-

ly say this is a process-driven organization

and if any of us were hit by the proverbial

truck, the firm wouldn't miss a beat.”

Value Investor Insight 3September 30, 2011 www.valueinvestorinsight.com

I N V E S TO R I N S I G H T : Tweedy, Browne

history there have been a variety of coupsand coup attempts and they haven’t inter-rupted the dynamism and growth of theeconomy. One stock we bought inresponse – and still own – was BangkokBank [BBL:TB], a conservative, business-focused bank with a long history of pru-dent loan growth, an underleveraged bal-ance sheet and very few of the loan-qual-ity problems afflicting Western banks.

The unrest gave us a great entry pointinto the stock – around 80% of tangiblebook value. Even today, while the stock[at a price of 141 Thai Baht] is now atcloser to 1.2x book, the company cancompound EPS at a low double-digitannual rate while the current dividendyield is close to 4%. Even if the P/E stayswhere it is, that’s a nice expected return intoday’s interest-rate world. At the sametime, in an acquisition, we’d expect abank of this quality and with this poten-tial to be worth probably 80% above thecurrent market price.

How about an example of a company-specific glitch creating opportunity?

TS: This is hotly debated within the firmat the moment, but Cisco [CSCO] is agood example of a stock selling off somuch after earnings disappointments thatwe took a position. After cash on the bal-ance sheet, the shares today [at around$16] trade for less than 6x forward earn-ings. We never expected it to grow on thetop line as fast as management did, butwe’d be very happy here if they can hitthe new 5-7% target they’ve set.

WB: The debate we’re having is theextent to which we, or management, canforecast Cisco’s future with confidence.That’s why we bought a small positionand it’s under continual scrutiny.

John Spears: I’d make a general pointhere about our process. We take all thecomputer screening we do very seriously,but that’s the easy part. The harder part isgoing through the public documents,reading call earnings transcripts, andspeaking with management and peopleoutside of the company who can shed

light on the business – all in an effort tomake conclusions about the sustainabilityof the business and its cash flow. Howleveraged is the income statement to upsand downs? Does the company havemuch control over its pricing? Is theremargin upside versus peers or are marginsthreatened by new competition? Is theretechnology risk? How does EBITDAcover interest expense in a downturn?

All of this is the hard work of securi-ties research, for which there’s no substi-

tute for rolling up your sleeves and goingat it. Will’s father Howard was fond ofsaying, "No one ever learned anything bytalking,” and we still try to take that toheart in how we approach our research.

What discount are you looking forbetween intrinsic value and the currentshare price to be interested?

RW: It’s a bit less for our dividend fund,but in general we want to see a 35-40%discount from what a prudent man mak-ing an acquisition would pay for theentire business. We put it that waybecause sometimes, such as in 2006 and2007, acquisitions are being done at lev-els we consider imprudent, so we don’tuse them in calculating intrinsic values. Ifyou’re fairly conservative in valuing thebusiness and then demand a 40% haircutoff of that, you should have a prettyhealthy margin of safety.

Roughly 80% of your assets today are innon-U.S. companies. Was there some sortof strategic directive behind that?

RW: We started investing in a moreorganized way outside the U.S. when thefirst good foreign databases of stock and

financial information came out in theearly 1990s. That was primarily a func-tion, as Will said, of wanting to expandthe universe of stocks we’d look at forbargains, but was also an effort to giveour clients more options for keeping theirmoney with us. That so much of ourassets today are in international stocks isthe residual effect over time of wherewe’ve found opportunity.

WB: This is increasingly becoming a dis-tinction without a difference. Nestlé isSwiss, Diageo is British, Johnson &Johnson is American and Philip MorrisInternational is headquartered down thestreet from us but no longer has any busi-ness in the U.S. We own all of them andin most of the ways that matter toinvestors, the analysis and valuation oftheir businesses is very similar.

Businesses are dynamic entities, mov-ing capital and assets to maximize oppor-tunity. They increasingly operate on aworldwide basis, so we have to as well.We’ve found that knowledge of business-es and companies is quite transferableand have often applied our experience inone market to another. For example,we’ve had success over the past severalyears in buying Coca-Cola bottlers at dif-ferent times and in different markets.

Are you active in Europe today?

RW: We have added to some of our exist-ing positions whose shares have declinedfairly sharply, such as [German mediacompany] Axel Springer [SPR:GR] and[French oil company] Total [TOT]. Butmany of the European companies we ownthat are globally diversified, underlever-aged and with a multiplicity of products –like Nestlé, Diageo and Unilever – haven’tseen their shares trade off that much.They’re reasonably priced and we likethem, but the entry points aren’t necessar-ily wonderful here.

WB: What we are not doing is plowinginto Greece or Italy or the big Europeanbanks because the stocks have gotten socheap. If we did things just by the num-bers, we’d be all over BNP Paribas, Intesa

ON GLOBAL INVESTING:

The analysis and valuation of

global businesses has

become very similar, regard-

less of where they’re based.

Value Investor Insight 4September 30, 2011 www.valueinvestorinsight.com

I N V E S TO R I N S I G H T : Tweedy, Browne

Sanpaolo or maybe a domestic-orientedGreek company or two. Our view is thatin many such cases there are too manyindeterminable, unquantifiable issues todeal with. If there’s even a slight risk a bigFrench bank blows up or the Greek com-pany you buy today may trade in newdrachmas in 18 months, why bother? Wehave plenty of other things to do.

How does your portfolio break down bymarket cap?

RW: Because it’s where we believe thevalue is, our portfolios today have a larg-er-cap bent, with probably 70% of assetsinvested in companies with a $5 billionmarket cap and above. Seven or eightyears ago the inverse was true – we’d goback to that if valuations warranted.

Given how much money you’re investing,isn’t it hard for a small-cap to have muchof a portfolio impact?

JS: We run a fairly diversified portfolio,with no more than 3-4% in any individ-ual name and, in our Global Value Fund,generally 100+ positions. Any individualsmall-cap doesn’t make a big differenceone way or the other, but enough of themcan. Our general rule is that there has tobe at least $100 million in float, with atleast $200,000 in trading volume per day.

An example we’ve added in the lastyear or so is an Irish home builder calledAbbey [ABBY:LN]. The stock is up mod-estly, but at the time we bought it it wastrading at two-thirds of tangible book,had net cash equal to 97% of its marketvalue, had a long-term average return onequity of about 13%, and had justannounced a new buyback program.There wasn’t a lot of complex analysisnecessary to conclude the stock wascheap. That’s the type of stray cat we’rehappy to take in from time to time.

Turning to some specific ideas, describeyour thesis for pharmaceutical giantRoche [RO:SW].

TS: After completing its acquisition ofGenentech in 2009, Roche is now the

largest biotech company in the world,with roughly half of its total revenuescoming from biologic drugs. Its overallportfolio is overwhelmingly cancer-focused, including blockbusters such asAvastin, Rituxan and Herceptin. It alsohas a large diagnostics business, account-ing for 20-25% of total revenues, whichis very profitable and strong in such areasas in-vitro diagnostics, where it’s theglobal market leader over competitorssuch as Siemens, Abbott, and Johnson &Johnson.

There are several things we like aboutthe company’s position. One is theemphasis it has on cancer drugs, which asa category we believe is the least suscepti-ble to regulatory and reimbursementchallenges. These are for the most parthighly specific, targeted life-or-deathtreatments, which will be far harder to

attack on price than something likeViagra.

The diagnostics business is also anadvantage. The future of cancer treat-ment is going to increasingly involvemore personalized medicine, where cer-tain drugs work for some patients and notfor others. Roche’s Herceptin, for exam-ple, works just in women who have anover-expression of a particular genecalled HER2. The presence of HER2 isdetermined by a diagnostic test, theresults of which help determine whichtreatment to follow and therefore reducethe incidence of mis-prescribing anexpensive drug that won’t work. Thatdynamic played out over many differenttypes of Roche drugs should bode wellnot only for diagnostics sales, but also fordrug-reimbursement levels by govern-ment and other payers around the world.

Roche Holding(Swiss: RO:SW)

Business: Discovery, development and

sale of pharmaceutical and healthcare-

diagnostics products globally. After buying

Genentech, now world’s largest biotech.

Share Information

(@9/29/11, Exchange Rate: $1 = CHF 0.897):

Price CHF 151.5052-Week Range CHF 120.30 – CHF 161.40 Dividend Yield 4.4%Market Cap CHF 127.10 billion

THE BOTTOM LINE

Strong positions in biologic cancer treatments and diagnostic testing should defend

and serve the company well in an evolving healthcare environment, says Tom Shrager.

The stock’s current earnings yield and dividend imply a low to mid-teens compound-

ing, he says, even without assuming any wins from an attractive new-drug pipeline.

I N V E S T M E N T S N A P S H O T

RO PRICE HISTORY

Sources: Company reports, other publicly available information

200

150

1002009 2010 2011

Financials (2010):

Revenue CHF 47.47 billionOperating Margin 34.9%Net Profit Margin 18.7%

Valuation Metrics

(Current Price vs. TTM):

RO S&P 500P/E 15.4 13.5

200

150

100

Value Investor Insight 5September 30, 2011 www.valueinvestorinsight.com

I N V E S TO R I N S I G H T : Tweedy, Browne

How do you assess the risks of genericcompetition?

TS: It clearly exists, with multi-billiondrugs like Herceptin and Rituxan goingoff patent in Europe over the next two tothree years. We’d argue, however, that themarket is overstating the financial impactof Roche’s biologic drugs losing patentprotection. In general, creating so-called“biosimilars” of biologics is far moreexpensive and difficult than creating tra-ditional generics. You’re dealing with liv-ing organisms, which raises significantquestions about whether the biosimilarwill really be equivalent and whether itcan be produced consistently over time.These issues will limit competition andshould make the cost differential betweenbiosimilars and the original drug muchsmaller than it has been with generics.

The company is also looking to extendthe lives of its top franchises in innovativeways. For example, they have developed anew drug that when used in combinationwith Herceptin may prolong its use infirst-line treatment from one to two years.They also have an exciting breast-cancertreatment called T-DM1 that when usedwith drugs like Herceptin in chemothera-py helps target the attack specifically onthe cancer cells and not healthy cellsaround them. Something like that couldsignificantly extend the life of Herceptin,as well as other of the company’s cancertreatments.

In valuing the stock, now trading at151.50 Swiss francs, are you putting avalue on the new-drug pipeline?

TS: We don’t need to in order to find thestock attractive. It trades today at 11.6xthe 13 Swiss francs in EPS expected forthis year. That translates into an 8.5%earnings yield, on top of which they pay a4.4% dividend. Even if the P/E stays atkind of a utility-company level, you’relooking at the potential for low- to mid-teens compounding on your investment.

We do believe Roche has one of thebest pipelines out there. They have a mul-tiple myeloma drug that was justapproved. They have a new schizophrenia

treatment that has shown great promiseand is in the late stages of the approvalprocess. Maybe most interesting is a drugcalled dalcetrapib, which unlike statintreatments like Lipitor, raises good cho-lesterol rather than lowering bad choles-terol. The more good cholesterol, the lessplaque formation in your arteries. Somekey clinical-trial results on this will be outin the first quarter of next year. If it ulti-mately works, this could be a $5 billion-per-year drug.

WB: Think of this as a bond alternativewith a nearly 9% current earnings yield,with a coupon that is likely to grow alongwith earnings at maybe 5-6% per year. Inaddition, there’s a nice dividend yield.Backing that up is a pretty high-qualitybusiness with hard-to-duplicate assets, a

decent moat and some pretty strong long-term secular demand for its products. Weconsider that a reasonable place to putsome money.

Explain your interest in global securitycompany G4S [GFS:LN].

RW: This is the world’s largest publiclytraded provider of security services,which runs the gamut from bodyguards,building security and alarm-system moni-toring to cash and valuables transporta-tion and prison management. It’s a globalbusiness, with around 615,000 employeesbased in 110 countries, making it one ofthe only security companies that can han-dle the diverse and often far-flung needsof large corporations and governments.We’ve owned the stock for some time, but

G4S Plc(London: GFS:LN)

Business: Global provider of security

services, including guards, alarm systems,

electronic monitoring, armored trucks and

prison management.

Share Information

(@9/29/11, Exchange Rate: $1 = £0.64):

Price £2.6852-Week Range £2.27 – £2.95 Dividend Yield 3.4%Market Cap £3.77 billion

THE BOTTOM LINE

The world’s largest publicly traded security company, G4S is primed to benefit from

an increasingly wealthy – and dangerous – developing world, says Tom Shrager. He

expects multiple expansion and an increasing dividend to enhance the low-teens com-

pound share-price growth implied by the current earnings yield and dividend payout.

I N V E S T M E N T S N A P S H O T

GFS PRICE HISTORY

Sources: Company reports, other publicly available information

3.00

2.50

2.00

1.502009 2010 2011

Financials (2010):

Revenue £7.40 billionOperating Margin 7.1%Net Profit Margin 3.4%

Valuation Metrics

(Current Price vs. TTM):

GFS S&P 500P/E 15.4 13.5

3.00

2.50

2.00

1.50

Value Investor Insight 6September 30, 2011 www.valueinvestorinsight.com

I N V E S TO R I N S I G H T : Tweedy, Browne

have been adding to it recently in our div-idend funds.

TS: This is like a consumer-products com-pany in that it has a full range of prod-ucts, from the most basic to the moresophisticated. That makes it well posi-tioned to capitalize on what we believe isa secular growth business – as wealth iscreated, particularly in developing mar-kets, demand for security on a variety offronts is likely to increase. If Diageo orNestlé wants to open an office in KualaLumpur, G4S could help them there withsecurity. They’ve got guards on oiltankers going through the Gulf of Aden.Places like the Middle East and Brazil,increasingly wealthy but also increasinglydangerous, have been big growth areas.Given all that, the crisis in 2008-09 bare-ly impacted their results.

WB: Security is one of those things that’spretty difficult to cut. Think about thethree guys who sit at the front desk ofyour office building. It’s a tiny part of theoperating cost of the building, but youwant them there. You like that they knowpeople’s names. If one of them is sick, youwant to know you’ll get a decent replace-ment right away. That type of thingmakes this a reasonably sticky business,which is a quality we like to see.

How profitable is it?

TS: Overall EBIT margins are 5.7%,which we believe can expand for twomain reasons. One is that they earn high-er margins in emerging markets, whichare accounting for an increased share oftotal revenues. They also should continueto see somewhat of a mix shift as theyupsell higher-margin services to existing,growing clients.

At a recent price around £2.70, how areyou looking at valuation?

RW: It’s a fairly similar story to the onewith Roche. The P/E on estimated 2011earnings is around 11.5x, translating intoan earnings yield of 8.7%. The dividendyield is 3.4%. That provides a nice return

in today’s environment, and you canmake a reasonable case for growth inboth the P/E – as margins expand – and inthe dividend.

The payout ratio is still a relativelyconservative 35% of net income and thedividend has increased 18% per year overthe last five years. Empirically, when youhave a low payout ratio and a good divi-dend yield, it’s usually an indicationyou’ve found what turns out to be a pret-ty cheap stock.

Your interest in banks today seems large-ly confined to Asia. Why is UnitedOverseas Bank [UOB:SP] attractive?

WB: This is one of the three leading com-mercial and consumer banks inSingapore, which is universally regarded

as one of the strongest national bankingsystems in the world. It’s well-regulated,does a lot of straightforward tradefinance, and generally has high under-writing standards. The typical mortgageholder, for example, doesn’t spend morethan 30% of his or her income on servic-ing the debt. UOB has also expanded itsgeographic footprint and now gets rough-ly 35% of revenues from outsideSingapore, primarily in neighboringIndonesia and Malaysia.

TS: By most any metric, this is a solid,conservatively run bank. Returns on equi-ty, at around 16%, are quite healthy. Welike that annual loan growth over the pastten years has been around 7%, not thetype of rapid growth that would suggestyou’re piling up potential problems at a

United Overseas Bank (Singapore: UOB:SP)

Business: Full-service Asia-Pacific com-

mercial and consumer bank holding com-

pany with primary operating subsidiaries in

Singapore, Malaysia and Indonesia.

Share Information

(@9/29/11, Exchange Rate: $1 = S$ 1.296):

Price S$17.2152-Week Range S$16.79 – S$21.00 Dividend Yield 4.1%Market Cap S$27.07 billion

THE BOTTOM LINE

The story is simple, says Tom Shrager: This is a successful, conservative bank in an

attractive part of the world, whose shares trade at a large discount to what a knowl-

edgeable third party would pay to buy it. History bears out that an acquirer would pay

at least a 14x multiple, he says, which would result in a share price of closer to S$24.

I N V E S T M E N T S N A P S H O T

UOB PRICE HISTORY

Sources: Company reports, other publicly available information

25

20

15

10

52009 2010 2011

Financials (as of 6/30/11):

Total Assets S$218.92 billionReturn on Assets 1.2%Return on Equity 12.3%

Valuation Metrics

(Current Price vs. TTM):

UOB S&P 500P/E 10.5 13.5

25

20

15

10

5

Value Investor Insight 7September 30, 2011 www.valueinvestorinsight.com

I N V E S TO R I N S I G H T : Tweedy, Browne

compound rate. The bank is self-funding,with a loan-to-deposit ratio of less than80%, much lower than the typicalWestern bank. Loans to tangible bookvalue is 6.5x – versus well in excess of10x at most Western banks – whichmeans they have additional leveragecapacity on the balance sheet if theychoose to use it. In terms of loan quality,total impairment charges dropped nearly60% in 2010, and the provision for loanlosses is now more than twice the level ofunsecured non-performing assets.

So the story is simple: A solid bank ina dynamic, growing part of the worldwhose stock trades at a pretty significantdiscount to what we think a knowledge-able third party would pay for it.

What do you consider a more reasonablevalue for the stock, now at around 17.20Singapore dollars?

TS: Estimated EPS this year is around1.70 Singapore dollars, so the sharestrade at 10.1x earnings. The current divi-dend yield is just over 4%. History bearsout that an acquirer would easily pay atlast 14x earnings, or around S$24, forthis franchise today.

Does the ownership structure make itsaleable?

TS: This is the only one of the three topSingapore banks that isn’t partly ownedby the government. There is a family witha large minority share, but in our experi-ence – we’ve owned the stock on and offfor some time – management has beenadequately focused on shareholder valueand we’re confident they’ll represent ourinterests well, sale or no.

You’ve been fairly tentative in Japan, butdescribe the potential you see in NGKSpark Plug [5334:JP].

TS: This is the type of company we like inJapan, with significant internationaloperations, good market positions anddecent margins, but with a valuation thatmore than reflects the challenges facingthe country today.

Depending on how you count it, NGKis one of the top two players in the glob-al spark-plug business, with a 35% share,and also either #1 or #2 in oxygen sen-sors, in which it has 40% of the market.Spark plugs and sensors together accountfor 75% of revenues and earn mid-teensoperating margins, primarily because amajority of the business is in the after-market – selling to places like AutoZoneor directly to mechanics – where marginsare much higher. Currently 80% of thisbusiness comes from outside Japan.

Changing technology in internal-com-bustion engines is working to the benefitof the largest suppliers of both sparkplugs and sensors. Everything today isoptimized to the millisecond by comput-ers, which has meant that while histori-cally people assumed it didn’t matter if

you mixed and matched spark plugs,today the prevailing wisdom is that fuelefficiency is optimized by using all thesame brand of plug at a time. That’s madethe aftermarket business even moreattractive to large players like NGK.

Japanese companies have had a hard timegrowing. Is that not the case for NGK?

TS: Revenue in the core automotive busi-ness has grown 5% per year over the lastten years, while EBIT has increased 7%annually. That type of growth has beenrare for Japanese companies. What’sshocking is that after all that compoundedgrowth in its biggest business, NGK’senterprise value over the past ten yearsactually decreased substantially, from¥345 billion to around ¥220 billion today.

NGK Spark Plug(Tokyo: 5334:JP)

Business: Manufactures and markets

spark plugs for internal-combustion

engines and makes ceramic components

for semiconductor and telecom equipment.

Share Information

(@9/29/11, Exchange Rate: $1 = ¥76.555):

Price ¥1,051.0052-Week Range ¥916.00 – ¥1,355.00 Dividend Yield 2.1%Market Cap ¥234.95 billion

THE BOTTOM LINE

Tom Shrager considers this the type of company attractive today in Japan, with signifi-

cant international operations, healthy market positions and with a valuation that more

than reflects Japan’s macro problems. Just selling a non-core ceramics business, he

says, would dramatically increase the stock’s current bargain-basement valuation.

I N V E S T M E N T S N A P S H O T

NGK PRICE HISTORY

Sources: Company reports, other publicly available information

1500

1250

1000

750

5002009 2010 2011

Financials (FY ending 3/31/11):

Revenue ¥269.23 billionOperating Profit Margin 10.7%Net Profit Margin 8.8%

Valuation Metrics

(Current Price vs. TTM):

NGK S&P 500P/E 9.7 13.5

1500

1250

1000

750

500

Value Investor Insight 8September 30, 2011 www.valueinvestorinsight.com

I N V E S TO R I N S I G H T : Tweedy, Browne

One big drag on the share price in ourview is that the other 25% of revenuescome from a lousy business selling ceram-ic components used in things like telecomequipment and semiconductors. It’s verycyclical and not even that profitable whentimes are good. Unfortunately, as is typi-cal for a Japanese company, they so farhaven’t wanted to get rid of it.

What upside do you see in the sharesfrom today’s price of ¥1,050?

TS: After net cash of around ¥150 pershare, the stock currently trades at onlyabout 7.8x estimated 2011 earnings of¥115 per share. That alone is cheap, butwe haven’t given up on them exiting theceramics business, which would help thestock both by improving earnings and byindicating to shareholders that manage-ment is focused on where the companyhas a long-term competitive advantage.Were that to happen, the multiple couldeasily move to the mid-teens, which isbelow where the stock has traded for longperiods in the past.

RW: Management has paid some defer-ence to shareholders – they pay a 2.1%dividend yield and bought back shareslast year. But even if nothing happenswith the ceramics business, we own some-thing with a nearly 13% earnings yield,that pays a dividend, and that’s in a glob-al business that has decent growthprospects and is improving in quality.

What could go wrong here?

TS: Long-term the big issue to watch isthe extent to which diesel engines, whichdon’t use spark plugs, and hybrid engines,which use fewer spark plugs, take globalmarket share. It’s not something that’sshown up in NGK’s numbers, but that’sclearly a risk to be aware of.

You’re not active sellers, but describe astock or two you’ve sold lately and why.

TS: We like to say we’re aggressively inac-tive, which translates into annualturnover in our portfolios of 10-20%. We

are usually buying stocks that we thinkare cheap for temporary reasons, so aslong as we understand and closely moni-tor both the business drivers and whatcan go wrong, we’re perfectly willing togive them time to perform. And as Willmentioned earlier, if value is compound-ing, we don’t want to get too cute in try-ing to trade in and out.

Of course share prices do reach ourestimate of value and we sell. Whenshares of Arca Continental [AC:MM], alarge Coke bottler in Mexico, recentlymoved to an EV/EBITDA multiple thatwas high compared to relevant past deal

valuations, that prompted us to start sell-ing down our position.

In the case of SK Telecom[017670:KS], the leading cellular serviceprovider in South Korea, we sold becauseit is trying to buy a minority interest insemiconductor company Hynix, whichwe think is outrageous. We and someother shareholders have tried to fight it,but that’s fallen on deaf ears. They essen-tially told us to take a hike, and we are.

Critique your performance during the2008 crisis.

TS: We’ve earned our money over time bysignificant outperformance in down mar-kets, which is primarily a function ofowning low-expectations stocks that areless susceptible to market corrections.

In 2008 we beat our benchmarks buthad a terrible year on an absolute basis.There was no place to hide, but we didavoid much of the pain in financial stockslike Freddie Mac, MBIA and AIG. We gotout of MBIA and Freddie in 2007, butheld on longer than we would have likedin AIG because we didn’t yet see the evi-

dence in the numbers saying we shouldget out. We reacted when we did, sellingmost of our position between $25 and$30 on a pre-reverse-split basis.

RW: For the most part, the underlyingbusinesses of the vast majority of compa-nies we owned didn’t at all fall apart. Ingeneral, we liked what we owned, tookcomfort in our diversification, andassumed there’d be another day for thevalue to return. That’s what has histori-cally happened and it did again this timeas well, so we don’t feel we permanentlylost a lot of money in 2008.

How has the recent market swoon affect-ed your collective mood?

RW: So much in the investment world hasbecome focused on tamping down volatil-ity that it’s gotten somewhat away froman emphasis on returns. We see that as anopportunity. If you’re willing to look fur-ther out and accept the inherent random-ness of what can go on in the interim, wecan sit with an undervalued portfolio ofunleveraged, diversified businesses withbusiness models that aren’t going tobecome obsolete and feel quite comfort-able about its prospects.

WB: Investors come up with all kinds ofreasons to own or not own stocks, and intimes of stress the reasons can becomenonsensical because people get driven bythis cascade of negative information. Wesee analyst reports all the time that saythey don’t like a stock short-term or theydon’t see a catalyst in the next sixmonths, but that it’s attractive long-term.Implicit in that is the notion that, “I’mgoing to know exactly the right time tostep in and I’ll let you know a few daysbefore it’s obvious to the rest of the mar-ket.” Based on our experience and every-thing we’ve seen about people’s ability totime the market, we don’t understandhow to make money on that basis.

One of the key strengths of a time-test-ed process is that it anchors you on moreobjective measurements. Having thatkind of discipline helps you keep yourwits about you. VII

ON PLAYING DEFENSE:

We’ve earned our money over

time in down markets. Low-

expectations stocks are less

susceptible to corrections.

ValueInvestor INSIGHT

Betting on the System September 30, 2011

The investment performance of Tweedy, Browne Global Value Fund (the “Fund”) and information regarding Tweedy, Browne Company’s assets under management presented in the attached article is as of August 31, 2011, unless otherwise noted, and is subject to change. The average annual total returns of the Fund for the 1-, 5- and 10-year periods ending March 31, 2012 were 2.92%, 0.79%, and 6.39%, respectively. As of March 31, 2011, the Fund’s total annual operating expense ratio was 1.40%. The preceding performance data represents past performance and is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data shown. Please visit www.tweedy.com to obtain performance data, which is current to the most recent month end. The Fund does not impose any front-end or deferred sales charge. However, a 2% redemption fee is imposed on redemption proceeds for redemptions or exchanges made within 60 days of purchase. Performance data does not reflect the deduction of the redemption fee and if reflected, the redemption fee would reduce performance data quoted for periods of 60 days or less. As of March 31, 2012, the Fund had invested the following percentage of its net assets in the following portfolio holdings: MasterCard (0.0%); Bangkok Bank (1.2%); Cisco (0.0%); Axel Springer (4.0%); Total (3.6%); Nestle (4.2%); Diageo (3.5%); Unilever (2.9%); Roche (3.86%); Johnson & Johnson (0.7%); G4S (0.6%); NGK Spark Plug (0.0%); Arca Continental (2.3%); SK Telecom (0.0%); Freddie Mac (0.0%); MBIA (0.0%); and AIG (0.0%). Stocks and bonds are subject to different risks. In general, stocks are subject to greater price fluctuations and volatility than bonds and can decline significantly in value in response to adverse issuer, political, regulatory, market, or economic developments. Unlike stocks, bonds, if held to maturity, generally offer to pay both a fixed rate of return and a fixed principal value. Bonds are subject to interest rate risk (as interest rates rise bond prices generally fall), the risk of issuer default, issuer credit risk, and inflation risk. Current and future portfolio holdings are subject to risk. Investing in foreign securities involves additional risks beyond the risks of investing in US securities markets. These risks include currency fluctuations; political uncertainty; different accounting and financial standards; different regulatory environments; and different market and economic factors in various non-U.S. countries. In addition, the securities of small, less well-known companies may be more volatile than those of larger companies. Value investing involves the risk that the market will not recognize a security’s intrinsic value for a long time, or that a security thought to be undervalued may actually be appropriately priced. Investors should refer to the Fund’s prospectus for a description of risk factors associated with investments in securities held by the Fund. The opinions and views expressed are those of the Manager and are subject to change. They should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. The Fund is distributed by Tweedy, Browne Company LLC. This material must be preceded or accompanied by a prospectus for Tweedy, Browne Fund Inc.

intentionally blank

intentionally blank

TWEEDY, BROWNE FUND INC.350 Park Avenue, New York, NY 10022

800-432-4789www.tweedy.com