Compagnie de L’Odet Stock: A Nebula In The Bolloré Galaxy (OTCMKTS:FCODF)

The following segment was excerpted from this fund letter.

In the June quarter, and for much of the past year, our largest position in the portfolio – approximating 13% at 30 June 2024 – has been “long Bolloré” (OTCPK:BOIVF). Not just the company itself, but four separate and distinct positions within the 14 company “galaxy”, each having their own specific thesis, whilst obviously sharing common oversight (except Universal Music Group). They range from the ultimate holding company – Compagnie de L’Odet (FCODF, Odet) – which owns 69% of Bolloré, but which is itself 35% owned by Bolloré, down to the most remote part of the galaxy, Lagardère (OTCPK:LGDDF), which is 63% owned by Vivendi (OTCPK:VIVHY) (held), itself owned 30% by Bolloré. Hence, Odet has an effective ownership of 66% x 30% x 63% or ~12.5% of Lagardère.

All four of the securities, in our opinion, trade at significant discounts to intrinsic value, discounts driven by different influences. Moreover, there are both diverse AND common catalysts to closing these value gaps.

Public market value recognition in the two downstream companies – Vivendi and Lagardère – will be driven by separation of Vivendi into four distinct listed companies¹; there is an interplay here with Lagardère in that its book publishing business (Hachette) is complementary to the magazine/online media assets (Prisma) within Vivendi itself. It makes little sense, in our opinion and in that context, for there to be a 37% minority in Hachette for no reason.

However, at this stage, which we believe will change over time, the fortunes of Odet and Bolloré are driven far more by the share price of Universal Music Group (OTCPK:UMGNF), the option value inherent in holding over €6billion of cash, and the ~€3bn value of Bolloré’s 30% shareholding in Vivendi. Any changes in Lagardère and Vivendi offer incremental value to the Odet and Bolloré holding companies. That’s why we feel comfortable owning all four securities.

The existence of a “nebula” in the galaxy is most surprising because this “cloud” resides in the most transparent part of the group – the relationship between Odet and Bolloré. The relative share prices of the two companies have become disjointed over the past year, especially so in the month of June with political emotions running high.

A year ago in this report (QR#2) 27 of its 29 pages covered the Bolloré “galaxy” with a focus on past history in an attempt to glean lessons applicable to the group’s future in its cashed up format – subject to the then completion of the European logistics sale to CMA CGM. Since then, much has happened within the Bolloré empire, virtually none of which can be construed to be negative in nature. Aside from the closure of Bolloré’s logistics sale and subsequent receipt of cash, it’s fair to say that the “action” – and subsequent investor focus – has been on the “downstream” companies which have seen far better twelve-month stock price performance:

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Since this time in 2023, UMG has continued to grow at well above average rates; rolling 12-month adjusted EBITDA (we’ll call it “earnings” which is sloppy but adds back stock-based compensation which can vary quarter to quarter) has grown a handy 10.8% in the year to 31 March 2024 – down from the near 20% annual growth rates of late 2022. But this metric is now running at €2.44billion, with consensus expectations of €2.65billion for the 2024 calendar year. UMG has benefitted from a register where 60% of the shares are locked up in four hands – including Bolloré 18% and Vivendi 10% – but also the fascination with “moated” stocks.

Consequently, allowing for a significant €900million appreciation in UMG’s stake in Spotify (6.457million shares or 3.3%) UMG’s EV² has moved from €38.2billion to a current €50.8billion over the course of the last twelve months: from 16.1x forward “earnings” (see above) to 19.2x.

The 36% appreciation in UMG’s price is equivalent to €1.33 per Vivendi share, roughly equating to the €1.35 change in Vivendi’s share price, suggesting none of the other positive factors within Vivendi – the proposed split, ongoing growth in profit – have been of significance. As we discuss below, we don’t view that as being realistic. It’s even worse for Bolloré where the increased UMG price is worth an effective 37% increment over the share price a year ago (dissolving the self-control loop with Odet) or 15% assuming full capital participation.

A year ago in QR#2, on pages 26 and 27, we tabulated estimates of the value of Bolloré at €13.15 per share; the tabulation showed a near perfect symmetry in netting off the value of the energy distribution business, storage systems and films plus assorted investments against the capitalised value of holding company costs. At this stage, therefore, we feel it is reasonable to simplify Bolloré down to an effective four-line table. Hence, after solving for the self-control loop, which we estimate reduces Bolloré capital from 2,850million shares to an estimated 1,156million, we can arguably simplify Bolloré down as follows:

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Hence at end June 2024, we view Bolloré as trading at a 65% discount to NAV, well above the prevailing discounts of ~40% of other European family-controlled conglomerates; more pointedly, the discount has blown out nine percentage points in a year despite the removal of transaction closure uncertainties and a 36% lift in the price of its largest investment.

If that is perplexing, the situation with Compagnie de L’Odet is even more the case, especially as at the June 2023 AGM, Chair Vincent Bolloré was noting the very low price of Odet; at 30 June 2024, it had fallen 14% from then.

A year ago (page 27 of QR#2), we calculated based on Bolloré’s then market price, that Odet was trading at around a 5% discount to market value NAV (€1554 against mid-point NAV of €1634). The same calculations at 30 June 2024 show that Odet has slithered away to close on a 20% discount to NAV at Bolloré’s market value:

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So we have a holding company trading at a 20% discount to an intermediate holding company with effectively three investments, which itself trades at a 65% discount to real NAV. We value Odet at over €4,700/share on the current asset base – 260% above the prevailing market price. Given the massive optionality with Bolloré’s cash hoard and the clear desire of the group to commence the process of simplification and value extraction, there are few other low-moderate risk investments with such upside, anywhere on the planet.