Holding Luxempart, the sleeping beauty from Luxembourg

The discount at which Luxempart, the little-known holding company from Leudelange, is listed, has risen to around 45 percent. A buying opportunity for those who have a longer horizon, says Degroof Petercam analyst Joren Van Aken.

Luxempart is a blind spot for many Belgian investors. However, the 30-year-old Luxembourg holding company can boast a good track record. Over the past four years, not an easy period, the… NAV performance – the growth of the net asset value plus the dividend – on average 12.2 percent. This is in line with historical 10- and 20-year returns.

At the end of last year, the net asset value was 2.32 billion euros – 6.4 percent more than a year earlier, according to the annual report published on Good Friday. Luxempart’s portfolio consists of two parts: Direct Investments, direct investments in European companies, and Investment Funds, investments through funds. Luxempart set up the latter activity in 2021. Currently, the main part of the fund investments is still in Europe, but the share of North America is growing and there are now also some investments in Asia. The funds make up 22 percent of the total portfolio.

Direct investments are made in both listed and private companies. Luxempart is, among other things, one of Atenor’s reference shareholders

with an interest of 10.7 percent. An investment that the holding company did not enjoy much in 2023 given the dramatically bad year for the Belgian real estate developer.

Luxempart made an interesting investment in an unlisted company last year with Coutot-Roehrig. It now owns 35.8 percent of the French family business. Coutot-Roehrig is active in a very special sector and has become the European market leader: tracing legal heirs when there is no will available. As compensation, Coutot-Roehrig will receive a percentage of the inheritance.

“It is such unique companies that make a holding company fun,” says Joren Van Aken, an analyst from Degroof Petercam who has been following Luxempart for several years. He does this in the context of ‘Commissioned Research’. In other words, the stock exchange Degroof Petercam is paid by Luxempart to monitor the share.

Luxempart invested a total of 370 million euros last year. 273 million was spent on direct investments, including three new ones. The remaining funds were pumped into private equity funds. The cash position, which amounted to 451 million euros at the end of 2022, had therefore shrunk to 173 million euros a year later. In April, this will increase with ‘at least 135 million euros’ from the previously announced sale of the stake in the German company ESG Elektroniksystem-und-Logistik. ‘So there are a lot of resources to take advantage of opportunities,’ notes Van Aken.

Luxempart’s net profit quadrupled in 2023 to 184 million euros. The dividend will be increased by 9.6 percent to 2.17 euros gross per share. After Luxembourg withholding tax and Belgian withholding tax, this gives a net dividend yield of 2 percent. For 2024, the holding company is ‘cautiously optimistic’: cautious because of the fragile economic prospects for Europe, optimistic because Luxempart is confident in the quality of its portfolio.

Despite the good results, the Luxempart share is not following suit. The price fell by 11 percent in 2023. The discount compared to the net asset value therefore increased to 42.8 percent at the end of December. Van Aken estimates that the discount has now increased to 45.1 percent, the highest level since he started the succession in 2021. Luxempart is increasingly taking on the allure of a sleeping beauty, a nickname that the Brussels holding company Sofina also received for years due to its discretion and high discount.

According to Van Aken, the biggest problem is the liquidity of the share. ‘Luxempart is listed on the Luxembourg stock exchange, where there is not much life. Moreover, most brokers in the Benelux do not offer access to the Luxembourg stock exchange.’ Saxo Bank is an exception. The small free float (the freely tradable shares) of less than 20 percent is also not very conducive to trade. ‘Many institutional investors are not allowed to invest in illiquid shares and are obliged to sell them, which puts pressure on the price.’

A possible solution is a second listing on Euronext Brussels, as Brederode already has. Another possibility is a capital increase that major shareholder and insurer Foyer would not follow, Van Aken suggests.

The analyst increases his target price range from 83-101 to 94-114 euros. That offers between 42 and 73 percent upside potential. “We believe management is willing to improve liquidity over time. This means that today could be a good entry point for investors with a longer time horizon.”