2024-01-05 13:22:57 ET
Summary
- Following the buyback and Exor's recent investments, it appears reinvestment risk is no longer a Wall Street concern.
- The company continues its diversification strategy in acquiring new companies with the potential to become great.
- Given the portfolio listed performance, Exor has a higher NAV per share. Therefore, we increased Exor's target price, confirming our buy rating.
It was an excellent year for Exor N.V. ( EXXRF ), with the company's stock price appreciating by almost 30%, doing better than the S&P 500 index and the Euro Stoxx 50 index, which closed with a plus 25% and 19%, respectively. Despite that, we still believe the investment holding company has room for growth. This is because Stellantis (STLA) and Ferrari (RACE), which represent significant investments in terms of NAV, increased their respective stock price by 60.17% and 53.15%, respectively. Today, we are back to comment on Exor, presenting the latest news, the company's lowered firepower after the buyback and the recent investments, and increasing our target price.
Exor NAV Discount in the Past
Looking back, Exor's NAV was driven by Fiat Group performance (in 2009, this represented 61% of the total company's investment), following the spin-off with CNH Industrial (2011) and Ferrari (2016) and two critical mergers with Chrysler first and then the FCA-PSA merger, Exor reshaped its portfolio. Several reasons justified a NAV discount higher than 30% in this period. These were:
- No investment diversification in terms of sector and geographical exposure;
- Concentration of illiquid and untouchable assets;
- Low investment turnover;
- Inefficient financial structure with three share categories;
- Almost no buyback and low exposure to the financial community.
Exor new priorities
Since 2013, Exor has significantly improved its portfolio rotation with the following divestitures: 1) Alpitour, 2) SGS, 3) Cushman & Wakefield, and 4) PartnerRE. In addition, the company moved forward with asset diversification into the luxury and healthcare sectors with the acquisition of Louboutin, Philips, and Institut Merieux (Fig 1). Exor also created verticals in different segments, such as Lingotto Funds/Venture (Fig 2). In 2023, the company converted preferred and savings stock into ordinary shares, which simplified its capital structure. Since 2017, Exor has had a recurrent Investor Day and announced share repurchases with a stop-and-go execution.
Source: Exor Investor Day November Presentation - Fig 1
Fig 2
Therefore, we believe this >40% NAV discount is unjustified. The current discrepancy is difficult to explain. Here at the Lab, we believe this is due to the current macroeconomic uncertainty, limited visibility of unlisted assets rotation, and Juventus football club's constant cash burn. In the last presentation, the Chairman and CEO, Elkann, explained how the management remains focused on increasing Exor's NAV per share.
In the meantime, compared to last year, there are no changes in Exor's strategy: " acquiring new companies that have the potential to become great."
However, the ongoing buyback will likely help the company to lower the valuation gap. Following the latest investment, we believe reinvestment optionality is no longer risky. The remaining firepower is approximately €2.2 billion, with €1.7 billion already allocated (Fig 3). As a reminder, the company had €6.5 Billion in Firepower last year. Our estimates include the share repurchase estimates; the company announced a buy-back of €1 billion. In details:
- €750 million buyback was completed in October 2023;
- €250 million buyback will be completed by October 2024.
Consequently, Exor executed a share repurchase of almost 8 million at a 45% discount. These stocks will be canceled in H1 2024 and will have a 2% positive impact on the company's net asset value.
Fig 3
Latest positive news
Exor's technological passion materializes with a new investment in the fintech world. The company participated in the N5 Now capital increase through its venture capital arm, Exor Ventures. This Argentine software startup was founded in August 2017 by a group of former Banco Santander bankers. N5 Now has global clients, including Mastercard (MA), Zurich Insurance, and N26. The company offers several solutions via its platform, enabling its customers to achieve complete digitalization, regardless of their technological starting point. It is recognized as the only ready-made platform for open banking.
In addition, Lingotto Investment Management took part in a $250 million funding round from Boston-based Indigo AG. Indigo is a company that specializes in leveraging technology and science to help improve the profitability and sustainability of the agricultural sector. The CO2 capture business had already been the subject of Exor's past with direct involvement in the American Industrial.
And lastly, the company invested as a minority shareholder in Ursa Major. This is an American company considered the leading independent supplier of propulsion rockets.
Conclusion and Valuation
Considering the latest stock price development on Philips , Iveco , Stellantis , Ferrari , and CNH , we now anticipate a NAV per share of approximately €159 from the €150.21 recorded in June 2023, while the company's stock price trades at €90 per share (all the above companies are covered by our team with a buy rating with the exception of Koninklijke Philips). We believe the Exor NAV discount should be lower than the 2009-2013 period, but it is currently at >45%. Therefore, applying an unchanged 30% discount, we derived a valuation of €110 per share from €91 per share , confirming our buy rating. In early November, Exor was also upgraded by S&P Global Ratings. Downside risks include 1) a high percentage of listed assets with limited investment turnover, 2) a slowdown in auto sales given its NAV majority is represented by Stellantis, 3) low visibility of the unlisted assets return, 4) new verticals performance, and 5) placement risk from the majority shareholder the Agnelli family.
Source: Exor Corporate Website
For further details see:
Exor: Discount To NAV Unjustified