European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

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<h3>Trends</h3>
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<p>Discounts have not kept a clear trend since mid-June.</p>
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<h3>Interesting situations and trades</h3>
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</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>
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<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>
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<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

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Thematic (Sector/Industry)

<p>Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg .  The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest.</p>

Headline Developments Apple (AAPL) and Goldman Sachs (GS) are reportedly partnering to launch a buy now, pay later (BNPL) service through Apple Pay, according to Bloomberg .  The service will reportedly allow users to spread payments of their purchases across four interest-free payments every two weeks, or across several months with interest.

<p>On <em>23 June</em>, Bloomberg reported that <a href="https://www.smartkarma.com/entities/europcar-mobility-group" target="_blank" data-smartkarma-citation="entities:21457:1" rel="noopener">Europcar Mobility Group (EUCAR FP)</a>  rejected an expression of interest for a potential takeover from a consortium led by <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> earlier this month. The offer was pitched at €0.44/share, for an implied equity value of c. 2,203 mn and a 12% premium to the closing share price on 22 June.</p>
<p>Europcar rejected the offer on the grounds of failing to "reflect the company's full value and value creation potential". Europcar added that "further discussions may take place, which the company does not intend to comment, unless required by law".</p>
<p>On <em>24 June</em>, Volkswagen confirmed that it is considering acquiring a majority stake in Europcar, along with investors Attestor and Pon Holdings.</p>
<p>Akin to a vertical integration, VW seems interested in Europcar's infrastructure (convenient existing locations typically in city centres and airports), fleet management capabilities, and technology for mobility services solutions.</p>
<p>Not all of Europcar's woes are Covid 19-related. Increasing competition from the likes of Über, pay-per-use and car-sharing mean that the shares had already been drifting since July 2017. The situation worsened with the pandemic. As per S&amp;P MI, on 26 February, Europcar announced that it completed a <strong>debt restructuring</strong>. After a debt-for-equity swap, bondholders Anchorage Capital and Marathon AM became the top shareholders.</p>
<p><strong>Europcar financial situation is improving</strong>, driven by vaccination campaigns and the progressive easing of travel restrictions, compounded by the desire to spend in travel. Hire rates are increasing: there are now less cars available to hire, due to cuts in large fleets, while OEMS are reducing production due to lack of semiconductors, therefore replacements will not arrive soon enough to cover an increasing demand.</p>
<p>Car hire is akin to a retail business. Companies acquire large quantities of stock at a discount from OEMs to resell them after a period of time (either under repos with OEMs, sale &amp; leaseback, or to the general second hand market). Rentals represent an additional margin. Key success factors are the right capital structure and depreciation rates (final vs initial vale of the stock, which must be reduced as much as possible, plus there is a continuous struggle against obsolescence). Therefore, the best valuation method is DCF.</p>
<p><strong>From my calculations, fair value is €0.58/share</strong>, which implies a 19% upside. Terminal EV/EBITDA multiple is similar to that of Localiza.</p>
<p>Volkswagen has cash &amp; equivalents for an amount of €44.5 bn, vs. a market cap of Europcar of €2.4 bn. Volkswagen seems right in its strategy to pursue an easily digestible Europcar, but surely does not want to overpay. Recommendation is <strong>speculative buy</strong>.</p>

On 23 June, Bloomberg reported that Europcar Mobility Group (EUCAR FP)  rejected an expression of interest for a potential takeover from a consortium led by Volkswagen (VOW GR) earlier this month. The offer was pitched at €0.44/share, for an implied equity value of c. 2,203 mn and a 12% premium to the closing share price on 22 June.
Europcar rejected the offer on the grounds of failing to "reflect the company's full value and value creation potential". Europcar added that "further discussions may take place, which the company does not intend to comment, unless required by law".
On 24 June, Volkswagen confirmed that it is considering acquiring a majority stake in Europcar, along with investors Attestor and Pon Holdings.
Akin to a vertical integration, VW seems interested in Europcar's infrastructure (convenient existing locations typically in city centres and airports), fleet management capabilities, and technology for mobility services solutions.
Not all of Europcar's woes are Covid 19-related. Increasing competition from the likes of Über, pay-per-use and car-sharing mean that the shares had already been drifting since July 2017. The situation worsened with the pandemic. As per S&amp;P MI, on 26 February, Europcar announced that it completed a debt restructuring. After a debt-for-equity swap, bondholders Anchorage Capital and Marathon AM became the top shareholders.
Europcar financial situation is improving, driven by vaccination campaigns and the progressive easing of travel restrictions, compounded by the desire to spend in travel. Hire rates are increasing: there are now less cars available to hire, due to cuts in large fleets, while OEMS are reducing production due to lack of semiconductors, therefore replacements will not arrive soon enough to cover an increasing demand.
Car hire is akin to a retail business. Companies acquire large quantities of stock at a discount from OEMs to resell them after a period of time (either under repos with OEMs, sale &amp; leaseback, or to the general second hand market). Rentals represent an additional margin. Key success factors are the right capital structure and depreciation rates (final vs initial vale of the stock, which must be reduced as much as possible, plus there is a continuous struggle against obsolescence). Therefore, the best valuation method is DCF.
From my calculations, fair value is €0.58/share, which implies a 19% upside. Terminal EV/EBITDA multiple is similar to that of Localiza.
Volkswagen has cash &amp; equivalents for an amount of €44.5 bn, vs. a market cap of Europcar of €2.4 bn. Volkswagen seems right in its strategy to pursue an easily digestible Europcar, but surely does not want to overpay. Recommendation is speculative buy.

<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

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>In last week's <em>Compass</em> we highlighted what we view as compelling signals that risk appetites are improving, which is bullish for the broad market. The trend of improving risk appetites has only continued over the past week and we are moving toward an outright bullish outlook.</p>

In last week's Compass we highlighted what we view as compelling signals that risk appetites are improving, which is bullish for the broad market. The trend of improving risk appetites has only continued over the past week and we are moving toward an outright bullish outlook.

U.S. Equity Strategy: Small-Caps Re-Emerging As Leadership

Germany

Volkswagen AG manufactures and sells vehicles. The Company offers economy and luxury automobiles, sports cars, trucks, and commercial vehicles. Volkswagen serves customers worldwide.

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Volkswagen (Pref) (VOW3 GR)

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

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Granite Bay Capital

Europcar Is Again on the Driving Seat

Volkswagen could easily digest Europcar, but does not want to overpay. Fair value is €0.58/share, a 19% upside. Recommendation is speculative buy.

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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...

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U.S. Equity Strategy: Small-Caps Re-Emerging As Leadership

We continue to see compelling signals that suggest risk appetites are improving, which is bullish for the broad market. As a result, we are moving...

Vermilion Research

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