European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<p>Discounts to NAV for our selected European holdcos and DLCs have generally tightened in April. The report incorporates Q1 releases for the main Swedish listed holding companies, and several SOTP valuations.</p>
</div>
<div>
<p>Ecology, technology and cyclical pull are the three factors that play in favour of the Swedish stock market, which is among the top performers this year. In the last twelve months its revaluation exceeds 60%, helped by the quality of its companies. The high concentration of the OMX index in cyclical companies, which benefit from the optimism generated by vaccination, accelerates its rise. The 15 largest companies represent almost 60% of the total market, which generates leverage in sectors such as industrial (with a 34% weight of the index), financial (23%) and Technology (10%). This performance should be maintained compared to other markets throughout the year. The shift towards cyclicals has been reflected in the good performance of H&amp;M, Nordea Bank, Volvo and Ericsson. Sweden is a very stable economy and there are funds that seek that tranquility, which benefits their good progress. The commitment to sustainability puts the Swedish market in the focus of large investors, in addition to having a stable currency in which to diversify.</p>
<div>
<ul style="list-style-type: disc;">
<li>
<p>The current premium of <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> vs.  <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">Bhp Billiton (BLT LN)</a> at close of March was 21.8% (vs. 24.6% as of 31 December and 19.5% as of the end of March), against a 10-year average of 14.6%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/corp-financiera-alba-sa" target="_blank" data-smartkarma-citation="entities:21245:1" rel="noopener">Corp Financiera Alba Sa (ALB SM)</a> is trading at a 44.5% discount to NAV, partly because of its low liquidity. The discount does not seem to be arbitraged lately. <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a>, one of its portfolio main assets, is the object of a partial takeover bid; Euskaltel is the object of a full takeover bid, as it has been previously flagged here. Alba has some quality assets and is fundamentally cheap, in my view.</p>
</li>
<li>
<p>The discount of <a href="https://www.smartkarma.com/entities/groupe-bruxelles-lambert-sa" target="_blank" data-smartkarma-citation="entities:21332:1" rel="noopener">Groupe Bruxelles Lambert Sa (GBLB BB)</a> has tightened to 31.5%. I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 70% of NAV).</p>
</li>
<li>
<p>The discount in Heineken Holdings relative to Heineken has widened to 14.4% (vs. 12.6% at the end of March) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/industrivarden-ab" target="_blank" data-smartkarma-citation="entities:22395:1" rel="noopener">Industrivarden AB (INDUA SS)</a> C shares are trading at a 0.6% discount to NAV (vs. 7.8% at the end of February), the lowest over the last twelve months. I would wait for the discount to widen before entering the trade again.</p>
</li>
<li>
<p>The discount to NAV of <a href="https://www.smartkarma.com/entities/investor-ab" target="_blank" data-smartkarma-citation="entities:22397:1" rel="noopener">Investor AB (INVEB SS)</a> B shares has tightened to 14% (vs. 17.1% at the end of February and 14.4% at the end of March).</p>
</li>
<li>
<p>From my SOTP valuation, <a href="https://www.smartkarma.com/entities/kinnevik-ab" target="_blank" data-smartkarma-citation="entities:22407:1" rel="noopener">Investment Ab Kinnevik (KINVB SS)</a> B shares are trading at a c. 8% premium to NAV. Post the Zalando distribution (together with the Millicom distribution), Kinnevik will transform itself in a listed VC, investing mainly in tech.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-98de2c77-62f2-46da-88eb-af269fb53d42" target="_blank" data-smartkarma-citation="entities:28510:1" rel="noopener">Royal Dutch Shell PLC (RDS/B US)</a> “B” shares closed April in New York at a discount of 5.8% (vs. 4.4% as of 31 December and 6.1% as of end of March) with respect to the <a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-adr" target="_blank" data-smartkarma-citation="entities:792:1" rel="noopener">Royal Dutch Shell Plc (Adr) (RDS/A US)</a> “A” shares. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.</p>
</li>
</ul>
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</div>


Discounts to NAV for our selected European holdcos and DLCs have generally tightened in April. The report incorporates Q1 releases for the main Swedish listed holding companies, and several SOTP valuations.


Ecology, technology and cyclical pull are the three factors that play in favour of the Swedish stock market, which is among the top performers this year. In the last twelve months its revaluation exceeds 60%, helped by the quality of its companies. The high concentration of the OMX index in cyclical companies, which benefit from the optimism generated by vaccination, accelerates its rise. The 15 largest companies represent almost 60% of the total market, which generates leverage in sectors such as industrial (with a 34% weight of the index), financial (23%) and Technology (10%). This performance should be maintained compared to other markets throughout the year. The shift towards cyclicals has been reflected in the good performance of H&amp;M, Nordea Bank, Volvo and Ericsson. Sweden is a very stable economy and there are funds that seek that tranquility, which benefits their good progress. The commitment to sustainability puts the Swedish market in the focus of large investors, in addition to having a stable currency in which to diversify.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) at close of March was 21.8% (vs. 24.6% as of 31 December and 19.5% as of the end of March), against a 10-year average of 14.6%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.


Corp Financiera Alba Sa (ALB SM) is trading at a 44.5% discount to NAV, partly because of its low liquidity. The discount does not seem to be arbitraged lately. Naturgy Energy Group SA (NTGY SM), one of its portfolio main assets, is the object of a partial takeover bid; Euskaltel is the object of a full takeover bid, as it has been previously flagged here. Alba has some quality assets and is fundamentally cheap, in my view.


The discount of Groupe Bruxelles Lambert Sa (GBLB BB) has tightened to 31.5%. I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 70% of NAV).


The discount in Heineken Holdings relative to Heineken has widened to 14.4% (vs. 12.6% at the end of March) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.


Industrivarden AB (INDUA SS) C shares are trading at a 0.6% discount to NAV (vs. 7.8% at the end of February), the lowest over the last twelve months. I would wait for the discount to widen before entering the trade again.


The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 14% (vs. 17.1% at the end of February and 14.4% at the end of March).


From my SOTP valuation, Investment Ab Kinnevik (KINVB SS) B shares are trading at a c. 8% premium to NAV. Post the Zalando distribution (together with the Millicom distribution), Kinnevik will transform itself in a listed VC, investing mainly in tech.


Royal Dutch Shell PLC (RDS/B US) “B” shares closed April in New York at a discount of 5.8% (vs. 4.4% as of 31 December and 6.1% as of end of March) with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.





Selected European Holdcos and DLCs: April Report

Groupe Bruxelles Lambert Sa / Event-Driven

<div><p>Discounts to NAV for our selected European holdcos and DLCs have generally tightened in March. The report incorporates the results for GBL, and several SOTP valuations.</p></div><div><ul style="list-style-type: disc;">
<li>The current premium of <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> vs.  <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">Bhp Billiton (BLT LN)</a> at close of March was 19.5% (vs. 24.6% as of 31 December and 19.5% as of the end of February), against a 10-year average of 14.5%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.</li>
<li>
<a href="https://www.smartkarma.com/entities/corp-financiera-alba-sa" target="_blank" data-smartkarma-citation="entities:21245:1" rel="noopener">Corp Financiera Alba Sa (ALB SM)</a> is trading at a 46% discount to NAV, partly because of its low liquidity. The discount does not seem to be arbitraged lately. <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a>, one of its portfolio main assets, is being the object of a partial takeover bid; Euskaltel is the object of a full takeover bid, as it has been previously flagged here. Alba has some quality assets and is fundamentally cheap, in my view.</li>
<li>The discount of <a href="https://www.smartkarma.com/entities/groupe-bruxelles-lambert-sa" target="_blank" data-smartkarma-citation="entities:21332:1" rel="noopener">Groupe Bruxelles Lambert Sa (GBLB BB)</a> has tightened to 31.7% as of end of March (vs. 34.2% as of 26 February). I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 70% of NAV).</li>
<li>The discount in Heineken Holdings relative to Heineken has tightened to 12.6% (vs. 15.4% at the end of January) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.</li>
<li>
<a href="https://www.smartkarma.com/entities/industrivarden-ab" target="_blank" data-smartkarma-citation="entities:22395:1" rel="noopener">Industrivarden AB (INDUA SS)</a> C shares are trading at a 3.3% discount to NAV (vs. 7.8% at the end of February), the lowest over the last twelve months. I would wait for the discount to widen before entering the trade again.</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/investor-ab" target="_blank" data-smartkarma-citation="entities:22397:1" rel="noopener">Investor AB (INVEB SS)</a> B shares has tightened to 14.4% (vs. 17.1% at the end of February). Long Investor B, short main assets.</li>
<li>From my SOTP valuation, <a href="https://www.smartkarma.com/entities/kinnevik-ab" target="_blank" data-smartkarma-citation="entities:22407:1" rel="noopener">Investment Ab Kinnevik (KINVB SS)</a> B shares are trading at a c. 7% premium to NAV. Post the Zalando distribution (together with the Millicom distribution), Kinnevik will transform itself in a listed VC, investing mainly in tech.</li>
<li>
<a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-98de2c77-62f2-46da-88eb-af269fb53d42" target="_blank" data-smartkarma-citation="entities:28510:1" rel="noopener">Royal Dutch Shell PLC (RDS/B US)</a> “B” shares closed March in New York at a discount of  6.1% (vs. 4.4% as of 31 December and 5.2% as of end of February) with respect to the <a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-adr" target="_blank" data-smartkarma-citation="entities:792:1" rel="noopener">Royal Dutch Shell Plc (Adr) (RDS/A US)</a> “A” shares. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.</li>
</ul></div>

Discounts to NAV for our selected European holdcos and DLCs have generally tightened in March. The report incorporates the results for GBL, and several SOTP valuations.
The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) at close of March was 19.5% (vs. 24.6% as of 31 December and 19.5% as of the end of February), against a 10-year average of 14.5%. I would rather be long the UK plc and short the Aussie Ltd. through US listings.

Corp Financiera Alba Sa (ALB SM) is trading at a 46% discount to NAV, partly because of its low liquidity. The discount does not seem to be arbitraged lately. Naturgy Energy Group SA (NTGY SM), one of its portfolio main assets, is being the object of a partial takeover bid; Euskaltel is the object of a full takeover bid, as it has been previously flagged here. Alba has some quality assets and is fundamentally cheap, in my view.
The discount of Groupe Bruxelles Lambert Sa (GBLB BB) has tightened to 31.7% as of end of March (vs. 34.2% as of 26 February). I recommend Long GBL / Short main listed assets (LafargeHolcim, SGS, Pernod Ricard, Adidas and Umicore, which represent c. 70% of NAV).
The discount in Heineken Holdings relative to Heineken has tightened to 12.6% (vs. 15.4% at the end of January) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years. Recommendation is long Heineken Holdings, short Heineken.

Industrivarden AB (INDUA SS) C shares are trading at a 3.3% discount to NAV (vs. 7.8% at the end of February), the lowest over the last twelve months. I would wait for the discount to widen before entering the trade again.
The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 14.4% (vs. 17.1% at the end of February). Long Investor B, short main assets.
From my SOTP valuation, Investment Ab Kinnevik (KINVB SS) B shares are trading at a c. 7% premium to NAV. Post the Zalando distribution (together with the Millicom distribution), Kinnevik will transform itself in a listed VC, investing mainly in tech.

Royal Dutch Shell PLC (RDS/B US) “B” shares closed March in New York at a discount of  6.1% (vs. 4.4% as of 31 December and 5.2% as of end of February) with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares. Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.


Selected European Holdcos and DLCs: March Report

Telefonaktiebolaget Lm Ericsso / Event-Driven

Telefonaktiebolaget Lm Ericsso (ERICB SS)

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<div>
<h3>Trends</h3>
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</div>
<div>
<p>Mixed: discounts have generally widened across the European space.</p>
</div>
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<h3>Recommended trades</h3>
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<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares are trading at a 16.6% discount (7.5% by mid-January and 4.3% by mid-December) vs. the A shares. This is an interesting level to set up a mean reversion trade LONG B shares/short A shares, in my view.</li>
<li>
<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" rel="noopener"></a>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is tightening and is now 20.5% (vs. 25.2% by mid-December). I would keep the trade long BMW prefs, short common shares on, with a target of a 15% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a> 's premium seems to vary within a range, which is probably liquidity related. It is 29.4% (vs. 29.9% by mid-December and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.</p>
<p>Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long ords/short prefs, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 11.8%. Maintain the trade short prefs/long common shares with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. Prefs discount is 10.7% (vs. 8% by mid-December and 4.9% discount in November). It has moved sideways since mid-September. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords. Plus it can be executed in size. The discount tightened since the March 2020 selloff and has widened again over the last months, for no obvious reason.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/buzzi-unicem-spa" target="_blank" data-smartkarma-citation="entities:21146:1" rel="noopener">Buzzi Unicem (BZU IM)</a>: from 18 January 2021 the mandatory conversion of the savings shares into ordinary shares will be effective and therefore, from that date only ordinary shares are traded;</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 5.9%. It is currently 0.64%.</li>
<li>
<a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares are trading at a 10.7% premium to ordinary shares (vs. a 9.5% premium by mid-January). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 39.7% discount (vs. 34.1% by mid-January, 35.2% by mid-December, 38.5% in November and 41.9% by mid-September), there is a trend towards the tightening of this discount since mid-March. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 14.1% (vs. 12.9% by mid-January, 13.1% by mid-December and 12.7% by mid-November). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.</p>
</li>
<li>The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has widened to 11%. I would set up the trade Long B shares/short A shares with a 3% discount target.</li>
<li>
<p>Other than Industrivärden, the other major shareholder of <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> is Solidium Oy (State of Finland). The reversal on the discount over the last 15 months has no obvious explanation. The discount has tightened to 9.1% (vs. 13% by mid-January, 12.2% by mid-December and 8% by mid-November). I would short B shares and go long A shares.</p>
</li>
<li>
<p>The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has widened to 2.7%. Considering past-performance, it seems an interesting level to set up long non-voting/short bearer shares. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.</p>
</li>
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> reflects Schroders' way of corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount is now 34.1% (vs 34.9% by mid-December and 33.4% by mid-November), but it reached 42% on 19 May. I would set up long non-voting/short voting shares.</p>
<p>Over 2020, Schroders cancelled 9 mn voting shares, but only 100k non-voting. Considering the discount, it would create value cancelling non-voting stock, but the company did the opposite.</p>
</li>
</ul>
</div>
<div>
<p><em>Please read on for table and charts</em>.</p>
</div>



Trends



Mixed: discounts have generally widened across the European space.



Recommended trades





Carlsberg A/S (CARLB DC) B shares are trading at a 16.6% discount (7.5% by mid-January and 4.3% by mid-December) vs. the A shares. This is an interesting level to set up a mean reversion trade LONG B shares/short A shares, in my view.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is tightening and is now 20.5% (vs. 25.2% by mid-December). I would keep the trade long BMW prefs, short common shares on, with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR) 's premium seems to vary within a range, which is probably liquidity related. It is 29.4% (vs. 29.9% by mid-December and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long ords/short prefs, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 11.8%. Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount is 10.7% (vs. 8% by mid-December and 4.9% discount in November). It has moved sideways since mid-September. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords. Plus it can be executed in size. The discount tightened since the March 2020 selloff and has widened again over the last months, for no obvious reason.


Buzzi Unicem (BZU IM): from 18 January 2021 the mandatory conversion of the savings shares into ordinary shares will be effective and therefore, from that date only ordinary shares are traded;






Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 5.9%. It is currently 0.64%.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.7% premium to ordinary shares (vs. a 9.5% premium by mid-January). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.





Grifols SA (GRF SM) B shares are trading at a 39.7% discount (vs. 34.1% by mid-January, 35.2% by mid-December, 38.5% in November and 41.9% by mid-September), there is a trend towards the tightening of this discount since mid-March. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 14.1% (vs. 12.9% by mid-January, 13.1% by mid-December and 12.7% by mid-November). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.

The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has widened to 11%. I would set up the trade Long B shares/short A shares with a 3% discount target.

Other than Industrivärden, the other major shareholder of SSAB AB (SSABA SS) is Solidium Oy (State of Finland). The reversal on the discount over the last 15 months has no obvious explanation. The discount has tightened to 9.1% (vs. 13% by mid-January, 12.2% by mid-December and 8% by mid-November). I would short B shares and go long A shares.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 2.7%. Considering past-performance, it seems an interesting level to set up long non-voting/short bearer shares. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.


The discount in Schroders PLC (SDR LN) reflects Schroders' way of corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount is now 34.1% (vs 34.9% by mid-December and 33.4% by mid-November), but it reached 42% on 19 May. I would set up long non-voting/short voting shares.
Over 2020, Schroders cancelled 9 mn voting shares, but only 100k non-voting. Considering the discount, it would create value cancelling non-voting stock, but the company did the opposite.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: February Report

<div>
<p><strong>Discounts to NAV for our selected European holdcos have widened in January</strong>, in line with equity markets drifting lower. The general recommendation is to wait for discounts to widen before setting up positions.</p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>The current premium of <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> vs.  <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">Bhp Billiton (BLT LN)</a> is <strong>20.3%</strong> (vs. 24.6% as of 31 December, and vs. 20.5% at the end of September), against a 10-year average of 14.5%.</li>
<li>
<a href="https://www.smartkarma.com/entities/corp-financiera-alba-sa" target="_blank" data-smartkarma-citation="entities:21245:1" rel="noopener">Corp Financiera Alba Sa (ALB SM)</a> is trading at a <strong>47.4% discount to NAV</strong> (up from 44.3% by end of December, but down from 49% at the end of October).</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/groupe-bruxelles-lambert-sa" target="_blank" data-smartkarma-citation="entities:21332:1" rel="noopener">Groupe Bruxelles Lambert Sa (GBLB BB)</a> is 33.2% (vs. 32.9% at the end of December).</li>
<li>The discount in <a href="https://www.smartkarma.com/entities/heineken-holding-nv" target="_blank" data-smartkarma-citation="entities:21118:1" rel="noopener">Heineken Holding NV (HEIO NA)</a> relative to <a href="https://www.smartkarma.com/entities/heineken-nv" target="_blank" data-smartkarma-citation="entities:21117:1" rel="noopener">Heineken NV (HEIA NA)</a>is 15.5% (12.3% as of 30 November) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years.</li>
<li>
<a href="https://www.smartkarma.com/entities/industrivarden-ab" target="_blank" data-smartkarma-citation="entities:22395:1" rel="noopener">Industrivarden AB (INDUA SS)</a> C shares are are trading at a 7.8% discount to NAV (vs. 4.2% at the end of December and 6.7% at the end of November).</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/investor-ab" target="_blank" data-smartkarma-citation="entities:22397:1" rel="noopener">Investor AB (INVEB SS)</a> B shares has widened to 15.9% (vs. 13.5% as of 30 December).</li>
<li>
<a href="https://www.smartkarma.com/entities/kinnevik-ab" target="_blank" data-smartkarma-citation="entities:22407:1" rel="noopener">Investment Ab Kinnevik (KINVB SS)</a> B shares are trading at a 4.2% discount to NAV (vs a 5.2% premium as of 31 December).</li>
<li>
<a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-98de2c77-62f2-46da-88eb-af269fb53d42" target="_blank" data-smartkarma-citation="entities:28510:1" rel="noopener">Royal Dutch Shell PLC (RDS/B US)</a> “B” shares trade in New York at a discount of approximately 4.1% with respect to the <a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-adr" target="_blank" data-smartkarma-citation="entities:792:1" rel="noopener">Royal Dutch Shell Plc (Adr) (RDS/A US)</a> “A” shares.</li>
</ul>
</div>


Discounts to NAV for our selected European holdcos have widened in January, in line with equity markets drifting lower. The general recommendation is to wait for discounts to widen before setting up positions.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) is 20.3% (vs. 24.6% as of 31 December, and vs. 20.5% at the end of September), against a 10-year average of 14.5%.

Corp Financiera Alba Sa (ALB SM) is trading at a 47.4% discount to NAV (up from 44.3% by end of December, but down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 33.2% (vs. 32.9% at the end of December).
The discount in Heineken Holding NV (HEIO NA) relative to Heineken NV (HEIA NA)is 15.5% (12.3% as of 30 November) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years.

Industrivarden AB (INDUA SS) C shares are are trading at a 7.8% discount to NAV (vs. 4.2% at the end of December and 6.7% at the end of November).
The discount to NAV of Investor AB (INVEB SS) B shares has widened to 15.9% (vs. 13.5% as of 30 December).

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 4.2% discount to NAV (vs a 5.2% premium as of 31 December).

Royal Dutch Shell PLC (RDS/B US) “B” shares trade in New York at a discount of approximately 4.1% with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares.



Selected European Holdcos and DLCs: January Report

<p><a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> has announced a mandatory offer for <a href="https://www.smartkarma.com/entities/recipharm-ab" target="_blank" data-smartkarma-citation="entities:22463:1" rel="noopener">Recipharm AB (RECIB SS)</a>, which values the company at SEK23.6 bn (c.$2.8 bn).</p>
<ul class="">
<li>consideration is <strong>SEK 220</strong> per share, a 22.9% premium to Recipharm’s closing price on the prior trading session, subject to acceptance by more than <strong>90% of total outstanding shares </strong>(can be waived, the reason is to be able to initiate squeeze-out and delisting).</li>
<li>
<p>Implied equity value of SEK 22,209.94 mn. Net debt assumed amounts to SEK7,907 mn.</p>
</li>
<li>
<p>The offer represents <strong>2.8x EV/Fwd Revenue</strong>,<strong> 15.9x EV/Fwd EBITDA</strong> and<strong> 24.5x P/Fwd E</strong>.</p>
</li>
</ul>
<p>Roar BidCo has secured ownership of c. <strong>25.7% of the shares</strong> and <strong>74.3% of the votes</strong> in Recipharm through Lars Backsell, chairman, and Thomas Eldered, CEO, founders and indirect shareholders of Recipharm and are participating with EQT IX in the Offer.</p>
<p>The pharmaceutical industry is very competitive and continuously evolving and CDMOs need to adapt accordingly, by investing in new technologies and developing better service offerings. Many CDMOs are operating in a highly fragmented market that is currently under­going a significant consolidation.</p>
<p>EQT expects the consolidation trend to continue as a result of customer needs and will provide funding and its industry network so that Recipharm can accelerate its inorganic growth and digitalisation investments.</p>
<p>On an EV/Fwd EBITDA basis, the mean across comparables is 15.9x and the implied equity value is SEK 218.45 vs an offer price of SEK 220, therefore the offer seems fair, but not overly generous considering the increase in EPS in the coming years.</p>
<p style="text-align: justify;">Recipharm closed at SEK 218.2 (4.72 mn shares traded), a <strong>0.8% gross spread</strong> to the offer price, c.2.5% annualised assuming completion by mid-April, which frankly is not massive. On the other hand, this reflects that the deal is highly likely to complete on the announced terms. Interloper risk is virtually nil given the voting power of the two main shareholders.</p>
<p style="text-align: justify;">I would wait for any share price weakness to set up a position.</p>

EQT AB (EQT SS) has announced a mandatory offer for Recipharm AB (RECIB SS), which values the company at SEK23.6 bn (c.$2.8 bn).

consideration is SEK 220 per share, a 22.9% premium to Recipharm’s closing price on the prior trading session, subject to acceptance by more than 90% of total outstanding shares (can be waived, the reason is to be able to initiate squeeze-out and delisting).

Implied equity value of SEK 22,209.94 mn. Net debt assumed amounts to SEK7,907 mn.


The offer represents 2.8x EV/Fwd Revenue, 15.9x EV/Fwd EBITDA and 24.5x P/Fwd E.


Roar BidCo has secured ownership of c. 25.7% of the shares and 74.3% of the votes in Recipharm through Lars Backsell, chairman, and Thomas Eldered, CEO, founders and indirect shareholders of Recipharm and are participating with EQT IX in the Offer.
The pharmaceutical industry is very competitive and continuously evolving and CDMOs need to adapt accordingly, by investing in new technologies and developing better service offerings. Many CDMOs are operating in a highly fragmented market that is currently under­going a significant consolidation.
EQT expects the consolidation trend to continue as a result of customer needs and will provide funding and its industry network so that Recipharm can accelerate its inorganic growth and digitalisation investments.
On an EV/Fwd EBITDA basis, the mean across comparables is 15.9x and the implied equity value is SEK 218.45 vs an offer price of SEK 220, therefore the offer seems fair, but not overly generous considering the increase in EPS in the coming years.
Recipharm closed at SEK 218.2 (4.72 mn shares traded), a 0.8% gross spread to the offer price, c.2.5% annualised assuming completion by mid-April, which frankly is not massive. On the other hand, this reflects that the deal is highly likely to complete on the announced terms. Interloper risk is virtually nil given the voting power of the two main shareholders.
I would wait for any share price weakness to set up a position.

Sweden

Investor AB is an industrial holding company. The Company owns significant shareholdings in major public multinational companies and conducts private equity activities in Europe, North America, and Asia. Investor takes an active ownership role in many of the companies it owns.

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Investor (INVEA SS)

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