Investment memos

Caltagirone SpA – More “Hidden” Value

5th December 2015

We have not posted about one of our core holdings, the Caltagirone complex, for a while. In summary despite the security going up 11.6% since we initiated the position the discount to our fair value has remained broadly the same and the overall quality and certainty of the margin of safety has improved. Below we detail the main changes since our lost post on Caltagirone and we will also be increasing our holdings in CALT IM by another 2.5% to 5.0% at market open.

1. Vianini Lavori Take Private / Grandi Stazoni

On the 15th May 2015 FGC Finanziaria, a company controlled by Francesco Gaetano Caltagirone, made an offer of EUR 6.8 per share ex-div to buy out the 28.1% of Vianini Lavori not controlled by the Caltagirone group which represented a 16.8% premium to the 3 month average trading price immediately preceding the announcement date. In the offer Caltagirone stated that they would delist the entity if their offer was successful and at the a shareholders meeting on the 22 October 2015 it was announced that over 90% of Vianini’s shares were controlled by connected parties and they would be proceeding with a squeeze out and delisting.

We cannot fathom why the minority shareholders tendered their shares into this offer given that, excluding any value for Vianini’s stake in Grandi Stazioni, the offer represented a 48.9% discount to the value of the listed securities and cash net of all obligations that Vianini held. In fact, as we saw with Genterra, the controlling shareholders could fund the entire take out of the minorities with cash on the balance sheet.

Given the discount to a very conservative fair value we didn’t look further into Caltagirone’s motivations at the time or consider whether there was any other value we should have been taking into consideration. However, we know think that a big part of their motivation in this takeover was the upcoming privatisation of the Italian railway assets known as Grandi Stazioni in which Vianini has a stake through its 40% interest in EuroStazioni.

As a quick reminder Grandi Stazioni S.p.A. is a member company of Italy’s Ferrovie dello Stato (English: State Railways) group and was created to rehabilitate and manage the 13 biggest Italian railway stations. The company is 60% controlled by Ferrovie dello Stato and 40% controlled by EuroStazioni which is a consortium of private investors including the Benetton Group, Pirelli, SNCF and Vianini Lavori which has a 32.741% stake.

Interestingly it was reported at the beginning of July by Italy’s equivalent of the FT that the state was looking to sell Grandi Stazioni by the end of 2015 (article can be found: here). Having dug a bit deeper we were able to find a number of articles putting the price tag at EUR 1.0bn which we assume is a TEV not equity value (see example here).

With a bit more moderate sleuthing (and frankly something we should have done in our initial underwrite of the Caltagirone group) we were able to find the 2014 accounts of Grandi Stazioni with a view to trying to test the credibility of the rumoured EUR 1.0bn price take which you can find here.

It turns out that Grandi Stazoni is basically a real estate company which earns rent from commercial tenants located in the stations. Taking the latest annual accounts we stripped out the advertising and other revenue assuming a suitable EBITDA margin to arrive at the “clean” real estate earnings. Assuming a EUR 1.0bn TEV and adjusting out the value of the other businesses you would need to believe a purchaser would be willing to acquire the railway stations for a 5.6% rental yield or better. This would seem fair looking at CBRE data on Italian prime commercial rental yields which range from 4.00 – 5.50% (research can be found here). None of this gives any value to the Czech railway stations which they are currently redeveloping. We have included our workings on Grandi Stazioni valuation below:

Grandi Stazioni Valuation


All in all the additional value from Grandi Stazioni adds an additional 17.7% value to the Vianini stake which equates to 18.4% of the current CALT IM market cap.

Finally, in tracing all of this back we also noticed that we goofed up our initial memo by only attributing value from Caltagirone’s 50.045% direct stake in Vianini and missing an additional 6.426% stake that they held indirectly. This is worth an additional 14% of the current CALT IM market cap

So all in all we have “discovered” an additional 30% of value in Vianini when considering the market cap.

2. Caltagirone Editore

When we recommended an investment in the group Caltagirone Editore was EBITDA negative. This has now reversed with the group posting positive LTM EBITDA of EUR 3.2m driven by two things: (i) stabilisation / recovery in advertising revenue, and; (ii) continued effective cost cutting. Depending on the levels of employee and other provisions that get crystallised during 2015 the business will still burn a small amount of cash but not much. Below we have laid out all the quarterly financial and operational KPIs we could find in CED IM’s reporting so you can judge the performance of the company for yourself:

CED IM KPIssee pdf

To be clear CED IM is not out of the woods yet by any means particularly as the online contribution as a % of the total advertising revenue is only 11.6% as of Q3 2015. However, we still continue to hold a small position in CED IM as we believe that a discount of 53% to cash and listed securities represents a dislocation to fair value given the performance of the underlying business.

3. Cementir

Quick health warning that this asset represents a meaningful part of the CALT IM value story and we have not done a huge deep dive on it (obvious comment but you should always do your own diligence as this post shows we often make mistakes).

For the first 9months of 2015 Cementir has roughly stayed flat posting 0.7% revenue increase and a (1.9)% decline in EBITDA. Using Cementir’s LTM EBITDA to Sep 2015 the business is trading at a 7.2x multiple which seems inline to slightly cheap to the other albeit larger cement players such as Holcim, HeidelbergCement etc. At a high level the biggest concern that we have about Cementir is that it generates c. 28% of its revenues and c. 32% of its EBITDA in Turkey which is a potentially overheated economy and also has a higher political risk associated with it that we would normally be comfortable with.

CALT IM’s stake in Cementir represents 34% of our total fair value and it you excluded any value for Cementir then CALT would be trading at a 45% discount to our view of fair value.

4. Updated Valuation

See below for our updated valuation of CALT IM, in short we believe that it is trading at a 41.1% discount to fair value based on the current trading value of each listed entity and a 63.9% discount to our view of fair value.

Caltagirone Valuationsee pdf

Our full workings can be found here

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