Description

While NPM, GBL and Pargesa are all interesting and trade at significant discounts to their underlying NAV’s, we will focus on GBL in this write-up. NPM and GBL trade in Brussels, Pargesa trades in Switzerland.

There has always been speculation if the holding structure would be simplified but currently Frere prefers to buy shares in the open market as the discount over the last 18 months has widened again substantially.

Groupe Bruxelles Lambert (“GBL”) is a holding company listed on the Brussels Stock Exchange since 15 October 1956. With a market capitalization of approximately EUR 9 billion, GBL is one of Belgium’s top ten companies.

GBL strives to maintain and promote the growth of a portfolio of investments focused primarily on a small number of companies in which it plays its role as a professional shareholder.

This portfolio will evolve over time following the evolution of the different companies as well as market opportunities. The group invests in companies that offer potential to create value for shareholders and sells investments deemed to have reached maturity.

The intrinsic value of GBL has fluctuated over the years. We hereby list the NAV from 1998

1998: 47,9 euro

1999: 68,4 euro

2000: 83,9 euro

2001: 67,8 euro

2002: 50,9 euro

2003: 54,4 euro

2004: 64.3 euro

2005: 80,3 euro

2006: 113,9 euro

2007: 122,4 euro

2008 estimate: 77 euro

Over the last ten years GBL has created 14,2% of shareholder value (nav growth + dividends) until the end of 2007. Obviously this return will have gone down once 2008 final figures get published. The NAV figure is published weekly on GBL’s website (http://en.gbl.be/default.asp) and the group is very transparant to follow since 95% of the holding consists of publicly quoted companies.

While Frere during the 1990’s invested in many financial institutions the last 10 years he has focused his money on the energy, cement, alcholic beverages and utility space. Albert Frere has taken large equity stakes in big worldwide companies. In most companies he has a seat at the table as he (or someone from GBL) is on the board of directors. Therefore he should be considered an insider in many companies he invests in. The insider buying can be tracked on the websites of CBFA in Belgium or AMF in France.

GBL currently consists of participations in:

29% GDF Suez (listed in Paris, market cap 72 billion euro, GBL owns 5,3% of company)

31% Total (listed in Paris, market cap 90 billion euro, GBL owns 4% of company)

16% Lafarge (listed in Paris, market cap 8 billion euro, GBL owns 21,1% of company)

7% Pernod Ricard (listed in Paris, market cap 12 billion euro, GBL owns 8,1% of company)

5% Imerys (listed in Paris, market cap 2 billion euro, GBL owns 30,4% of company)

3% Suez Environment (Listed in Brussels, market cap 5,7 billion euro, GBL owns 7,1% of company)

1% Iberdrola (listed in Spain, market cap 31 billion euro, GBL owns 0,6% of company)

5,7% of the portfolio is currently cash and 2% in small private equity positions

During the first nine months of this year he increased his stake in Lafarge, Pernod Ricard, Imerys and Suez Environment. In total he has spent 1,4 billion euro’s doing this.

In order for GBL to keep on investing dividends are an important part of the equation. The companies that GBL invest in for the most part have stable dividend expectations going into 2009. GBL current dividend yield is about 4%.

GBL stock price has decreased by about 30% in 2008. Considering the overal EU markets are down about 50%, GBL has fared a little better than the overall market.

As I already mentioned most of the holding consists of large publicly listed entities. It is therefore quite easy to calculate the NAV and the discount at which you can buy these underlying assets.

Today the discount to the NAV is about 25%. You are buying these top quality companies at an average P/E of about 6,6 and a dividend yield of the participations is now 7,3%.

I believe that there will be periods in the future where holdings will again trade at premiums, as was the case in 1998. If they do not trade at premiums the discounts will get smaller if the market picks up again. At the same time the valuations of the underlying companies will improve so the NAV will grow. Albert Frere will clearly not live forever but I think the positions he has build are interesting companies that are often times among the top-5 players in their respective fields. You can buy these top quality companies at a discount of about 25% by investing in GBL.

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