GBL looks like it can provide enough margin of safety and a reasonable return. GBL is a Brussels-listed holding company that currently trades at a discount of 39.2% using its July 2023 Net Asset Value of €119.30 and the stock price of €72.56. The median discount since 2004 has been 24.91%, and the average discount since 2004 has been 22.35%. If one applies those discounts, one has about a 23% to 28% upside. But the true upside is actually higher. More on that later.

Why I think GBL’s stock price has good potential is not just the discount being at an all-time high at 39.2%, but especially because management does realize the value of buying back its own stock at this large a discount.

But now comes the more interesting part. In order to get to a NAV of €119.3 per share, GBL uses 146.7 million shares. But if you look in the filings. (Here is the link https://www.gbl.be/en/media-center/transactions-gbl-shares) As of August 21, 2023, you will see an additional 10,967,375 GBL shares are already owned by GBL and that have not yet been canceled. Yes, in GAAP, the second after you buy back 1 share of your own stock, although the shares might not be canceled, you deduct that 1 share from the total number of shares outstanding. In IFRS, you do not; officially, you are supposed to first have the board officially cancel the shares. So, let's use the GAAP rules to calculate the updated NAV. That gives me a true adjusted NAV of €128.94. At a current stock price of €72.56, that gives me a discount of 44%, rather than the 39% that is listed above as the official number. (Here is the calculation 146,700,000 – 10,967,375 = 135,732,625 shares outstanding. Total NAV at the end of June 2023 was €17,502,000. NAV per share = €17,502,000/135,732,625 = €128.94.)

Why is this? No idea, really. GBL was buying back shares, but was not actively canceling shares, it seems. Recently they canceled 6.3 million shares. So maybe the press and many other investors have not caught on yet. As I said, no idea, really.

But the good news is that the larger the discount has become, the more interested management is in continuing to buy back GBL stock. Since 2018, they have bought back 22.1 million shares through the end of June 2023, so management seems to have picked up the pace of buybacks significantly. In 2022, they bought back €643 million in GBL stock and for 2023, they estimate that they will buy back €810 million in stock. They recently upped their buyback plan to €500 million. FYI, the current market cap using the GAAP number of shares outstanding is €9.848 billion. So just in 2023, GBL plans on buying back close to 8% of GBL. And the larger the discount, the higher the value creation is from buying back shares.

Some more stuff. On management: I am not impressed by management. The original quality investor was Louis Frere, but after his death, surprise, surprise, his son-in-law took over the running of GBL. Amazing the jobs one suddenly qualifies for after you marry the boss's daughter. Now I would not say GBL management has been radical value destroyers either. Since 2010, they have compounded NAV at a rate of about 4-5%. The funny part is that the GBL stock price discount to NAV that is so frustrating the CEO is likely the best opportunity he has had till now to create value on a per-share basis. It would likely have been better for management to just park the money in some “all-stock ETF,” but you know, running around with the title of CEO and doing deals is so much more exciting. Yes, as a family, one can sometimes get really lucky that a family member truly understands how to create value per share, like with Exor, but I would say that is rather the exception than the rule. At least they are not as bad as with Tubize. Tubize is also a Belgian holding company that is publicly listed and has one asset, UCB shares. And what have these geniuses been doing with excess cash? They have been buying more UCB stock for Tubize in the market, all the while the Tubize stock price has been trading at a discount between 40% and 50% to NAV. So, these guys can buy UCB stock at a 50% discount buying Tubize shares back, but prefer to pay full price. But back to GBL management, yes, I would cancel the dividend and sell more assets so I can buy back even more GBL shares at this discount, but at least they seem to understand the math of the per-share value accretion of buying back their own stock at a large discount to the NAV.

On the portfolio: As one can read above, I am not the greatest fan. In general, it is very hard to beat the overall stock market if you have more than 10 stocks in your portfolio, and since this management is not amazing, I will not expect them to do so long-term. One current issue of note is Webhelp. It agreed to sell itself for stock to Concentrix. And since the announcement, the stock price of Concentrix has declined from $121 to $76. GBL already wrote down the new stake in Concentrix. So, the NAV I am using is already adjusted for the losses on Concentrix stock.

Dividend: GBL paid out €2.75 per share in dividends in 2022 and is planning on again paying out €2.75 per share. There are some rumors that investors are disappointed that the dividend did not increase. Kinda amazing, GBL can buy back its own stock at a 40% plus discount to NAV, but people would rather get a dividend at zero discount to NAV. If it was up to me, I would just cancel the dividend until the discount is back to zero percent. That would add another €373 million to the amount GBL can use to buy back shares this year and the next years after that.

Anyway, not the most exciting idea, nope they are not designing a new AI chip or planning on building an electric car, but I think this all-time high discount of more than 40% allows for good margin of safety, and as long as management continues to buy back stock, the NAV per share will continue to increase at a good clip, especially at this discount.