GBLB BB - Groupe Bruxelles Lambert (PARG SW - Pargesa Holdings)

[WhoIsWarren]

I've recently started looking at GBL / Pargesa.  On the face of it, these stocks look potentially interesting, given they trade at a meaningful discount to NAV.

 

However, something that concerns me is the potential for tax leakage -- tax taken at each stage as dividend income is passed from company to company to shareholder.  If tax leakage exists, it may account for some or all of the discount to NAV.

 

With this in mind I am trying to get a better understanding of how GBL and Pargesa are impacted by tax.  The annual reports do not cover this topic well and all I have managed to dig up so far are fairly patchy commentaries.

 

GBL’s investments are represented primarily by a bunch of stakes in French companies and a 15% shareholding in Swiss company, SGS.  Pargesa’s only investment is a stake in GBL.

 

GBL discloses “Net” dividends received but it is not clear how much withholding tax (WHT) has already been lost here.  According to the 2007 annual report, in 2007 the French tax authorities abolished withholding taxes on dividends where the shareholding exceeded 5%.  I believe this remains the case but GBL’s shareholdings in Total and GDF Suez are under 5% so presumably there is some WHT suffered here?  And what about the new holding, SGS, a Swiss company; is there a tax-treaty in place so that GBL avoids Swiss WHT?  In addition, whilst not explicitly disclosed, it appears as though Belgium imposes no income taxes on any of the dividend income received by GBL nor any capital taxes on any capital gains made by GBL on disposals – is this correct?

 

In relation to Pargesa, I have read that Pargesa suffers a 10% wht on dividends from GBL – does anybody know if this is correct?  Also, does Pargesa incur any additional Swiss income taxes on the GBL dividend or any capital taxes in the event that it realises a gain on sale of GBL shares?

 

Are there any other shareholders out there that have looked into this issue?  I have noticed a few Belgian members of the board -- perhaps they are in a good position to answer this?

 

I appreciate there is a lot in here, but any help I can get would be welcome.

[WhoIsWarren]

I didn't get any response to this previous post -- just giving the story a 'poke', in case someone with knowledge of the situation missed it.  ;)

 

So are there any holders of either stock out there?  Have you looked into the tax issue?

 

I'm currently trying to speak to the company on this issue and if I hear anything of interest I'll report back.

 

By the way, here's a link to the FT article that piqued my interest in the company (you can register for free to ft.com).  If you don't know the company well, it gives a good insight into their strategy and philosophy.

 

http://www.ft.com/intl/cms/s/0/c6d2dd28-c133-11e2-9767-00144feab7de.html#axzz2X7tWrr8W

 

 

[ASTA]

Regarding tax my understanding is that Belgium companies does not pay withholding tax on French dividends don't know really.

I bought gblb last year at 50 and sold at 59.

FPA cresent funds did a commentary on the stock not so long ago in essence saying its a good bond.

They just did an expensive accusation from Exor I believe so don't know how that is going. 

not a bad stock over all I think.       

[giofranchi]

Hi WhoIsWarren,

I have owned Pargesa for a while. But I tend to think about Pargesa the same way I think about Exor: a very good trading opportunity, if purchased at a large enough discount to NAV, but I wouldn’t own it as a long term investment.

A long term investment imo is “a great capital allocator with the right means to leverage his/her abilities”. Insurance float might be the most obvious example of “the right mean to leverage his/her abilities”. But also to become actively involved in the companies targeted as investments provides a clear advantage, that levers the capital allocator’s abilities. To own one or more businesses, which require very low maintenance capital expenditures, and therefore provide the capital allocator with a stream of predictable fcf, is another example of lever I look for. And there might be others.

Pargesa, imo, though run by a good and competent capital allocator, lacks those means to lever his abilities. So, I might consider it as a trading opportunity (truth be told, I trade very little!), but I won’t consider it for a long term investment. Because I almost never invest in my 10th best idea. :)

 

giofranchi

 

[Guest hellsten]

Pargesa, imo, though run by a good and competent capital allocator, lacks those means to lever his abilities. So, I might consider it as a trading opportunity (truth be told, I trade very little!), but I won’t consider it for a long term investment. Because I almost never invest in my 10th best idea. :)

 

Gio,

 

Have you looked at Power Corp (POW)? POW is an owner-operated company with a major part of its portfolio in wealth management and insurance:

http://www.powercorporation.com/media/upload/presentations/IR-presentation-June-2011-eng_1.pdf

 

I've just recently started looking at the company, but so far POW seems like a buy-and-forget stock. I didn't find a POW thread on this board, but it's discussed in many threads.

[WhoIsWarren]

Asta / gio,

 

Thanks for replying.  Seems like you both see this as a 'trading stock'  :D

 

While I understand where you are coming from, does it still not behove you to know how tax affects the firm valuation?  Otherwise, how can you know what is the warranted discount to NAV?

 

Perhaps it's not (was never) a big holding for either of you, perhaps you eye-balled the historic NAV discount range?

 

Stop me if I'm being too nosey gio, but how come you went for Pargesa over GBL (Pargesa being one step further removed from the operating assets and potentially taxed even more)?

 

Hellsten, I presume you mention Power Corp here because of the Desmarais link?  If you ever get around to starting a thread on it I'll watch with interest.

[giofranchi]

Pargesa, imo, though run by a good and competent capital allocator, lacks those means to lever his abilities. So, I might consider it as a trading opportunity (truth be told, I trade very little!), but I won’t consider it for a long term investment. Because I almost never invest in my 10th best idea. :)

 

Gio,

 

Have you looked at Power Corp (POW)? POW is an owner-operated company with a major part of its portfolio in wealth management and insurance:

http://www.powercorporation.com/media/upload/presentations/IR-presentation-June-2011-eng_1.pdf

 

I've just recently started looking at the company, but so far POW seems like a buy-and-forget stock. I didn't find a POW thread on this board, but it's discussed in many threads.

 

Hi hellsten,

of course I tried to research Power Corporation of Canada. But, to tell the truth, I have found it very hard to put together all the pieces… when I tried, it was even difficult to put together a reliable track record… I might be wrong, but, if I remember well, they are big in life insurance, and I generally don’t like life insurance.

Anyway, it is sure I quitted my research too soon. So, if you would start a thread on POW, I will follow it with much interest! :)

 

giofranchi

 

[steph]

Hi,

Pargesa and GBL are fine because of the large discount  to nav, but their track record is not great.  GBL has actually over the last 30 years (when Albert Frère took it over) not outperformed the market.

There are other holding companies with large discount which have a better track record.