Exor NV | Discount to Net Asset Value (NAV)

EXOR NV (EXO) is a European Holding Company, controlled by the Agnelli family (founders of FIAT). Currently, based on a Sum of Parts analysis, common shares of EXOR trade at a 32% discount to its Net Asset Value.

EXOR Sum of Parts


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Although it is not unusual for holding companies and conglomerates to trade at a significant discount to its Net Asset Values, a 32% discount seems to be on the higher end.

Notes on EXOR

Interesting take from third party recourses:

1. Hold Co Stub Trade

From Exor SPA – Hold Co stub trade at Valuhunteruk.com: 

“As with Fiat, Exor has quite a complex 3 class share structure (ordinary, preferred and savings) of which ordinary shares were around 65% of the total (the company is buying back shares, mostly the preferred, at the moment so this may be slightly inaccurate). The last asking price was EUR 15.98 so the ordinary shares are worth around EUR 2.5bn and the share of the listed securities above minus the net debt position was roughly EUR 2.7bn. In other words, the current valuation is attributing a negative value of some EUR 200m to the non-listed businesses in which Exor has a stake (these are carried on the balance sheet at a very rough calculation of 1bn).

In addition, I belive the company may have a further 740m of assets. These appear as current assets on the balance sheet but I could not find any substantial description of what they were beyond a vague description of bonds and listed equities. Due to my slightly sketchy understanding of the accounting rules, I wasn’t certain if these were the listed securities discussed above. Everything I have seen suggests that they are not as the stakes in Fiat etc. are all carried in non-current assets (as far as I can tell) however, I decided to be conservative due to my lack of definite knowledge. The company is also trying to sell Alpitour which was carried at 83m but has now disappeared due to it being an asset held for sale (again my understanding here may be faulty).”

2. Priced for Failure, Run for Success

From Exor SpA (EXOR.MI) – Priced for failure, run for success; initiating as Conviction Buy” by Goldman Sachs Global Investment Research (July 2010):

“Under Agnelli heir Mr Elkann, together with executives and Fiat CEO Mr Marchionne, there have been several recent positive steps taken to unlock shareholder value.”

“We see potential for holding companies to outperform if market confidence improves. Our European holding company universe has an average LTV ratio of 16%, which means NAVs would appreciate 24% if GAVs were to appreciate 20% (assuming static net debt), as detailed in our scenario analysis below.”

On Italian corporate income tax laws:

“Italy has a relatively favourable holding company regime. Since January 1, 2008, only 5% of capital gains on stakes owned for at least 12 months are taxed at the Italian corporate income tax rate (IRES), currently 27.5%, making the effective tax rate 1.375%. If the asset is held for less than 12 months, than the full IRES applies, plus a regional tax rate (IRAP), currently at 5%. Only 5% of dividends are taxed at IRES irrespective of the holding period, making the effective tax rate 1.375%. Under the EU Parent-Subsidiary Directive, there will be no withholding tax on cross-border distributions of dividends if the parent holds at least 10%. Of note, Exor has almost €400 mn in tax losses carried forward that may be utilised to minimise tax on future profits.”

On capital structure and allocation:

“The Exor holding system currently has a small net cash position. Current liquidity (excluding stakes in liquid listed assets, which together have a value of over €5 bn) is €1.4 bn. Exor is actively looking to invest excess capital (c.€1.6 bn). The company wants to retain a minimum of €200 mn in cash and keep its LTV ratio below 20%. The current excess capital is unlikely to be invested in one new larger asset, but more likely in around three separate investments, according to management.”

3. Fiat and Chrysler Merger

From A Merger Once Scoffed At Bears Fruit in Detroit, published in NY Times (Jan. 2012):

“This merger is the closest thing to a truly symbiotic relationship that the industry has ever seen,” said Jim Hall, managing director of the automotive consulting firm 2953 Analytics.

Ever since Fiat took control of Chrysler, Mr. Marchionne has said he planned to leverage the strengths of both companies and operate them as co-equals.

But that goal was questioned by industry analysts who saw how Daimler-Benz dominated Chrysler during their nine-year merger.

“Daimler could never figure out what to do with Chrysler because they had no interest in integrating it into their business,” Mr. Hall said. “But Fiat actually believes it needs Chrysler for mass purchasing of parts.”

In Mr. Marchionne, Fiat and Chrysler have a strong leader who divides his time equally between the two companies. He has also promoted executives from both sides and assigned responsibilities that cut across geographic and corporate lines.

“This management team spends their time traveling and making decisions in the operating regions,” Mr. Marchionne said. “But this thing runs as one house.”

The final step in the integration process will be to increase Fiat’s ownership of Chrysler from 58 percent to 100 percent. That will require either a public stock offering to cash out the remaining stake held by the United Automobile Workers’ health care trust, or a direct purchase of the trust’s stake by Fiat.

“We need to find a way to bring these two businesses together completely,” he said.

4. Auto Industry Consolidation

From Fiat’s Marchionne: auto industry needs consolidation, published in Just-auto (Jan. 2012):

“You need to be a mass marketer or be strong in premium to make money, everything in between is perilous. Particularly in Europe it is patently evident that apart from overcapacity issues, the real problems have to do with economies of scale.

“Make no mistake, without our alliance with Chrysler two years ago there was a danger that Fiat would have been marginalised. In Europe Fiat alone is not economically viable and the price competition in the region is hurting any attempt to make money.

“With Chrysler we have the opportunity to share development costs and we can run a number of key vehicles off the same basic architecture for both brands.

5. Cronic Overcapacity in the Auto Sector

From Europe Auto Must Cut Capacity by 10%-20% Says Fiat CEO, published in Industryweek.com (Jan. 2012):

In response to slack consumer demand that will likely continue through 2014, Fiat chief Sergio Marchionne said on Jan. 12 that the European auto industry needs to cut its capacity by 10% to 20%.

“If volumes stay where they are, I think if you took out 10% to 15% of the capacity, maybe 20% of the capacity in Europe,” it would result in a sustainable level of production, Marchionne said. Asked what his forecast is for European vehicle demand, Marchionne said he expects it to “stay flat through 2014.”

Fiat’s Italian plants are currently operating at less than 60% capacity, a situation Marchionne said is untenable and is mirrored by other European automakers.

The Italian automaker reached a “historic” agreement with its labor unions last month which allowed Fiat to bring production of the Panda back to Italy from Poland. “If the commitment is made by the trade unions, and if we are given an opportunity to effectively develop manufacturing infrastructure to the point where it can be competitive against international competitors, then I think we will continue to do that,” Marchionne said.

“All this capacity, chasing that volume is going to create fundamental destructive forces in the marketplace. “There are some levels of sales now that I would not touch. I would refuse to engage. You’re not even recovering variable cost.”

Further Reading

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