Bollore BOL FP
January 13, 2017 - 4:00pm EST by
om730
2017 2018
Price: 3.64 EPS .16 .18
Shares Out. (in M): 2,911 P/E 23 20
Market Cap (in $M): 10,612 P/FCF 23 20
Net Debt (in $M): 2,773 EBIT 750 800
TEV ($): 9,121 TEV/EBIT 13 12

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  • Overstated share count
  • Compounder
  • Complex holding structure
  • Sum Of The Parts (SOTP)
  • France
  • Buybacks
 

Description

Thesis

 

I am recommending a long position in Bollore (BOL FP), a French conglomerate managed by activist investor Vincent Bollore. Bollore over time has created value by acquiring undervalued, underperforming assets and turning around the operations by actively participating in the management. The stock, which is off 30% from recent highs, has compounded at 18% over the past two decades. Currently, it is selling at a 57% discount to net asset value according to my base case calculation and a 46% discount according to my low case calculation. European holding companies trade on average at a 25% discount to NAV. In the case of Bollore, stakes in publicly traded companies account for 45% of my base case NAV and 77% of the current enterprise value.  If it were to trade in line with the average European holding company discount, the stock has 74% upside from current levels based on my “base case” NAV calculation. Longer term, I believe that there is room for the NAV to grow based on: the successful restructuring of Vivendi; long term growth of Africa Logistics; eventual success or shut down of the money losing Energy Storage business.

 

Why does the opportunity exist?

  • Complexity. Bollore’s current corporate structure is a vestige from the acquisition/merger with Banque Rivaud in 1996 which was publicly traded and had a very complex corporate structure with multiple holding companies and cross shareholdings. Management over time has been simplifying the company structure by collapsing one or two holding companies annually over the past several years. However, it remains a very complex corporate structure (see page 35 of the 1H2016 corporate presentation).

  • Weakness in Africa Logistics business. The biggest non-public operating asset is Bollore Logistics of which Bollore Africa Logistics represents the bulk of the value. After half a decade of high single digit/low double digit top line growth, this business saw a significant deceleration starting in 2013 due to currency and commodity weakness.

  • Continued investment in the money losing energy storage business. The Group has invested EUR 3 billion into the   energy storage business. Of Bollore’s many ventures, this is definitely the one that has not worked thus far. I believe that if the business does not seem viable within two to three years, management will take actions to stem the losses. However, many sell side analysts penalize the company’s valuation because of this business.

  • Corporate Governance. The CFO is very forthcoming in stating that, “this is a family business.” Three of Vincent Bollore’s four children have senior management positions at the company. The CFO is Vincent Bollore’s nephew. Vincent Bollore makes it very clear that this is a family business that will be managed by his children when he retires in 2022. I do believe this is a long term concern but not a near term concern for the stock to work in the next few years.

  • Opacity. Management complies with all reporting requirements but is not forthcoming with information. They do not make it easy for analysts to get information.

  • Vincent Bollore’s reputation. Although he is admired for his successful track record and deal making acumen, many in the French business establishment resent Vincent Bollore’s “aggressiveness.” He is definitely litigious and difficult to deal with. Nonetheless, the company has successful partnerships with third parties such as Maersk in ports. I believe that minority shareholders are reasonably well protected from a creeping takeover by the EU Takeover Directive. I also believe that he is obsessed with his family legacy and wants to leave a relatively well functioning publicly traded company for his children when he retires.

 

 

Background

In addition to the company’s annual report and public company fillings, I suggest reading a buy recommendation written by Carson Block of Muddy Waters in February 2015: http://www.muddywatersresearch.com/research/bol/complexity-creating-arbitrage/. At the time, the stock was trading at EUR4.31 per share, and Muddy Waters argued for upside to EUR 8.50 per share. I also recommend reading the December 2015 initiation by Oddo Securities which provides valuable insights into the history of the Group.

 

Bollore is a holding company whose primary assets consist of a 20% stake in Vivendi (VIV FP), a 60% stake in Havas (HAV FP), a portfolio of minority holdings in seven publicly traded European companies, Bollore Transportation and Logistics, and Bollore Energy Storage and Solutions. In 1981 Vincent Bollore and his brother bought the equity of their bankrupt family business for a symbolic sum. The original business, which dated back to 1822, consisted of writing and cigarette papers and films for electric capacitors. They turned around the business and used the cash flow to acquire a series of companies. Below is a summary of the major acquisitions done by Bollore since assuming control in 1982:

 

  Acquisition   Holding  Purchase Price Sale Price   
Company Date % Acquired Period EUR MM EUR MM x return
Papetieres Bollore 1981 100% >34 years 0 66  
Rivaud 1988 n/a 10 years  480 1,500 3.1
Bouygues 1997 13% 2 years 340 562 1.7
Pathe  1998 20% 1 year 277 314 1.1
Lazard  1999 31% 2 years 295 595 2
Vallourec 2002 n/a 3 years 160 1,860 11.6
Havas 2004,5,8,12 60% >11 years 1,320 not sold  
Aegis 2005 26% 7 years 465 915 2
Vivendi 2012, 15 15% >4 years 3,954 not sold  

 

 

 

 

Today Bollore’s most important assets are the following:

 

Vivendi

In 2012 Bollore first acquired a 1.1% stake in Vivendi through the sale of Canal 8 for stock. He subsequently increased his stake to 20% at an average cost of EUR 20 per share. Since assuming the role of Chairman of the board and appointed a new CEO, the company has paid EUR 6.40 per share in dividends. Through a series of large divestments, he has taken the company from a EUR 11 billion net debt position to a EUR 2.5 billion net cash position and has paid roughly EUR 7 billion in dividends (EUR6.40 per share).

 

Vivendi currently consists of Universal Music Group, Canal+, and a stake in Telecom Italia. Sell side analyst focus on the structural challenges of Canal Group in France. In reality, Canal Group consists of two businesses, a French Pay TV business losing about EUR 300 million and a profitable and rapidly growing African pay TV business. Bollore sent a letter to Canal+ employees, the money losing division, earlier in the year stating that Vivendi would be taking measures to get the French business to breakeven by 2018. If he is successful, Vivendi would be left with: a healthy, growing Africa business; Universal Music Group which has the rights to 35% of all music ever recorded; and, a stake in Telecom Italia which itself is a turnaround. I think UMG has a lot of upside. For those interested, Merrill and GS have done some good work on the evolving music industry economics.

 

Havas

Havas is a publicly traded advertising agency. Bollore began acquiring shares in the company in 2004 and now controls 60% of the company. Just like with Vivendi, there was a lot of skepticism about his ability to create value at Havas. Since he took over management control of Havas, net margins have doubled to 8%. I do not see a lot of room for further margin upside here but see further room for consolidation in this space.

 

Bollore Logistics

Bollore Logistics is an integrated logistics business that generates roughly EUR 750 million of EBITDA. The fastest growing and most valuable part of the business is the Africa Logistics division which dates back to the acquisition of SCAC in 1986. It is the leading integrated logistics business in Africa with a foothold in 45 African countries. It operates seventeen port concession and three railway concessions. It also provides freight forwarding, multimodal transportation, customs and excise, regulatory compliance, and global supply chain management services. After growing in the high single/low double digits for almost a decade, this business experienced a slowdown starting in 2013 which has continued and is partly responsible for the derating of the stock.

 

 

Bollore Energy Storage and Solutions

Over the past decade Bollore has invested almost EUR 3 billion into this business. This business emerged from a legacy of the paper business, a polypropylene film and metallized plastic film business supplying the electric capacitor industry.  In 2001 Bollore began producing LMP (lithium-metal-polymer) batteries and supercapacitors. This is a money losing business which is ultimately dependent on the evolution and success of LMP battery technology. After doing some research, I do not have a strong view whether or not this technology will ultimately succeed. I value the business at zero in my low case and at EUR 1 billion in my base case. The following article provides some background: https://www.nytimes.com/2015/06/13/business/international/vincent-bollores-long-bet-on-solid-state-batteries-for-electric-cars.html?_r=0.. After speaking with the CFO, I believe that management will determine in the next few years whether this business is viable or not. Should they determine that it is not viable, I get the sense that they will take steps to reduce losses and curb the investment in the business.

 

Circular Ownership

Bollore Group (BOL FP) has 2.9 billion shares outstanding. However, as I mentioned earlier, the company has a very complex corporate structure. Please see page 35 of the 1H2016 investor presentation. Over the years, Bollore, instead of buying back its own shares, has primarily bought back shares of the publicly traded holding companies that control it, in some cases ultimately buying the entire float and delisting them. It has done so to take advantage of the holding company discounts. As a result, Bollore (BOL FP) owns close to half of itself through stakes in holding companies that control it, the biggest one being its 33.2% stake in Finaciere l’Odet (ODET FP). To adjust for the circular ownership I simply calculate the market capitalization using half of the shares outstanding. The other approach would be simply to add the value of the shares that it owns in the holdco’s, but in doing so we would just be applying a discount on a discount and not necessarily capturing the economic reality that the company owns half of itself. Please see the table below:

 

 

Circular Ownership % owned  % owned  Implied indirect stake
  by BOL  of BOL  owned in BOL by BOL
Financiere l'Odet (ODET FP)  33.2% 64.0%   21.3%
Sofibol  48.8% 35.4%   17.3%
Financiere V 46.7% 18.1%   8.4%
Omnium Bollore  46.7% 9.1%   4.3%
Treasury stock in cicular ownership 100.0% 0.6%   0.6%
Total       51.9%
Source: Bollore 2015 annual report         


Valuation

Below is a sum of the parts valuation for Bollore Group. Stakes in public entities are valued at market. The logistics business is valued based on comparable company multiples, mostly port and logistics operators. The value of energy storage solutions is a guesstimate.

 

I have not adjusted for capital gains, because of the following information provided by the company:  “Under French corporate tax rules on capital gains, a company may benefit from a tax shield if 1) it owns at least 5% the subsidiary's capital 2) for at least 2 years. If those 2 conditions are met, tax on capital gains following the disposal of the subsidiary shares is limited to 12% of the capital gain amount. The amount is added-back and taxed at standard Corporate  Income Tax (38% in France 34% + social taxes) which implies and effective tax rate of 4.56% (12%*38%) on capital gains. Should those conditions not be met, capital gain will be taxed at standard Corporate Income Tax (i.e. 38%). In Europe, tax rate applied to capital gains (depending on local tax rules and conditions) are in a range of 0% (in Luxembourg, the Netherlands, Spain, the UK, Germany) to 4.56% (France). Italy stands at ~1.375% and Belgium at 0.412%.” Furthermore, I do not believe that they intend to sell Vivendi or Havas, the two major positions, any time soon.  Since Bollore has owns more than 5% of most of its major subsidiaries and has held its stakes for longer than two years, the lower tax rate would apply. Over time, they have been very tax efficient in disposing of equity stakes.

 

 

 

 

 

BOL FP

         

Share Price

3.58

         

Shares outstanding (millions)

2,906

         

Effective shares outstanding

1,424

Adjusted for circular ownership

 

Market capitalization

10,403

         

Adjusted market capitalization

5,098

Adjusted for circular ownership

 

Debt (6/30/16)

5,646

         

Cash 6/30/16)

1,168

Latest filing

     

Adjusted enterprise value

9,575

Adjusted for circular ownership

 
             
             

Publicly traded assets

 

Shares

   

Value

 

Core Equity Stakes

Ownership

MM

Ticker

Price

EUR MM

 

Vivendi

20.0%

257.3

VIV FP

17.78

4,574

 

Havas (consolidated)

60.0%

251.8

HAV FP

8.15

2,053

 
       

subtotal

6,626

 
             

Non-Core Equity Stakes

Ownership

Shares

Ticker

Price

Value

 

Mediobanca

8.0%

69.7

MB IM

7.72

538

 

Socfinansia

21.8%

4.4

SFNS LX

22.81

100

 

Socfinaf

8.6%

1.4

SOCF LX

16.93

24

 

Vallourec

1.2%

5.3

VK FP

7.26

39

 

Generali

0.1%

2.0

G IM

13.91

28

 

Bigben Interactive

21.4%

3.9

BIG FP

6.08

24

 

Gaumont

9.6%

0.4

GAM FP

54.64

23

 
       

subtotal

775

 
             

Total value of publicly traded assets

       

7,401

 
         

45%

 

Non public consolidated assets

     

Low

Base

High

Transportation and Logistics

           

Bollore Africa Logistics (adjusted for minorities)

   

5,000

6,000

7,000

Bollore Logistics

     

1,200

1,500

1,700

Oil Logistics

     

300

350

400

Total Logistics

     

6,500

7,850

9,100

             

Energy Storage

           

Blue Solutions

     

0

400

600

Blue Applications

     

0

600

700

Plastic Films

     

0

60

100

Total Energy Storage

     

0

1,060

1,400

             

Total value of consolidated assets (excluding Havas)

 

6,500

8,910

10,500

             

Consolidated assets + public assets

     

13,901

16,311

17,901

Less net debt

     

(4,477)

(4,477)

(4,477)

Net Asset Value

     

9,424

11,834

13,424

NAV per share

     

6.62

8.31

9.43

Current discount to NAV

     

-46%

-57%

-62%

Target NAV discount

     

25%

25%

25%

Price target

     

4.96

6.23

7.07

Upside

     

39%

74%

97%

 

 

Conclusion

 

Bollore stock is very inexpensive relative to the value of the assets and could be a very good investment if Vincent Bollore continues to create value like he has over the past two decades.

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

  • Value creation at Vivendi
  • Resumption of growth in Bollore Africa Logistics
  • Ongoing simplification of the corporate structure. 
  • The passage of time. Reversion to the mean.
    sort by    

    Description

    Thesis

     

    I am recommending a long position in Bollore (BOL FP), a French conglomerate managed by activist investor Vincent Bollore. Bollore over time has created value by acquiring undervalued, underperforming assets and turning around the operations by actively participating in the management. The stock, which is off 30% from recent highs, has compounded at 18% over the past two decades. Currently, it is selling at a 57% discount to net asset value according to my base case calculation and a 46% discount according to my low case calculation. European holding companies trade on average at a 25% discount to NAV. In the case of Bollore, stakes in publicly traded companies account for 45% of my base case NAV and 77% of the current enterprise value.  If it were to trade in line with the average European holding company discount, the stock has 74% upside from current levels based on my “base case” NAV calculation. Longer term, I believe that there is room for the NAV to grow based on: the successful restructuring of Vivendi; long term growth of Africa Logistics; eventual success or shut down of the money losing Energy Storage business.

     

    Why does the opportunity exist?

     

     

    Background

    In addition to the company’s annual report and public company fillings, I suggest reading a buy recommendation written by Carson Block of Muddy Waters in February 2015: http://www.muddywatersresearch.com/research/bol/complexity-creating-arbitrage/. At the time, the stock was trading at EUR4.31 per share, and Muddy Waters argued for upside to EUR 8.50 per share. I also recommend reading the December 2015 initiation by Oddo Securities which provides valuable insights into the history of the Group.

     

    Bollore is a holding company whose primary assets consist of a 20% stake in Vivendi (VIV FP), a 60% stake in Havas (HAV FP), a portfolio of minority holdings in seven publicly traded European companies, Bollore Transportation and Logistics, and Bollore Energy Storage and Solutions. In 1981 Vincent Bollore and his brother bought the equity of their bankrupt family business for a symbolic sum. The original business, which dated back to 1822, consisted of writing and cigarette papers and films for electric capacitors. They turned around the business and used the cash flow to acquire a series of companies. Below is a summary of the major acquisitions done by Bollore since assuming control in 1982:

     

      Acquisition   Holding  Purchase Price Sale Price   
    Company Date % Acquired Period EUR MM EUR MM x return
    Papetieres Bollore 1981 100% >34 years 0 66  
    Rivaud 1988 n/a 10 years  480 1,500 3.1
    Bouygues 1997 13% 2 years 340 562 1.7
    Pathe  1998 20% 1 year 277 314 1.1
    Lazard  1999 31% 2 years 295 595 2
    Vallourec 2002 n/a 3 years 160 1,860 11.6
    Havas 2004,5,8,12 60% >11 years 1,320 not sold  
    Aegis 2005 26% 7 years 465 915 2
    Vivendi 2012, 15 15% >4 years 3,954 not sold  

     

     

     

     

    Today Bollore’s most important assets are the following:

     

    Vivendi

    In 2012 Bollore first acquired a 1.1% stake in Vivendi through the sale of Canal 8 for stock. He subsequently increased his stake to 20% at an average cost of EUR 20 per share. Since assuming the role of Chairman of the board and appointed a new CEO, the company has paid EUR 6.40 per share in dividends. Through a series of large divestments, he has taken the company from a EUR 11 billion net debt position to a EUR 2.5 billion net cash position and has paid roughly EUR 7 billion in dividends (EUR6.40 per share).

     

    Vivendi currently consists of Universal Music Group, Canal+, and a stake in Telecom Italia. Sell side analyst focus on the structural challenges of Canal Group in France. In reality, Canal Group consists of two businesses, a French Pay TV business losing about EUR 300 million and a profitable and rapidly growing African pay TV business. Bollore sent a letter to Canal+ employees, the money losing division, earlier in the year stating that Vivendi would be taking measures to get the French business to breakeven by 2018. If he is successful, Vivendi would be left with: a healthy, growing Africa business; Universal Music Group which has the rights to 35% of all music ever recorded; and, a stake in Telecom Italia which itself is a turnaround. I think UMG has a lot of upside. For those interested, Merrill and GS have done some good work on the evolving music industry economics.

     

    Havas

    Havas is a publicly traded advertising agency. Bollore began acquiring shares in the company in 2004 and now controls 60% of the company. Just like with Vivendi, there was a lot of skepticism about his ability to create value at Havas. Since he took over management control of Havas, net margins have doubled to 8%. I do not see a lot of room for further margin upside here but see further room for consolidation in this space.

     

    Bollore Logistics

    Bollore Logistics is an integrated logistics business that generates roughly EUR 750 million of EBITDA. The fastest growing and most valuable part of the business is the Africa Logistics division which dates back to the acquisition of SCAC in 1986. It is the leading integrated logistics business in Africa with a foothold in 45 African countries. It operates seventeen port concession and three railway concessions. It also provides freight forwarding, multimodal transportation, customs and excise, regulatory compliance, and global supply chain management services. After growing in the high single/low double digits for almost a decade, this business experienced a slowdown starting in 2013 which has continued and is partly responsible for the derating of the stock.

     

     

    Bollore Energy Storage and Solutions

    Over the past decade Bollore has invested almost EUR 3 billion into this business. This business emerged from a legacy of the paper business, a polypropylene film and metallized plastic film business supplying the electric capacitor industry.  In 2001 Bollore began producing LMP (lithium-metal-polymer) batteries and supercapacitors. This is a money losing business which is ultimately dependent on the evolution and success of LMP battery technology. After doing some research, I do not have a strong view whether or not this technology will ultimately succeed. I value the business at zero in my low case and at EUR 1 billion in my base case. The following article provides some background: https://www.nytimes.com/2015/06/13/business/international/vincent-bollores-long-bet-on-solid-state-batteries-for-electric-cars.html?_r=0.. After speaking with the CFO, I believe that management will determine in the next few years whether this business is viable or not. Should they determine that it is not viable, I get the sense that they will take steps to reduce losses and curb the investment in the business.

     

    Circular Ownership

    Bollore Group (BOL FP) has 2.9 billion shares outstanding. However, as I mentioned earlier, the company has a very complex corporate structure. Please see page 35 of the 1H2016 investor presentation. Over the years, Bollore, instead of buying back its own shares, has primarily bought back shares of the publicly traded holding companies that control it, in some cases ultimately buying the entire float and delisting them. It has done so to take advantage of the holding company discounts. As a result, Bollore (BOL FP) owns close to half of itself through stakes in holding companies that control it, the biggest one being its 33.2% stake in Finaciere l’Odet (ODET FP). To adjust for the circular ownership I simply calculate the market capitalization using half of the shares outstanding. The other approach would be simply to add the value of the shares that it owns in the holdco’s, but in doing so we would just be applying a discount on a discount and not necessarily capturing the economic reality that the company owns half of itself. Please see the table below:

     

     

    Circular Ownership % owned  % owned  Implied indirect stake
      by BOL  of BOL  owned in BOL by BOL
    Financiere l'Odet (ODET FP)  33.2% 64.0%   21.3%
    Sofibol  48.8% 35.4%   17.3%
    Financiere V 46.7% 18.1%   8.4%
    Omnium Bollore  46.7% 9.1%   4.3%
    Treasury stock in cicular ownership 100.0% 0.6%   0.6%
    Total       51.9%
    Source: Bollore 2015 annual report         


    Valuation

    Below is a sum of the parts valuation for Bollore Group. Stakes in public entities are valued at market. The logistics business is valued based on comparable company multiples, mostly port and logistics operators. The value of energy storage solutions is a guesstimate.

     

    I have not adjusted for capital gains, because of the following information provided by the company:  “Under French corporate tax rules on capital gains, a company may benefit from a tax shield if 1) it owns at least 5% the subsidiary's capital 2) for at least 2 years. If those 2 conditions are met, tax on capital gains following the disposal of the subsidiary shares is limited to 12% of the capital gain amount. The amount is added-back and taxed at standard Corporate  Income Tax (38% in France 34% + social taxes) which implies and effective tax rate of 4.56% (12%*38%) on capital gains. Should those conditions not be met, capital gain will be taxed at standard Corporate Income Tax (i.e. 38%). In Europe, tax rate applied to capital gains (depending on local tax rules and conditions) are in a range of 0% (in Luxembourg, the Netherlands, Spain, the UK, Germany) to 4.56% (France). Italy stands at ~1.375% and Belgium at 0.412%.” Furthermore, I do not believe that they intend to sell Vivendi or Havas, the two major positions, any time soon.  Since Bollore has owns more than 5% of most of its major subsidiaries and has held its stakes for longer than two years, the lower tax rate would apply. Over time, they have been very tax efficient in disposing of equity stakes.

     

     

     

     

     

    BOL FP

             

    Share Price

    3.58

             

    Shares outstanding (millions)

    2,906

             

    Effective shares outstanding

    1,424

    Adjusted for circular ownership

     

    Market capitalization

    10,403

             

    Adjusted market capitalization

    5,098

    Adjusted for circular ownership

     

    Debt (6/30/16)

    5,646

             

    Cash 6/30/16)

    1,168

    Latest filing

         

    Adjusted enterprise value

    9,575

    Adjusted for circular ownership

     
                 
                 

    Publicly traded assets

     

    Shares

       

    Value

     

    Core Equity Stakes

    Ownership

    MM

    Ticker

    Price

    EUR MM

     

    Vivendi

    20.0%

    257.3

    VIV FP

    17.78

    4,574

     

    Havas (consolidated)

    60.0%

    251.8

    HAV FP

    8.15

    2,053

     
           

    subtotal

    6,626

     
                 

    Non-Core Equity Stakes

    Ownership

    Shares

    Ticker

    Price

    Value

     

    Mediobanca

    8.0%

    69.7

    MB IM

    7.72

    538

     

    Socfinansia

    21.8%

    4.4

    SFNS LX

    22.81

    100

     

    Socfinaf

    8.6%

    1.4

    SOCF LX

    16.93

    24

     

    Vallourec

    1.2%

    5.3

    VK FP

    7.26

    39

     

    Generali

    0.1%

    2.0

    G IM

    13.91

    28

     

    Bigben Interactive

    21.4%

    3.9

    BIG FP

    6.08

    24

     

    Gaumont

    9.6%

    0.4

    GAM FP

    54.64

    23

     
           

    subtotal

    775

     
                 

    Total value of publicly traded assets

           

    7,401

     
             

    45%

     

    Non public consolidated assets

         

    Low

    Base

    High

    Transportation and Logistics

               

    Bollore Africa Logistics (adjusted for minorities)

       

    5,000

    6,000

    7,000

    Bollore Logistics

         

    1,200

    1,500

    1,700

    Oil Logistics

         

    300

    350

    400

    Total Logistics

         

    6,500

    7,850

    9,100

                 

    Energy Storage

               

    Blue Solutions

         

    0

    400

    600

    Blue Applications

         

    0

    600

    700

    Plastic Films

         

    0

    60

    100

    Total Energy Storage

         

    0

    1,060

    1,400

                 

    Total value of consolidated assets (excluding Havas)

     

    6,500

    8,910

    10,500

                 

    Consolidated assets + public assets

         

    13,901

    16,311

    17,901

    Less net debt

         

    (4,477)

    (4,477)

    (4,477)

    Net Asset Value

         

    9,424

    11,834

    13,424

    NAV per share

         

    6.62

    8.31

    9.43

    Current discount to NAV

         

    -46%

    -57%

    -62%

    Target NAV discount

         

    25%

    25%

    25%

    Price target

         

    4.96

    6.23

    7.07

    Upside

         

    39%

    74%

    97%

     

     

    Conclusion

     

    Bollore stock is very inexpensive relative to the value of the assets and could be a very good investment if Vincent Bollore continues to create value like he has over the past two decades.

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Messages


    SubjectHSBC Initiation report
    Entry01/14/2017 07:11 AM
    Memberpunchcardtrader

    I want to point out that the parent ODET has skipped paying a dividend and has been buying BOL shares (small, ie 11M and 1.7MEUR) in September and that this is one of the catalysts I would add to this investment.

    ODET could launch a takeover on BOL by issuing new ODET shares. Why now & why ODET-> BOL? As per the new Florange law in France which stipulates that LT shareholders (>2years) get twice as many voting rights, a fair share-for-share offer to BOL shareholders would imply a dilution of ODET's LT shareholders (incl family through SOFIBIOL) which would still guarantee absolute family control in the new structure ODET+BOL (this was not the case before the Florange law and a reason why simplification hasn't happened already).

    I think the recent rally has been part oil rising and part the market realising a simplification might happen sooner than later.

    Lastly, I want to recommend the HSBC initiation report from H2 2016 which I thought to be very good.


    SubjectTraveling with limited interned access.
    Entry01/15/2017 06:30 PM
    Memberom730

    Thank you for your questions and comments. I'm traveling until next week (January 24) and have very limited internet access. I will respond to all quesitons when I return.  


    SubjectExcellent French Documentary
    Entry01/23/2017 03:11 PM
    Memberpunchcardtrader

    No translation, but this documentary is great and quite unbiased https://www.youtube.com/watch?v=mNpQzg8A4n0

    I'll summarize the points not already covered in research I've read:

     - in France he got the nickname two-faced "Smiling Killer"

     - he has an app on his smartphone that counts down the moment he steps down. I think this shows he is obsessed by providing the "right" company to his family successor (whatever that is, perhaps a simpler structure as well)

     - When he started at Bolloré (after Rothschild banking experience) he managed to negotiate a 25% wage cut instead of layoffs in the family rolling paper factories (legacy business). He was 29 at the same he managed to pull this off with the workers, these large cuts are unseen/almost impossible in France

     - his Palm oil business is controversial in France, not only because of the european oils lobby such as olive oil, but also because of labour conditions in Africa with several journalist reports on human right violations by his subcontractors

     - "everyone" knows Bolloré in Africa. He uses his abundance of smarts , political connections, capital and synergies from his media businesses to gain profitable contracts. 

    1) he leverages his news businesses (in France, but also in Africa) to grant favourable media on African rulers (and pressures others)

    2) his ad business has inflicted pain on Le Monde by terminating an ad contract after a critical newspaper piece on him 

    3) uses all other business segments to provide support in political campaigns of his friends (Universal Music sponsored free festivals, electric batteries)

    4) although Sarkozy is one of his best personal friends, the documentary shows an example where a Hollande visit to Africa allegedly made him win a bid for a port in Cameroon

     - always looking for his "limits" according to a good friend (which is also a danger, see energy storage)

     - Quote when communicating to the Havas board: "I didn't build my empire from one franc by being a passive investor, it's not in my genes, I am an activist"

    Lastly, @om730, I'm interested in that Oddo securities historical account on the group! Drop me an email if you are up for sharing some resources punchcardtrader @ protonmail.com


    SubjectRe: HSBC Initiation report
    Entry01/29/2017 06:22 PM
    Membershoobity

    Just going through the analyst reports and HSBC as you noted. Why don't the analysts adjust for the share count?

    If you break this down basically everyone comes pretty close on what everything is worth before applying a holdco discount. But since we cut the shares in half (as does Muddy Waters) our valuation is significant higher.

    So why don't the analysts adjust...you'd think they would be able to figure that out and/or we are doing something wrong.


    SubjectRe: Re: HSBC Initiation report
    Entry01/31/2017 03:46 PM
    Memberpunchcardtrader

    Good question. This was one thing in the report I did not agree with. HSBC calls it the more "conservative" approach, but I think one should instead apply a large fair discount after using the correct valuation methodology:

    Correct VIC/Muddy Waters Valuation = [ fair value of opco's / (shares outstanding minus all self ownership)] * [1 - fair VIC discount]

    Instead HSBC adds fair value of the opco's with the financial markets' price of the BOL stock in the nominator and leaves the denominator unchanged.

    HSBC Valuation November = [(fair value of opco's + BOL share price of self-ownership shares) / shares outstanding] * [1- fair HSBC discount]

    They call it "conservative" but I think that word can be used to cover up any dubious practice to make the sell-side valuation match the market price better: adding apples (value of opco's) with oranges (market price of the thing we are trying to value) is not something we value investors should do in my opinion. In the January analysis they go even further and say that since most self-ownership passes through ODET (less liquid vehicle) we should use the market price of ODET for the self-ownership (therefore applying another 20%). I find this very arbitrary/artificial since Bolloré holders hold the more liquid stock, and arguably one of the first simplifications of the structure should be ODET merging with BOL, with even better liquidity as a result. 

    Second HSBC valuation January = [(fair value of opco's + ODET share price of self-ownership shares) / shares outstanding ] * [1 - fair HSBC discount]

    In this last method three different discounts are applied, indeed the fair HSBC discount to fair value (they chose 30%), the liquidity discount of ODET, and lastly if this method shows that BOL shares are indeed undervalued the price in the numerator is itself undervalued (the apples to oranges flaw). I don't think this allows us to keep a transparent overview neither. I argue for the VIC method + one transparent 'fair VIC discount' .

    Using the January HSBC NAV and backing out the value of BOL self-held shares in the numerator one gets 11.32B for (1 - 53.9%)*2895=1334 net shares or about 8.5EUR NAV. At 3.7EUR share price one gets a current discount to underlying NAV of 56%.

    That said I do think one should be conservative by applying a large fair discount to NAV ("fair VIC discount' = +-35%? maybe 40%) to arrive at a selling target (i.e. 5.53EUR per share).

    Why?

     - the dividend yield + share buybacks are at the low side at around 2% for BOL (we don't get much rewards for waiting with current discount to NAV absent any simplification catalysts). Using the 56% discount to NAV one gets an annual positive carry of about 2.5% vs hypothetically holding the portfolio of underlying opco's just for waiting (2% * [1/(1-56%) - 1]). This way we profit by outperforming underlyings slowly but 'almost surely'. Not many 'almost surely' deals out there nowadays. There's one but: the sizeable French dividend tax.

     - sizeable part of the fair opco's NAV is from private companies with very limited reporting

     - holding structure is complex

    In short, with NAV at around 8.5 EUR and after applying a 35% fair discount I get a selling target around 5.5EUR.

    I think Bolloré is a nice vehicle for investors with a (very) long-term horizon as there is great positive optionality for the fair value to be realized (above my selling target!) somewhere down the long road (before 2022?). In the meantime, the annual sweetener for waiting is small at around 2% but respectable as this sweetens the deal 'almost surely'. 

    For passive long-term investors this is a great way to diversify out of crowded index funds holding crowded names in crowded countries.


    Subjectdecline since 2015
    Entry02/08/2017 01:39 PM
    Membershoobity

    What were the primary drivers of the decline in the stock price since 2015? Outside of the market being silly... we want to make sure we understand the underlying drivers of the stock price that others are focused on.


    SubjectRe: decline since 2015
    Entry02/08/2017 03:28 PM
    Memberjuice835

    the write up mentions the Africa business rolling over.. in addition, they've done some unexplainable value destroying things-- selling BOL shares to fund HAV buys at a premium https://www.bloomberg.com/news/articles/2014-10-17/bollore-offers-to-buy-control-of-french-advertising-firm-havas (and then selling some of the HAV shares to buy more vivendi http://www.reuters.com/article/us-havas-bollore-stake-idUSKBN0ML22F20150326 )?????

    it's hard to conclude anything other than VB just didn't care about per share value at all in the above transactions....


    SubjectRe: decline since 2015
    Entry02/27/2017 03:21 PM
    Memberpunchcardtrader

    good question. quick answer is oil price, world trade and better answer is in the HSBC initiation report


    SubjectRe: Re: decline since 2015
    Entry02/27/2017 03:40 PM
    Memberpunchcardtrader

    @juice835: this is a hard one, the only thing I can add here is that there's already a rather large amount of debt in the opco's -  http://www.bollore.com/en-us/investors/key-figures 

     


    SubjectRe: Re: Re: decline since 2015
    Entry03/31/2017 11:18 PM
    Memberpunchcardtrader

    Evermore's David Marcus on the Bollore shares selling:

    David Marcus: So their stock had gone from €1.00 to €5.50 pretty rapidly, believe it or not, in the first few years that we owned it, and then you had the Ebola outbreak. And when you had the Ebola outbreak, Bolloré shares went from over €5.00 to low to mid €3s. They had already begun the process of making a bid for Havas, not because they wanted 100% of Havas, their goal was really to go from 30%-something to just over 50%. They wanted to control it so that there would be no hostile bids for Havas. When they made the bid for Havas with stock, their goal was to just get to 51% while they ended up getting 80% because they couldn’t do a partial bid. That’s why once they got to 80%, really within just a couple of months, they sold down from 80% to 60% because they didn’t really want to do that much. They issued more Bolloré shares than they wanted to issue.

    Page 13

    http://evermoreglobal.com/media/pdfs/Q4-2016-Transcript-Final.pdf?utm_term=Q4-2016-Transcript-Final.pdf&utm_campaign=Evermore%20Global%20Value%20Fund%20-%20Fact%20Sheet%2C%20Commentary%20and%20Call%20Transcript%20for%20Q4%202016&utm_content=email&utm_source=Act-On+Software&utm_medium=email&cm_mmc=Act-On%20Software-_-email-_-Evermore%20Global%20Value%20Fund%20-%20Fact%20Sheet%2C%20Commentary%20and%20Call%20Transcript%20for%20Q4%202016-_-Q4-2016-Transcript-Final.pdf

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