European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Liquid Universe of European Ordinary and Preferred Shares: February Report

Liquid Universe of European Ordinary and Preferred Shares: March Report

Liquid Universe of European Ordinary and Preferred Shares: December Report

Liquid Universe of European Ordinary and Preferred Shares: November Report

Event-Driven

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<h3>Trends</h3>
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<p>Mixed: discounts have generally tightened across the European space.</p>
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<h3>Recommended trades</h3>
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<ul>
<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 7.5% discount (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. The discount is tightening, and is now 23.6%. I would recommend setting up a trade long BMW prefs, short common shares 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 28.3% (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 widened since the beginning of November and is now 15% (vs. 13.6% by mid-December). Maintain the trade long prefs/short 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 9.5% (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 <strong>long prefs/short ords</strong>. Plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range.</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>: since announcement of the conversion ratio, the spread has moved between 2.5% and -0.51%. The current spread is 0.36%. The conversion should take place before the end of February.</p>
</li>
</ul>
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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. Since announcement, the adjusted spread has ranged between -5.48% and 4.6%. It is currently -0.86%.</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 9.5% premium to ordinary shares. 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 <em>à la</em> Buzzi Unicem or Danieli. Short savings/long ords.</li>
</ul>
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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 34.1% discount (vs. 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. 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>
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<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 12.9% vs. 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>
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<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 widened recently to 13% (vs. 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 2.1%. 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>
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<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 33% (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>
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<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>
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<p><em>Please read on for table and charts</em>.</p>



Trends



Mixed: discounts have generally tightened across the European space.



Recommended trades





Carlsberg A/S (CARLB DC) B shares are trading at a 7.5% discount (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. The discount is tightening, and is now 23.6%. I would recommend setting up a trade long BMW prefs, short common shares 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 28.3% (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 widened since the beginning of November and is now 15% (vs. 13.6% by mid-December). Maintain the trade long prefs/short common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount is 9.5% (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 selloff and has been moving within a tight range.


Buzzi Unicem (BZU IM): since announcement of the conversion ratio, the spread has moved between 2.5% and -0.51%. The current spread is 0.36%. The conversion should take place before the end of February.






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 4.6%. It is currently -0.86%.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 9.5% premium to ordinary shares. 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 34.1% discount (vs. 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. 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 12.9% vs. 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.


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 widened recently to 13% (vs. 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 2.1%. 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 33% (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.

Danieli & C. Officine Meccaniche (DAN IM)

Liquid Universe of European Ordinary and Preferred Shares: January Report

Volkswagen (Pref)

Liquid Universe of European Ordinary and Preferred Shares: January Report