Description

Groupe Bruxelles Lambert (GBL) is a €13.3B market cap investment holding company trading at a 30% discount to its greater than €19B portfolio value. 

Groupe Bruxelles Lambert (GBL) is a €13.3B market cap investment holding company trading at a 30% discount to its greater than €19B portfolio value. 

This is a classic holding company, sum-of-the-parts story, trading for seventy cents on the dollar.

This is what you get--GBL’s eight largest holdings represent approximately ninety-five percent of its NAV:

GBL trades under the Belgium ticker GBLB BR, as well as U.S. ADR’s GBLBY and GBLBF.

Dividend and Consolidated Net Cash Earnings:

Obviously, dividends are only a small part of the valuation, as GBL’s holdings are increasing in value over and above their distributed dividends. However, it is a good place to start, using 2019 figures for normalization.

GBL’s 2019 gross dividend was €3.15 per share, equivalent to a current 3.8% dividend yield. In 2019, cash earnings, which mostly resulted from net dividends on listed investments, produced €595M—this would reflect a 4.3% cash earnings yield. Consolidated net results, including an investment division’s gains offset by losses in earlier stage businesses and other impairments, produced €705M in 2019. $705M/1.3B market cap = 5.3%.

Withholding Tax Refund:

For U.S. investors, completing form W-8BEN allows your dividends to be taxed at the 15% treaty rate rather than the full 30% withholding rate on dividends. If you don’t complete this form in time, you can request a refund via your US income tax refund by utilizing form 1040NR. A good guide to reclaiming withholding tax on foreign dividends is available at this link: https://the-international-investor.com/investment-faq/reclaiming-withholding-tax-foreign-dividends.

Capital Allocation:

GBL has had a major strategic redeployment of capital since 2012:

• €10.1B in disposals, including €6.3B related to the exit from the energy and utility sectors

• €9.6B in investments, including:

• €5.9B in the consumer goods and business services sectors, 

• €1.4B invested in technology group Umicore and GEA, and 

• €1.9B deployed in Sienna Capital

Sienna Capital is GBL’s alternative asset platform which invests via 9 external asset managers into 18 funds and more than 150 underlying operating capital. At year-end 2019, it had already realized proceeds that represented more than half of its cumulative capital invested. 

GBL also appears to have an annual 2% share buyback re-authorization.

In 2019/20, they continued to have significant disposals and investments:

• Sold €771m of Total for a €411m capital gain

• Sold €499m of adidas for a €333m capital gain

• Sold €499m of LafargeHolcim for a €106m capital gain

• Acquired a majority stake of 64.7% in Webhelp for €867m

• Acquired a block of shares in SGS for €374m

• Made additional commitments, investments and disposals putting Sienna Capital at €1.8B NAV

This ongoing capital redeployment has resulted in greater industry diversity and a geographical mix that is now evenly distributed between Europe, Americas, and the rest of the world.

It has also resulted in the portfolio being dominated by investments in companies with leading positions in their sectors:

GBL is also typically the primary shareholder with board influence and engagement:

GBL is the primary investment vehicle of the Frère and Desmarais families, with Paul Desmarais, Jr. as Chairman and Gérald Frère as Vice-Chairman. Admittedly, Groupe Bruxelles Lambert is one of a half-dozen European holding companies that are trading at a discount to its holdings:

That being said, in the last year, GBL has cleaned up its ownership structure by taking out an intermediary ownership entity, paying a premium to do so: https://www.pargesa.ch/titres-pargesa/exchange-offer-offre-dechange/

This removed the Swiss intermediary holding company Pargesa S.A.:

While this is not necessarily an indication that this new generation of both families is ready to close the valuation gap, it probably tips the story in favor of preferring GBL to its other European discounted holdco peers.

Disclaimer: The views and analysis expressed in this post are solely my own and do not represent the views, analysis, or opinion of our firm or any other entity with which I have been or am now affiliated with or employed.  The content of this post is solely for informational purposes. It is critical to perform your own independent analysis and consult with a financial professional prior to making any and all investment decisions.

Catalyst

It is a European discounted holding company--don't hold one's breath for a catalyst. That being said, they are active managers who recently paid a premium to buy out an intermediary holding company controlled by the controlling families.