Exor (MIL:EXO, Financial), the Italian holding company of the Agnelli family, has published its annual letter to shareholders.
The company is led by John Elkann, the 43-year-old grandson of Gianni Agnelli. Elkann is known for being a true value investor. He often attends annual Berkshire Hathaway shareholders meetings, he is friends with 3G Capital leader Jorge Paulo Lemann and he often writes and shares his long-term, value-investing thinking.
In managing his family’s holding company, he closely follows the Berkshire Hathaway conglomerate model: focusing on enlarging businesses moats, adding great managers and making great capital allocation decisions. In 2015, Exor made its largest acquisition ever: Partners Re, a reinsurance business. With this acquisition, Exor came even closer to embodying Berkshire’s model, adding the float of an insurance company to be used to invest in other great businesses.
The company’s current holdings are=:
Sergio Marchionne
The letter began with Elkann’s homage to Sergio Marchionne, the “extraordinary leader” of Fiat Chrysler (FCAM) who passed away in July 2018.
“The journey we started together when Sergio took over FIAT, which was losing €5 million a day, led us to places we could not have imagined in our wildest dreams - from the turnaround of FIAT to the rescue of Chrysler, the creation of CNH Industrial, the foundation of FCA and the IPO of Ferrari. What used to be a troubled Italian Industrial conglomerate with an illustrious past became, under Sergio’s leadership, three separate companies, all global leaders in their respective industries, with great futures ahead of them."
The financial side of this story is simply told. Total shareholder return from June 1st 2004 to July 20th 2018 was Ì´590%. In other words, if you had invested €6.0 when Sergio first became CEO, it would have become €41.4.”
NAV
In 2018, Exor had negative net asset value performance (-13.6%). But, this must be put into context because it followed a year (2017) in which NAV climbed 56.9%. Since its beginning (March 1, 2009), its NAV has grown 17.8% annually versus 9.8% for the MSCI World Index.
Investments performance
In 2018, Fiat generated 4.3 billion euros in free cash flow and had a net cash position of 1.9 billion euros.
An important event in 2018 was the sale of Magneti Marelli to Calsonic Kansei for 6.2 billion euros, a transaction that is expected to close in the second quarter of 2019. Following the sale, the company plans to distribute an extraordiary dividend of 600 million euros.
Ferrari sold 9.215 cars, generating 825 million euros of Ebit.
Partner Re presented improved efficiency, lowering operating expenses by $120 million,Ă‚ and successfully integrated Aurigen, a Canadian Life reinsurance company.
Capital allocation
In regard to dividends, the company said:
“For the first time in nearly ten years, FCA will distribute an annual ordinary dividend, worth €1 billion.”
In regards to buybacks:
“Given the discount at which our shares were trading back in November 2018 (around 36%, well above its 5 year average), we decided to allocate €300 million of our cash resources - corresponding to 50% of the extraordinary dividend to be distributed by FCA on the back of the Magneti Marelli transaction – to share buybacks.”
With the acquisition of Partners Re, Exor began to manage an investment portfolio. Since its inception in 2017, it has delivered a gross return of 56.2% in U.S. dollars. The largest holding is Ocado:
“We have been invested in Ocado, a UK-based technology company focused on food e-commerce, since the beginning of 2017. From its origins as an online grocery provider, Ocado has transformed its business to focus on licensing its technology to other food retailers looking to enter or grow their ecommerce business.”
Conclusion
Exor is currently trading at a NAV discount of 19%. It is a brilliantly managed holding company, with a conservative balance sheet, working to allocate capital in an effective way with the objective to compound value over time. Sound familiar?
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