Groupe Bruxelles Lambert (GBL)(EBR:GBLB, Financial) is a Belgian holding company run by Albert Frere, a man widely referred to as the ‘Warren Buffett of Europe.’ The company owns significant stakes in a variety of established companies including Total (energy), Lafarge (cement), Pernod (alcoholic spirits), and GDF Suez (utility). Though the various underlying companies all have leverage of varying degrees, the holding company is essentially debt free, allowing for a simple sum of the parts evaluation.
Our attraction to GBL was not just the 25-30% discount to NAV at which the shares have traded, but also that the various parts of the company were generally out of favor and relatively inexpensive at low double digit earnings multiples. By purchasing a collection of inexpensive companies via a holding company trading at less than NAV, we viewed ourselves as effectively taking advantage of a double discount.
We put GBL in the category we term ‘infinite duration bonds17.” We naturally recognize that this is an equity, but unlike a bond it should have a rising coupon. Assuming dividends were reinvested in the security, GBL’s USD-based returns over the past decade have been in excess of 10%, which beats the roughly 7.4% U.S. dollar-based compounded return for the Euro Stoxx 50, a collection of leading Blue-chip companies based in the Eurozone.18 Moreover, given that Belgium-based holding companies are not subject to capital gains taxes on the sale of assets, we would argue that the GBL discount is perhaps less justified than that applied to holding companies domiciled in jurisdictions with less favorable tax policies. While we see no catalyst for narrowing the gap between GBL’s market valuation and NAV, our purchase price was accompanied by a dividend yield of roughly 4.5%.
From Steven Romick’s Crescent Fund fourth quarter shareholder letter.
Our attraction to GBL was not just the 25-30% discount to NAV at which the shares have traded, but also that the various parts of the company were generally out of favor and relatively inexpensive at low double digit earnings multiples. By purchasing a collection of inexpensive companies via a holding company trading at less than NAV, we viewed ourselves as effectively taking advantage of a double discount.
We put GBL in the category we term ‘infinite duration bonds17.” We naturally recognize that this is an equity, but unlike a bond it should have a rising coupon. Assuming dividends were reinvested in the security, GBL’s USD-based returns over the past decade have been in excess of 10%, which beats the roughly 7.4% U.S. dollar-based compounded return for the Euro Stoxx 50, a collection of leading Blue-chip companies based in the Eurozone.18 Moreover, given that Belgium-based holding companies are not subject to capital gains taxes on the sale of assets, we would argue that the GBL discount is perhaps less justified than that applied to holding companies domiciled in jurisdictions with less favorable tax policies. While we see no catalyst for narrowing the gap between GBL’s market valuation and NAV, our purchase price was accompanied by a dividend yield of roughly 4.5%.
From Steven Romick’s Crescent Fund fourth quarter shareholder letter.
