Liquid Universe of European Ordinary and Preferred Shares: November Report

Liquid Universe of European Ordinary and Preferred Shares: December Report

Liquid Universe of European Ordinary and Preferred Shares: January '22 Report

Liquid Universe of European Ordinary and Preferred Shares: August Report

Liquid Universe of European Ordinary and Preferred Shares: September Report

Grifols/Biotest: Preference Shareholders at Disadvantage & Grifols's Leverage

European Event-driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

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<h3>Trends</h3>
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<p>Spreads have generally tightened since mid-September, in line with market gains.</p>
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<h3>Interesting situations and trades</h3>
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<div>
<ul style="list-style-type: disc;">
<li>The discount of the preferred shares of <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> has tightened to 17.6% (vs. 18.5% by mid-September), in line with the recent market gains. Maintain long BMW prefs/short common shares on, with a target of a 12% discount.</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 preference shares premium seems to vary within a range, which is probably liquidity related. It has widened to 29.4% (vs. 28.5% by mid-September). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote.</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. Moreover, the yield on the ordinary shares is higher. Maintain the trade long common/short prefs on, 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> exhibits a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened to 7.5% (vs. 7.9% by mid-September). Maintain short prefs/long ords, with a 5% 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 has tightened to 27.7% (vs. 30.1% by mid-September, it reached a recent maximum of 33.4% on 12 August). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, ordinary shares are also liquid. Long prefs/short ords and  monitor the position.</p>
</li>
</ul>
</div>
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<ul style="list-style-type: disc;">
<li>The premium of <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 vs. ordinary shares tightened to 2.9% (vs. 5.8% by mid-September). The market may have given up on a conversion of savings into ords à la Buzzi Unicem, or à la Danieli, which still has to take place. A conversion makes financial sense as it would save the dividend advantage for the savings. But that would dilute the voting power of Vivendi (23.943% of the votes, the second largest shareholder is Cassa Depositi e Prestiti with 5.031%). 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 40% discount vs. the ordinary shares (vs. a 41.7% discount by mid-September). Ordinary shares are unloved (and arguably cheap) as of lately and even more so are B shares now that the dividend will be discounted until recent <a href="https://www.smartkarma.com/entities/biotest-ag" target="_blank" data-smartkarma-citation="entities:21589:1" rel="noopener">Biotest AG (BIO GR)</a> deal-related leverage is contained. There are some issues around Grifols leverage and some creative solutions to keeping it at bay. 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. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. Although the discount is massive, the lack of dividend makes the B shares relatively less attractive vs. the A shares.</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 has tightened to 15% (vs. 15.2% by mid-September) and seems to be on a widening trend. Investor AB, a stable shareholder, has 22.3% of the votes.</p>
</li>
<li>
<p>On 10 May, Industrivärden divested its entire holding in <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a>. Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). There is a new large shareholder: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has tightened to 12.9% (vs. 14.3% by mid-September). While there are changes in the share capital, which involve purchases of A shares, I recommend staying clear from this trade.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<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 tightened to 9% (vs. 12.2% by mid-September). Shareholding seems very stable, so there is no reason for the voting shares to become dearer vs. the non-voting stock. Softbank has quietly purchased nearly $5 bn of non-voting shares, according to the FT. It may be time to jump on the trend and go long bearer shares/short non-voting equity.</p>
</li>
<li>
<p>The premium of <a href="https://www.smartkarma.com/entities/schindler-holding-ag-a63e9700-2075-4f83-952a-d3e71b14974b" target="_blank" data-smartkarma-citation="entities:25024:1" rel="noopener">Schindler Holding AG (SCHN SW)</a> participation certificates to Schindler Holding shares has tightened to 3.4% (vs. 4.5% by mid-September and 5.3% by mid-August).</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> non-voting stock vs. voting one reflects Schroders' corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount has tightened to 30.5% (vs. 32.6% by mid-September). It seems time to leave this one quiet for a while.</p>
</li>
</ul>
</div>
<div>
<p>Please read on for table and charts.</p>
</div>



Trends



Spreads have generally tightened since mid-September, in line with market gains.



Interesting situations and trades




The discount of the preferred shares of Bayerische Motoren Werke AG (BMW GR) has tightened to 17.6% (vs. 18.5% by mid-September), in line with the recent market gains. Maintain long BMW prefs/short common shares on, with a target of a 12% discount.

Fuchs Petrolub SE (FPE GR) 's preference shares premium seems to vary within a range, which is probably liquidity related. It has widened to 29.4% (vs. 28.5% by mid-September). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote.
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. Moreover, the yield on the ordinary shares is higher. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) exhibits a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened to 7.5% (vs. 7.9% by mid-September). Maintain short prefs/long ords, with a 5% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has tightened to 27.7% (vs. 30.1% by mid-September, it reached a recent maximum of 33.4% on 12 August). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, ordinary shares are also liquid. Long prefs/short ords and  monitor the position.





The premium of Telecom Italia Sp A (TIT IM) savings shares vs. ordinary shares tightened to 2.9% (vs. 5.8% by mid-September). The market may have given up on a conversion of savings into ords à la Buzzi Unicem, or à la Danieli, which still has to take place. A conversion makes financial sense as it would save the dividend advantage for the savings. But that would dilute the voting power of Vivendi (23.943% of the votes, the second largest shareholder is Cassa Depositi e Prestiti with 5.031%). Short savings/long ords.





Grifols SA (GRF SM) B shares are trading at a 40% discount vs. the ordinary shares (vs. a 41.7% discount by mid-September). Ordinary shares are unloved (and arguably cheap) as of lately and even more so are B shares now that the dividend will be discounted until recent Biotest AG (BIO GR) deal-related leverage is contained. There are some issues around Grifols leverage and some creative solutions to keeping it at bay. 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. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. Although the discount is massive, the lack of dividend makes the B shares relatively less attractive vs. the A shares.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares has tightened to 15% (vs. 15.2% by mid-September) and seems to be on a widening trend. Investor AB, a stable shareholder, has 22.3% of the votes.


On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS). Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). There is a new large shareholder: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has tightened to 12.9% (vs. 14.3% by mid-September). While there are changes in the share capital, which involve purchases of A shares, I recommend staying clear from this trade.






The discount of non-voting Roche Holding AG (ROG SW) shares has tightened to 9% (vs. 12.2% by mid-September). Shareholding seems very stable, so there is no reason for the voting shares to become dearer vs. the non-voting stock. Softbank has quietly purchased nearly $5 bn of non-voting shares, according to the FT. It may be time to jump on the trend and go long bearer shares/short non-voting equity.


The premium of Schindler Holding AG (SCHN SW) participation certificates to Schindler Holding shares has tightened to 3.4% (vs. 4.5% by mid-September and 5.3% by mid-August).


The discount in Schroders PLC (SDR LN) non-voting stock vs. voting one reflects Schroders' corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount has tightened to 30.5% (vs. 32.6% by mid-September). It seems time to leave this one quiet for a while.




Please read on for table and charts.


Danieli & C. Officine Meccaniche (DAN IM)

Liquid Universe of European Ordinary and Preferred Shares: October Report