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: June Report

Liquid Universe of European Ordinary and Preferred Shares: July Report

Liquid Universe of European Ordinary and Preferred Shares: August Report

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: April Report

Event-Driven

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<h3>Trends</h3>
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<p>Mixed picture, although discounts have generally widened across the European space.</p>
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<h3>Interesting situations and trades</h3>
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<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 22.2% discount (25% by mid-April) vs. the A shares, 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>
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<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 has suddenly tightened to 15.8% (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.</p>
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<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 21.4% (vs. 19.6% by mid-March and 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 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 common/short prefs on, with a 10% target.</p>
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<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 and is now 16.1% (vs. 14.9% by mid-April). Maintain the trade short prefs/long common shares with a 10% premium target.</p>
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<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 had recently widened to erstwhile levels: 20.5% (vs. 16.6% by mid-April and 31.8% on 18 March, highest 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. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. 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 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. Plus it can be executed in size.</p>
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<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 7.69%. It is currently -2.22%. Long Danieli ords/short Danieli savings shares.</li>
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<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 7.9% premium to ordinary shares (vs. a  6% premium by mid-April). 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>
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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 35.3% 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. 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>
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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 14.5% (vs. 13.8% by mid-April) and seems to be on a widening trend.</p>
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<p>On 10 May, Industrivärden divested its entire holding of 44,334,933 class A shares 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>. The divested shares represent 4.3% of the capital and 11.8% of the votes in SSAB. Industrivärden has been a long-term owner with a significant shareholding in SSAB since 1994. The reversal on the discount from June 2018 has no obvious explanation. The discount has widened to 7.2% (vs. 6.6% by mid-April). I would short B shares and go long A shares, with a 10% target.</p>
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<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 2.6% discount to A shares (vs. 0.8% discount by mid-February). It is the highest level since January 2016.</p>
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<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 6.9% (vs. 5.1% by mid-April and 3.9% by mid-March), 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>
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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> has tightened to 25.4% (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>
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<p>Please read on for table and charts.</p>
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Trends



Mixed picture, although 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 22.2% discount (25% by mid-April) vs. the A shares, 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 suddenly tightened to 15.8% (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 is 21.4% (vs. 19.6% by mid-March and 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 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 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 and is now 16.1% (vs. 14.9% by mid-April). 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 had recently widened to erstwhile levels: 20.5% (vs. 16.6% by mid-April and 31.8% on 18 March, highest 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. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. 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 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. Plus it can be executed in size.






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 7.69%. It is currently -2.22%. Long Danieli ords/short Danieli savings shares.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 7.9% premium to ordinary shares (vs. a  6% premium by mid-April). 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 35.3% 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. 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% (vs. 13.8% by mid-April) and seems to be on a widening trend.


On 10 May, Industrivärden divested its entire holding of 44,334,933 class A shares in SSAB AB (SSABA SS). The divested shares represent 4.3% of the capital and 11.8% of the votes in SSAB. Industrivärden has been a long-term owner with a significant shareholding in SSAB since 1994. The reversal on the discount from June 2018 has no obvious explanation. The discount has widened to 7.2% (vs. 6.6% by mid-April). I would short B shares and go long A shares, with a 10% target.


The discount in Volvo AB (VOLVB SS) B shares has widened and is now trading at a 2.6% 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 6.9% (vs. 5.1% by mid-April and 3.9% by mid-March), 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) has tightened to 25.4% (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.


Danieli & C. Officine Meccaniche (DAN IM)

Liquid Universe of European Ordinary and Preferred Shares: May Report