New Portfolio Addition - 04/15/2025
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Exor N.V. (ENXTAM - $EXO)
Exor N.V., a European diversified holding company controlled by the Agnelli family, is consistently highlighted in financial analysis as trading at a significant discount to its Net Asset Value (NAV). This discrepancy presents a potential value opportunity for investors seeking exposure to a portfolio that is strategically evolving toward luxury, healthcare, and technology sectors. While the company's roots are firmly planted in cyclical industrial businesses, its management, led by John Elkann, is actively engaged in diversifying its holdings, a move aimed at enhancing long-term growth prospects and reducing cyclical risk. Despite legitimate concerns regarding the future performance of its industrial giants amidst the automotive industry's transition to electric vehicles and increased automation, the robust cash flows generated by these established businesses are currently fueling new investments and facilitating shareholder returns through both buybacks and dividends. This report delves into the details of Exor's operations, portfolio, and strategic direction to assess its potential as a long-term investment.
Exor's history traces back to the founding of FIAT in 1899 by Giovanni Agnelli. Over time, it evolved into a holding company, initially known as IFI, then IFIL, and ultimately Exor, with a broad range of investments. Headquartered in Amsterdam, the company is listed on Euronext Amsterdam (EXO) and trades over-the-counter in the US (EXXRF). A significant stake, approximately 53%, is owned and controlled by Giovanni Agnelli B.V., the holding company representing the descendants of the Agnelli family. Exor operates with a long-term perspective, striving to increase its NAV per share at a rate exceeding its benchmark, the MSCI World Index. Their investment philosophy centers on backing "outstanding individuals who have a record of success and who think and act like owners," seeking strong financial results characterized by robust cash flow and earnings, sustainable competitive advantages, and direct board representation, all while ensuring investments are made at the right price.
Historically, Exor's portfolio was heavily weighted toward cyclical industrial companies resulting from FIAT's transformation, including Ferrari, FCA (now Stellantis), and CNH Industrial. The transformation of FIAT, largely attributed to Sergio Marchionne, significantly increased the combined value of these entities. Management is actively diversifying into luxury, healthcare, and technology sectors. Ferrari is considered the "crown jewel" of the portfolio, representing a significant portion of the NAV. Recent acquisitions in healthcare, including Philips and Clarivate, indicate a strategic shift. Other significant holdings include Stellantis (automotive), CNH Industrial (capital goods), Institut Mérieux (healthcare), The Economist Group (media), and Juventus Football Club (sports). Exor also has an investment management arm, Lingotto, managing assets across various strategies. The sale of PartnerRe in 2022 generated significant capital for reinvestment.
A central theme in the analysis of Exor is its persistent trading at a substantial discount to its NAV. Estimates of this discount vary, but it often hovers around 40-50%. Analysts calculate NAV based on the market value of listed holdings and estimated values of private assets. Conservative NAV estimates often adjust downwards the value of certain assets like Ferrari or venture investments. Several factors contribute to this discount, including the perception of holding companies leading to conglomerate discount, significant ownership by the Agnelli family can lead to concerns about minority shareholder rights and corporate governance, and historically, Exor's strong ties to the automotive and industrial sectors, perceived as cyclical, have contributed to the discount. Exor's shares may also be less liquid than its major listed subsidiaries, and the market perception and skepticism about the future of traditional automakers and industrial companies might weigh on Exor's valuation.
Exor has a strong track record of value creation through strategic acquisitions, disposals, and spin-offs (e.g., Ferrari, Iveco, Stellantis merger). Current capital allocation priorities include diversifying the portfolio towards luxury, healthcare, and technology sectors, perceived as having stronger long-term growth potential and less cyclicality. Management also focuses on reinvesting in existing portfolio companies and making new strategic acquisitions, returning capital to shareholders through share buybacks and dividends, and maintaining a strong balance sheet with ample liquidity to capitalize on investment opportunities during market downturns. Management emphasizes a long-term, patient capital approach, willing to invest in turnaround situations and hold assets through market cycles.
Exor has demonstrated strong long-term NAV growth, outperforming the MSCI World Index since its listing in 2009. The future performance of Exor is seen to depend on the successful execution of its diversification strategy and the performance of its new investments in healthcare and technology. It is also contingent on the ability of its industrial giants (Stellantis and CNH Industrial) to navigate the transitions to electric vehicles and automation, maintain profitability, and continue providing dividends. Concerns exist about their pace of innovation compared to competitors like Tesla and John Deere. The market's willingness to narrow the significant discount to NAV is also a factor. Analysts believe there is potential for this to occur as the portfolio mix shifts and Exor continues to demonstrate value creation.
Several risks and concerns exist. Despite diversification efforts, a significant portion of the portfolio remains exposed to cyclical industries. The rapid technological changes in the automotive and industrial sectors pose challenges and require significant investment from Stellantis and CNH Industrial. Investments in companies like Philips and Clarivate carry inherent risks associated with turnaround strategies. A potential downturn or missteps by key holdings like Ferrari could negatively impact Exor's NAV, and if Stellantis and CNH Industrial face significant headwinds, they might need to cut dividends, impacting Exor's cash flow for new investments. There is also no guarantee that the market will recognize the underlying value and narrow the discount to NAV.
Potential Return Calculation:
Let's consider a hypothetical scenario where Exor's NAV per share increases by 10% per year and the company repurchases 1% of its outstanding shares each year. This intentionally conservative scenario would represent both a slow-down in NAV growth (which has hovered around 17% since 2009), and a slow-down in share repurchases (which has been 2% or more annually since 2022.)
Also, in the spirit of conservatism, let’s assume the current NAV per share is €97.32 and the current share price is around €77.85 (as of April 2025). This gives an initial discount of approximately 20% — far lower than the company’s stated NAV and most analyst estimates as detailed above.
After 20 years, under these conservative assumptions, the NAV per share could potentially reach approximately €800.51.
If the initial discount of 20% were to remain constant over this 20-year period, the potential share price after 20 years would be:
€800.51 (NAV/Share) * (1 - 0.20) = €800.51 * 0.80 = €640.41.
Starting from a current share price of €77.85, an increase to €640.41 over 20 years would represent a significant long-term return. The annualized return in this scenario would be approximately 11.3% per year.
Important Considerations for this Calculation:
This is a simplified calculation. The actual impact of share buybacks on NAV per share depends on the price at which shares are repurchased, which in turn is affected by the market discount.
The assumption of a constant 10% annual NAV growth is hypothetical and may not be realized. Market conditions, the performance of Exor's underlying holdings, and the success of its capital allocation decisions will all influence NAV growth.
The assumption of a constant 1% annual share repurchase rate is also hypothetical. The actual rate may vary depending on Exor's cash flow and management's assessment of the stock's undervaluation.
The discount to NAV may not remain constant. If the market recognizes Exor's long-term value and its strategic initiatives, the discount could narrow, leading to higher returns for shareholders. Conversely, if market sentiment worsens or concerns about Exor's portfolio increase, the discount could widen, negatively impacting returns.