by Travis Johnson, Stock Gumshoe | April 1, 2022 5:23 pm
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Thanks for the context Travis! I’m unfamiliar with companies that trade below NAV—do you know why Exor has been trading below NAV for so long, and why the discount exists in the first place?
3IQ’s Ethereum and bitcoin ETF’s have never achieved NAV equality…welcome to sentiment driven valuations. Fundamentals don’t seem to mean squat anymore.
Most conglomerates trade at a discount to their “break up” value, if only because investors know that the conglomerate won’t break up and “realize” that value. There’s a spectrum, though, from companies that essentially ignore outside investors and trade at 60% discounts to those who are active and trying to please shareholders and trade at 10% discounts. It’s hard to predict, which is why it’s probably better to focus on whether you want to own the underlying assets and believe they can grow… and whether you think the managers will do a good job shepherding your capital for a long time.
Interesting—I had no idea conglomérate equities traded like this. I guess investors appraise tech companies with multiple businesses (Amazon, Google) differently from “brick and mortar” conglomerates?
Definitely, building up several different business lines is different from owning stakes in a bunch of other businesses, though it’s also true that most of the tech companies have a lot of “hidden” value in their non-core businesses that aren’t yet generating profits, like Alphabet’s Waymo business.
Conglomerates that primarily own stakes in other publicly traded businesses, like Exor right now, are quite easy to assess when it comes to the net asset value and judge what the “discount” might be, but there are also a lot of conglomerates that primarily buy up 100% of fully-controlled companies, and the assessed value of those businesses is not nearly as easy to trust.
There’s likely hidden value in lots conglomerates who own semi-hidden companies, as well, I’m certain that the BNSF railway and Berkshire Hathaway Energy have a lower implied valuation than independent and publicly traded railroads and utilities, but that value won’t ever be directly realized because those companies won’t be spun out into independent entities, that “discount” primarily sits there as a bit of reassurance and “margin for error” for Berkshire Hathaway investors.
I do like exor .
Other european opportunities in this área like bollore gbl and aker are also very interesting
A fund that specializes in these holding co with big discounts to nav is avi global trust plc listed in london a long term holding in my portfoluo together with their avi japanese opportunity trust.
Agreed, my main challenge is getting to the point where I understand what the managers are trying to do.
Thank you very much for the interesting perspective on Exor. I can’t help but feel that winning 1 2 at this years opening formula 1 race may be a strong tailwind for Ferrari. Formula 1 is big business with disproportionately high exposure…I am concerned about the illiquidity you mentioned. Is there any chance that there are any Etf’s that hold Exor?
It’s plenty liquid in Italy, just not in US OTC trading. I don’t know of any ETFs that have meaningful Exor exposure.
Formula 1 is a total mystery to me — one of my kids loves it, and I don’t get the appeal at all, but it is a massive business. And one of the few sports leagues that’s publicly traded.
It has the most attractive arbitrage to ev. Formula E is a direct derivative of formula 1 and entirely electrically driven…no pun intended.
I think Doge and Cox is about as good as you can get for a mutual fund company. Primecap has underperformed for a few years but I think their process is solid and they’ll probably get back to their winning ways. The funds they advise for Vanguard have been closed for years so seems they’re doing something right.
One other one I want to throw out is VADGX, run by Don Kilbride from Wellington. It’s new but he has ran an institutional version of it for some pension funds (I found a bunch of info for it by mining a state pension fund website lol).
VADGX is a concentrated version of VDIGX and the aforementioned institutional version has outperformed VDIGX by a substantial amount over the past 15 yrs or so. There are some bigish hoops you have to jump through to get VADGX but I still have confidence in it doing well over the coming years (for what it is — a large blend mutual fund from a mainstream company). Those hoops could, in theory, help minimize turnover but I wouldn’t (and don’t) hold any mutual fund in a taxable account anyway so I guess that doesn’t matter.
And thanks for the info on Exor! I love learning about conglomerates because some of them remind me of long only, concentrated and high conviction hedge funds, which I research tirelessly because that’s the kind of investor I aspire to be.
Thanks, Wellington certainly has a very strong long-term history as a low-cost manager, I’ve got some money in some of their other funds but didn’t know about that new one — thanks.
Toward the beginning you say the OTC ticker is EXRRF. Later you list the correct symbol – EXXRF.
Sorry for the typo, will fix — thanks.
never fall in love with a stock .. I may not be in love with CHWY but very much in like?? I just think that the potential is so great, but it hurts to see it just not perform .. oh well, fortunately I am over diversified so the loss there doesn’t hurt too much , but hard for me to pull the plug .. thanks for the support for the stock, I will hang in there with my 616 shares ..
One of the other reasons why investment holding companies like Exor trade at a large discount is when they are family-controlled. This is firstly because there is no likelihood of the company being broken up and the proceeds distributed and secondly there may be concerns that this power will be used to benefit the family rather than the general shareholders. This may not necessarily be fraudulent but the family may use the company to invest in vanity projects e.g. sports teams or newspapers. As you say Exor is controlled by the Agnelli family. For me this is a plus because if they can look after their own money diligently they are also doing so for me.
What appeals to me as an investor is that you can buy into the company at a 40% discount to their net asset value (NAV) right now, from your comments, so NAV about 28B
With a NAV (Net Asset Value) of over Euros 9 billion, EXOR sums up an entrepreneurial story based on more from Barron’s 4/1/22, their value about 10B
this is a pretty big difference .. NAV’s often perplex me as usually I have no idea how they are calculated .. or the basis for the value (for example, how does BRK put a NAV on See’s or Geico?
anyway, am interested in anything that you are interested in as I value your input .. but would like to understand why there might be such a disparity
Sorry if I missed this. But why did Exor’s sales plummet from $1b in 2019 to 50m in 2020?
To your preference, “I like to also invest with managers who I think have the right mindset, judgement, and skill, and have the potential (sometimes realized, sometimes hoped) to compound money at exceptional rates for a very long time,” I nominate the Mendelson family.
They run HEICO Corporation, an aerospace and defense firm. From 1990, when they took over, to the end of 2019, the company grew operating cash flow at 22% per year and the stock compounded at 23% annually
That has been an incredible operation, indeed. Similar to TransDigm, which has been another excellent performer in a similar business, also mostly built through decades of accretive acquisitions.
Hi Travis,
It sounds like the PFIC issue is a deal-breaker for Exor. Is it the IRA aspect that makes it attractive to you at this point? It doesn’t sound like something I’d want to have in my brokerage account.
I understand you’re not an accountant or tax attorney, just wondering if your particular situation makes it particularly attractive relative to US offerings.
Best,
JT
PFIC paperwork is not a deal-breaker for me, though I prefer to hold companies like this in tax-deferred accounts.
Travis, have you made a new list like this for 2022?
https://www.stockgumshoe.com/2021/03/annual-review-the-whole-magilla/
Cant seem to find it?
No, that’s summarized on the Real Money Portfolio page now, with the link to the most recent update on each stock.