Pargesa Holdings SA (OTCPK:PRGAF) has been a darling of value funds like Third Avenue (TAVFX) and First Eagle (SGENX). At a sum of the parts valuation, it trades at a discount to net asset value (NAV) of around 30% according to Third Avenue. And its parts are well known European operators.
Winston Churchill once said of Russia that it was like a riddle rapped inside of a mystery inside an enigma. The same could be said of Pargesa. The company owns a 50% stake in Belgian holding company Groupe Bruxelles Lambert SA (OTCPK:GBLBF) which in turn owns seven publicly traded companies in Europe. These include: Total (TOT), Lafarge (GM:LFGEF), Imerys (GM:IMYSF), SGS (GM:SGSOF), Pernod Ricard (OTCPK:PDRDF), GDF Suez (OTCPK:GDFZY), and Suez Environment (OTCPK:SZEVY).
Why the discount? Worry of the European economy is one issue. Control is another. There is no chance of Pargessa being dissolved and a special dividend getting paid out. No activist investors will be circling this one.
Paul Desmarais, one of the principal share holders, passed October 8. It will be interesting to see what becomes of his share holdings. No word yet in the news.
Pargesa values these holdings as if it is a direct share holder. According to a March report, valuing these this way would give a total of 7.9 billion Swiss francs. This would equal a per share NAV of 93.5 and share price of 64.5 (again, March price). According to the company's math, it trades at a discount to NAV of 31%. This is about the current number that Third Avenue came up with for its recent discount.
So the question is do you want to hold the underlying stocks. Over a quarter of its holdings is in energy giant Total SA. A recent article from Seeking Alpha can be found here. Pernod Ricard is the maker of well known brands such as Absolute Vodka, Chivas Regal, Kahlua, and Beefeater to name just a few. Pernod has shown some great growth. The other names in Pargesa's are big in infrastructure and building. Think Suez Canal and Lafarge Cement. Management does sell positions from time to time but for the most part are long term holders.
The company provides a chart that shows historical discount to NAV since 1999. At this point in time, it is trading at a higher discount. So does this holding company thing work? Since 1991, Pargesa has outperformed France's Cac 40 (^FCHI) by quite a bit. According to a company report, as of April, Pargesa has compounded at 9.2% and the Cac has grown by 5.3%. That means $1 in Pargesa has grown to $7 and the Cac has only grown to $3.
Of course the risk is that the underlying investments drop in value and Pargesa's stock also follows suit. Another risk is that the Euro and Swiss franc crater compared to the US dollar.
If you can throw caution to the wind and not worry about European markets and currency fluctuation, Pargesa might be a good investment. The major value funds have done quite well in holdings companies as a safer way to invest in financial markets.