European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

This report contains a table that shows select European companies with non-voting shares and ordinary shares. Non-voting shares are usually referred to as preferred shares (although the denomination varies in the different countries), whilst voting shares are usually known as ordinary shares.
For each company there is a graph showing the discount (or the premium ) of one share class relative to the other, followed by a relative value trade recommendation, if I believe there are grounds for it.  
Please keep in mind that these are highly leveraged trades, and that spreads may temporarily blow up in a hypothetical, but highly possible, market shakeout.
Recommended trades:
<ul class="">
<li>
Carlsberg B shares are trading at a 10% discount vs. the A shares. A mean reversion trade could be set up, with a target of a 5% discount of the B shares vs. the A shares.</li>
<li>
BMW exhibits a trend towards a reduction of the discount of preferred shares, which has recently widened up to 24% as a result of a market selloff. Now the discount is 17% (vs. 18% in the previous report). I would recommend setting up a trade long BMW prefs, short ords with a target of a 12% discount.</li>
<li>
Fuchs's premium seems to vary within a range, and is probably liquidity related. It is 15.7% at the moment. The recommendation is setting up long ords/short prefs, with a 10% target.</li>
<li>
Henkel shows a long-term trend towards a reduction of the premium of the preferred shares. The premium is 12.6%. The trade would be short prefs., long ords. with a 10% target.</li>
<li>The erstwhile favourite share class trade, Volkswagen, shows no obvious trade opportunity at the moment, in my view. Remember that voting rights are valuable in a company like Volkswagen, so an 8% discount of the prefs. relative to the ords. seems about right.  But if you have a different (directional) view, believe that preferred shareholders are not going to get any rough treatment anytime soon, and look for size, you can set up the noughties' favourite trade, long VOW3/short VOW. It is difficult to think of any takeover attempt for Volkswagen.</li>
<li>
Danieli: a 37.5% discount of the savers seems too wide. I recommend long savers/short ordinaries. A 30% discount is not a demanding target.</li>
<li>
Telecom Italia savings, long position, for yield investors (7.5%), or long savings/short ords, as the ordinary shares are paying no dividend, an investor would obtain all the positive carry from the savings.</li>
<li>
Grifols B shares are trading at a 37.5% discount. The discount in Grifols B shares has averaged 26.7% over the last four years. 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.</li>
<li>The spread of Handelsbanken B shares has blown up to a 11.4% premium, in part related to the lower liquidity on the B shares (c. EUR 1.4 million daily average). I recommend setting up a trade short B/long A shares at this level, with a target of 2.5% discount, if you can get hold of any B shares.</li>
<li>
Schroders: I would keep an eye on the non-voting shares to set up the long non-voting/short voting shares trade during another market shakeout. It is now 18.6%, but it reached 42% on 19 March.</li>
</ul>

This report contains a table that shows select European companies with non-voting shares and ordinary shares. Non-voting shares are usually referred to as preferred shares (although the denomination varies in the different countries), whilst voting shares are usually known as ordinary shares.
For each company there is a graph showing the discount (or the premium ) of one share class relative to the other, followed by a relative value trade recommendation, if I believe there are grounds for it.  
Please keep in mind that these are highly leveraged trades, and that spreads may temporarily blow up in a hypothetical, but highly possible, market shakeout.
Recommended trades:


Carlsberg B shares are trading at a 10% discount vs. the A shares. A mean reversion trade could be set up, with a target of a 5% discount of the B shares vs. the A shares.

BMW exhibits a trend towards a reduction of the discount of preferred shares, which has recently widened up to 24% as a result of a market selloff. Now the discount is 17% (vs. 18% in the previous report). I would recommend setting up a trade long BMW prefs, short ords with a target of a 12% discount.

Fuchs's premium seems to vary within a range, and is probably liquidity related. It is 15.7% at the moment. The recommendation is setting up long ords/short prefs, with a 10% target.

Henkel shows a long-term trend towards a reduction of the premium of the preferred shares. The premium is 12.6%. The trade would be short prefs., long ords. with a 10% target.
The erstwhile favourite share class trade, Volkswagen, shows no obvious trade opportunity at the moment, in my view. Remember that voting rights are valuable in a company like Volkswagen, so an 8% discount of the prefs. relative to the ords. seems about right.  But if you have a different (directional) view, believe that preferred shareholders are not going to get any rough treatment anytime soon, and look for size, you can set up the noughties' favourite trade, long VOW3/short VOW. It is difficult to think of any takeover attempt for Volkswagen.

Danieli: a 37.5% discount of the savers seems too wide. I recommend long savers/short ordinaries. A 30% discount is not a demanding target.

Telecom Italia savings, long position, for yield investors (7.5%), or long savings/short ords, as the ordinary shares are paying no dividend, an investor would obtain all the positive carry from the savings.

Grifols B shares are trading at a 37.5% discount. The discount in Grifols B shares has averaged 26.7% over the last four years. 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 spread of Handelsbanken B shares has blown up to a 11.4% premium, in part related to the lower liquidity on the B shares (c. EUR 1.4 million daily average). I recommend setting up a trade short B/long A shares at this level, with a target of 2.5% discount, if you can get hold of any B shares.

Schroders: I would keep an eye on the non-voting shares to set up the long non-voting/short voting shares trade during another market shakeout. It is now 18.6%, but it reached 42% on 19 March.


Liquid European Ordinary and Preferred Shares: April's Recommended Trades

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

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Equity Bottom-Up

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
<h2>Hargreaves Lansdown: What does it do ?</h2>
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
<h2>Why is it in the Short portfolio ?</h2>
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/444/original/port%202.PNG?1551297124" class="editor-image img-responsive" data-smartkarma-image-id="80444"></figure>
<div class="content-caption">S&amp;P Capital IQ</div>

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
Hargreaves Lansdown: What does it do ?
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
Why is it in the Short portfolio ?
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

S&amp;P Capital IQ

Hargreaves Lansdown (HL/:LN) No Flow, No Go

United Kingdom

Schroders is a British multinational asset management company that provides a range of investment products and services across public and private markets. It offers actively managed solutions, mutual funds, segregated accounts, and wealth management services to retail, institutional, and high-net-worth clients globally. The company was founded in 1804 and is headquartered in London, England.

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Schroders (SDR LN)

Liquid European Ordinary and Preferred Shares: April's Recommended Trades

This report contains a table that shows select European companies with non-voting shares and ordinary shares. Non-voting shares are usually...

Jesus Rodriguez Aguilar

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research

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