Hello, and welcome to Morningstar.
I'm Emma Wall and I'm here today with Joe Bauernfreund, Manager of the British Empire
Trust, to give his three undervalued picks.
Hi, Joe.
Hi.
Good morning.
So, what's the first pick today?
Well, the first company I'd like to tell you about is a Japanese company, and it's a television
broadcasting company called Tokyo Broadcasting Corporation.
As you'll know, British Empire doesn't tend to buy normal operating businesses.
We tend to focus on companies with assets trading at big discounts, and Tokyo Broadcasting
Corporation fits very neatly into that bucket.
So, in addition to the core broadcasting business it has a very interesting balance sheet.
Firstly, alongside their own headquarter building in the Central Tokyo they have developed two
towers, one for residential and one for offices, which generates rental income and is worth
very roughly about a third of the total value of the company, even more than the actual
operating business.
And in addition to that, like many Japanese companies, they also have a cross-shareholding
portfolio of listed securities with businesses that they may have relationships with.
And the value of that cross-shareholding portfolio when we first bought into this company a year
was equivalent to the entire market cap of the company.
So, a very substantial discount to the asset value, but also typical for many Japanese
companies a very inefficient balance sheet.
And this is a large position for us.
It's our third or fourth largest position.
And what we've been trying to do is to engage proactively with the Board and the directors
of this company to try and encourage them to adopt high standards of corporate governance
to boost capital efficiency and to boost returns on equity.
And what's the second stock pick today?
The second company is a European holding company, family-controlled holding company, called
Pargesa, which is Swiss-based company.
Pargesa only has one asset and that is a 50.1% stake in another holding company called GBL,
or Groupe Bruxelles Lambert, which is a Belgium-based investment holding company.
GBL in turn owns a portfolio of predominantly blue-chip European-listed equities, including
companies such as Adidas, Total, Pernod Ricard, Lafarge and SGS.
So, quite diversified European equity portfolio.
Interestingly, Pargesa trades at a 35% discount today, which is very wide in an absolute context
and also relative to other companies, specifically, relative to GBL, which is part of the same
group and essentially gives exposure to the same assets, which is trading at about as
20% discount.
So, an anomaly and an inefficiency given the nature of the – perhaps they are family-controlled
and the fact that many investors overlook these companies.
But fundamentally, exposure to a broad basket of European equities on a 35% discount is
hugely attractive.
And what's the third and final value pick?
The third one is Symphony International, which is a London-listed closed-end fund, with assets
predominantly focused on Asian assets.
Its largest holding is a stake in a Thai-listed company called Minor International that has
interests in hotels and restaurants and consumer plays across Southeast Asia.
Alongside that they have interests in land bank in Thailand, real estate assets in Japan
and other private equity holdings.
We own 16% of the company and management have an interest of just under 20%.
It trades on about a 30% discount.
It's been a good performer.
And I think the scope there for the company to be more proactive in terms of buybacks
and unlock value that's within their portfolio.
Joe, thank you very much.
My pleasure.
This is Emma Wall for Morningstar.
Thank you for watching.