In the “Dossier Annual Figures” section of the Best Investor magazine of the Flemish Federation of Investors, May 2024 edition, several pages were devoted to holding companies. Holdings remain a very popular investment among VFB members. Michael Gielkens commented on behalf of Tresor Capital, while holding specialist Joren Van Aken of Degroof Petercam also gives his views.
What were the biggest setbacks and windfalls in holding results?
Joren Van Aken (Degroof Petercam)
“Overall, there weren’t really any outliers. Most of the results were as we expected. Unfortunately, several holdings are not trading based on their numbers, but still on sentiment. Consider Sofina, which still has perception against it.”
“The results of Berkshire and Markel were clearly disappointing.”
Michael Gielkens (Tresor Capital)
“Of the holdings in our selection, Aalberts and Christian Dior were clearly the windfalls. Aalberts managed to keep margins intact despite difficult conditions in its sectors, while Christian Dior/LVMH once again proved much more countercyclical than many analysts had expected.” “Then again, Berkshire and Markel’s results were clearly disappointing. At Berkshire this was due to natural disaster claims at the utilities and railroad company BNSF. As well as a widening gap between auto insurer Geico and BNSF and their listed competitors and peers. At Markel, there were solid setbacks in the insurance business due to high inflation, cost pressures and misjudged insurance risks.”
What is the outlook for 2024 and beyond?
Michael Gielkens
“Several holdings, including those in the private equity sector, have some catching up to do. They can do double-duty with discount reduction and net asset value growth. Other holding companies should be able to benefit from further net asset value growth, especially now that several end markets are straightening out.”
Joren Van Aken
“We expect the average discount of 33 percent to fall when transactions return. In our opinion, the market is too pessimistic today. The average discount in the industry over the last 15 years has been about 22 percent.”
“We expect the average discount of 33 percent will decrease.”
Which Belgian holdings are you betting on?
Joren Van Aken
“Sofina, Brederode and Ackermans & van Haaren. The first two because of the recovery of private markets and because we think the market is too negative about them. Ackermans & van Haaren for a very different reason. Management has done few big deals in the last few years and that is also the feedback it has received from investors. Therefore, we think that they are now looking at slightly larger transactions that can effectively make a difference in the portfolio. In addition, there is also a lot of potential at Bank Delen.”
Michael Gielkens
“Sofina and Brederode appear to be the candidates to benefit from private equity’s recovery. Both have unique networks and assets that are only accessible to most investors by buying the shares of those family holdings. The undervaluation hovers around 20 percent for both holdings, whereas because of the added value and track record of value creation, that may be structurally lower as far as we are concerned.”
And internationally?
Michael Gielkens
“Canadian holding company Brookfield Corporation, unlike some industry peers, has had a limited recovery from the bear market in 2022. Brookfield has exposure to retail and office real estate, so it has been hit in valuation by increased interest rates, while in America people have not yet returned to office after the corona crisis, creating vacancies. However, Brookfield has mostly prime properties in A-locations, so investor fears seem overblown as far as we are concerned.” “Another contender for 2024 is MBB. After the transition year of 2023, it is again fully committed to (earnings) growth. With an undervaluation of more than 30 percent and very low valuations for Vorwerk and Aumann, MBB is for us one of the top contenders for the next 18 months.”
Joren Van Aken
“We have long been fans of Exor and Investor AB. Unfortunately, over the past 12 months, these have risen more than 25 percent. Even though we are convinced they remain top holdings, today may not be the time to get in. However, the two names may be on everyone’s watch list.”
“Several holding companies, including those in private equity, have still have some catching up to do.”
