Seeking Alpha

European Holding Companies - An Overview

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Includes: BBAGF, EXXRF, GBLBF, GBLBY, IDDTF, IDTVF, INDHF, IVSBF, IVSXF, PRGAF, WNDLF
by: Christoph Liu
Christoph Liu
Growth at reasonable price, long-term horizon, dividend
Summary

Holding companies offer diversification and often trade at a discount to their net asset value.

In some situations, they may be an interesting alternative to funds.

Specialized holdings may also offer the opportunity to gain exposure to sectors otherwise rather inaccessible to (private) investors.

In this article, I present an overview of some European examples.

Over the past months, I have written a lot about European holding companies.

There are, of course, various approaches. There are companies that invest primarily or exclusively in listed assets. Others do also own significant positions in private companies or are primarily focused on wholly owned subsidiaries. Naturally, any company tends to have geographical and/or sectoral specifications. Nonetheless, most of those companies are active shareholders and support their respective portfolio companies through board participation among other things.

For investors, holdings might be an attractive way to gain exposure to certain geographies and/or sectors in a diversified way without having to pay the cost of a fund and/or with better returns. I have therefore decided to offer readers a general overview of such companies with this article.

For the purpose of this article, I define holding companies as those that invest in a portfolio of various companies with a long-term investment horizon. For instance, a company like Aurelius Equity Opportunities SE & Co. KGaA (OTC:AULRF) would not fit that definition, as I see it as more of a private equity company (I further explained this company here). The same would also be true for a company like Eurazeo SE (OTCPK:EUZOF).

Net Asset Value - The Most Important Figure

To value a holding company, one should not primarily look to the EBIT or other measures of profitability but to the development of the net asset value. Furthermore, one should also have an eye on cash flows.

I do, however, warn against getting too excited by seemingly giant EBIT numbers (or too scared by huge losses), as those may very well be the result of the development of the stock market in one direction or another. Thus, it is necessary to have a closer look at the balance sheet and cash flows.

Discount

Many European holding companies trade at considerable discounts to their respective net asset value. However, one should be aware that there may be a reason why a company trades at a discount. For example, some companies invest in non-listed assets such as private companies or, sometimes, private equity investments. Those portions of the portfolio come at a higher risk and/or less liquidity than listed holdings, which certainly justifies some discount.

Also, one should be aware that historically it seems perfectly normal for most holdings to trade below net asset value. Therefore, I would not necessarily advise investors to consider them purely on the basis of that discount. For those who want to own what is in the holding's portfolio, however, it might offer an interesting opportunity.

An Alternative To Funds?

From what has been read until now, holding companies might strike investors as a possible alternative to mutual funds or ETFs. But are they really? The answer, as so often, is - it depends. If the investment strategy of a holding company (and its potential targets) is similar to that of a certain fund, the holding might be an interesting alternative. For example, I myself presented Swiss BB Biotech AG (OTC:BBAGF) explicitly as an alternative to mutual funds for investors seeking to invest in a diversified medical biotech portfolio.

However, in general funds and, especially, ETFs often provide a higher level of diversification. There might also be tax reasons which make funds (or certain types thereof) more attractive, depending on an investor's country of residence. Thus, any investor would be well-advised to always consider the respective individual factors when deciding between a fund investment or an investment in a holding.

Of Dividends And Taxes

Some holding companies do not only aim to increase net asset value steadily but also to reliably pay stable and growing dividends. One particularly successful example for such a company is Investor AB (IVXSF, OTCPK:IVSBF) (see below).

However, investors should keep in mind the applicable taxes both in the countries in which the respective companies are domiciled as well as in their respective country of residence and whether or not there might be tax agreements between those states.

Some Examples

Below, I will briefly introduce some examples of European holding companies. Kindly note that this list does not claim to display the totality of European listed holdings.

Exor NV

Exor NV (OTCPK:EXXRF) is the company through which the Agnelli family holds their core assets. The most important positions are substantial holdings in Fiat Chrysler Automobiles NV (NYSE:FCAU), Ferrari NV (NYSE:RACE) and CNH Industrial NV (NYSE:CNHI). Another key component of Exor's portfolio is wholly owned PartnerRe, which was acquired and taken private in 2016. Furthermore, the company has smaller positions in listed and unlisted companies, and even owns a majority stake in Italian football team Juventus Football Club SpA (OTCPK:JVTSF). My detailed take on Exor is available here.

Groupe Bruxelles Lambert SA

Groupe Bruxelles Lambert SA (OTCPK:GBLBF, OTCPK:GBLBY) was founded by the late Belgian investor Baron Albert Frère, who passed away in December of last year. The majority of its portfolio consists of various - mostly European - listed companies. Large positions include, for example, Adidas AG (OTCQX:ADDDF) and Pernod Ricard SA (OTCPK:PDRDF). GBL also invests in a variety of private equity investments through its Sienna Capital division. You can find a more in-depth analysis of GBL here.

Notably, around half of the shares of GBL are controlled by yet another publicly traded holding company, Swiss-based Pargesa Holding S.A. (OTCPK:PRGAF). As GBL trades at a discount to its net asset value and Pargesa trades at a discount to the market value of its position in GBL, this means that you can get what I previously described as "a discount on the discount." On the other hand, one should keep in mind that Pargesa is a Swiss company, thus there is an additional currency risk as well as a double taxation on dividends (the dividends that Pargesa receives from GBL in Belgium and the dividend that Pargesa itself pays to shareholders).

Indus Holding AG

Indus Holding AG (OTC:INDHF) is a rather small and little-known German company which invests in non-listed small- and medium-sized highly specialized companies, the so-called "Mittelstand". It often acquires companies from entrepreneurs who find themselves unable to find a successor, but who stay onboard as managers following the acquisition. Its portfolio consists of more than 40 subsidiaries from different sectors. Portfolio companies are mostly German, however, some are Austrian or Swiss as well. Due to Mittelstand companies normally being family-owned and unlisted (moreover, most of them prefer bank loan over bonds to finance themselves), Indus Holding AG is one of only few ways for investors to gain exposure to this segment. I present a more detailed insight into the company here.

Industrivärden AB

Industrivärden AB (OTC:IDTVF, OTC:IDDTF) is a Swedish holding company with a clear focus on Swedish and Scandinavian investments. Its portfolio consists exclusively of positions in listed (currently exclusively Swedish) companies. Major positions include Sandvik AB (OTCPK:SDVKF, OTCPK:SDVKY), Svenska Handelsbanken AB (OTCPK:SVNLF, OTCPK:SVNLY) and Volvo AB (OTCPK:VOLAF, OTCPK:VOLVY, OTCPK:VOLVF). Industrivärden has a track record of long-term outperformance versus its benchmark index. I have written about the company in more detail in the past.

Investor AB

Investor AB is a Swedish company that focuses primarily on Scandinavian investments. The largest shareholder is the Wallenberg family, who hold their stake through several charitable foundations.

Investor AB's portfolio consists of three pillars. The vast majority (roughly 4/5th) is made up of holdings in publicly listed companies. Some of its largest positions are in ABB Ltd. (NYSE:ABB), AstraZeneca plc (NYSE:AZN) and SEB Bank (OTC:SVKAF). The remainder of the portfolio consists of wholly owned subsidiaries and financial investments held through the Patricia Industries division and its stake in funds of EQT Partners (less than 5 percent of the overall portfolio). I have written about Investor AB in more detail here.

Investment AB Latour

Investment AB Latour is a yet another Swedish holding (this type of company seems to be a Swedish specialty of sorts, I guess). The company's structure is similar to Investor AB, albeit considerably smaller. Its portfolio consists of wholly owned subsidiaries, as well as stakes in both listed and unlisted companies. Some of the largest positions are in Assa Abloy AB (OTCPK:ASAZF, OTCPK:ASAZY), Tomra Systems ASA (OTCPK:TMRAY, OTCPK:TMRAF) and Securitas AB (OTCPK:SCTBF, OTC:SCTBY).

Wendel SE

Wendel SE (OTCPK:WNDLF) is a French holding company. It started as a forge in 1704, making it one of the oldest existing companies in the world. Unlike many of the aforementioned, it particularly focuses on growth companies, especially in emerging markets. While it owns positions in listed assets, for instance Compagnie de Saint-Gobain (OTCPK:CODGF, OTCPK:CODYY), the majority of Wendel's portfolio consists of stakes in private companies. For more information on the company, please have a look at my previous article on the topic.

Conclusion

I've said it before and I will say it again: there is no such thing as the "[fill in a country] Berkshire Hathaway". Investors who want to own Berkshire Hathaway should buy Berkshire Hathaway (BRK.A, BRK.B). Nonetheless, investors looking for an actively managed and diversified portfolio may very well find a suitable investment in a European holding company. Regularly, they will also have the chance to buy at a discount.

Especially for private investors who do not want to exercise their voting right themselves - and who, moreover, tend to not have enough voting rights individually to significantly influence the vote - it might also be advantageous to have the holding's team represent the voting rights at the general meeting.

Let me, however, reiterate my warning: I do not believe that buying a company solely based on the discount to its net asset value is advisable. This applies even more to those holdings who invest primarily or exclusively in non-listed assets (which do not have a daily market price).

Disclosure: I am/we are long RACE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: All research contained in this article was done with utmost care. However, I cannot guarantee accuracy. Every reader is advised to conduct his own due diligence and research.