Societe Fonciere, Financiere et de Participations or simply FFP is a diversified French holding company that is trading at a discount of roughly 50% to it’s NAV. The biggest shareholder in the company is the Peugeot family with a 79.2% stake. So while FFP has a €1.08B market cap the free float is just €225 million. Given the fact that the FFP is majority owned by the Peugeot family it shouldn’t come as a surprise that the largest position is also in the company Peugeot, accounting for almost 30% percent of gross asset value. The other assets consist mostly of publicly traded French companies, private equity investments and real estate. Given the large amount (>83%) of publicly traded assets inside FFP it’s easy to calculate an updated net asset value, confirming the big discount:
The spreadsheet you see here is publicly accessible on Google Drive using this link and updates automatically all share prices and the current discount. Not all assets in FFP are publicly traded, and since the CAC 40 index is up ~15% since the end of June the real discount to NAV is most likely hitting 50% at this moment. This is basically the whole investment thesis! I could write thousands of words about the valuation of the individual companies inside FFP, but the truth is that I don’t really care. The companies that FFP owns have market caps in the billions of euro’s, and I do trust the market to some degree.
What’s positive to see is that FFP appears to have a good track record with their investments outside Peugeot. As you might know the family business isn’t doing very well these days, and if you would have invested in Peugeot 5 years ago you would have lost half your money. If you would have invested in FFP on the other hand you would have made more than 20%, a remarkable achievement given the huge historical stake in Peugeot.
An investment without a catalyst
What I do want to discuss is why I like an investment at a big discount in a holding company, even though I don’t expect that this discount will disappear anytime soon. The Peugeot family owns almost 80% of the holding company so there is no way an outside investor can pressure the family to do something to eliminate the discount, and the family is presumably not extremely interested in the market price of FFP since they are holding this for the very long term. FFP is the vehicle that allows them to control Peugeot SA: their legacy.
I don’t think this really matters though. Even if the discount would never get smaller you buy a company that can support a dividend steam that is twice as high as the underlying assets. And that is what ultimately determines intrinsic value: the dividend stream back to shareholders. You don’t need to sell a stock at a higher price to realize value: if you buy cheap and just hold you will simply enjoy an above average yield.
While there is nothing wrong with holding a stock till infinity I actually don’t think that you have to do this. At some point in time the market will probably realize that a 50% discount isn’t warranted. Last year FFP didn’t pay a dividend because of the poor results at Peugeot and the re-initiation of a dividend could possibly act as a catalyst.
I also assume that the Peugeot family doesn’t hate money. The undervalued shares represent an easy opportunity to make money if they start a repurchase program. You also have to figure that there is probably going to be some point in time when the Peugeot family wants liquidity. They would be stupid to sell their FFP shares at a 50% discount when they could for example divest some assets and realize NAV. Since I think they will care about the NAV discount at some undetermined point in the future you can expect that it will eventually be eliminated. It’s going to take a lot of patience, but I don’t mind that if I’m owning an asset that has intrinsically a yield twice as high as the market average.
Conclusion
The investment thesis in FFP is extremely simple. The holding company trades at a 50% discount to NAV, and I don’t think such a large discount is warranted. Luckily I believe that the simpler the investment thesis, the better, and it doesn’t get any simpler than this!
Rating: on a scale from one to five I’m going to give this idea two stars. The thesis in FFP shares many similarities with Burelle: both are French, family controlled holding companies at a ~50% discount with a focus on the automotive industry. An identical rating is logical.
Disclosure
Author is long FFP.PA
While this is of course encouraging to see I don’t think it’s extremely important. A 50% discount is a 50% discount, regardless of the past, and I have looked at enough holding companies to know that this kind of discount is big.