Exor NV
AEX:EXO
Earnings Call Analysis
Q2-2023 Analysis
Exor NV
The company has seen a significant increase in its Net Asset Value (NAV) from €28.2 billion to €34.2 billion, a 22.8% increase that outperformed the MSCI World Index growth. To capitalize on this momentum and the perceived undervaluation of its shares, the company announced a robust €1 billion share buyback program, which aims to aggressively repurchase shares at a discount to NAV.
The investment strategy has been actively executed with around €1.3 billion deployed, including significant investments such as a stake in Philips and funds managed by Lingotto. The company retains a strong focus on long-term growth, targeting sectors where they have strategic interests, such as healthcare, luxury, and technology. The company's approach has typically involved partnerships with entrepreneurial families and businesses that command robust pricing power. In Philips, they see a transformation into a leading healthtech company aligning with their investment thesis.
Despite active investments, the company maintains a modest net debt position of €133 million, indicating financial prudence and a manageable debt profile. With prudent capital management, they can continue substantial investments, balancing between further acquisitions, share buybacks, and debt levels.
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Welcome, and thank you for joining Exor's Half Year 2023 Results Conference Call.
Please note that presentation materials and the related press release are available for download on Exor's website, www.exor.com under the Investors & Media/Financial Results section, and any forward-looking statements made during this call are covered by the Safe Harbor statement included in the presentation material.
As a reminder, all participants are in listen-only mode. Later, there will be a brief question-and-answer session. Please note that this conference is being recorded.
At this time, I would like to turn the conference over to Exor's Chief Financial Officer, Guido de Boer. Sir, you might now begin.
Thank you. Nadia, and good afternoon, everyone, and good morning to who is listening-in from the U.S., and thank you for joining today on this presentation of the first half results, which is our first conference call in quite a while, but we intend to make this a more regular [feature] (ph).
Let me maybe start begin by sharing the main financial highlights for this first half. Our NAV increased to €34.2 billion at the end of June from €28.2 billion at the end of 2022, and the main driver has been the strong performance of our listed companies, as we'll see later on. Our net debt stood at a bit over €100 million at the end of June from a net cash position of about €800 million at year-end 2022, mainly because we have redeployed cash into investments, which we will detail in a bit later in the presentation. And finally, yesterday, we announced a new €1 billion share buyback program, of which up to €750 million will be executed through a tender offer. And the offer period starts today and will be open for 22 days, which we will explain later on in this presentation.
As you all know, our main financial objective is to grow NAV per share and to outperform the MSCI Index, and we did that in this first half. We increased our NAV per share by 22.8%, which was double of what the MSCI World Index delivered in the same period. And we don't intend to do this just over a shorter period. Our objective is to deliver long-term compounded results. So, if you look at the track record since inception, since Exor started in 2009, our NAV per share has been growing at a compounded annual growth rate of close to 19% compared to 11% for the MSCI World Index. So, performance both short and long-term that we're quite pleased with.
If we move to the drivers behind our performance in the first half, we grew our gross asset value by €5.9 billion. And if we look at the components, our listed companies, which represent around 70% of our GAV, were the main drivers of this performance. Listed companies increased by €5.3 billion in value, with the main contributors being Ferrari and Stellantis with strong performance across the board. In investments, which includes Lingotto, our asset manager, as well as Ventures, increased by €0.5 billion, accounting for around €400 million from additional cash deployed and the remainder for positive fair value adjustments in the Lingotto Funds. And the other category, which includes liquidity and other assets decreased by €400 million, mainly due to the cash outflows from our new investments, and partly offset by the dividends we received from our companies and positive fair value adjustment of listed securities that we hold as well as the reinsurance vehicles that we received as part of the PartnerRe transaction.
If we move to the net financial position, as I mentioned earlier, we had a net debt position of €133 million from a cash position of €795 million at the start of the year, and still with a loan-to-value ratio which is close to zero. The main driver of that change has been the circa €1.3 billion deployed into company's investment, with the most significant ones being the €0.5 billion invested for a stake just below 3% in Philips, which we, as you've all seen, increased to 15% in August and the €400 million we invested in the funds managed by Lingotto, the assets company that we founded earlier this year. Other key movements are the dividends received from our companies, which showed very good growth on the back of their performance for €815 million. The regular dividend we paid out for around €100 million and the final tranches of the previous buyback program where we spent €246 million in the first half. And with that, completing the program ahead of time that we announced in 2022.
Then moving on to our reinvestment of the PartnerRe proceeds, where we made good progress in the first half. In November 2022, we held our Investor Meeting and we indicated with you how we would allocate the €6.5 billion that we have available for the coming periods. There we said we would allocate €5 billion to companies and till date we've deployed a total of €4 billion to acquire the 15% stake in Philips, to do the €1 billion share buyback program, as well as to do the follow-on investment in Via and the new partnership with Impala to develop TagEnergy, both that we announced earlier. This basically leaves us broadly around €1 billion to still deploy into companies. And on the investment side, we said we would allocate around €1.5 billion to Lingotto and to Ventures, of which we, in first half, have allocated close to €0.5 billion to both initiatives, also with €1 billion left to deploy between Lingotto and Ventures.
Then moving onto the share buyback, I want to spend a bit of time to go into more details on the buyback that we announced yesterday, given that it's significant in size being around 12% of our free float and 5% of our market cap. We believe that the current value of Exor provides an attractive opportunity to invest in our own shares -- sorry, I should say, invest in our own companies through buying back our own shares given the discount that we trade at. And we plan to do this through a combination of a tender offer and on-market buyback. And the tender offer we have chosen because it allows us to acquire a significant amount of shares in the short timeframe, given that the on-market purchase for this amount would take probably around three years.
So, the tender offer will be for up to €750 million with a book building process with the price range between 3% discount and a 10% premium compared to the VWAP in the offer period, being capped at 10% of yesterday's closing price. And based on the order book, the appointed dealer manager banks will determine the lowest price at which the full €750 million is allocated or at the highest price tendered not exceeding the cap, and also obviously the price should not increase the AGM authorization and the limits that you see in the offering memorandum. We have Giovanni Agnelli, our largest shareholder, providing an irrevocable commitment to participate for an amount of €250 million at the reference VWAP, so not at a premium, but at the referenced VWAP during the price in order to reduce its net debt position.
As I've said, the tender offer period will start today for -- and run for 21 days. And after the tender offer, we plan to start the cancellation process of the purchased shares as well as any treasury shares that we currently hold [and own] (ph). Post the tender offer, we'll launch an on-market buyback for the remaining amount, including any amount which are not tendered as part of this €750 million tender process.
So, with that, I conclude the formal comments that I wanted to make, and I'm pleased to open the Q&A session to address any questions that you may have.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from the line of Joren Van Aken from Degroof Petercam. Your line is open. Please ask your question.
Yes, good afternoon, and thank you for doing this call. First one, you have always stated that growing the NAV is number one priority, and you mentioned it in the beginning as well. But basically, what you're seeing now or what the Board is seeing is that they find the discount too high with this tender offering. So, my question is, has there anything really changed in the vision on the discount versus the NAV growth priorities? And maybe as an add-on on that one, will share buybacks therefore become something more structural going forward as long as the discount is high?
And then, if I may, a question on Philips. It seems to be somewhat of a peculiar investment of -- for Exor, because in the past, we've seen you partnered up with entrepreneurial families, companies with strong pricing power, nice margins, and Philips is much more of a turnaround candidate it seems. So, could you maybe explain us a bit more of the rationale behind this investment? Did something in the discussions with management spark your attention that made you pull the trigger? Thank you.
Thank you, Joren, for these questions. Let me take them one by one. On the choice for buyback, this is consistent with what we've said also in the past, where we said buybacks are part of a broader capital allocation decision, which we make on multiple factors. Firstly, how much opportunities do we have to invest in companies in Lingotto and in Ventures, and what are the expected return on risk trade-offs that we see there? But we also take into account discount levels, we take into account the leverage that we have, and for considering a buyback, we should also take into account maintaining the right levels of liquidity in the stock and volumes of trading in our shares.
So, I think it's a combination of these kind of things where we decide does it make more sense to invest in the company, in our investments, or a buyback. So, we will make that [indiscernible] basis whenever we have funds to invest. So in that sense, I would say it's continuation of how we operate. But I think also a very strong sign on the strength of our companies and the attractivity of the price at which we can invest indirectly in our company through buyback.
Then maybe taking your question on Philips. We've invested in similar situations in the past and we've been really impressed by Philips' transformation from an electronics device conglomerate into a world-leading healthtech company. And we followed with interest the strategic plan they announced and actions that they prepare. And we really believe it's a good company on its path to greatness at a sweet spot where healthcare and technology intersect, which are also fundamental industries where we believe and we think their plans for the future are very exciting. And we believe that our presence as a stable shareholder, supportive of management and believing in their plans is helpful, especially with the role that we can play in providing constructive perspectives. We think that's attractive to Philips and we believe that Philips can deliver attractive returns to us. So, hope that's clear.
Okay. Very clear. Thank you.
Thank you.
Thank you. And now we're going to take our next question. And the next question comes from the line of Martino De Ambroggi from Equita. Your line is open. Please ask your question.
Thank you. Good afternoon, everybody. The first question is on the -- your satisfaction after the Phillips deal. If you are satisfied with the current weight of the healthcare business in your net asset value, and now you are maybe focusing more on luxury and tech?
The second question, sorry, but the line was noisy and maybe you mentioned it, but what's the residual firepower in excess excluding already signed commitments?
And the third is just a confirmation, in case -- in the optimistic case your stock goes well above the cap of the buyback, the €1 billion -- and nobody tenders shares, the €1 billion buyback will be executed on the market -- entirely on the market by September '24?
And last question, if you could elaborate a bit more on Institut Mérieux, Louboutin and Lingotto performance in the first half? Thank you.
Martino, thanks for the questions. On our weight of healthcare in the overall portfolio, we said that this was a focus sector and we've indeed shifted a lot of capital to healthcare. We continue to like that, so we continue to look at healthcare, at luxury and technology. And within those, we look at which companies do we believe attractive for us to invest in. So, if we would see more opportunities in healthcare, we see no concern of increasing that exposure further. We're agnostic across the three sectors where to invest further.
In terms of residual firepower, we said there is €1 billion available to invest further into companies and €1 billion behind Lingotto and Ventures, which is basically allocated to that. So, where we have both investment opportunities is around the €1 billion in companies.
Your question if the share price would move above the cap, then it all depends on how many people would tender, because the share price might be higher, but this provides an opportunity also for larger shareholders to -- in one go monetize significant amount. So, we can't really say how much commitments we will get in the tender offer. But as a general statement, yes, anything that will be not taken up in the tender offer, we do in on-market purchase. And we think it's -- the more we get in the tender offer, we think it's good, because it provides an immediate increase to the NAV per share, but it's also a very strong vote of confidence if shareholders say, "No, we want to be along for the journey and we don't tender," and then we do the buybacks in a more gradual process. So, in the end, we would say it's -- both outcomes show good results in that sense.
And commenting on some of the non-listed companies as far as we can, you've seen Institut -- Louboutin with a slight profit drop compared to 2022. Nothing concerning from our perspective in terms of -- it's a company that has volatility in its business and they have difficult comps given the strong performance in 2022. And in Institut Mérieux, I think there is not that much to comment. That is non-public given that the main driver of its performance is driven by [bioMérieux] (ph), which is listed on the stock exchange. So, nothing really further to comment on that from our side.
So, hopefully, Martino, does that answer your questions?
Yeah, thank you. Just a follow-up on the residual firepower. If I understand correctly, there is not any more room for additional buyback if €1 billion is reserved for investment in the companies following the finalization of this €1 billion?
No, the €1 billion will also take time because even doing €250 million buyback will take the better part of the year. So in that sense, in the year, we'll have, again, good inflows from dividends from companies, et cetera. And at that time, we will review the best capital allocation for the cash inflows that we'll have over time.
Okay. Thank you, Guido.
Thank you. Now we're going to take our next question from the phone line. Just give us a moment. And the next question comes from the line of David Vagman from ING Belgium. Your line is open. Please ask your question.
Good afternoon, everyone, and thanks for taking my question. Just coming back -- sorry, apologies, coming back on the remaining firepower, so to be sure I understood correctly, so you have €1 billion left available for companies and €1 billion left for Lingotto, but for Lingotto and Ventures which is already kind of allocated or committed. Is that how I should understand it? And then follow up on that, on the company side, could you tell us whether -- what you're looking at or envisaging is rather the same type of transaction, let's say, more likely to be listed? You indicated previously that you had a preference given valuation level for listed investment, and could it still be, let's say, done in one go or, let's say, one, let's say, significant investments? That's my first question.
And the second, coming back on the performance of the results, let's say, of unlisted investments, the Exor Ventures, can you also comment on the profit evolution for the Exor Ventures? You commented on Lingotto.
And then, last question, how are you thinking about your loan-to-value ratio, given that the interest rates have increased? So, are you becoming more prudent? And should we be thinking that you will rather not like -- more likely than not go to let's say 20%, I think that's your target, or, let's say, something you can do to remain below 20% -- sorry, maximum of below 20% that you will be rather more prudent than you would have been, let's say, a year or two ago? Thank you.
Okay. Thanks, David. I would say on where to invest the remaining €1 billion, that remains fully in line with what we said in November, where we said we focus on healthcare, luxury and technology. So those sectors are still where we aim to invest. Obviously, if we see an attractive opportunity somewhere else, we will be nimble and free to do that. We said potentially one larger and three to five smaller acquisitions. The larger one we've done. So given amount available, this will be a smaller one and prioritizing public but not excluding private. So that still holds true. We believe that public markets still provide attractive opportunities to get a good stake in. So that is our first area to look at that we're open. So, we remain in line with what we said in November.
On Exor Ventures, we've -- they invest in early-stage venture capital, which has obviously not been the easiest place for the past year. We take a prudent approach. Last year October, we took down the valuations of our portfolio proactively. And we continue on a half year basis to closely monitor the valuation of the companies, have they done recent rounds, et cetera, to make sure that we mark-to-market our portfolio accordingly.
And on loan-to-value, very fair question. Basically, what we intend there is to go back to the same levels as we had before receiving the proceeds from PartnerRe. I think the financing structure that we have now of which many of the bonds are fixed for a long term are at very attractive rates. So, by virtue of investing the cash that we will have, we go back to those historical rates. And, yeah, over time, we will refinance at the prevailing market rates. But for now, I think we're in a very attractive opportunity to have bonds at low rates outstanding, and, yeah, at a leverage ratio where we're very comfortable at.
Thank you very much.
My pleasure.
Thank you. [Operator Instructions] Dear speakers, there are no further questions over the phone.
Yeah. Good. We have two questions that we received online. One was regarding our dividend that is immaterial in the scheme of things, particularly in light of the opportunity to repurchase shares at 40%-plus discount to NAV. What's the rationale for paying a small amount in light of the attractive allocation opportunities?
I think that's exactly the reason why we have our dividend at this base of where we've kept it stable in light with what we set out in our 2019 Investor Conference that we would do €100 million of dividends. And we believe buybacks are an attractive, flexible and for many of our shareholders, tax-efficient way to distribute capital rather than through dividends and it benefits also from delivering NAV per share increase given the higher discount. So that's why we stick with our commitment on dividends that we gave in '19. And like today, if we see an opportunity to return capital to shareholders, we think buyback, given the discount is a very good way of doing.
Second question we've received is, whether we have any plans for U.S. listing?
And to be honest, it has been hard work to move the listing from Milan to Amsterdam, and we're very pleased with having the listing becoming part of the AEX index at the end of last year. So, we have no rationale to look any further.
If there is any further questions, please feel free to raise them in the app.
Dear speaker, there are no further questions over the phone. If you'd like, you're more welcome just to do some kind of closing remarks.
Perfect. No, thank you very much. I hope this call was useful for you to get a bit further insights. And like I said, looking forward to speak again at the full year results or on a one-on-one basis with all of you in the meantime. So, thank you very much, and wishing you a good day. Thank you.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now all disconnect.