European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Liquid Universe of European Ordinary and Preferred Shares: October Report

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: July Report

Liquid Universe of European Ordinary and Preferred Shares: June Report

Liquid Universe of European Ordinary and Preferred Shares: August Report

Event-Driven

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<h3>Trends</h3>
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<p>Spreads have generally widened during the last four weeks, in line with selling pressure on the markets.</p>
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<h3>Interesting situations and trades</h3>
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<ul style="list-style-type: disc;">
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<p>The discount of <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 (2 voting rights per share) has widened to 14.7% (from 9.8% by mid August) vs. the A shares (with 20 voting rights per share). Long B shares/short A shares on, if you can get hold of any A shares.</p>
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<p>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 widened to 18.5% (vs. 13.7% at the time of my last report in August), in line with the recent market downturns and still below a maximum of 26.1% reached in November 2020. Maintain <strong>long BMW prefs/short common</strong> shares on, with a target of a 12% discount.</p>
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<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 28.5% (from 22.3%% by mid-July). 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. <strong>Maintain</strong> the trade <strong>long common/short prefs</strong> on, with a 10% target.</p>
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<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 widened to 7.9% (vs. 7.3% by mid-August). <strong>Maintain short prefs/long ords</strong>, with a 5% premium target.</p>
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<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 shrunk to 30.1% back to March levels (it reached a 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. It seems again time to put on <strong>long prefs/short ords</strong>.</p>
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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 widened to 5.8% vs. ordinary shares (vs. 4.4% by mid-August). The market may have given up on a conversion of savings into ords à la Buzzi Unicem or Danieli. 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>
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<ul style="list-style-type: disc;">
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<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 41.7% discount (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and even more so are B shares. There are some issues around Grifols leverage and some creative solutions to keeping it contained. 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. I recommend setting up the trade <strong>long B shares (traded on Nasdaq), short A shares (traded in Madrid)</strong>. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
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<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 shrunk to 15.2% and seems to be on a <strong>widening trend</strong>. Investor AB, a stable shareholder, has 22.3% of the votes.</p>
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<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 <strong>new large shareholder</strong>: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has shrunk to 14.3% (vs 14.6% by mid-August). While there are some movements in the share capital, which involve purchases of A shares, I recommend <strong>staying clear</strong> from this trade.</p>
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<ul style="list-style-type: disc;">
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<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 12.2% (vs. 7.9% by mid-July). 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 <strong>long bearer shares/short non-voting equity</strong>.</p>
</li>
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<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 shrunk to 4.5% (vs. 5.3% by mid-August). Like Roche, Schindler also seems on a widening trend, just the opposite way.</p>
</li>
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<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 widened to 32.6% (vs. 28.4% by mid-July). It seems time to leave this one quiet for a while.</p>
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</ul>
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<p>Please read on for table and charts.</p>
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Trends



Spreads have generally widened during the last four weeks, in line with selling pressure on the markets.



Interesting situations and trades





The discount of Carlsberg A/S (CARLB DC) B shares (2 voting rights per share) has widened to 14.7% (from 9.8% by mid August) vs. the A shares (with 20 voting rights per share). Long B shares/short A shares on, if you can get hold of any A shares.


The discount of the preferred shares of Bayerische Motoren Werke AG (BMW GR) has widened to 18.5% (vs. 13.7% at the time of my last report in August), in line with the recent market downturns and still below a maximum of 26.1% reached in November 2020. 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 28.5% (from 22.3%% by mid-July). 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. Maintain the trade long common/short prefs on, 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 widened to 7.9% (vs. 7.3% by mid-August). Maintain short prefs/long ords, with a 5% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has shrunk to 30.1% back to March levels (it reached a 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. It seems again time to put on long prefs/short ords.





The premium of Telecom Italia Sp A (TIT IM) savings shares widened to 5.8% vs. ordinary shares (vs. 4.4% by mid-August). The market may have given up on a conversion of savings into ords à la Buzzi Unicem or Danieli. 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 41.7% discount (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and even more so are B shares. There are some issues around Grifols leverage and some creative solutions to keeping it contained. 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. 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 has shrunk to 15.2% 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 shrunk to 14.3% (vs 14.6% by mid-August). While there are some movements 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 widened to 12.2% (vs. 7.9% by mid-July). 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 shrunk to 4.5% (vs. 5.3% by mid-August). Like Roche, Schindler also seems on a widening trend, just the opposite way.


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 widened to 32.6% (vs. 28.4% by mid-July). It seems time to leave this one quiet for a while.




Please read on for table and charts.


Danieli & C. Officine Meccaniche (DAN IM)

Telefonaktiebolaget Lm Ericsso (ERICB SS)

Liquid Universe of European Ordinary and Preferred Shares: September Report