Ferrari’s surge pushes NAV into high gear

• Exor’s NAV stood at €20,985m in H1 19, registering a +21.7% since the close of FY18. The strong share price performance from Ferrari (up by +64.3%) was the biggest contributor to the solid NAV growth.
• The consolidated profit came at €2,427m, a substantial rise from the €741m reported in H1 18. The increase was mainly explained by the disposal of Magneti Marelli for €3.8bn.
• Taking into account the €1,059m in dividends received from subsidiaries, Exor’s net financial position was significantly strengthened. The holding’s net debt stood at €2,521m at the close of June 2019 (a €734m decrease yoy).
• The holding company voiced its strong support for CNHI’s “Transform 2 Win” strategic plan, which will entail the spin-off by early 2021 of CNHI’s ‘On-Highway’ assets (trucks, buses and powertrains), to be listed alongside the ‘Off-Highway’ assets (mainly agriculture and construction equipment).

The positive dynamic in equity markets over H1 19 was very beneficial for Exor, as it is a holding company with mostly listed assets (66% of gross assets is listed). The stellar NAV progression since the beginning of the year was mostly explained by Ferrari, whose strong H1 19 results defied the tough times faced by other automakers. Accordingly, its share price surged +64.3%, overtaking FCA to become Exor’s second largest holding, representing 26% of gross assets.

FCA, meanwhile, is going through many difficulties as vehicle shipments collapsed over H1 19 (down 10% yoy) and the company appears ill-prepared to take on the challenges of electrification and tougher CO2 emission regulations. This was reflected in the poor stock price performance since the beginning of the year, retreating 3.9%. Overall, the positive performance from the listed holdings (save for FCA), resulted in a +17% rise in the value of gross assets.

Magneti Marelli disposal boosts consolidated profits

Exor’s consolidated profit of €2,427m came significantly above the figure reported in H1 18 (€741m). This €1,686m increase was mainly the result of the net gains realised from the sale of Magneti Marelli for €3.8bn, of which Exor’s share corresponded to €1,092m. Nonetheless, operational improvements of the underlying companies (most notable PartnerRe) also contributed to the profit surge.

Exor’s fully-owned reinsurer reported net income of $805m at the close of June 2019, a remarkable increase from the $28m posted in H1 18. The notable improvement was led by net realised and unrealised investment gains which amounted to $917m in H1 19, compared to $-60m in H1 18. The decrease in global risk free rates and credit spreads over the period supported market value gains in the fixed income portfolio, representing $443m of the total net realised and unrealised investment gains over the period.

Full approval of CNHI’s strategic split

Unsurprisingly, Exor issued a statement voicing its ‘strong support’ for CNHI’s spin-off plan, which will see its two main activities split-off and subsequently listed as separate entities. One can hazard a guess that Agnelli’s hands were the driving force behind this strategic move. Indeed, Exor’s skill in unlocking value by off-loading assets from FCA’s portfolio, such as the spin-off of Ferrari, and now through the sale of Magneti Marelli to its rival Calsonic Kansei, is more than commendable.

The split of CNHI into two separately-listed activities might have the potential to continue with that trend, with Exor remaining as the reference shareholder of both entities once the operation is completed. Currently, the holding company has a 27% stake in CNHI

We will upgrade our EPS estimates for the full year as the dividends received from subsidiaries and PartnerRe’s operational results came in above our expectations. We will also include the proceeds received from the disposal of Magneti Marelli, which will lead to an improvement in our NAV-based valuation given the strengthened financial positioning compared to the close of 2018. This will further support our Buy recommendation, highlighted by Exor’s tactical position in the centre of the consolidation of two major industries (automotive and reinsurance) at an attractive discount (28%).

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