Tuesday, February 17, 2015

Short Seller Muddy Waters Goes Long a Battery and Electric Vehicle Play

We've looked at the objet of their affections a couple times, links below.
From ValueWalk:

Muddy Waters – Bollore: Complexity Creating Arbitrage with over 95% Upside
This is the first time in our investment careers that we have come across a situation in which a company’s opacity is a reason to buy the stock. Our investment approach is to tackle complex situations, and attempt to understand the economic reality underlying the information (often misinformation). So it is with Bollore SA, which has a horrifically complex corporate structure. However, through this structure, Bollore effectively owns a significant portion of itself. Most of the market seems to take at face value Bollore’s reported shares outstanding of 2.5 billion. We estimate that the effective shares outstanding are only 1.1 billion (57.2% lower than reported).

Muddy Waters, LLC is long Bollore SA (BOL FP) because its complex corporate structure, with numerous levels of circular ownership, effectively cancels over half of its outstanding shares. Thus, we estimate that the true number of shares outstanding is only 42.8% of what Bollore reports. Bollore’s shares present a unique corporate structure arbitrage.
  • Muddy Waters, LLC is long Bollore SA (BOL FP) because its complex corporate structure, with numerous levels of circular ownership, effectively cancels over half of its outstanding shares.
  • We estimate that the true number of shares outstanding is only 42.8% of what Bollore reports. Bollore’s shares present a unique corporate structure arbitrage.
  • Mr. Bollore is an outstanding capital allocator, and has grown the share price and book value of Bollore over the past 20 years, respectively, by 1,213% and 1,953%.
  • We value Bollore shares at €8.50, which is 94.6% higher than its current price.

Bollore: Complexity Creating Arbitrage with over 95% Upside – Introduction

This is the first time in our investment careers that we have come across a situation in which a company’s opacity is a reason to buy the stock. Our investment approach is to tackle complex situations, and attempt to understand the economic reality underlying the information (often misinformation). So it is with Bollore S.A (BOL FP), which has a horrifically complex corporate structure. However, through this structure, Bollore effectively owns a significant portion of itself. Most of the market seems to take at face value Bollore’s reported shares outstanding of 2.5 billion. We estimate that the effective shares outstanding are only 1.1 billion (57.2% lower than reported).

There is some irony that Muddy Waters’s first public long derives most of its value from frontier market operations – specifically its Africa ports and logistics business. However, this is a business that has been built slowly over three decades. It is somewhat of a boring, albeit lucrative, business. This is exactly the type of model we like to see in emerging and frontier markets.

For investors searching for more “sex appeal”, there is an electric car business – both producing electric cars, called the Blue Car, using proprietary battery technology from BOL’s majority owned Blue Solutions. Bollore’s Autolib service is a car sharing service that in the greater Paris region alone had 2,010 cars, 40,600 premium subscribers at December 31, 2013. Since inception in December 2011, Autolib has had 4.8 million users.

We had never heard of Bollore’s controlling shareholder, Vincent Bollore, until we came across BOL. We were therefore surprised to learn that he has been one of the sharpest-elbowed activist investors in Europe over the past three decades. During this time, he has compounded BOL shareholder wealth at an outstanding rate....MORE
 We first took an interest in M. Bollore was making a Bolivian lithium play back in 2009:
France's Bollore opens talks over Bolivia's lithium (BOLL: Paris)

That didn't pan out but there were other endeavors that rose above the mundane:

Lithium: "French billionaire launches $1.5B EV battery play" (BOLL: Paris)
and:
French Billionaire Bolloré Making a Move in London Electric Car Sharing (BOLL.Paris)

Lithium for 4.8 Billion Electric Cars Lets Bolivia Upset Market (SQM; BOLL: Paris)