Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Back on 29th June 2001, BHP and Billiton merged by way of a dual-headed structure.  Shareholders continued to hold their pre-merger shares in BHP or Billiton, but with the same economic interest in the entire group, and dividends and capital distributions were equalised in accordance with a 1:1 equalisation ratio.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/287/original/image?1629186949" class="editor-image img-responsive" data-smartkarma-image-id="224287"></figure>
</div>
<div>
<ul style="list-style-type: disc;">
<li>This unique structure has faced investor criticism over the years.  Most recently, on the 10 April 2017,  <a href="http://www.elliottadvisors.hk/" target="_blank" rel="noopener">Elliott Advisors (HK) Limited</a> issued a number of proposals via an <a href="https://fixingbhp.com/wp-content/uploads/2017/07/BHP-Letter-to-the-Directors.pdf" target="_blank" rel="noopener">open letter</a> to the board of <a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Billiton Limited (BHP AU)</a>. This was discussed in greater detail in <em><a href="https://skr.ma/RYqo" target="_blank" rel="noopener">Elliott's Proposals Test BHP's Metal</a></em>.</li>
<li>Elliott argued the DLC structure was obsolete, hinders the ability of BHP to reach its full potential, and creates a long-term trading mismatch between Limited and PLC shares. </li>
<li>A key tenet from the Elliott side was providing greater access to BHP’s franking credits. Elliott proposed under the unified BHP, attaching franking credits to any dividends it makes, enabling all shareholders to participate via fungibility. A similar argument was made for buybacks.</li>
<li>BHP <a href="http://www.bhpbilliton.com/-/media/documents/media/reports-and-presentations/2017/170412_bhpbillitonreviewofelliottproposalpresentation.pdf" target="_blank" rel="noopener">argued</a> the proposal would result in a wastage of franking credits, that unification is not required for off-market buybacks - indeed it would make off-market buybacks less attractive.</li>
<li>Elliott submitted a second letter on the <a href="https://fixingbhp.com/wp-content/uploads/2017/07/BHP-Press-Release-inc.-Letter-May-2017.pdf" target="_blank" rel="noopener">16 May 2017</a>, reiterating its proposals, and notably singling out BHP's "flawed" unification costs. This letter went unanswered by BHP.</li>
<li>A third letter was issued on the <a href="https://live-fixing-bhp.pantheonsite.io/wp-content/uploads/2017/07/Letter-to-Chairman-05.02.18.pdf" target="_blank" rel="noopener">5 February 2018</a>. Using analysis from FTI Consulting, it considered the unification would deliver in excess of US$22bn, with unification costs of US$391mn - against the US$1.3bn estimate from BHP.</li>
<li>Elliott also noted that following the 2015 demerger of South32, Plc no longer generates sufficient income to fund dividends. This resulted in the DLC Dividend share proposal, which was designed to support the matching-dividend policy.  When BHP merged with Billiton, one of the fundamental requirements of the structure was that cash dividends would be equal for both the British and Australian lines, under the matching-dividend policy.</li>
<li>Elliott has not issued a follow-up letter in the past three and a half years - there is a website called <a href="https://fixingbhp.com/" target="_blank" rel="noopener">Fixing BHP</a>. No doubt Elliott were somewhat mollified by BHP selling its US shale oil &amp; gas assets to BP in 2018 - a proposal advocated by Elliott - then announcing on <a href="https://www.asx.com.au/asxpdf/20181101/pdf/43zxbpdqnm2ltl.pdf" target="_blank" rel="noopener">1 November 2018</a> a US$10.4bn (A$14.7bn) return to shareholders through a special dividend (fully franked) and <a href="https://www.asx.com.au/asxpdf/20181108/pdf/440368k1w0qd6n.pdf" target="_blank" rel="noopener">share buyback</a>. </li>
</ul>
</div>
<div>
<h3>But There ARE Fundamental Reasons for BHP’s Premium</h3>
</div>
<div>
<ul>
<li>There exist strong tax arguments supporting a premium in the Australian line relating to dividends and off-market share buyback. The current premium (pre-announcement) is 19.4% (reflected in the ADRs) against a long-term average of 12.5%. </li>
</ul>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/291/original/image_62648945021629187712421.png?1629187713" class="editor-image img-responsive" data-smartkarma-image-id="224291"></figure>
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<div style="text-align: left;" class="content-caption">Source: CapIQ</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<strong>42% Dividend Tax Advantage</strong>. Australian investors have a highly tax-advantaged position when investing in the Australian line which provides them with a material advantage over other investors.
<ul style="list-style-type: circle;">
<li>Australian dividends are generally paid with a franking credit attached which can be used to offset the income tax liabilities of an Australian recipient.</li>
<li>The franking credit is equivalent to the corporate tax rate (currently 30%) which has been paid. In general, this means that a dollar received by a domestic investor in the Australian line is worth 42% (1/(1-30%)) more to them than an equivalent holding of the London line.</li>
</ul>
</li>
</ul>
</div>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/224/302/original/image_96891655851629189775822.png?1629189776" class="editor-image img-responsive" data-smartkarma-image-id="224302"></figure>
<p>Source: <a href="https://live-fixing-bhp.pantheonsite.io/wp-content/uploads/2018/03/FTI-Value-Release-from-Unification-at-BHP-Final.pdf" target="_blank" rel="noopener">Elliott</a> </p>
</div>
<div>
<ul>
<li>Theoretically, there is no reason for the BHP/BLT spread to stop widening until it reaches the level of 42% where the most tax-advantaged investors exhaust the excess return - provided sufficient corporate tax has been paid in Australia to cover the franking element on the dividend.</li>
<li>
<strong>The Buyback tax advantage</strong>.  The Australian franking credit system also confers a capital gains tax benefit when BHP carries out off-market tender offers. This is because for tax purposes the transaction is partially treated as a dividend which means some recipients may receive more than the market value of their holding when the franking credits are taken into account.
<ul>
<li>For this reason, BHP can initiate tender offers in Australia struck at large discounts to the market price. In the last tender offer in <a href="https://www.asx.com.au/asxpdf/20181108/pdf/440368k1w0qd6n.pdf" target="_blank" rel="noopener">2018</a>, the discount was capped at the legal maximum level (by the ATO) of 14%.</li>
<li>When the spread blows out to such a level (over 16% premium) as it has now, it compromises the ability to announce further buybacks in Australia as the spread exceeds the maximum legal tender discount level (of 14%). Meaning any Australian buyback would have to be at a premium to the London price. Therefore future buyback proposals will be forced to focus on the London line, in which the franking credits cannot be used.</li>
</ul>
</li>
</ul>
<h3>Unilever's DLC Unification</h3>
<ul>
<li>Back on the 11 June 2020, <a href="https://www.smartkarma.com/entities/unilever-nv" target="_blank" data-smartkarma-citation="entities:21141:1" rel="noopener">Unilever NV (UNA NA)</a> / <a href="https://www.smartkarma.com/entities/unilever-plc" target="_blank" data-smartkarma-citation="entities:22197:1" rel="noopener">Unilever PLC (ULVR LN)</a> <a href="https://www.unilever.com/news/press-releases/2020/unification-of-unilever-legal-structure.html" target="_blank" rel="noopener">announced</a> it would (finally) unify its dual Anglo-Dutch corporate structure under a single parent company based in London, in an about-face to the 2018 unification attempt with a Dutch-headquartered holding company. This deal was discussed in <em><a href="https://skr.ma/PyquN" target="_blank" rel="noopener">Unilever: When Two Heads Are Not Better Than One. What About BHP's DLC?</a></em>.</li>
<li>This unification again renewed interest in BHP's structure.</li>
</ul>
<h3>The New News</h3>
<ul>
<li>BHP has now <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02407981-3A572982?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">announced</a> the unification of its corporate structure to make BHP "<em>simpler and more agile</em>", thus removing the complexity of managing the DLC.</li>
<li>BHP considers now is the appropriate time to unify as there has been a significant reduction in cost indications - US$400-500mn compared to ~US$1.6-1.7bn previously.</li>
<li>More importantly, the unification means no change to the dividend policy and the ability of the company to frank dividends.</li>
<li>BHP Plc shareholders would be entitled to receive one Ltd share for each Plc share they own.</li>
<li>As night follows day, expect the spread between the two lines to narrow.</li>
</ul>
<p>More below the fold.</p>
<p></p>
<p></p>
</div>

Back on 29th June 2001, BHP and Billiton merged by way of a dual-headed structure.  Shareholders continued to hold their pre-merger shares in BHP or Billiton, but with the same economic interest in the entire group, and dividends and capital distributions were equalised in accordance with a 1:1 equalisation ratio.





This unique structure has faced investor criticism over the years.  Most recently, on the 10 April 2017,  Elliott Advisors (HK) Limited issued a number of proposals via an open letter to the board of BHP Billiton Limited (BHP AU). This was discussed in greater detail in Elliott's Proposals Test BHP's Metal.
Elliott argued the DLC structure was obsolete, hinders the ability of BHP to reach its full potential, and creates a long-term trading mismatch between Limited and PLC shares. 
A key tenet from the Elliott side was providing greater access to BHP’s franking credits. Elliott proposed under the unified BHP, attaching franking credits to any dividends it makes, enabling all shareholders to participate via fungibility. A similar argument was made for buybacks.
BHP argued the proposal would result in a wastage of franking credits, that unification is not required for off-market buybacks - indeed it would make off-market buybacks less attractive.
Elliott submitted a second letter on the 16 May 2017, reiterating its proposals, and notably singling out BHP's "flawed" unification costs. This letter went unanswered by BHP.
A third letter was issued on the 5 February 2018. Using analysis from FTI Consulting, it considered the unification would deliver in excess of US$22bn, with unification costs of US$391mn - against the US$1.3bn estimate from BHP.
Elliott also noted that following the 2015 demerger of South32, Plc no longer generates sufficient income to fund dividends. This resulted in the DLC Dividend share proposal, which was designed to support the matching-dividend policy.  When BHP merged with Billiton, one of the fundamental requirements of the structure was that cash dividends would be equal for both the British and Australian lines, under the matching-dividend policy.
Elliott has not issued a follow-up letter in the past three and a half years - there is a website called Fixing BHP. No doubt Elliott were somewhat mollified by BHP selling its US shale oil &amp; gas assets to BP in 2018 - a proposal advocated by Elliott - then announcing on 1 November 2018 a US$10.4bn (A$14.7bn) return to shareholders through a special dividend (fully franked) and share buyback. 



But There ARE Fundamental Reasons for BHP’s Premium



There exist strong tax arguments supporting a premium in the Australian line relating to dividends and off-market share buyback. The current premium (pre-announcement) is 19.4% (reflected in the ADRs) against a long-term average of 12.5%. 






Source: CapIQ




42% Dividend Tax Advantage. Australian investors have a highly tax-advantaged position when investing in the Australian line which provides them with a material advantage over other investors.

Australian dividends are generally paid with a franking credit attached which can be used to offset the income tax liabilities of an Australian recipient.
The franking credit is equivalent to the corporate tax rate (currently 30%) which has been paid. In general, this means that a dollar received by a domestic investor in the Australian line is worth 42% (1/(1-30%)) more to them than an equivalent holding of the London line.






Source: Elliott 



Theoretically, there is no reason for the BHP/BLT spread to stop widening until it reaches the level of 42% where the most tax-advantaged investors exhaust the excess return - provided sufficient corporate tax has been paid in Australia to cover the franking element on the dividend.

The Buyback tax advantage.  The Australian franking credit system also confers a capital gains tax benefit when BHP carries out off-market tender offers. This is because for tax purposes the transaction is partially treated as a dividend which means some recipients may receive more than the market value of their holding when the franking credits are taken into account.

For this reason, BHP can initiate tender offers in Australia struck at large discounts to the market price. In the last tender offer in 2018, the discount was capped at the legal maximum level (by the ATO) of 14%.
When the spread blows out to such a level (over 16% premium) as it has now, it compromises the ability to announce further buybacks in Australia as the spread exceeds the maximum legal tender discount level (of 14%). Meaning any Australian buyback would have to be at a premium to the London price. Therefore future buyback proposals will be forced to focus on the London line, in which the franking credits cannot be used.



Unilever's DLC Unification

Back on the 11 June 2020, Unilever NV (UNA NA) / Unilever PLC (ULVR LN) announced it would (finally) unify its dual Anglo-Dutch corporate structure under a single parent company based in London, in an about-face to the 2018 unification attempt with a Dutch-headquartered holding company. This deal was discussed in Unilever: When Two Heads Are Not Better Than One. What About BHP's DLC?.
This unification again renewed interest in BHP's structure.

The New News

BHP has now announced the unification of its corporate structure to make BHP "simpler and more agile", thus removing the complexity of managing the DLC.
BHP considers now is the appropriate time to unify as there has been a significant reduction in cost indications - US$400-500mn compared to ~US$1.6-1.7bn previously.
More importantly, the unification means no change to the dividend policy and the ability of the company to frank dividends.
BHP Plc shareholders would be entitled to receive one Ltd share for each Plc share they own.
As night follows day, expect the spread between the two lines to narrow.

More below the fold.




ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> announced its 1Q2021 results which look like a blowout set of numbers with +147% growth in total GAAP revenues with +117% growth in digital bookings for digital entertainment and +250% YoY growth in e-commerce GAAP revenues.</p>
<p>Gross Profit increased a staggering +212% YoY to US$645.4m in 1Q2021 and the company booked a positive EBITDA of US$88.1m versus a (US$69.9m) loss in 1Q2020.</p>
<p>The gross profit margin increased from 28% in 1Q2020 to 36% in 1Q2021, which is a testament to the fact that the company is moving along the path to profitability. Digital entertainment saw higher margins, while-commerce saw falling EBITDA loss per order.</p>
<p>In Digital Entertainment (DE) division continues to see strong growth in its user base with +61% YoY growth in quarterly active users (QAU) to 648.6m but more importantly quarterly paying users saw growth of +12.3% YoY to 79.8m signifying a higher level of monetization on its self-developed game <em>Free Fire.</em></p>
<p>The company continues to successfully expand its gaming business to new geographies, with India being the latest growth engine and players are spending more time on Free Fire and spending more. It continues to add new content and characters to increase the appeal and stickiness of <em>Free Fire</em>. It is also seeing huge response in the eSports arena for <em>Free Fire.</em></p>
<p>Shopee ranked number one in the shopping category by monthly active users and time spent in app in 1Q2021 for both South East Asia and Taiwan, according to App Annie. E-commerce continues to show supercharged growth and especially in the core market of Indonesia.</p>
<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>'s move into digital payments in South -East Asia under SeaMoney and ShopeePay in Indonesia continues to see strong momentum.  The mobile wallet total payment volume saw total payment volume triple in 1Q2021 to US$3.4bn. </p>
<p>The company is also expanding the offline use-cases for ShopeePay most recently extending use to Indomaret in Indonesia, the largest mini-market operator in the country.</p>
<div class="content-remarks"></div>
<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>'s move into food delivery through ShopeeFood and evidence suggests that it has already had a strong reception to its launch in Jakarta, with growth similar to that in other categories.</p>
<section class="figure">
<p>This latest set of results provides further proof of the success of the <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> growth model which generates huge EBITDA from gaming and reinvests that money into growing the company's e-commerce and digital finance businesses, whilst maintaining the investment momentum into the gaming cash cow, buy pushing out into new geographies such as India.</p>
</section>
<section class="figure"></section>
<section class="figure"></section>
<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> continues to standout as the best way to play the explosive growth in e-commerce in South East Asia, funded by the popularity of its self developed game <em>Free Fire </em>and its gaming business, together with its move into digital payments a third leg to future growth.</p>
<section class="figure"></section>
<section class="figure"><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> valuations are higher than its listed peers on 13x and 9x EV/Sales for FY21E and FY22E respectively but it is growing at more than twice the pace in terms of sales to justify this. The market is also paying a premium for its unique financing plus its market leadership and strong track record on execution, with 11 consecutive quarters of triple-digit growth.</section>
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<p></p>
</section>
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<p></p>
</div>
<h3></h3>
<div>
<div>
<div class="content-remarks">
<p></p>
</div>
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</section>

Sea Ltd (SE US) announced its 1Q2021 results which look like a blowout set of numbers with +147% growth in total GAAP revenues with +117% growth in digital bookings for digital entertainment and +250% YoY growth in e-commerce GAAP revenues.
Gross Profit increased a staggering +212% YoY to US$645.4m in 1Q2021 and the company booked a positive EBITDA of US$88.1m versus a (US$69.9m) loss in 1Q2020.
The gross profit margin increased from 28% in 1Q2020 to 36% in 1Q2021, which is a testament to the fact that the company is moving along the path to profitability. Digital entertainment saw higher margins, while-commerce saw falling EBITDA loss per order.
In Digital Entertainment (DE) division continues to see strong growth in its user base with +61% YoY growth in quarterly active users (QAU) to 648.6m but more importantly quarterly paying users saw growth of +12.3% YoY to 79.8m signifying a higher level of monetization on its self-developed game Free Fire.
The company continues to successfully expand its gaming business to new geographies, with India being the latest growth engine and players are spending more time on Free Fire and spending more. It continues to add new content and characters to increase the appeal and stickiness of Free Fire. It is also seeing huge response in the eSports arena for Free Fire.
Shopee ranked number one in the shopping category by monthly active users and time spent in app in 1Q2021 for both South East Asia and Taiwan, according to App Annie. E-commerce continues to show supercharged growth and especially in the core market of Indonesia.
Sea Ltd (SE US)'s move into digital payments in South -East Asia under SeaMoney and ShopeePay in Indonesia continues to see strong momentum.  The mobile wallet total payment volume saw total payment volume triple in 1Q2021 to US$3.4bn. 
The company is also expanding the offline use-cases for ShopeePay most recently extending use to Indomaret in Indonesia, the largest mini-market operator in the country.

Sea Ltd (SE US)'s move into food delivery through ShopeeFood and evidence suggests that it has already had a strong reception to its launch in Jakarta, with growth similar to that in other categories.

This latest set of results provides further proof of the success of the Sea Ltd (SE US) growth model which generates huge EBITDA from gaming and reinvests that money into growing the company's e-commerce and digital finance businesses, whilst maintaining the investment momentum into the gaming cash cow, buy pushing out into new geographies such as India.



Sea Ltd (SE US) continues to standout as the best way to play the explosive growth in e-commerce in South East Asia, funded by the popularity of its self developed game Free Fire and its gaming business, together with its move into digital payments a third leg to future growth.

Sea Ltd (SE US) valuations are higher than its listed peers on 13x and 9x EV/Sales for FY21E and FY22E respectively but it is growing at more than twice the pace in terms of sales to justify this. The market is also paying a premium for its unique financing plus its market leadership and strong track record on execution, with 11 consecutive quarters of triple-digit growth.

















European Event-Driven Analyst

Jesus Rodriguez Aguilar

<div>
<p>2021 has been a good year to put on trades betting on discount tightening on Swedish holdcos, especially since May, and for Unilever. It has been generally mixed for other holdcos followed in these reports.</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 24.6% (vs. 20.5% at the end of September), against a 10-year average of 14.2%.</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 44.3% discount to NAV (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 32.9%.</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 trading at a 4.2% discount to NAV vs. 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 tightened to 13.5% (vs. 19% of 30 October) in line with the vaccine driven market rally.</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 5.4% premium to NAV (vs a discount of 8.3% as of 30 September).</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>


2021 has been a good year to put on trades betting on discount tightening on Swedish holdcos, especially since May, and for Unilever. It has been generally mixed for other holdcos followed in these reports.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN)  is 24.6% (vs. 20.5% at the end of September), against a 10-year average of 14.2%.

Corp Financiera Alba Sa (ALB SM) is trading at a 44.3% discount to NAV (down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 32.9%.
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 trading at a 4.2% discount to NAV vs. 6.7% at the end of November.
The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 13.5% (vs. 19% of 30 October) in line with the vaccine driven market rally.

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 5.4% premium to NAV (vs a discount of 8.3% as of 30 September).

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: December Report

<div>
<p>With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.</p>
</div>
<div>
<ul>
<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 23.5% (vs. 20.5% at the end of September), against a 10-year average of 14.2%.</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 43.8% discount to NAV (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 30.8%.</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 12.3% (12.9% as of 30 October) 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 trading at a 6.7% discount to NAV vs. 5.9% 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 tightened to 15% (vs. 19% of 30 October) in line with the vaccine driven market rally.</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 <strong>11.4% premium to NAV</strong> (vs a discount of 8.3% as of 30 September).</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>
<li>
<a href="https://www.smartkarma.com/entities/unilever-plc" target="_blank" data-smartkarma-citation="entities:22197:1" rel="noopener">Unilever PLC (ULVR LN)</a> said on 30 November that the company had completed the unification of its U.K. and Dutch listed entities.</li>
</ul>
</div>


With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN)  is 23.5% (vs. 20.5% at the end of September), against a 10-year average of 14.2%.

Corp Financiera Alba Sa (ALB SM) is trading at a 43.8% discount to NAV (down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 30.8%.
The discount in Heineken Holding NV (HEIO NA) relative to Heineken NV (HEIA NA) is 12.3% (12.9% as of 30 October) 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 trading at a 6.7% discount to NAV vs. 5.9% at the end of November.
The discount to NAV of Investor AB (INVEB SS) B shares has tightened to 15% (vs. 19% of 30 October) in line with the vaccine driven market rally.

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 11.4% premium to NAV (vs a discount of 8.3% as of 30 September).

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.

Unilever PLC (ULVR LN) said on 30 November that the company had completed the unification of its U.K. and Dutch listed entities.



Selected European Holdcos and DLCs: November Report

<p><a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-48d2d58c-023d-485f-887d-f13ca5f049f6" target="_blank" data-smartkarma-citation="entities:25197:1" rel="noopener">Royal Dutch Shell (RDSA NA)</a> retains <strong>two main listings</strong> in both London and Amsterdam, both are also traded at the NYSE as ADR:</p>
<ul>
<li>RDSA NA/RDSA LN, more liquid in Amsterdam
<ul>
<li>A shares, converted from Royal Dutch Petroleum, subject to Dutch withholding tax (15%).</li>
<li>Primarily listed in Amsterdam, with a secondary listing in London. </li>
</ul>
</li>
<li>RDSB NA/RDSB LN more liquid in London.
<ul>
<li>B shares, converted from Shell Transport &amp; Trading.</li>
<li>There is no Dutch withholding tax on dividends paid on Royal Dutch Shell Class B ordinary shares or Class B ADSs provided that such dividends are paid on the Dividend Access Share pursuant to the Dividend Access Mechanism.</li>
</ul>
</li>
</ul>
<p>“B” shares trade in New York at a discount of <strong>approximately 5%</strong> with respect to the “A” shares.</p>
<ul>
<li>
<p>The reason is the effect of Dutch withholding taxes and the tax arrangements, which also create complexity for share buybacks, which could make up a larger proportion of distributions in the future.</p>
</li>
</ul>
<p>Shell has acknowledged over the last years that it might like to combine both  shares, should tax treatments allow it.</p>
<ul>
<li>Oil majors are building renewables/low carbon businesses. In this scenario, they could part-list the pure play, retaining the operational synergies with the wider group but crystallising valuation, which would allow accessing new capital pools and providing investors with greater optionality.</li>
</ul>
<p>RDSB ADR is trading at a 5% discount to RDSA ADR, well above the 10-year average, which is a 2% premium to the B shares. I regard that discount level as attractive.</p>
<p>Trade: <strong>LONG RDSB ADR/SHORT RDSA ADR</strong>. Target: 2% premium.</p>

Royal Dutch Shell (RDSA NA) retains two main listings in both London and Amsterdam, both are also traded at the NYSE as ADR:

RDSA NA/RDSA LN, more liquid in Amsterdam

A shares, converted from Royal Dutch Petroleum, subject to Dutch withholding tax (15%).
Primarily listed in Amsterdam, with a secondary listing in London. 


RDSB NA/RDSB LN more liquid in London.

B shares, converted from Shell Transport &amp; Trading.
There is no Dutch withholding tax on dividends paid on Royal Dutch Shell Class B ordinary shares or Class B ADSs provided that such dividends are paid on the Dividend Access Share pursuant to the Dividend Access Mechanism.



“B” shares trade in New York at a discount of approximately 5% with respect to the “A” shares.


The reason is the effect of Dutch withholding taxes and the tax arrangements, which also create complexity for share buybacks, which could make up a larger proportion of distributions in the future.


Shell has acknowledged over the last years that it might like to combine both  shares, should tax treatments allow it.

Oil majors are building renewables/low carbon businesses. In this scenario, they could part-list the pure play, retaining the operational synergies with the wider group but crystallising valuation, which would allow accessing new capital pools and providing investors with greater optionality.

RDSB ADR is trading at a 5% discount to RDSA ADR, well above the 10-year average, which is a 2% premium to the B shares. I regard that discount level as attractive.
Trade: LONG RDSB ADR/SHORT RDSA ADR. Target: 2% premium.

Unilever on the Verge of Unification, So... What About Royal Dutch Shell?

United Kingdom

Unilever PLC manufactures branded and packaged consumer goods, including food, detergents, fragrances, home and personal care products.  Dually-listed company with UNA NA.

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Unilever PLC (ULVR LN)

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