EXO.MI - EXOR

[Sportgamma]

Indithinker85 asked me to share my thesis on Exor.

 

Its an idea that has already been discussed to some extent in the FIAT thread. But I´ll start with this

 

http://sportgamma.files.wordpress.com/2012/01/screen-shot-2013-05-12-at-2-16-46-am.png

[Phaceliacapital]

I think this is also a good slide to show your reasoning:

 

http://sportgamma.files.wordpress.com/2012/01/simplemaths.jpg

[Packer16]

What are the upside numbers based up and what date is in the information based upon?  TIA

 

Packer

[Sportgamma]

What are the upside numbers based up and what date is in the information based upon?  TIA

 

Packer

 

Date of information

Equity method and fair value numbers are from AR2012, market cap numbers are up to date.

Cash, financial investments and debt are from 1Q2013 and share count is per latest news release on share repurchases by EXOR.

 

FIAT: assumes an intrinsic value of €12 per share, reasoning to be found on the FIAT thread.

 

Fiat Ind.: Assumes an intrinsic value of about €10 per share, the reasons being:

1. Combined NewCo will be easier to value (a)

2. NYSE listing will offer more liquidity and eliminate "periphery" (since when did Italy become the periphery?) discount

3. Merger should lower the cost of capital / debt funding (b)

4. FI tax rate of 39% should fall to CNH´s 35% as NewCo moves to the Netherlands ©

 

(a)

After CNH’s report on Tuesday, the stock fell over 9% to $41. This was primarily due to a weak report and guidance from its parent, Fiat Industrial, whose shares dropped as well.

 

Why should this affect CNH? Until the takeover is complete this year, CNH shares basically trade in lockstep with Fiat Industrial given that CNH’s value is determined by the established exchange ratio of 3.8 for the minority stake.

 

Most analysts believe that Fiat already trades at a steep discount and that this turn of events should not affect CNH shares for long. Combined with the fact that CNH is trading at roughly 8 times 2013 estimates, it might pay to buy this dip.

http://www.forbes.com/sites/zacks/2013/05/10/make-tracks-into-cnh-global/?partner=yahootix

 

(b)

What’s the synergy value? Our synergy value at the end of the day is the drive-train by having a global integrated group that’s sharing the technology and the drive-train is really the number one linchpin between the individual businesses. So I think that it’s – and then you get other counter-cyclical elements within the portfolio. So there’s a variety of different operational benefits, I mean there’s no real restructuring opportunity and your cost take out opportunity because overall between Fiat Industrial and CNH we run relatively lean now. And then there’s the all, the softer issues in terms of capital structuring and depth of liquidity and everything else. So you’ve got that side of it also, but operationally it’s just the further integration and the harmonization of the drive train between the different segments.

CNH´s Tobin on CC (http://seekingalpha.com/article/1385841-cnh-global-s-ceo-discusses-q1-2013-results-earnings-call-transcript?page=4&p=qanda&l=last)

 

© http://www.borsaitaliana.it/documenti/studi.htm?filename=97763.pdf

 

C&W: Hard to find comparisons (this report uses a 8.2 multiple on a depressed EBIDTA, page 12: http://www.borsaitaliana.it/mediasource/star/db/pdf/87267.pdf)

 

C&W         $M FY2012 Multiple Fair value EXO share

EBIT                   70      11.1           777.0 538

EBITDA           128          6.1       780.8 540

 

http://www.cushwake.com/cwglobal/jsp/newsDetail.jsp?Country=GB&Language=EN&repId=c59200006p

 

Juventus: Value based on Liverpool transaction (John Henry) and Forbes value estimates. Numbers look bad, but they (1) reflect on past, (2) new stadium is a game changer (first Italian club to own stadium) that offers alternative sources of revenue, (3) football club thesis is basically based on a greater fool theory.

 

http://sportgamma.net/2010/10/17/market-value-of-juventus-shares/

http://sportgamma.net/2011/03/12/juve-reevaluating-the-original-thesis/

http://swissramble.blogspot.com/search/label/Juventus

[Green King]

SGS SA look over valued do you mind walking through your valuation for it ?

[Sportgamma]

SGS SA look over valued do you mind walking through your valuation for it ?

 

I agree that from almost any angle they look pretty handsomely priced. The TIC industry has a high EV/EBITDA multiple in general. The reasons being:

- High cash generation

- Entry barriers

- Its still a fragmented market (but is consolidating rapidly)

- Economic and competitive benefits of scaling and synergies (a)

(a)

“TIC sector expertise, knowledge and skills can be leveraged across different geographical regions. Newly acquired services / skills can be redeployed across the network international” Intertek

 

Hence the acquisition rampage. Because its kind of hard to see which expenses are normalised and which are expansion related, I guess the market is mainly looking at revenues and betting on improving profit margins once the acquisitions and other new business are integrated. 

 

Regarding valuation, 2012 EBITDA was around CHF 1.100M, so to get at the current share price of 2.292, the EV/EBITDA multiple has to be around 17 (albeit backward looking)...but they are targeting CHF 8.000M in revs in 2014 with a 20% operating margin (currently at 15,6%), which would correspond to a multiple of 11.5 on current EV. 

 

How to value a TIC company:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&sqi=2&ved=0CDUQFjAC&url=http%3A%2F%2Fwww.aegic.es%2Fponencias%2Fdoc_download%2F370-ceoc-2012-ponencia-robbert-claassen.html&ei=ZRWQUa28IMWc0AWrp4CwDw&usg=AFQjCNE2aL_2BnENUShnX5fSnfekeI2RAg&bvm=bv.46340616,d.d2k

 

From Vontobel most recent analyst report (feb 13):

Power of growth initiatives underestimated? Possible EPS FY14E upgrades to up to 20%

In 2010, SGS set ambitious targets for 2014, implying 11.3% organic growth and CHF 700 mn additional sales through acquisitions. The margin target is set at 19.5% with free cash flow at 15-17% of sales. Market expectations are well below these 2014 targets, reflecting high single digit organic growth and zero impact from acquisitions in FY13 and FY14, and a margin of 18.2%. However, based on SGS's guidance, EPS could increase by more than 20% by 2014.

 

M&A activity accelerating further - already CHF 50 mn annualized sales YTD

Last year, external growth exceeded 4% and management expects to exceed this level in the current year. The TIC market is still highly fragmented and offers plenty of consolidation opportunities. Considering SGS's value creation with acquisitions, management has maintained stringent financial discipline with regard to M&A.

 

Fair value of CHF 2,595 - SGS trading at EV/NOPLAT 14E of 18.1x, representing a 15% discount to peers Bureau Veritas and Intertek - not justified in our view

Based on P/E 14E multiples, SGS trades roughly in line with Bureau Veritas and Intertek, vs an average premium of 15% in recent years. On an EV/EBITDA basis, SGS trades at a 12% discount to Bureau Veritas and in line to Intertek vs average historical premiums of 2% and 10%, respectively, in recent years. We also compare the three companies based on EV/NOPLAT multiples, where SGS has a clear discount to peers, which is unjustified. While SGS trades at EV/NOPLAT 2014E of 18.1x, Bureau Veritas trades at 21.x and Intertek at 20.2x.

 

Buy Rating confirmed - new price target CHF 2,550 (vs CHF 2,300), 15% upside

Following a sharp rally since the announcement of the FY12 results, the share price has neared our PT of CHF 2,300. Considering the short term improving environment, the mid? term structural growth drivers and SGS's leading position, we believe that it is set to deliver ongoing strong growth and improved ROIC. Our various valuation methods also imply significant upside. We therefore confirm our Buy rating and set a new price target of CHF 2,550 (from CHF 2,300), indicating upside of more than 15%.

[Sportgamma]

Longleaf International fund Management discussion:

FIAT industrial 2.6% of assets

EXOR  2.4%

CNH  0.9%

 

Exor, the Agnelli family holding company led by Chairman and CEO John Elkann, owns public stakes in competitively positioned businesses, including Fiat Industrial, Fiat Auto, and SGS. Management has opportunistically bought in shares at a discount and is focused on driving value creation at Exor’s underlying businesses. Elkann sits on the boards of Fiat Auto and Fiat Industrial and appointed Sergio Marchionne to oversee the restructuring of these two businesses. We also bought Fiat Industrial, a global leader in agriculture machinery and commercial truck manufacturing. Over 60% of profits come from North and South America through its 88% stake in agricultural equipment business CNH Global. CNH has a comprehensive product offering with a strong distribution network in an oligopolistic industry with pricing power. Fiat Industrial is in the process of merging with the remainder of CNH Global and plans to list the company on the NYSE and move from Italy to the Netherlands to lower its cost of capital and reduce taxes. After we initiated our position in Fiat Industrial, CNH became a cheaper entry point to purchase the same assets. We bought a 1% position in CNH, which we view as a single position with Fiat Industrial.

 

http://www.longleafpartners.com/quarterly_reports/Longleaf123112.PDF

[muscleman]

http://www.exor.com/uploads/789059-Assemblea_Straord_e_Ord_ENG.pdf

 

From OTC, I can only find EXOPF, which is the preferred shares of EXO. Since it will be converted to ordinary shares 1:1, it looks to be the only way to own EXO then?

My 401k account does not allow me to buy international stocks.

[Sportgamma]

Investor and analyst conference call slides from today:

http://www.exor.com/uploads/551537-EXOR%20conference%20call%2020130530_FINAL.pdf

[muscleman]

Investor and analyst conference call slides from today:

http://www.exor.com/uploads/551537-EXOR%20conference%20call%2020130530_FINAL.pdf

 

Looks like the NAV has increased to 8.9 bn Euros! :)

The preferred and savings will be converted to common 1:1, so total market cap for EXO is currently 6.1 bn, so it is trading at 68% of NAV.

 

Do you know normally the discount to NAV for a holding company like this? I think they can easily create shareholder value simply by buying back shares.

[Sportgamma]

Investor and analyst conference call slides from today:

http://www.exor.com/uploads/551537-EXOR%20conference%20call%2020130530_FINAL.pdf

 

Looks like the NAV has increased to 8.9 bn Euros! :)

The preferred and savings will be converted to common 1:1, so total market cap for EXO is currently 6.1 bn, so it is trading at 68% of NAV.

 

Do you know normally the discount to NAV for a holding company like this? I think they can easily create shareholder value simply by buying back shares.

 

GAV (10,464) less treasury shares (547) = 9,917

Less GD (1,390) and holdco cost (170) = 8,357

/ (Sh. Out. (246) less treasury shares (24) = 222

= 37.64 p.s.

Shares @24.87 = 66% of NAV

 

I think I read it in a Merrill Lynch report that the average conglomerate discount was somewhere around 20% historically (but I would not take that at face value).

 

EDIT: The conference call available @ http://irfeed.com/?sid=18kxycma#sid=18kxycma

[muscleman]

Investor and analyst conference call slides from today:

http://www.exor.com/uploads/551537-EXOR%20conference%20call%2020130530_FINAL.pdf

 

Looks like the NAV has increased to 8.9 bn Euros! :)

The preferred and savings will be converted to common 1:1, so total market cap for EXO is currently 6.1 bn, so it is trading at 68% of NAV.

 

Do you know normally the discount to NAV for a holding company like this? I think they can easily create shareholder value simply by buying back shares.

 

GAV (10,464) less treasury shares (547) = 9,917

Less GD (1,390) and holdco cost (170) = 8,357

/ (Sh. Out. (246) less treasury shares (24) = 222

= 37.64 p.s.

Shares @24.87 = 66% of NAV

 

I think I read it in a Merrill Lynch report that the average conglomerate discount was somewhere around 20% historically (but I would not take that at face value).

 

EDIT: The conference call available @ http://irfeed.com/?sid=18kxycma#sid=18kxycma

 

Yeap. My calculation of the discount right now is 68%, which is not too off from yours.

How did you get the share count?

I know the preferred and savings will be converted to common on a 1:1 basis, and from here, it has the daily market cap for each share type. I add them together and devide it by the price today, which is 24.8, and I got roughly the same share count as you listed here. (246)

 

http://www.exor.com/index.php?p=quotazione&s=investitori&lang=en

 

I think after they simplify the share structures, the discount will narrow a bit.

 

Why is there historically a 20% discount on NAV for holding companies? If they simply keep buying back their own shares, they could keep improving the NAV without doing too much work on deciding which company to invest and which company to sell........

[Sportgamma]

Investor and analyst conference call slides from today:

http://www.exor.com/uploads/551537-EXOR%20conference%20call%2020130530_FINAL.pdf

 

Looks like the NAV has increased to 8.9 bn Euros! :)

The preferred and savings will be converted to common 1:1, so total market cap for EXO is currently 6.1 bn, so it is trading at 68% of NAV.

 

Do you know normally the discount to NAV for a holding company like this? I think they can easily create shareholder value simply by buying back shares.

 

GAV (10,464) less treasury shares (547) = 9,917

Less GD (1,390) and holdco cost (170) = 8,357

/ (Sh. Out. (246) less treasury shares (24) = 222

= 37.64 p.s.

Shares @24.87 = 66% of NAV

 

I think I read it in a Merrill Lynch report that the average conglomerate discount was somewhere around 20% historically (but I would not take that at face value).

 

EDIT: The conference call available @ http://irfeed.com/?sid=18kxycma#sid=18kxycma

 

Yeap. My calculation of the discount right now is 68%, which is not too off from yours.

How did you get the share count?

I know the preferred and savings will be converted to common on a 1:1 basis, and from here, it has the daily market cap for each share type. I add them together and devide it by the price today, which is 24.8, and I got roughly the same share count as you listed here. (246)

 

http://www.exor.com/index.php?p=quotazione&s=investitori&lang=en

 

I think after they simplify the share structures, the discount will narrow a bit.

 

Why is there historically a 20% discount on NAV for holding companies? If they simply keep buying back their own shares, they could keep improving the NAV without doing too much work on deciding which company to invest and which company to sell........

 

By subtracting treasury shares from shares outstanding (common + pref + sav)

 

Why is there historically a 20% discount on NAV for holding companies? If they simply keep buying back their own shares, they could keep improving the NAV without doing too much work on deciding which company to invest and which company to sell........

 

Various reasons:

- Complexity in terms of comparable valuations

- Uncertainty of how value will be returned to shareholders

- Extra layer (costs) of management

- Discloses less information on businesses than if they were separate

 

I totally agree with you regarding the buybacks and in the presentation they disclose similar beliefs. I really liked the bit on capital allocation in the presentation. Former behavior is the best indicator of future behavior and in terms of [iurl=https://fundamentalfinanceplaybook.com/2012/01/24/profile-exor-spa/]capital allocation Exor[/iurl] have been sublime  these last five years. And its not just what they have done, its also what they haven't done (it must have been very hard to spend all that effort on the Formula 1 deal, with it qualifying all the criteria except for the price...).

 

Other issues I found interesting:

- In the conference call they said that they are looking to make one big investments

- They invested €300M in Black Ant Group, a value oriented hedge fund managed by a former Exor director (http://blackant.com)

 

 

 

[fareastwarriors]

Fiat Owner Exor Sells Its SGS Stake to GBL for $2.6 Billion

 

http://www.bloomberg.com/news/2013-06-03/fiat-owner-exor-sells-its-sgs-stake-to-gbl-for-2-6-billion.html

[Phaceliacapital]

Cash to fund Fiat/Chrysler merger?

[muscleman]

Fiat Owner Exor Sells Its SGS Stake to GBL for $2.6 Billion

 

http://www.bloomberg.com/news/2013-06-03/fiat-owner-exor-sells-its-sgs-stake-to-gbl-for-2-6-billion.html

 

So our champ sportgamma's valuation of SGS is actually on the conservative side. I think it is likely that his estimates on the other parts are also conservative. :)

[Sportgamma]

Cash to fund Fiat/Chrysler merger?

 

I´m not that sure.

 

1. From what I have heard from Marchionne, share issuance at these prices would be a last option. "I think the likelihood of that happening is between zero and nothing" (http://www.bloomberg.com/video/marchionne-says-fiat-has-cash-to-purchase-chrysler-O7ORdnaQSqGe7HHQZY~dtw.html).

2. I would (gu)estimate that the purchase price for the VEBA stake is around $3.5-4B. Exor had around €1.5B in liquidity before the sale of SGS. If FIAT where to issue shares, it would most likely be through a rights issue. Now lets say that in order to finish the purchase FIAT would have to raise €1.5B in equity. Than Exor would need to contribute €500M, which is money that Exor already had before the sale of SGS.

3. On the analyst/investor day, they indicated that they were looking for a new big investment. I suspect that is the case.

[Sportgamma]

Fiat Owner Exor Sells Its SGS Stake to GBL for $2.6 Billion

 

http://www.bloomberg.com/news/2013-06-03/fiat-owner-exor-sells-its-sgs-stake-to-gbl-for-2-6-billion.html

 

So our champ sportgamma's valuation of SGS is actually on the conservative side. I think it is likely that his estimates on the other parts are also conservative. :)

 

Its actually a bit lower. I had it at €2.15B and the price is roughly €2.07B.

 

They are essentially selling at or around the current market price so they must be pretty exited about the alternative uses of those moneys...

[Shawn]

I'm building a position in EXO

 

This partly influenced my decision

 

http://www.horizonkinetics.com/docs/Bits_&_Pieces_March_2012.pdf

 

 

[muscleman]

Fiat Owner Exor Sells Its SGS Stake to GBL for $2.6 Billion

 

http://www.bloomberg.com/news/2013-06-03/fiat-owner-exor-sells-its-sgs-stake-to-gbl-for-2-6-billion.html

 

So our champ sportgamma's valuation of SGS is actually on the conservative side. I think it is likely that his estimates on the other parts are also conservative. :)

 

Its actually a bit lower. I had it at €2.15B and the price is roughly €2.07B.

 

They are essentially selling at or around the current market price so they must be pretty exited about the alternative uses of those moneys...

 

Yikes..... I missed the dollar sign in front of 2.6 bn.... :o

I think it is ok though, since this stake is a bit overvalued and they got almost a full price of it. Let's see what they will buy next.

I would like to see them allocating 1 bn toward stock buybacks as well. I think this will create a lot more value in a much less risky way.

[writser]

I've been looking at Exor for a bit the past weekend. I like the idea but I still see some problems.

 

1. For a holding company, why is there a board with 14 Italians who earn 5 mio /year together?

2. Why do they own a football club? Juventus (or any sports club for that matter) is never going to make any significant profits; everything they earn will be used to buy better players. Is this a rational investment?

 

So what is more important for the Agnelli's? Making money for their minority shareholders or guaranteeing the existence of their family crown jewels (Fiat, Juventus) .. ? Does the discount to NAV nullify this? Any insights would be appreciated.

[Sportgamma]

I've been looking at Exor for a bit the past weekend. I like the idea but I still see some problems.

 

1. For a holding company, why is there a board with 14 Italians who earn 5 mio /year together?

2. Why do they own a football club? Juventus (or any sports club for that matter) is never going to make any significant profits; everything they earn will be used to buy better players. Is this a rational investment?

 

So what is more important for the Agnelli's? Making money for their minority shareholders or guaranteeing the existence of their family crown jewels (Fiat, Juventus) .. ? Does the discount to NAV nullify this? Any insights would be appreciated.

 

I feel like am starting to sound like a salesman here...

 

1. Agree, might be a bit excessive. However, lets put that into context. In recent years EXOR has reduced holdco cost by 20%, in 2012 total holdco costs stood ad €24.5M. 24.5/NAV of 7,620 (as of end 2012) = 0,32%. How much do Einhorn and Ackman charge for storing capital at NAV*1?

2. I generally agree with you regarding sports clubs. You don´t own a football club to get rich, you own it because you are rich... However, if you look at top50 European football clubs transactional values have been going up steadily (greater fools) as well as revenues. The impact of FFP-regulations on profitability hasn't been felt yet. Juventus is also five years ahead of all other clubs in Italy as they have built their own stadium, which has opened up the possibilities of additional revenue streams (concerts, etc.). The last 5 years have been the equivalent of a 1/100-year-storm, It is a mediocre business, but its worth more then the €200M it trades at...Oh yeah, and they also have a very shrewd director in charge of transfers (http://espnfc.com/blog/_/name/juventus/id/736?cc=5739).

 

In my mind the question you pose is crystal clear: Elkann (who is now the absolute and undisputed Don of the Agnellis) is a bona fide capital allocator (as opposed to a crown jewel polisher) and I think his behaviour demonstrates that:

1. Make drastic internal changes at OpCos: The will move Fiat Industrial and FIAT headquarters out of Turin.

2. Fight sunk cost bias on dealmaking: The Formula 1 deal was a big thing for me. It met all the criteria they were looking for, except for price. Much time and effort went into that, but they walked away.

3. Fight endowment effect on long term holdings: They held SGS for 13 years and Marchionne is chairman. That did not stop them from selling SGS at a proper valuation.

 

Thing is, I´ve been hearing this argument about them being a family dynasty, unwilling to let go of their mediocre assets and all that for some time now. In my honest opinion, when you look at the actions taken and the behaviour that management has demonstrated in the last 4-5 years, there isn´t much that backs up that argument.

[PlanMaestro]

http://www.detroitnews.com/article/20130411/OPINION01/304110331

[Sportgamma]

Juventus’ spectacular return to form on the pitch in the 2011/12 season saw the Bianconeri win their first Scudetto title since 2002/03, with an unbeaten record unprecedented in a 38-game Serie A season. A €41.5m (27%) increase in revenues to €195.4m has fired them back into the Money League top ten, and after several difficult years, the club looks to have regained its status among the European elite.

 

The club’s impressive financial performance was driven by increases in matchday and commercial revenue of €20.2m (174%) and €19.4m (36%) respectively. Despite playing four fewer home matches than in the 2010/11 season, matchday revenue almost trebled, from €11.6m to €31.8m (£25.7m), as the club enjoyed the benefits of its new €150m 41,000 capacity Juventus Stadium home. The move from the Stadio Olimpico saw average home league match attendances increase by 13,789 (63%), from 21,966 to 35,755 and average matchday revenue increase from €0.4m to €1.4m per game.

 

A €41.5m (27%) increase in revenues to €195.4m has fired them back into the Money League top ten, and after several difficult years, the club looks to have regained its status among the European elite.

 

The club’s impressive financial performance was driven by increases in matchday and commercial revenue of €20.2m (174%) and €19.4m (36%) respectively. Despite playing four fewer home matches than in the 2010/11 season, matchday revenue almost trebled, from €11.6m to €31.8m (£25.7m), as the club enjoyed the benefits of its new €150m 41,000 capacity Juventus Stadium home. The move from the Stadio Olimpico saw average home league match attendances increase by 13,789 (63%), from 21,966 to 35,755 and average matchday revenue increase from €0.4m to €1.4m per game.

 

The €19.4m (36%) increase in commercial revenue to €73m (£59.1m) was driven by sponsorship bonuses from winning the Serie A title, as well as the increased commercial opportunities provided by the new stadium. Jeep will replace BetClic as the club’s principal shirt sponsor from the 2012/13 season, in a deal worth €35m over three years.

 

Broadcast revenue increased by €1.9m (2%) to €90.6m (£73.3m), despite the club’s absence from European competition in 2011/12 and resultant lack of UEFA distributions. Broadcast revenue now comprises 47% of total revenue, compared with 57% in 2010/11, although with UEFA distributions from the club’s qualification for the Champions League, this proportion is likely to increase again next year.

 

The future certainly looks bright for Juventus. The most successful club in the history of Italian football has made another strong start to the 2012/13 season, both domestically and in the Champions League, and has re-assumed its position amongst the top clubs in European football. A successful share issue in December 2011 provided the club with a substantial capital injection, which has been used to invest in the playing squad and youth academy, as well as funding the development of a new training complex adjacent to the Juventus Stadium.

 

A successful Champions League campaign, coupled with further domestic success, should see the Old Lady consolidate its position in the Money League top ten next year and possibly challenge AC Milan for top ranking among the Italian clubs.

 

http://www.deloitte.com/assets/Dcom-Azerbaijan/Local%20Assets/Documents/footballmoneyleague2013.pdf

[PlanMaestro]

My Juventus. > and the Agnellis.

 

http://www.ft.com/intl/cms/s/2/8767cc64-ad44-11e2-b27f-00144feabdc0.html#slide0