Listed on Euronext Amsterdam (HAL NA), HAL Trust’s roots go back to 1873 and has been operating as an investment holding company since 1977, when it was formed to hold all outstanding shares of HAL Holding NV (www.halholding.com). [Technically, HAL Holding NV is a public company domiciled in Curaçao: for each of its shares, one Trust Share has been issued by HAL Trust, with all Trust Shares having the same rights.]
Its logo - a green and white horizontally striped flag with “NASM” across the middle - gives a clue as to its background: “Nederlandsche-Amerikaansche Stoomvaart Maatschappij” (or “Dutch American Steamship Company”) which became the more famous “Holland America Line” until the operations were sold to Carnival Cruise Lines in 1989 for the equivalent of something more than €500 million.
HAL Trust is controlled by the van der Vorm family (68%), with a further 17% owned by Hans Melchers, another Dutch octogenarian billionaire who made his money in chemicals. Consequently, only 15% of HAL’s shares are available as free float. Both the van der Vorms and the Melchers are particularly private: there are no analyst briefings for quarterly results, no Investor Relations department or investor days, and the company divulge little other than what is required from a regulatory standpoint. For many years it paid a fixed 6% dividend based on the net asset value at the start of the year; this has now been reduced to 4% given the decline in interest rates, with 50% paid in cash and 50% in shares.
Strategy and current portfolio
Despite the secrecy, the company has been growing at a rapid rate: the proceeds from the sale of the cruise line in 1989 are now worth €12 billion.
Contrary to a private equity fund, HAL does not manage external money but rather invests its own funds allowing for a long-term strategy and flexibility in structuring and financing. Preference is for businesses with strong and sustainable market positions and good long-term perspectives in which there is the opportunity to grow the business, either through acquisitions (buy & build) or organic growth: HAL always plays an active role in their management, for example by having board representation in publicly traded companies. It does not have a predetermined investment horizon and often builds up businesses over decades: its largest investment until last year (GrandVision, now sold to EssilorLuxottica) was initiated in 1996 with the acquisition of Pearle Vision and has then been progressively expanded through more than 60 acquisitions.
HAL Trust reports its holdings into 4 segments (the full list is here: www.halinvestments.nl/investments/): there used to be 5 up to 2021, so for better comparisons I included also #0.
0. Optical retail
This was represented by the ~77% ownership of GrandVision, which has over 7,200 optical stores in more than 40 countries. Announced in 2019, the sale to EssilorLuxottica was closed in July 2021 for a total consideration to HAL Trust of €5.5 billion: the initial investment returned a net €7.5 billion in cash over its life and provided an IRR of 21%.
1. Quoted minority interests
Koninklijke Vopak (VPK NA: 48% ownership, since 1999) is the world’s leading independent tank storage company (oil and chemicals), operating 73 terminals in 23 countries with a combined storage capacity of 36 million cubic meters.
Koninklijke Boskalis Westminster (BOKA NA: 46% ownership, since 1989) is a leading global services provider operating in the dredging and maritime infrastructure sectors (coastal defence, riverbank protection and land reclamation).
SBM Offshore (SBMO NA: 23% ownership, since 2012) is a manufacturer of floating production and mooring systems (oil and gas rigs) for the offshore energy industry, with multiple units currently in operation.
Safilo Group (SFL IM: 49.8% ownership, since 2005) is an Italian manufacturer and distributor of optical frames and sunglasses listed on the Milan stock exchange.
[Vopak and Safilo are all consolidated in the annual accounts, while SBM and Boskalis are not. “Koninklijke” is Dutch for “Royal”.]
In March 2022 HAL announced an all-cash voluntary public offer of €32.50 per share for all outstanding ordinary shares of Boskalis Westminster, representing an implied equity value for 100% of Boskalis on a fully diluted basis of €4.2 billion.
As its principal shareholder, HAL does not envision a restructuring or repositioning of Boskalis’ strategy: it just believes that the current public listing offers limited added value and does not outweigh the costs and other disadvantages. Given Boskalis’ business characteristics, the long-term nature of its larger projects (typically spanning multiple years), the cyclicality of its underlying markets and – last but not least – the lacklustre market performance over the last few years, HAL believes it could benefit from private ownership with a long-term investment horizon, while at the same time enhancing M&A opportunities.
2. Unquoted companies (both majority and minority owned)
Broadview Holding (97%, since 1996) produces, through its subsidiaries in the Netherlands, Italy and Germany, composite panels for façade cladding as well as laboratory furniture, panels for a variety of interior surfaces, doors and frames, kitchen worktops and windowsills. It is also active in the distribution of liquefied natural gas (LNG) and related activities in Norway, the Netherlands and Turkey. In 2021 it also acquired DMT Environmental Technology, a leading supplier of biogas upgrade facilities for the European and North American markets.
Timber and Building Supplies Holland (94%, since 1999) is one of the Netherlands leading suppliers of timber products and building materials used for new construction, renovations and maintenance.
Ahrend (96%, since 2001) delivers furniture and fit out services for office, education, healthcare and retail environments through a portfolio of leading furniture brands.
Atlas Professionals (100%, since 2011) is a temporary staffing agency supplying technical personnel to the international oil & gas, marine and offshore wind industries.
Anthony Veder Group (63%, since 1991) is a Rotterdam-based shipping company operating 31 gas tankers.
FD Mediagroep (100%, since 1997) is a Dutch media company comprising financial newspapers (Het Financieele Dagblad), radio stations (BNR Nieuwsradio) and an information and data services provider (Company.info).
Infomedics Holding (95%, since 2016) provides business process outsourcing and factoring services for the Dutch healthcare sector.
Floramedia Group (96%, since 1999) provides horticultural products and services to growers, garden centres and retailers.
AN Direct (90%, since 2017) sells hearing aids via its website and call centres in the United States.
Sports Timing Holding (96%, since 1998) produces identification and timing equipment for sports events.
Van Wijnen Holding (88%, since 2020) is active in residential and utility construction, project development and renovation activities in the Netherlands.
Coolblue (49%, since 2016) is one of the leading online retailers in the Benelux.
DMF Investment Management (25%, since 2017) originates and manages Dutch mortgages funded by pension funds and international investors with assets under management of approximately €19 billion.
GreenV (60%, since 2021) is active in the greenhouse construction sector.
BVG International (100%, since 2021), better known as “Top Employers Institute”, provides certification and benchmarking of human resources policies globally.
Pro Gamers Group (64%, since 2021) is a distributor of computer gaming equipment and accessories, both with own and third-party brands, through its own web shops in Germany, Finland, UK and Australia.
Prodrive Technologies (31%, announced in December 2021, not yet completed) is active in the research, development and manufacturing of high-tech electronics, software and mechatronic products and systems used, among others, in the semiconductor, medical and electric mobility industries.
280ppm (95%, since 2021) focuses on earlier stage growth investments in areas related to the reduction of greenhouse gases.
Whilst the controlling families may be very private, that has not stopped management from being active in acquiring and disposing of a number of smaller companies within their unlisted company stable. For example, in February 2022 HAL agreed to sell Orthopedie Investments Europe, a 100%-owned (since 2007) manufacturer of orthopaedic and other medical aids to a German competitor.
3. Real estate
HAL’s real estate assets (both office and residential buildings, mostly co-owned with local partners) are located in the Seattle metropolitan area (US) and the Netherlands. In February a joint venture in which HAL has an 85% equity interest sold an apartment building in Bellevue, a suburb of Seattle, consisting of 279 apartments: the sale resulted in proceeds to HAL of €75 million and a pre-tax capital gain of €50 million.
4. Liquid portfolio
As at December 2021, the liquid portfolio ballooned to €5.6 billion thanks to the proceeds from the sale of GrandVision: it consists of mostly short-term fixed instruments and cash balances (93%) with the remaining in equities (7%).
The fixed income portfolio is managed by external asset managers, has an average duration of 1.7 years and provided a negative -0.4% return last year. The equity portfolio, on the other hand, provided a +39% return and includes a 9.8% stake (market value c.€200 million) in Technip Energies acquired late in 2021.
Current valuation
This is where things get more interesting, but unfortunately also more complicated.
Just looking at the raw numbers, it would appear that HAL could be had “on the cheap”: at the current market price (€138) it is trading at an 8% discount vs. a net asset value of ~€151 as at Dec. 2021 (Q1 results will be out in mid-May). However, NAV at HAL Trust is a very fluid concept that need to be interpreted…
First of all, it does not include the positive difference between estimated value and book value of the unquoted companies, which adds an extra €8/share, so that the discount rises to 13%. [The methodology for these evaluations is clearly explained in the notes to the annual report.]
Second: in view of the rumoured IPO in 2021, the 49% ownership interest in Coolblue was still included at book value (€263 million) and not at estimated market value. [It is worth mentioning that Coolblue’s IPO, initially expected after last year’s summer, has for the moment been postponed due to increased uncertainty.]
Finally, simply looking at NAV as a rough measure of intrinsic value is complicated by the full consolidation of some (but not all) of the quoted investments.
Net income in 2021 was €4.3 billion, which would put the company on a LTM P/E of less than 3x. But that also has little meaning, and not only for the consolidation issues: €3.5 billion of “income” was the capital gain from the sale of GrandVision, which is definitely a non-recurring item. As this was a non-taxable event, adjusted net income was c.€800 million, for a P/E of 16x.
To arrive at a more meaningful valuation we need to: a) deconsolidate the controlling shareholdings in listed companies (Vopak, Safilo); b) remove the value of the listed companies; and c) include an estimate for the market value of the stake in Coolblue.
CoolBlue, a joint venture between HAL (49%) and its founder Pieter Zwart with the controlling 51%, is a leading e-commerce business in the Netherlands and Belgium which also has 20 physical locations. Last year Coolblue expanded its activities into Germany and rolled out its Business Journey proposition, a work-from-home portal for corporate employees to purchase products based on arrangements Coolblue entered into with certain employers. It also launched Coolblue Energy, its new solar power, electrical vehicle charging stations and renewable gas and energy contracts proposition. In 2021 it reported revenues of €2.3 billion (up 17% vs. 2020) and EBITDA of €91 million (down -20% due to the new investments and the automation of the Tilburg warehouse).
When it’s IPO was first mentioned last year, CoolBlue was aiming for an enterprise value of between €3 and €4 billion. Market sentiment has changed, and valuing this type of companies is always tricky. There are few “similar” companies in Europe and globally, but mostly are still private like CoolBlue, and the listed ones show a huge dispersion in their trading multiples depending on strategy, growth rates, profitability and merchandise assortment (for example, Asos and Zalando are fashion retailers only).
Using Allegro’s multiples, CoolBlue could be worth anything between €2bn and €13bn: Allegro is the “Amazon of Poland”, one of the largest e-commerce players in Europe, profitable and completely dominant in its home market. But despite all this, the stock price is down -65% since its IPO in 2020…
FNAC Darty and UniEuro are specialised in consumer electronics and other household goods, but are also mostly physical retailers, which is reflected in their lower multiples.
Just for the sake of this discussion (and well aware that I might be grossly wrong), I’m going to use a 1x EV/Sales multiple and value CoolBlue at ~€2.5 billion.
As a guide, the unlisted businesses (including CoolBlue) had last year revenues of €5 billion and operating profits* of €400 million (excluding real estate, which contributed a further €42 million): operating margins have been consistently stable around 8% even in the Covid years. As shown above, at current market prices, we are paying €2.8 bn (line C) for all these businesses, equivalent to 0.8x sales and 7x operating profits. [* Operating profits as reported by HAL is EBITA.]
If we re-work the analysis, HAL could be worth around €168 per share:
Risks to a long thesis
Very limited float: this makes HAL of little interest to big funds and/or ETFs (to my knowledge it’s not included in any relevant ETF)
Consistent with HAL’s investing approach, almost all holdings are in cyclical industries
Concentration risk: 31% of estimated NAV (but 45% ex-cash) is in the 4 listed companies (and even more depending on how the offer for Boskalis ends), making HAL’s share price dependent on their actual intrinsic value
Related to the point above, partial mitigants:
VPK is down a lot (-33% since the peak in April 2020), its business dependant on commodities but more on their volumes rather than their prices
SFL has gone through several restructuring phases in the last few years and it seems to have found some stability recently
Boskalis has also lost money over the last four years: however, the company provides adaptive and mitigating solutions to combat the effects of climate change, such as extreme weather conditions and rising sea levels, which could benefit from greater attention in the next decade (the rationale behind HAL’s take-private offer)
Valuation of CoolBlue (12% of adjusted NAV): the “blue sky” estimate is probably conservative, but the tide might be turning (or has already turned) for “hot stocks” and there is no guarantee it will ever reach that price (or even list on a stock exchange at all)
Direct exposure to Russia/Ukraine: very limited. Revenues for the entire group in the region in 2021 were €80 million, while the corporate liquid portfolio includes bonds issued by the Russian federation and a Russian corporate entity for a total amount of €19 million.
Conclusions
A long thesis would rest on the currently limited downside due to the underpricing of HAL’s unlisted businesses, many of which have cyclical recovery potential.
The discount of around 22% to the estimated NAV of €168/share might be tempting (on an ex-cash basis the discount goes up to 36%, €84 adjusted price versus €114 non-cash NAV), but the stock price suggests that investors have very little interest in the unquoted businesses or the “earnings” which emerge from these transactions. And the 4.1% dividend yield alone is not closing this gap.
After the sale of GrandVision there were a lot of questions on what the company would do with the huge amount of unencumbered cash (€50/share): will they husband it? Pay a significant special dividend? Take steps to privatise the trust either with or without the second largest shareholder?
As we have seen, a significant part (€2bn) is now earmarked for the Boskalis offer, but for the future we can’t rule out a sort of “privatisation” via an LBO**: to get rid of the 15% public shareholders, it would cost at my valuation around €2.2 billion (assuming the market would not settle for less than a “fair price”), which is within the available cash levels even after completing the Boskalis transaction. There are enough liquid resources to easily do so and remain free of net debt (or add little debt were the “privatisation” to include also the Melchers stake).
But currently there is no real catalyst in sight that would push for a re-rating of the price.
[**Note: this is more blue-sky thinking, as this option has never been discussed or even mentioned by either management or the owners.]