The rights issue
Those who have been reading the blog long enough might remember that Italy in general is a good hunting ground for “interesting” deeply discounted rights issues and especially Unicredit rights issues in the past were very interesting experiences.
So roughly 4 years later, Unicredit has launched another rights issue. Ex date for the subscription right has been Monday, February 6th.
The conditions were as follows:
- 13 new shares for 5 existing ones
- a subscription price of 8,09 EUR
- total volume 13 bn EUR (!!!)
- subscription rights trade under the ticker UCGAZ
Tomorrow will be the last trade date for the subscriptions rights. So far, the shares are doing really well. the subscription rights recovered from a low of ~0,45 cents to currently around 2,12 EUR.
This is still well below the theoretical value of 2.29 EUR ((3.09-1.943)*2).
Looking at the relative Performance:
Since the rights started trading (January 9th), Unicredit has outperformed the FTSE MIB by +35% and competitor Intesa by +25%, howver since January 1st, Unciredit has underperformed the MFTSE MIB and Intesa by ~-26%
In the last few days, some good news emerged:
– the Abu Dhabi Sovereign Wealth fund had committed to increase its stake
– Zurich Financial Services seems to be interested in buying part of the Turkish JV
So from a investment point of view, a lot of the forced selling seemed to happen in the first 2 days of the subscription right trading period. I had expected that towards the end the price would come down again but it doesn’t look like that at the moment.
Dispite the significant discount of the rights, I will not start a long/short trade, as a lot of the expected outperformance has already occured in the last few days.
The 463 page prospectus is quite an interesting read. Especially the sections about liquidity and the German sub are interesting. That’s good news for German clients of Unicredit (including me), although maybe not for Unicredit.
This is not really a surprise: Today, on the first day the Unicredit rights traded separately (Ticker: UCGAA), the pressure on the stock continued.
The theoretical price of the right at the start of the day would have been 1,26 EUR, currently they are trading at ~95 cents, after hitting a low of ~85 cents in the morning. With the share at 2.44 EUR (again -7%), the theoretical price should be (2.44-1.943)*2= =0.994 EUR, so there is only a slight mispricing at the moment.
In any finance course, market efficiency is one of the most important parts of the curriculum. The Therory says the following:
There are three major versions of the hypothesis: “weak”, “semi-strong”, and “strong”. The weak-form EMH claims that prices on traded assets (e.g., stocks, bonds, or property) already reflect all past publicly available information. The semi-strong-form EMH claims both that prices reflect all publicly available information and that prices instantly change to reflect new public information. The strong-form EMH additionally claims that prices instantly reflect even hidden or “insider” information.
So back to the “new normal” with another episode of my German Stock series. Most of these summaries have been written before the crisis hit, so I just added a few comments here and there and updated the numbers.
351. Rhoen Klinikum AG
Rhoen Klinikum is a
1.1 bn 1.2 bn EUR market cap company owns and runs a series of clinics in Germany. I used to own the shares some time ago but more like a “special situation” investment. The company was target of a take-over battle some years ago and sold a large part of its clinics to a competitor and kept the more difficult ones. The stock did quite well for some time but the started to decline with no end in sight:
Innogy Tendered Shares
A quick update on this “cheap option play”: To a small extent this has developed better than I intitially thought as I had mentioned in the comments. My initial expectation would have been a small loss. However, E.On now has increaesd the price for the tendered Innogy shares voluntarily to 37.59 EUR which, inclding the dividend of 1,40 will lead to a small profit (before taxes and cost) . However the ultimate upside, if there is a lawsuit, will be smaller as the E.On shares dropped to 9 EUR and the theoretical value of the tendered shares is now 4.371*9= 39,34 EUR.
Having this blog is nice because I can look back at what my original ssumptions were. I bought Van Lanschot in 2013, almost 5 1/2 years ago.
This was how I “valued” Van Lanschot back then:
A simple, “Berkowitz style” valuation would be: Book value
With ~0.51 times book value, Van Lanschot is one of the cheapest banks in Europe. Even Greek Banks like Piraeus Bank trade higher. The current valuation is on a level with „quality banks“ like Unicredit, Espirito Santo and Credito Bergamesco.
Interestingly, the P/B multiple for listed Private banks is a lot higher. Swiss competitors Julius Baer, EFG and Banq Privee de Rothschild for instance trade on multiples between 1.1-2.0 times book, a clear premium to „normal“ banks.
So with a “normal” result, one could argue for a valuation somewhere at 1.5 x book value. Clearly, this will be a long way, one should not expect exploding profits in the next quarters. But in a time period of 3-5 years, I could imagine that the stock can triple if the turn-around is succesful. Also, when people finally realize that not every Dutch homeowner will go broke, there might be a re-rating of Dutch financial stocks in general. But this might also take time.
It would be easy to come up with a much more complicated valuation method, but I like to keep it simple. If there are no big holes in the balance sheet and costs are kept under control, equity is at a safe level, then book value should be achievable for any bank.
Exactly 7 years ago now, the first (German) blog post appeared on this site.
As I have done in the past years, this is a good time to reflect about happened over the year. Again a huge THANK YOU to all readers and especially those who actively contributed by commenting (critically) or sending Emails. And those who are suffering my sloppy spelling and grammar….
I am still surprised that I manage to keep this level of activity in the 7th year, but knowing that a lot of really smart people read my post is a fantastic motivation to keep going and try to become better.
Thank you again !!
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