Why do holding companies trade at a discount to nav

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Sometimes I think the same in business. Basically, not Jeff Bezos or Musk level intelligence, …. Hey guys - I was invited into a family and friends pool in a GP syndication for a very interesting deal. ASAP - this word is often misused. Everything is always needed ASAP. You had the whole of yesterday and the day before to ask me to work on this but 3 hours before the call you decide to let me know we need this ASAP? Rallye is the French holding company for Casino and Groupe Go Sport as well as a portfolio of equity and fixed income investments.

There are some interesting facts that can be drawn from the data, namely:. As always very happy to debate points with anyone either in the comment section or via email hidinginplainsightblog gmail. This article is collection of my thoughts that has been informed by other articles and comments.

Where possible I have referenced any specific sources where material or ideas have been quoted. First it is important to narrow down the target of our discussion.

Too often I am tempted to call something a holding company when it is actually just a parent company which is a very different animal and valued with reference to precedent transactions, comparable companies or security specific empirical valuation e.

For me the clearest definition of a holding company is an entity that exists for the sole purpose of owning multiple distinct assets and which has a series of costs management, reporting, auditing etc.

When assessing these costs it is important to confirm that their incurrence results in no direct benefit for the assets themselves e. The most famous holding company in the world is probably Berkshire Hathaway which as of December owned 57 separate subsidiaries and had a distinct staff of 25 people in HQ focused on capital allocation and not on the direct business of any of its subsidiaries to the best of my knowledge who at the time employed over , people.

Holding companies have distinct costs that detract from the value of the underlying assets. There is often a control shareholder or management whose interests and actions are not always aligned with other investors. Holding companies are inefficient from a tax perspective particularly when it comes distribution of capital dividends and return of principal.

Having thought about it a lot I cannot see a good reason for a consistent valuation discount to NAV across a range of different holding company securities. In my mind the valid reasons can be either empirically factored into your view of value holding company costs or qualitatively into your assessment of the investment risk and required return quality of the controlling shareholder.

The exercise of writing this article has led me to a simple check list you need to tick before making a value investment in any holding company. Assessing whether a holding company trading at a discount to NAV is a stunning value investment or a horrendous value trap is extremely difficult.