Bestinfond Comments on Exor
The great investment manager David Swensen, head of investments at the prestigious Yale University (Trades, Portfolio) until his death last year, said that value investing is uncomfortable by definition, as the most attractive opportunities are often hidden in places that can become terrifying.
Having read a multitude of reports on the potential compensation to be paid to Philips (XAMS:PHIA) and having discussed the investment case with a number of experts, we understood that most investors were horrified by the idea of investing in Philips. As a brief foretaste of the news revealed below, we may tell you that Exor (XAMS:EXO) was not among them.
Exor is an old acquaintance of Bestinfond (Trades, Portfolio) unitholders. At the end of 2020, just a few months after this team took over management of the fund, the Agnelli family's holding company returned to our portfolio. We liked their assets (mainly Stellantis, Ferrari and CNH). We felt they were impeccably managed and, above all, we were delighted to be able to buy them at a discount of around 40% of their net asset value, which is how they were trading at the time. Despite the fantastic revaluation over the past three years, the discount at which they are quoted has not fallen by a single cent. We are happy Exor shareholders and still find the valuation exceptionally attractive. This view is shared by our sister fund Bestinver Grandes Companias, which has just added it to its portfolio (you can read the Exor thesis in more detail in its newsletter for the preceding quarter).
There are times when our working methodology is backed by one of the companies we own receiving a takeover bid from a competitor or a private equity fund (Univar was the latest). On other occasions, it happens that a large investor detects value in one of the companies we hold in our portfolio, as was the case with Bayer a few months ago. This is exactly what happened on 14 August, when Exor announced that it had bought a 15% holding in Philips. This is a long-term acquisition which results from the holding company's objective of increasing its presence in the health care sector and which will give the Agnelli family a seat on the board, making it the de facto main shareholder of the Dutch company.
John Elkan, grandson of Giovanni Agnelli and current CEO of Exor, is one of the best capital allocators we have known in recent times.
The return he has achieved for its shareholders can only be described as spectacular: since 2009, he has grown the value of the company's assets at a compound rate of 20%. We believe that Exor has seen the same as us in Philips. On the one hand, a technological and industrial capacity that is difficult to replicate in a very attractive sector in the long term. On the other, a very complicated economic situation that enabled it to buy a holding at a very steep discount to the true value of its business.
This document has been drawn up by Bestinver Gestion, S.A. SGIIC for informative purposes only and may not be considered under any circumstances as an offer to invest in its investment funds. The information has been compiled by Bestinver Gestion, S.A. SGIIC from sources deemed to be reliable. However, although reasonable care has been taken to ensure that the information is correct, Bestinver Gestion, S.A. SGIIC does not warrant that it is accurate, complete or up to date. All opinions and estimates included in this document constitute the judgement of Bestinver Gestion, S.A. SGIIC at the date to which they refer and are subject to change without notice. All the opinions contained herein have been expressed on a general basis, without regard to specific investment objectives, the financial situation or individual needs. In no event shall Bestinver Gestion, S.A. SGIIC, its directors, employees and authorised personnel be liable for any type of damage that might arise, directly or indirectly, from the use of the information contained in this document. Under no circumstances is the announcement of past returns a promise or guarantee of future returns. All Bestinver returns are expressed in euro, net of fees and expenses. Potential: The fund's revaluation potential at a given time in the opinion of Bestinver's managers, calculated as the difference between the current and target PER. It is not the gain that the fund will achieve in a given period because, even if the fund achieves a specific performance, the managers' objective is to increase or at least maintain that potential. PER: Free cash-flow price at which the fund is listed, based on the PER estimated by Bestinver's managers for each company (including adjustments such as: debt, time of cycle, share price, foreign currencies, etc.). Target Price: Net Asset Value that could be reached by the fund's units based on the intrinsic value of all the securities making up the portfolio estimated by Bestinver's managers.
This article first appeared on GuruFocus.
