Wilh. Wilhelmsen ASA – Deeply Discounted Blue Ship Specialty Shipping Company With A Major Catalyst

I’m back with what I believe is the best value idea I have dug up in some time, one I haven’t seen covered anywhere else. I submitted it to Value Investors Club, but they didn’t like it. (So no membership for me, at least for now.) Nonetheless, I believe this is an extremely compelling scenario, so I present it to you.

Capture

Wilh. Wilhelmsen ASA – WWASA:Oslo

Deeply Discounted Blue Ship Specialty Shipping Company With A Major Catalyst

Wilh. Wilhelmsen ASA is one of the world’s largest owners and operators of roll-on roll-off “roro” carriers, specialized ships designed to transport automobiles and other large equipment between continents. Broadly speaking, shipping is not an attractive business. The industry is capital-intensive, deeply cyclical, and heavily commoditized. Most shipowners and operators are price-takers. Wilhelmsen, on the other hand, has a knack for identifying and investing in specialized shipping niches that require differentiated vessels and deep operational expertise. As a result, Wilhelmsen is less exposed to the shipping cycle and earns healthy margins returns and returns on capital.

The company also operates an extensive global automotive shipping logistics network. Wilhselmsen’s activities are carried out through a series of joint ventures and associated companies. Wilhelmsen categorizes its business activities in two segments: shipping and logistics.

Shipping – Wilhelmsen owns 40% of EUKOR Car Carriers, 50% of Wallenius Wilhelmsen Logistics, and 50% of American Roll-On Roll-Off Carrier. Together, these companies account for 25% of the global roro market. EUKOR’s largest customers are Hyundai and Kia, while American Roll-On Roll-Off Carrier’s main customer is the US government.

Logistics – Wilhelmsen’s main logistics joint venture is Wallenius Wilhelmsen Logistics. Its other joint ventures are American Auto Logistics and American Logistics Network. These companies provide terminal services, technical services (repairs, quality control, etc.) and inland distribution, moving vehicles from port to final destination. Wilhelmsen’s logistics division also includes an extremely valuable ownership stake in a publicly-traded Korean auto shipping and logistics company, Hyundai Glovis Co. Ltd. Wilhelmsen was an early investor in Glovis and their 12% ownership stake is worth $720 million.

Shares of Wilh. Wilhelmsen trade at an extremely attractive price of 5.5x trailing earnings, adjusted for one-time gains, provisions, and excess corporate cash. Wilhelmsen shares also trade at just 57% of book value. However, Wilhelmsen shares will experience an extraordinary catalyst in the upcoming spin-off of their stake in Hyundai Glovis as a public entity to be named Treasure ASA. Assuming Treasure trades at any reasonable discount to the value of the Hyundai Glovis shares it will hold, buyers of Wilhelmsen shares today are creating the company at below 3x trailing normalized earnings and less than one-third of book value.

First, a look at Wilhelmsen’s earnings. Though shares trade in NOK, Wilhelmsen operates and reports in US Dollars. Because it operates through so many joint ventures and associates, Wilhelmsen’s income statement is reported via the proportional method. For 2015, Wilhelmsen reported $2.31 billion in revenues, $435 million in adjusted EBITDA and $278 million in adjusted EBIT. (EBITDA and EBIT are adjusted for a $200 million provision against possible anti-trust penalties, and a $29 million one-time gain related to the sale of Hyundai Glovis shares.) Interest expense is a little trickier, as Wilhelmsen does not report proportional interest expense. The company does provide proportional total debt: $2,026 million at year-end 2015. The average rate on Wilhelmsen’s debt was 4.4% in 2014 and was extremely similar in 2015, based on the minimal variation in interest expense reported for the full 2015 year in the company’s fourth quarter report. At a 4.4% rate, interest expense on the company’s $2,026 million in proportional debt is $89 million, yielding pre-tax income of $189 million. Finally, taxes. Norway’s corporate tax is 27%, which puts Wilhelmsen’s adjusted 2015 net income at $138 million.

On a market-capitalization basis, net income of $138 million puts Wilhelmsen shares at 6.9x adjusted trailing earnings. However, Wilhelmsen holds substantial cash and short-term investments at the company level: $349 million. (The company’s proportional interest in its joint ventures provides another $263 million in cash, but the conservative approach is to ignore these assets.) Of this $349 million in corporate cash and equivalents, I estimate at least $200 million to be excess capital available for investment. Backing that $200 million out of the company’s market capitalization yields a trailing adjusted P/E ratio of 5.4. Of course, Wilhelmsen’s actual financial statements rarely show net income close to normalized levels. The company conducts a lot of bunker, interest rate and currency hedging, which creates a lot of noise in the statements. The complicated statements may be one reason why shares trade so cheaply.

Now: on to the spin-off! Wilhelmsen has announced it will spin-off its ownership of Hyundai Glovis in summer 2016. The new company will be named Treasure ASA, and its only assets will be the 12% stake in Hyundai Glovis, plus de minimus cash. The gross value of the Hyundai Glovis shares is currently $720 million, but Wilhelmsen’s $346 million cost basis in Hyundai Glovis does create a tax liability. At the 27% tax rate, Treasure ASA’s tax liability in a sale of all Hyundai Glovis shares would be $101 million. I expect shares of Treasure ASA to trade at a moderate discount to the value of the Hyundai Glovis shares, less tax. At a 15% discount, Treasure ASA would be worth $526 million. In their fourth quarter earnings call, the company said it would consider taking steps to narrow the gap if Treasure ASA traded at a meaningful discount, so I believe that 15% is a reasonable estimate.

Though the spin-off’s pro forma market value is more than half of Wilhelmsen’s market capitalization, the spin-off’s impact on Wilhelmsen’s earnings will be much smaller. In 2015, Hyundai Glovis contributed only $36 million in equity income to Wilhelmsen’s results, 26% of pro forma net income.

Assuming Treasure ASA trades with a market capitalization of $526 million when spun off this summer, Wilh. Wilhelmsen’s current implied market capitalization is $421 million. Net of $200 million in excess corporate cash, Wilhelmsen’s market capitalization is $221 million. Pro forma net income is $102 million after deducting Hyundai Glovis’ $36 million contribution. That leaves Wilhelmsen trading at a pro forma trailing cash-adjusted P/E ratio of 2.2, a price to book ratio of 32%.

I do not expect the market to allow a conservatively run, consistently profitable, well financed blue chip shipping company trading at 2.2x earnings for long.

Risks to this analysis include the possibility that Hyundai Glovis shares trade down significantly, perhaps on news of lower Hyundai and Kia sales in the US or a weakening appetite for imports. The company is exposed to the global auto market as well as the market for heavy mining and construction equipment, and slowdowns in those sectors have had an impact and will continue to do so. There is also the risk that Wilhelmsen’s liabilities for anti-trust penalties within the roro market exceed the company’s own estimates, or come due faster than anticipated. (I view the company’s $200 million provision as exceedingly conservative, as future penalties will arrive piecemeal and over the course of many years. Courts don’t move quickly. The value of potential anti-trust liabilities in both absolute and present value terms is likely far less than $200 million.) Regardless, potential penalties are adequately funded by cash within the company’s joint ventures.

The coming spin-off of Hyundai Glovis into a vehicle named Treasure ASA will force the market to recognize how extraordinarily cheap Wilh. Wilhelmsen ASA’s remaining operations are trading. Treasure ASA’s market value is over half of Wilhelmsen’s total market capitalization, yet Treasure ASA accounts for only 26% of Wilhelmsen’s pro forma net income. Wilh. Wilhelmsen’s pro forma valuation of 2.2x normalized ex-cash earnings and 32% of book valuable is untenable and the situation will be corrected by the market.

Alluvial Capital Management, LLC holds shares of Wilh. Wilhelmsen ASA for client accounts. Alluvial may buy or sell shares of Wilh. Wilhelmsen ASA at any time. 

OTCAdventures.com is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see alluvialcapital.com.

Alluvial Capital Management, LLC may buy or sell securities mentioned on this blog for client accounts or for the accounts of principals. For a full accounting of Alluvial’s and Alluvial personnel’s holdings in any securities mentioned, contact Alluvial Capital Management, LLC at info@alluvialcapital.com.

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44 Responses to Wilh. Wilhelmsen ASA – Deeply Discounted Blue Ship Specialty Shipping Company With A Major Catalyst

  1. Henrik says:

    Here is another write-up on Wilhelmsen. https://hammerinvesting.wordpress.com/ how come you choose Wilhelmsen ASA instead of the parent holding company Wilhelmsen Holding (WWI, WWIB)? I own both but at the current valuation Wilhelmsen Holding looks like a far better bargain to me compared to WWASA.

    • otcadventures says:

      I own WWASA for one reason: direct spin-off exposure. The parent holding company is definitely cheaper, and a better bet for the long run. But in the short-term, I believe the spin-off will serve as a superior catalyst for WWASA shares to move closer to fair value.

  2. defensiven says:

    thanks for an interesting read!

  3. Anonymous says:

    I think this is my favorite write up of yours since the Spectrum Group spinoff you discussed maybe 2 years ago. That one was a no brainer and this appears to be too

    • otcadventures says:

      Thank you! Yes, the really good ideas only come along every so often, but I believe this is one of them.

  4. Dickson says:

    Thanks for the interesting write up!
    How did you really assess the antitrust liabilities and the quite big debt load?

    • otcadventures says:

      The Wilhelmsens have a long history of being conservative, and they are eager to downplay the value of their company in order to reduce their exposure to the punitive taxes that Norway likes to impose on the highly wealthy, so I think the family took the chance to apply a very generous loss provision. I expect actual penalties to come in quite a lot lower.

      As for the debt, most is very well collateralized by the value of the company’s vessels. Debt is just a fact of life in the shipping industry, a very capital intensive business. Wilhelmsen’s business earns good margins and is not nearly as cyclical as other parts of the shipping market, so I consider the debt load very reasonable.

  5. Interesting opportunity. Is there anything specific that made you more comfortable investing in a family-controlled company that has already been in trouble for price fixing (so probably not the most ethical people in the world)? Or do you just think that is more than priced in at the current valuation? Cheers!

    • otcadventures says:

      Track record. The Wilhelmsen’s have a long history of increasing value at their companies. They take the long view. I think the potential legal penalties are more than priced in, and I am not even convinced the company did anything awful. Unethical, perhaps, but I think the “price fixing” was not an aggressively anti-competitive action but more of a “gentleman’s agreement” in a very small industry with just a few major players.

  6. Fan Wu says:

    Thanks for the idea. I’ve been following VIC for a long time and read almost all ideas on the website since its inception. The quality of the ideas are not as good as before. Joel has a certain bias towards some ideas, but it has nothing to do with the quality of the idea. In fact, many low-rated ideas are the best performers over the years.

    One thing you might help is to tell us how you think about the Hyundai Glovis business? Is it undervalued or overvalued. It could be a good idea to hedge our exposure by shorting Hyundai Glovis and create a stub.

    And a long overdue thank you for the Spectrum Group idea. Percentage wise, the IIR is the one of the highest I ever scored.

  7. Excellent post and I share your view that the valuation of WWASA – and perhaps to an even greater extent the holding company – makes it fit into the “No Excel arcs necessary”-basket. The downside seems well protected in my view and very little of the upside is reflected in the price.

    I have written a few posts about the company on my blog and will write another one in the not too distant future on my estimate of normalized free cash flow (adjusted for business cycles).

    Just a few points about tax. The company is under a tonnage tax regime which means they don’t pay tax on their shipping income. Instead they pay a tax based on the total tonnage – this number is included under operating costs.
    Also, back in November I was in contact with IR regarding tax of a potential sale of Glovis shares and their response was the following: “Given current tax regulation there would be no tax on the profit if the shares were to be sold at a future date. However if the shares were to be sold today or within a short intermediary period, a limited amount of tax would be payable. ” I didn’t enquire further into what they meant by “a future date” though.

    • otcadventures says:

      Thanks very much for your clarifications! I definitely enjoyed your post. I tend to agree that WWH is the superior choice for long-term investors. However, I believe WWASA has a greater chance of achieving fair value in the short run due to the direct exposure to Treasure ASA. Your comments on taxation were extremely helpful. I admit my knowledge of Norwegian taxation is limited.

  8. Steve says:

    Why do you think VIC didn’t like the idea?

    • otcadventures says:

      Who knows. Maybe I didn’t explain myself well enough, or maybe they consider the Oslo exchange too obscure. They do say they prefer US ideas. Either way, I’ll reapply for membership with some other idea eventually.

  9. Thank you for the another interesting idea. After looking at it, I came to wonder whether (adjusted) p/e is the best way to look at it. If you deduct Glovis and excess cash from p, it doesn’t give a very balanced picture, no? If want to look at this from a multiple perspective, why not use for example EV/EBIT? That’d be currently between 8-9x depending on what amount you deduct as Glovis’ share. I’d view the cash flow/FCF as the most relevant measure here, but don’t really have a good view yet on the level of their maintenance capex. Do you have a clearer picture of that? I’m struggling to see the current price as attractive as you, but I could well be misunderstanding something or looking at it from the wrong direction.

    • otcadventures says:

      Ordinarily, I am entirely in favor of looking at EBIT ratios rather than earnings. Earnings are strongly influenced by financing choices, after all. But I view shipping somewhat differently. Like with banking and other capital intensive industries, debt is an essential part of the operating strategy. And shippers like Wilhelmsen can borrow very cheaply because of their high-quality collateral. (Lenders can repossess and re-sell a ship with ease, not so much a brand name or a distribution network.) Because the debt is unusually cheap, I think it makes sense either to discount the book value of the debt when computing EV/EBIT and comparing across industries or to consider the company on a normalized earnings basis.

      However, I think perhaps an even better method would be to compare return on capital with WACC. I think most would agree that a company that produces a return on capital in excess of its WACC is worth a premium to the accounting value of its capital, essentially the company’s book value plus debt. I would estimate WWASA’s WACC at 7-8%. From 2010 to 2014 the company’s average return on capital was 10%. Looking at equity alone, average ROE from 2010 to 2014 was 14.1%. So whether we consider the value of the equity alone or the value of the enterprise as a whole, I think it’s clear that the company is worth at least the book value of its capital and likely, more. Presently the company trades at only a small fraction of each and will trade for even less once the spin-off is accomplished.

  10. Len Rosenthal says:

    I enjoyed reading your post. I am trying to understand where taxes come into play. WWASA is not IPOing the stock, but they are distributing their holdings, pro rata, to their shareholders. In the US, the former would be a taxable event, but usually not the latter. Does the Norwegian government tax the latter type of transaction, which appears to be a true spinoff based on the company’s press release?

    • otcadventures says:

      Another commenter informed me that I have over-estimated the tax liabilities in the long run. But for now, the tax liability is the result of appreciation in the Hyundai Glovis shares that the spin-off, “Treasure ASA” will own. WWASA’s practice has been to sell shares of Hyundai Glovis into the market and I expect Treasure ASA to continue this practice, ultimately becoming a cash shell and liquidating. The purpose of the spin-off is simply to highlight the value of WWASA’s remaining operations, not to provide shareholders with a means of investing in Hyundai Glovis. Investors are already free to do that via the Korean stock market.

  11. Len Rosenthal says:

    Here is what the press release says, “Shareholders in WWASA will receive their prorate share in Treasure ASA.’ This appears to be a distribution to WWASA shareholder, in other words a true spin-off. Has WWASA or its parent provided other information that I am missing? Just trying to clarify the nature of the proposed transaction.

  12. For me the question is: If they earn so much money to be trading at these low P/E and not spend much on dividends, where does the money go? I don’t know about long-term development of book value per share, but it doesn’t seem that great in the last couple of years.

    • otcadventures says:

      I don’t think it’s accurate to say the company spends little on dividends. Over the past five years, the company paid out NOK 2.4 billion in dividends, equal to 27% of market cap. Like many European companies, Wilhelmsen’s dividends are highly variable. The company’s payout has ranged from NOK 1.00 per share in 2011 to NOK 4.75 per share in 2013. I would also disagree that book value per share has not grown at an adequate rate. Since 2010, book value per share has grown from NOK 43 per share to NOK 64 per share (using 8.5 NOK per 1 USD.) That’s an 8.3% compound growth rate, which I think is impressive for a company that pays out the majority of its earnings in dividends. Excluding the $200 million anti-trust provision, the growth rate would have been 10.9%. Many companies that trade above book value have not accomplished that.

      • Yes, it is surprising that a company that has managed to grow its equity like Wilhelmsen trades so much lower than book value. And in spite of tough market conditions they stand to continue to grow the equity and they have much higher margins than the main rivals, which indicates a sustainable competitive advantage (moat). Admittedly a direct comparison is somewhat misleading though due to their rivals also operating in other less profitable shipping markets as well and they don’t give sector information that make direct comparisons possible.

        Added to this, Wilhelmsen’s book value is very understated in relation to real market values since the Glovis shares are not marked to market on the balance sheet. On page 22 of the 2014 annual report you will see Glovis shares listed as having a carrying value of USD 322 million (historic purchase price?) while the market price at that time was USD 1 257 million. This amount has come down somewhat due to Wilhelmsen selling a portion of their shares as well as the Glovis stock price being lower than back then but still the gap between book value and market value of the Glovis shares is large. They are worth just below USD 800 million as of now. I don’t see how the story can be interpreted any other way than a screaming buy. And I think uncertainty around the anti-trust case is what has made this opportunity possible. Investors tend to have an irrational fear of uncertainty. Even if the final fines turn out to be even higher than the provisions already made (I think it is more likely to be a lower figure personally) they will have to be through the roof higher, as in 3x+, for this not to be a profitable investment medium-long term.

        • otcadventures says:

          I would also add that the company’s book value will increase as a result of the purchase of the inland automotive business they just announced. Lots of obscured value in this company.

  13. Brendan Bernstein says:

    Do you think it makes more sense to purchase after the spin-off when the discount takes hold?

  14. luckyskum says:

    You conveniently forgot to mention the Glovis shares are pledged as collateral.

    • otcadventures says:

      Interesting word choice. I assure you I have not “conveniently” neglected to mention any relevant factors. Once demerged, Treasure ASA will continue to carry joint and several responsibility for WWASA’s parent company-level liabilities. I assume that is what you mean when you say the Glovis shares are collateral. However, this residual responsibility is not a meaningful liability. The only debt that Treasure will remain liable for is WWASA’s parent-level debt, which is $270 million in company bonds. All of WWASA’s vessel debt is the obligation of a subsidiary, and not subject to any guarantee by Treasure ASA. That $270 million in WWASA debt is more than adequately covered by WWASA’s $365 million in cash and liquid securities. While not non-existent, the chances that Treasure would ever have to perform on any of WWASA’s loans is so small as to be immaterial.

      The fact that WWASA carries debt has never prevented them from selling shares of Hyundai Glovis before, and it will not prevent Treasure ASA from doing the same.

      • luckyskum says:

        That’s not the only miss in your analysis, and they were all made in one direction. Convenient.

        I guess we’ll just have to see where Treasure trades at, but if you read the financials, you’d have seen “Guarantees for group companies 1,057” on top of the 270.

        As a separate entity, Treasure wont have a say on what WWASA does with its cash, but I can tell you: acquisitions to replace the lost EBIT, like the one with 2 Continent Logistics (in Q1, so cash is prob down 100m or so anyway). Because you also forgot to mention the elephant here. If EBIT margin without price fixing is cut in half to 5%, now you have interest coverage of 1.0x or less, so covenants tripped, and your 20x multiple Glovis guarantee is called. And who knows what haircut lenders applied to a 20x multiple.

        But what do I know?

        • otcadventures says:

          Look, this seems personal to you. I have always welcomed dissenting viewpoints on this blog. It makes me a better investor. But I really don’t appreciate the condescending tone, nor the repeated suggestions that I am somehow trying to conceal negative information about the company. I am not trying to convince anyone else to purchase WWASA, only presenting my own opinions on a company that I own and believe is an attractive investment.

          The 1,057 figure you cite is the vessel loans of Wilhelmsen Lines Group AS. These are not guaranteed by the parent company. From page 57 of WWASA’s annual report: “The group’s policy is that no financial guarantees are provided by the parent company.” As stated in the demerger document, Treasure ASA’s only responsibility is for liabilities incurred by the parent company prior to the demerger.

          I have confirmed this fact with Wilhelmsen’s investor relations. I quote Benedicte Agerup from an e-mail exchange: “Treasure will not have any liability for Wilhelmsen Lines vessel loans after the demerger. It only relates to the liabilites [sic] of the parent company WWASA.”

          As for the risk of EBIT margins being cut in half, that seems an extreme forecast. I am not saying it is impossible that anti-trust actions will compress margins, perhaps meaningfully, but a 50% decrease would be an extraordinary result.

          I am happy to continue this conversation, so long as it can be conducted in good faith and without accusations of ill intent.

          • luckyskum says:

            If you confirmed with mgmt I stand corrected then.

            I dont think it’s extreme for clean EBIT margins to drop from 10% to 5%. I doubt they would have bothered to do the prices for less than 5%. And when you count the true financing expense, including hedging rates and fx, coverage goes to 1.0x.

            It’s not personal.

          • otcadventures says:

            If true normalized EBIT margins are that low, then we could see the company run into issues with debt coverage and covenants. I don’t think they are, but if I am wrong then we certainly could see a lot of downside. I guess we’ll have to wait and see how this plays out.

  15. With regards to how “clean” current margins are I recently asked management about the length of their contracts and their answer was: “Current profit margins are a result of a combination of contracts entered into some years back in time and near term renewals. Our JV’s typically have contracts of 1 – 3 years duration, sometimes longer tenors. The customer contracts are then gradually renewed upon expiry.”

    Considering the anti-trust cases started 4 years ago I don’t see how there can be much “uncleanliness” left. Also, I know that if I was a client of theirs I would violently renegotiate terms if it was known that contracts were entered into on unfair terms, everybody would. So I think if margins come down from where they are now it would be due to more fierce competition rather than due to older contracts running out.

    Then again… Consider the Capex slump for mining/agriculture companies etc. We all know how business cycles work and it has been down an unprecedented four years now (never happened in Caterpillar history before). Seems the odds would be against that continuing for much longer. Once it starts to turn around WWASA will be well positioned with the youngest and most modern fleet especially suited for the high margin High & Heavy market.

    On a normalized basis I think the outlook is bright for WWASA, especially as a shareholder given the current valuation. But it probably will get worse for a Q or two before it gets better given Caterpillars current low sales.

  16. I don’t think they are either for the reasons I stated below. Renegotiation of covenants may not be that big of a deal either. But on the whole it is the holding company that is the golden egg in my opinion. The ship service business, WMS, alone earns 100 MUSD currently = 800 MNOK. Compare that to a market cap of 6700 MNOK. On top of that you get 73% of value of the glovis shares (Treasure ASA), 73% of WWASA (the holding company isn’t liable for the debt in WWASA) as well as the shares in Qube (1000 MNOK book) and NorSea Group (800 MNOK book). Hard to see much downside there in my opinion.

    • luckyskum says:

      It’s one thing to get a covenant waiver for a one-off event and you’re cash rich, another if your earnings are impaired permanently and you’re cash poor.

      Excl 2012, revenues have been pretty constant at 2.5bn since 2011, so your contracts theory is flawed. If there was no impact, why bother/pay fines? Is it more likely there was no effect, or the effect is yet to be seen?

      Your thesis better not rest on ag reversion. Yes it’s unprecedented, but so are negative rates in the trillions. Fossil fuels are the cost bedrock of ag and commodities in general. People have been forecasting nat gas in the 5’s since 2012. Just sayin.

      • You seem very confident in your thesis earnings will decline drastically going forward. I see no evidence of it four years after anti-trust findings. Q1 may take a slight hit and possibly Q2 but I like the general outlook on a normalized basis. I guess we will just have to wait and see.

        In case your estimates turn out to be right in WWASA’s case – there is a nice margin of safety in the holding company.

  17. Joannes says:

    Any update/thoughts on the investment thesis given Q1’s earnings/outlook?

    Results surprised me a bit on the downside with the big dropoff in shipping revenues/EBIT. Extrapolating to the rest of the year seems a bit premature at this stage, but in case the shipping segment Revenue/EBIT would continue to show similar declines for the rest of the year, proforma EBIT 2016 could be cut in half (excluding hyundai contributions and non-recurring items) versus 2015, which would result in net income being cut by even more due to fixed interest costs. The question then becomes what the right multiple is in case such a scenario plays out…

  18. Definitely a bad quarter that also surprised me a bit although perhaps it shouldn’t have had I bothered checking Glovis Q1 results on April 27th in which Huyndai/Kia volumes declined 25% q/q. I think a revision down is in order, however I also think it is premature to extrapolate too much based on just this quarter alone.

    A few factors to think about:
    1) What are the odds that such a heavy decline by Hyundai/Kia exports will be the new norm going forward? Too little data to make this scenario the most likely one imo.
    2) High & Heavy experienced a slight uptake which could be a signal we have reached a bottom in this important segment. As WWASA has the most advanced fleet especially designed for High & Heavy it will be a significant development. Of course this uptake may just be a bleep and we may not be at the bottom yet.
    3) If low sales become the new normal there is scrapping flexibility which will reduce fixed costs.
    4) The 2009 bond with a coupon of 9% rate matures this year which will result in a savings of around 5 MUSD. All other bonds have coupons at between 2-3%.
    5) Investments in the more profitable logistics area ought to boost earnings in the coming years. The more weighted towards this area the higher the likelyhood of repricing of the stock. By comparison Hyundai Glovis trades at PE approx 12 and Price-to-Book of 2.

    But yeah, all in all a bad quarter. In terms of valuation I think there is still a ton of downside protection based in part on the Glovis shares as well as the longer term prospects. I also think there is even more safety in the holding company.

  19. pietje says:

    Are you sure that Treasury ASA would incur taxes if they sell their Glovis shares? See below the relevant quote from the treasury prospectus. Seems like they don’t have to pay capital gains taxes? Or have taxes been incurred by WWASA prior to the spinoff? I’m not quite sure I understand the tax consequences of this deal.


    “The ordinary rate of corporation tax in Norway is 25% for 2016 (2015: 27%). Norwegian limited liability companies are encompassed by the participation exemption method for share income. Thus, share dividends and gains are tax free for the receiving company. Corresponding losses on shares are not deductible. The participation exemption method does not apply to share income from companies considered low taxed and that are located outside the European Economic Area (EEA), and on share income from companies owned by less than 10% resident outside the EEA. The ownership of Hyundai Glovis is 12.04% and the share income is thus considered tax free.
    Dividends from Hyundai Glovis Co Ltd are subject to 15% withholding tax in the Republic of Korea.

  20. Jim says:

    Great analysis, I enjoyed reading it. Good job on your accounts too.

    I’m curious why you think the spin-off is a good catalyst if the company still owns HG via their stake in Treasure ASA now? Hasn’t it always been pretty easy to value the business ex-Treasure stake? Analysts notes in the past have always highlighted this. So why do it now? I can’t help thinking the spin-off is to achieve something else, but what I wonder?

  21. Belgian Guy says:

    Dear Dave,

    Thanks for your insightful posts.
    Excerpt from Treasure ASA Q2 Report:

    The board does not intend to propose a
    dividend or to buy back any outstanding
    shares during 2016.

    page 2
    http://www.treasureasa.com/wp-content/uploads/2016/05/Treasure-ASA-Q2-2016-report.pdf

    Question 1 : no explanation as to why is offered. Do you think this is because they are waiting for cash dividends to initiate a buyback?
    Question 2: seems like the “friction costs” = mgmt costs are extremely low as a percentage of total assets (<0.1%?). This should justify a low discount.

  22. Andrew Brown says:

    Note announcement of “details” of WWASA merger with the JV assets of Wallenius which will expand capital of WWASA to 422.5m shares and increase liquidity as Wallenius have agreed to sell down their stake – initially 202.5m shares – to the 160m of WWH. Ultimately then WWH 160, Wallenius 160 public 102.5. Should assist in continuing re-rate of WWASA. Note Treasure agreement with Glovis amended so they can sell down to 7% (effectively about 1.9m Glovis shares) if they wish. Treasure is crazy cheap for a single asset company if if the asset is within the Hyundai octopus.

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