European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
<p>Spreads have generally widened during the last four weeks, in line with selling pressure on the markets.</p>
</div>
<div>
<div>
<h3>Interesting situations and trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p>The discount of <a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares (2 voting rights per share) has widened to 14.7% (from 9.8% by mid August) vs. the A shares (with 20 voting rights per share). Long B shares/short A shares on, if you can get hold of any A shares.</p>
</li>
<li>
<p>The discount of the preferred shares of <a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> has widened to 18.5% (vs. 13.7% at the time of my last report in August), in line with the recent market downturns and still below a maximum of 26.1% reached in November 2020. Maintain <strong>long BMW prefs/short common</strong> shares on, with a target of a 12% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a> 's preference shares premium seems to vary within a range, which is probably liquidity related. It has widened to 28.5% (from 22.3%% by mid-July). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote.</p>
<p>Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. <strong>Maintain</strong> the trade <strong>long common/short prefs</strong> on, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently widened to 7.9% (vs. 7.3% by mid-August). <strong>Maintain short prefs/long ords</strong>, with a 5% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. Prefs discount has shrunk to 30.1% back to March levels (it reached a maximum of 33.4% on 12 August). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, ordinary shares are also liquid. It seems again time to put on <strong>long prefs/short ords</strong>.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>The premium of <a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares widened to 5.8% vs. ordinary shares (vs. 4.4% by mid-August). The market may have given up on a conversion of savings into ords à la Buzzi Unicem or Danieli. A conversion makes financial sense as it would save the dividend advantage for the savings. But that would dilute the voting power of Vivendi (23.943% of the votes, the second largest shareholder is Cassa Depositi e Prestiti with 5.031%). Short savings/long ords.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 41.7% discount (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and even more so are B shares. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade <strong>long B shares (traded on Nasdaq), short A shares (traded in Madrid)</strong>. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares has shrunk to 15.2% and seems to be on a <strong>widening trend</strong>. Investor AB, a stable shareholder, has 22.3% of the votes.</p>
</li>
<li>
<p>On 10 May, Industrivärden divested its entire holding in <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a>. Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). There is a <strong>new large shareholder</strong>: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has shrunk to 14.3% (vs 14.6% by mid-August). While there are some movements in the share capital, which involve purchases of A shares, I recommend <strong>staying clear</strong> from this trade.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p>The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has widened to 12.2% (vs. 7.9% by mid-July). Shareholding seems very stable, so there is no reason for the voting shares to become dearer vs. the non-voting stock. Softbank has quietly purchased nearly $5 bn of non-voting shares, according to the FT. It may be time to jump on the trend and go <strong>long bearer shares/short non-voting equity</strong>.</p>
</li>
<li>
<p>The premium of <a href="https://www.smartkarma.com/entities/schindler-holding-ag-a63e9700-2075-4f83-952a-d3e71b14974b" target="_blank" data-smartkarma-citation="entities:25024:1" rel="noopener">Schindler Holding AG (SCHN SW)</a> participation certificates to Schindler Holding shares has shrunk to 4.5% (vs. 5.3% by mid-August). Like Roche, Schindler also seems on a widening trend, just the opposite way.</p>
</li>
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> non-voting stock vs. voting one reflects Schroders' corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount has widened to 32.6% (vs. 28.4% by mid-July). It seems time to leave this one quiet for a while.</p>
</li>
</ul>
</div>
<div>
<p>Please read on for table and charts.</p>
</div>



Trends



Spreads have generally widened during the last four weeks, in line with selling pressure on the markets.



Interesting situations and trades





The discount of Carlsberg A/S (CARLB DC) B shares (2 voting rights per share) has widened to 14.7% (from 9.8% by mid August) vs. the A shares (with 20 voting rights per share). Long B shares/short A shares on, if you can get hold of any A shares.


The discount of the preferred shares of Bayerische Motoren Werke AG (BMW GR) has widened to 18.5% (vs. 13.7% at the time of my last report in August), in line with the recent market downturns and still below a maximum of 26.1% reached in November 2020. Maintain long BMW prefs/short common shares on, with a target of a 12% discount.


Fuchs Petrolub SE (FPE GR) 's preference shares premium seems to vary within a range, which is probably liquidity related. It has widened to 28.5% (from 22.3%% by mid-July). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently widened to 7.9% (vs. 7.3% by mid-August). Maintain short prefs/long ords, with a 5% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has shrunk to 30.1% back to March levels (it reached a maximum of 33.4% on 12 August). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, ordinary shares are also liquid. It seems again time to put on long prefs/short ords.





The premium of Telecom Italia Sp A (TIT IM) savings shares widened to 5.8% vs. ordinary shares (vs. 4.4% by mid-August). The market may have given up on a conversion of savings into ords à la Buzzi Unicem or Danieli. A conversion makes financial sense as it would save the dividend advantage for the savings. But that would dilute the voting power of Vivendi (23.943% of the votes, the second largest shareholder is Cassa Depositi e Prestiti with 5.031%). Short savings/long ords.





Grifols SA (GRF SM) B shares are trading at a 41.7% discount (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and even more so are B shares. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares has shrunk to 15.2% and seems to be on a widening trend. Investor AB, a stable shareholder, has 22.3% of the votes.


On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS). Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). There is a new large shareholder: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has shrunk to 14.3% (vs 14.6% by mid-August). While there are some movements in the share capital, which involve purchases of A shares, I recommend staying clear from this trade.






The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 12.2% (vs. 7.9% by mid-July). Shareholding seems very stable, so there is no reason for the voting shares to become dearer vs. the non-voting stock. Softbank has quietly purchased nearly $5 bn of non-voting shares, according to the FT. It may be time to jump on the trend and go long bearer shares/short non-voting equity.


The premium of Schindler Holding AG (SCHN SW) participation certificates to Schindler Holding shares has shrunk to 4.5% (vs. 5.3% by mid-August). Like Roche, Schindler also seems on a widening trend, just the opposite way.


The discount in Schroders PLC (SDR LN) non-voting stock vs. voting one reflects Schroders' corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount has widened to 32.6% (vs. 28.4% by mid-July). It seems time to leave this one quiet for a while.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: September Report

<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
<p>Discounts have not kept a clear trend since mid-June.</p>
</div>
<div>
<div>
<h3>Interesting situations and trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares (with 1/10th of the voting rights of the A shares) are trading at a <strong>18.3% discount</strong> (down from July, coming from a 28.4% discount on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. <strong>Maintain</strong> Long B shares/short A shares on, if you can get hold of any A shares.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The <strong>discount has tightened to 13.8%</strong> (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain <strong>long BMW prefs, short common</strong> shares on, with a target of a 12% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a>'s <strong>preference shares premium</strong> seems to vary within a range, which is probably liquidity related. It has <strong>tightened to 22.3%</strong> (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.</p>
<p>Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade <strong>long common/short prefs</strong> on, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> shows a long-term trend towards a reduction of the premium of the preferred shares. The <strong>premium has tightened to 11.5% </strong>(vs. 15.7% by mid-May). Maintain the trade short prefs/long common shares with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. <strong>Prefs discount has widened to 25.9%</strong> (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. <a href="https://www.smartkarma.com/entities/traton-se" target="_blank" data-smartkarma-citation="entities:28140:1" rel="noopener">Traton SE (8TRA GR)</a>, a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in <a href="https://www.smartkarma.com/entities/man-se" target="_blank" data-smartkarma-citation="entities:21670:1" rel="noopener">MAN SE (MAN GR)</a>. Recommendation is to <strong>avoid this trade for the time being</strong>.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli). Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently 1.3%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.</li>
<li>
<a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings' dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes), albeit Vivendi could put its capital to better use than keeping an investment in Telecom Italia. <strong>Short savings/long ords</strong>.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a>B shares are trading at a <strong>35.0% discount</strong> (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for "loyal" shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade <strong>long B shares (traded on Nasdaq), short A shares (traded in Madrid)</strong>. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 15.2%  and seems to be on a <strong>widening trend</strong>.</p>
</li>
<li>
<p>On 10 May, Industrivärden divested its entire holding in <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The <strong>discount has tightened to 11.3%</strong>, lower than July, due to LKAB not increasing its stake. It seems the time to go <strong>long B shares/short A shares</strong>.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/volvo-ab" target="_blank" data-smartkarma-citation="entities:22521:1" rel="noopener">Volvo AB (VOLVB SS)</a> B shares has slightly tightened since mid-June, from 3.0% to 2.7% (vs. 0.8% discount by mid-February). Still <strong>highest levels since January 2016</strong>.</p>
</li>
<li>
<p>The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has <strong>widened to 7.9%</strong> (vs. 6.6% by mid-June, and it recently reached 8%), an unseen level since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights. LTM average daily liquidity (in number of shares traded) for non-voting is 1,656k and 73k, for voting shares. So voting shares have blue-chip liquidity in their own right.</p>
</li>
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> has <strong>widened to 28.4%</strong> (vs 25.7% by mid-June, 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.</p>
</li>
</ul>
</div>
<div>
<p>Please read on for table and charts.</p>
</div>



Trends



Discounts have not kept a clear trend since mid-June.



Interesting situations and trades





Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a 18.3% discount (down from July, coming from a 28.4% discount on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain Long B shares/short A shares on, if you can get hold of any A shares.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount has tightened to 13.8% (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.


Fuchs Petrolub SE (FPE GR)'s preference shares premium seems to vary within a range, which is probably liquidity related. It has tightened to 22.3% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has tightened to 11.5% (vs. 15.7% by mid-May). Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has widened to 25.9% (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. Traton SE (8TRA GR), a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in MAN SE (MAN GR). Recommendation is to avoid this trade for the time being.






Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli). Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently 1.3%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings' dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes), albeit Vivendi could put its capital to better use than keeping an investment in Telecom Italia. Short savings/long ords.





Grifols SA (GRF SM)B shares are trading at a 35.0% discount (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for "loyal" shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 15.2%  and seems to be on a widening trend.


On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS) . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has tightened to 11.3%, lower than July, due to LKAB not increasing its stake. It seems the time to go long B shares/short A shares.






The discount in Volvo AB (VOLVB SS) B shares has slightly tightened since mid-June, from 3.0% to 2.7% (vs. 0.8% discount by mid-February). Still highest levels since January 2016.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 7.9% (vs. 6.6% by mid-June, and it recently reached 8%), an unseen level since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights. LTM average daily liquidity (in number of shares traded) for non-voting is 1,656k and 73k, for voting shares. So voting shares have blue-chip liquidity in their own right.


The discount in Schroders PLC (SDR LN) has widened to 28.4% (vs 25.7% by mid-June, 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: July Report

<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
<p>Discounts have generally widened across the European space.</p>
</div>
<div>
<div>
<h3>Interesting situations and trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares (with 1/10th of the voting rights of the A shares) are trading at a whopping 19.3% discount (down from 28.4%  on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain LONG B shares/short A shares on, if you can get hold of any A shares.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The <strong>discount</strong> remains <strong>around the 15% level</strong> (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. <strong>Maintain long BMW prefs, short common shares</strong> on, with a target of a 12% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a>'s preference shares premium seems to vary within a range, which is probably liquidity related. It is <strong>22.6%</strong> (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.</p>
<p>Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade <strong>long common/short prefs on, with a 10% target</strong>.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> shows a long-term trend towards a reduction of the premium of the preferred shares. The <strong>premium</strong> has recently tightened and is now <strong>15.7%</strong> (vs. 16.1% by mid-May).. Maintain the trade <strong>short prefs/long common shares</strong> with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. Prefs <strong>discount has widened to 25.5%</strong> (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. <a href="https://www.smartkarma.com/entities/traton-se" target="_blank" data-smartkarma-citation="entities:28140:1" rel="noopener">Traton SE (8TRA GR)</a>, a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in <a href="https://www.smartkarma.com/entities/man-se" target="_blank" data-smartkarma-citation="entities:21670:1" rel="noopener">MAN SE (MAN GR).</a> Recommendation is <strong>long prefs/short ords</strong>, with advantage that it can be executed in size and the necessary health warning attached to any trading with Volkswagen share classes, as one can never be completely sure of the Porsche/Piech families' plans. Close soon enough as the discount tightens 200-250 bps.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli).. Since announcement, the <strong>adjusted spread</strong> has ranged between -5.48% and 7.69%. It is currently <strong>-0.99%</strong>. <strong>Long Danieli ords/short Danieli savings shares, if and when the discount widens</strong>.</li>
<li>
<a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> <strong>savings</strong> shares are trading at a <strong>10.2% premium to ordinary shares</strong> (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings' dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes). <strong>Short savings/long ords</strong>.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a><strong>B shares are trading at a 35.1% discount</strong> (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for "loyal" shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current <strong>discount</strong> in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> <strong>B shares</strong> vs. A shares is <strong>14.5%</strong> (similar to May and wider than the 13.8% by mid-April) and seems to be on a widening trend.</p>
</li>
<li>
<p>On 10 May, Industrivärden divested its entire holding in <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The <strong>discount has widened to 12.4%</strong> (vs. 6.6% by mid-April), due to share purchases from LKAB. It should narrow when LKAB finishes its stake building.</p>
</li>
</ul>
<ul style="list-style-type: disc;">
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/volvo-ab" target="_blank" data-smartkarma-citation="entities:22521:1" rel="noopener">Volvo AB (VOLVB SS)</a> B shares has widened and is now trading at a <strong>3.0% discount</strong> to A shares (vs. 0.8% discount by mid-February). It is the highest level since January 2016.</p>
</li>
<li>
<p>The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has <strong>widened to 6.6%</strong> (it recently reached 8%), a level unreached since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.</p>
</li>
<li>
<p>The <strong>discount</strong> in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> is <strong>25.7%,</strong> around the same level as in May (vs. 27.4% by mid-April 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.</p>
</li>
</ul>
</div>
<div>
<p>Please read on for table and charts.</p>
</div>



Trends



Discounts have generally widened across the European space.



Interesting situations and trades





Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a whopping 19.3% discount (down from 28.4%  on 19 April) vs. the A shares), some demand for illiquid A shares seems to be the explanation. Maintain LONG B shares/short A shares on, if you can get hold of any A shares.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount remains around the 15% level (vs. 22.1% by mid-April). The discount is approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.


Fuchs Petrolub SE (FPE GR)'s preference shares premium seems to vary within a range, which is probably liquidity related. It is 22.6% (down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be #1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 15.7% (vs. 16.1% by mid-May).. Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has widened to 25.5% (vs. 20.5% by mid-May, 16.6% by mid-April and 31.8% on 18 March, highest levels since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Volkswagen was considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg, but the company seems to have put those plans on ice. Traton SE (8TRA GR), a subsidiary majority owned by Volkswagen, is squeezing out the minorities (both ordinary and preferred shares) in MAN SE (MAN GR). Recommendation is long prefs/short ords, with advantage that it can be executed in size and the necessary health warning attached to any trading with Volkswagen share classes, as one can never be completely sure of the Porsche/Piech families' plans. Close soon enough as the discount tightens 200-250 bps.






Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon (I am aware I have been repeating this since November, but there has no been any further update from Danieli).. Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently -0.99%. Long Danieli ords/short Danieli savings shares, if and when the discount widens.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.2% premium to ordinary shares (vs. a 7.9% premium by mid-May). The market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli, which makes financial sense as it would save the savings' dividend advantage. That would dilute the voting power of Vivendi (23.943% of the votes). Short savings/long ords.





Grifols SA (GRF SM)B shares are trading at a 35.1% discount (vs. 36.1% by mid-April and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows, albeit it is taking some time. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Also, the Spanish government plans to introduce double voting rights for "loyal" shareholders (those who have kept the shares for at least two years). Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 14.5% (similar to May and wider than the 13.8% by mid-April) and seems to be on a widening trend.


On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS) . Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has widened to 12.4% (vs. 6.6% by mid-April), due to share purchases from LKAB. It should narrow when LKAB finishes its stake building.




The discount in Volvo AB (VOLVB SS) B shares has widened and is now trading at a 3.0% discount to A shares (vs. 0.8% discount by mid-February). It is the highest level since January 2016.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 6.6% (it recently reached 8%), a level unreached since November 2011. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.


The discount in Schroders PLC (SDR LN) is 25.7%, around the same level as in May (vs. 27.4% by mid-April 30.6% by mid-March and 34.1% by mid-February). I would maintain long non-voting/short voting shares on.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: June Report

Telefonaktiebolaget Lm Ericsso / Event-Driven

<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
<p>Mixed: discounts have generally widened across the European space.</p>
</div>
<div>
<div>
<h3>Recommended trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares are trading at a 16.6% discount (7.5% by mid-January and 4.3% by mid-December) vs. the A shares. This is an interesting level to set up a mean reversion trade LONG B shares/short A shares, in my view.</li>
<li>
<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" rel="noopener"></a>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is tightening and is now 20.5% (vs. 25.2% by mid-December). I would keep the trade long BMW prefs, short common shares on, with a target of a 15% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a> 's premium seems to vary within a range, which is probably liquidity related. It is 29.4% (vs. 29.9% by mid-December and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.</p>
<p>Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long ords/short prefs, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 11.8%. Maintain the trade short prefs/long common shares with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. Prefs discount is 10.7% (vs. 8% by mid-December and 4.9% discount in November). It has moved sideways since mid-September. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords. Plus it can be executed in size. The discount tightened since the March 2020 selloff and has widened again over the last months, for no obvious reason.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/buzzi-unicem-spa" target="_blank" data-smartkarma-citation="entities:21146:1" rel="noopener">Buzzi Unicem (BZU IM)</a>: from 18 January 2021 the mandatory conversion of the savings shares into ordinary shares will be effective and therefore, from that date only ordinary shares are traded;</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 5.9%. It is currently 0.64%.</li>
<li>
<a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares are trading at a 10.7% premium to ordinary shares (vs. a 9.5% premium by mid-January). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 39.7% discount (vs. 34.1% by mid-January, 35.2% by mid-December, 38.5% in November and 41.9% by mid-September), there is a trend towards the tightening of this discount since mid-March. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 14.1% (vs. 12.9% by mid-January, 13.1% by mid-December and 12.7% by mid-November). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.</p>
</li>
<li>The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has widened to 11%. I would set up the trade Long B shares/short A shares with a 3% discount target.</li>
<li>
<p>Other than Industrivärden, the other major shareholder of <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> is Solidium Oy (State of Finland). The reversal on the discount over the last 15 months has no obvious explanation. The discount has tightened to 9.1% (vs. 13% by mid-January, 12.2% by mid-December and 8% by mid-November). I would short B shares and go long A shares.</p>
</li>
<li>
<p>The discount of non-voting <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has widened to 2.7%. Considering past-performance, it seems an interesting level to set up long non-voting/short bearer shares. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.</p>
</li>
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> reflects Schroders' way of corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount is now 34.1% (vs 34.9% by mid-December and 33.4% by mid-November), but it reached 42% on 19 May. I would set up long non-voting/short voting shares.</p>
<p>Over 2020, Schroders cancelled 9 mn voting shares, but only 100k non-voting. Considering the discount, it would create value cancelling non-voting stock, but the company did the opposite.</p>
</li>
</ul>
</div>
<div>
<p><em>Please read on for table and charts</em>.</p>
</div>



Trends



Mixed: discounts have generally widened across the European space.



Recommended trades





Carlsberg A/S (CARLB DC) B shares are trading at a 16.6% discount (7.5% by mid-January and 4.3% by mid-December) vs. the A shares. This is an interesting level to set up a mean reversion trade LONG B shares/short A shares, in my view.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is tightening and is now 20.5% (vs. 25.2% by mid-December). I would keep the trade long BMW prefs, short common shares on, with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR) 's premium seems to vary within a range, which is probably liquidity related. It is 29.4% (vs. 29.9% by mid-December and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long ords/short prefs, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 11.8%. Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount is 10.7% (vs. 8% by mid-December and 4.9% discount in November). It has moved sideways since mid-September. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords. Plus it can be executed in size. The discount tightened since the March 2020 selloff and has widened again over the last months, for no obvious reason.


Buzzi Unicem (BZU IM): from 18 January 2021 the mandatory conversion of the savings shares into ordinary shares will be effective and therefore, from that date only ordinary shares are traded;






Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 5.9%. It is currently 0.64%.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 10.7% premium to ordinary shares (vs. a 9.5% premium by mid-January). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.





Grifols SA (GRF SM) B shares are trading at a 39.7% discount (vs. 34.1% by mid-January, 35.2% by mid-December, 38.5% in November and 41.9% by mid-September), there is a trend towards the tightening of this discount since mid-March. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 14.1% (vs. 12.9% by mid-January, 13.1% by mid-December and 12.7% by mid-November). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.

The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has widened to 11%. I would set up the trade Long B shares/short A shares with a 3% discount target.

Other than Industrivärden, the other major shareholder of SSAB AB (SSABA SS) is Solidium Oy (State of Finland). The reversal on the discount over the last 15 months has no obvious explanation. The discount has tightened to 9.1% (vs. 13% by mid-January, 12.2% by mid-December and 8% by mid-November). I would short B shares and go long A shares.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 2.7%. Considering past-performance, it seems an interesting level to set up long non-voting/short bearer shares. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.


The discount in Schroders PLC (SDR LN) reflects Schroders' way of corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount is now 34.1% (vs 34.9% by mid-December and 33.4% by mid-November), but it reached 42% on 19 May. I would set up long non-voting/short voting shares.
Over 2020, Schroders cancelled 9 mn voting shares, but only 100k non-voting. Considering the discount, it would create value cancelling non-voting stock, but the company did the opposite.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: February Report

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

<p>Last Friday, mid-cap specialist elevator maker (in the top ten globally) <a href="https://www.smartkarma.com/entities/fujitec-co-ltd" target="_blank" data-smartkarma-citation="entities:11686:1" rel="noopener">Fujitec Co Ltd (6406 JP)</a> announced a <a href="https://www.fujitec.com/common/fjhp/doc/top_global/document/irnews/2139/20201204_Fujitec%20Co.,%20Ltd.%20Announces%20Future%20Strategic%20Direction%20Plan.pdf" target="_blank" rel="noopener">Future Strategy Direction Plan</a> which focused on "priority business areas in the medium-and-long-term, the Company's medium- and long-term strategic targets, and measures aimed at strengthening its governance structure. </p><p>This <em>sounds</em> kind of jargon-y. Some of it certainly is. But there is actually more than that under the cover, and it is designed to mollify activists who have pursued the company for years. </p><p>The stock has hardly reacted. Some details clearly kick the can but there is a timer set for summer 2022. </p><p>More below the fold. </p>

Last Friday, mid-cap specialist elevator maker (in the top ten globally) Fujitec Co Ltd (6406 JP) announced a Future Strategy Direction Plan which focused on "priority business areas in the medium-and-long-term, the Company's medium- and long-term strategic targets, and measures aimed at strengthening its governance structure. This sounds kind of jargon-y. Some of it certainly is. But there is actually more than that under the cover, and it is designed to mollify activists who have pursued the company for years. The stock has hardly reacted. Some details clearly kick the can but there is a timer set for summer 2022. More below the fold. 

Activist Pressure FINALLY Works on Fujitec (6406)- Going Up? (Albeit Slowly)

Switzerland

Schindler Holding AG manufactures and installs elevators, escalators, and moving walkways internationally.  The Company's products are used in airports, subway stations, railroad terminals, shopping centers, cruise ships, hotels, and office buildings.  Schindler also offers maintenance services.

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Schindler Holding Ag (SCHP VX)

Liquid Universe of European Ordinary and Preferred Shares: September Report

Spreads have generally widened during the last four weeks, in line with selling pressure on the markets. Interesting situations are: BMW, Fuchs,...

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: July Report

Discounts/Premiums have not followed a clear trend since mid-June. Interesting situations are Henkel, BMW, and SSAB, in my view.

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: June Report

Discounts have generally widened across the European space. The report has a summary table and highlights both premiums and discounts as well as...

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: February Report

Spreads have generally widened across the European liquid universe. Interesting long/short situations are: Carlsberg, BMW, Fuchs Petrolub, Henkel,...

Jesus Rodriguez Aguilar

Activist Pressure FINALLY Works on Fujitec (6406)- Going Up? (Albeit Slowly)

Fujitec activist pressure finally seems to have shown results as the company buckles, and undertakes to pursue some activist demands. A small win....

Travis Lundy

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