New buy: Hal Trust, a great Dutch holding finally trading at a sufficient discount

HAL Trust has been expensive since it made a killing with selling GrandVision to Luxotica. Now it is cheap due to great operating performance of a transformative acquisition.

HAL Trust is known in The Netherlands for their great business acumen. The company is 68% controlled by the van der Vorm family. Historically HAL Trust made their fortune with the Holland America Line, which sold to Carnival in 1989 for 1.2B guilders (530M euros). The holding again made a killing by selling its 76.7% holding in optical chain GrandVision for 5.5B euros to Luxottica.

HAL trust has strong Rotterdam heritage, and its name comes from a cruise company. This explains the focus on shipping related businesses in the current portfolio. I’m quite optimistic for this sector and a large smart acquisition of HAL Trust in 2022 makes the stock attractive now.

HAL Trust describes their strategy as follows:

HAL’s strategy is focused on acquiring significant shareholdings in companies, with the objective of increasing long-term shareholder value. When selecting investment candidates, HAL emphasizes, in addition to investment and return criteria, the potential of playing an active role as a shareholder and/or board member.

HAL invests its own funds allowing for long-term investment strategies and flexibility in transaction structuring and financing. HAL invests in businesses with strong and sustainable market positions and good long-term perspectives in which there is the opportunity to grow the business, either through acquisitions (buy & build) or organic growth. HAL cooperates closely with the management teams of the companies it invests in to support them in executing their strategic plans. Where appropriate, HAL contributes to the development of such companies by providing long-term capital and assisting in M&A and business development.

The market cap of HAL Trust is 10.1B euros at the time of writing.

The best way to calculate the value of HAL Trust is SOTP, given its different holdings.

What helps in this case is that one piece is a lot larger. If an investor likes this business the shares of HAL Trust are likely to be attractive.

Buffett ones used the analogy of a tree to describe the most valuable parts of Berkshire. This can be done with HAL Trust as well with a little tweak.

The trunk

The largest and most important part of HAL Trust is the ownership of Boskalis.

Boskalis

March 2022 HAL Trust made an offer for the shares in Boskalis it did not already own. At this point HAL owned 45.5% of the shares and the final offer valued the company at 4.3B euros. At the time I thought this acquisition was not a great deal given the 250M of net profit it realized in 2022. What I did not know then was how bright the future for Boskalis was. In 2023 Boskalis profits increased to a historic high of 606M euros. The markets are good and additional growth in profits seems reasonable.

Boskalis is a leading global services provider operating in three divisions:

1. Dredging & Inland Infra: This has a focus on coastal protection and land reclamation. Furthermore, Boskalis is active in the construction and maintenance of ports. In the Netherlands Boskalis is also active in the construction of bridges, aqueducts, viaducts, and tunnels (this Dutch segment has a decent outlook in my opinion).

2. Offshore Energy: this segment has a focus on both wind power and offshore oil & gas. In the long-term wind power has a favorable outlook. In the shorter term I see clearly a recovery in demand for offshore oil & gas investments.

3. Salvage & towage: Salvage, wreck removal, on sea firefighting services, and hazardous substance removal.

Boskalis has a versatile fleet of more than 500 vessels and floating equipment and had 11,634 employees at the end of 2023. Given the scale of its projects it is clear that knowledge plays a crucial role. High usage rates of specialized equipment and staff at good rates are naturally key.

Given the great performance and bright future of Boskalis I think a multiple of 15 times earnings on a debt free basis is reasonable. This would lead to a valuation of 606*15= 9.1B.
Other ways to come to a valuation are:
12 times EV/EBIT: 8.4B
8 times EV/EBITDA: 1,016*8= 8.1B
An even mix of the 3 leads to valuation of 8.5B (14 times earnings).

Significantly ahead of the 4.3B acquisition price & the book value of Boskalis which amounted to 2.9B.

Closest listed competitor DEME is up 50% YTD and trades at 26 times earnings, 19.5 times EV/EBIT & 8 times EV/EBITDA.

Free cash flow in 2023 was good for Boskalis with 1.0B net cash from operating activities & 480M used in investing activities. Leading to a valuation of 16.3 times free cash flow.

If you find 8.5B for Boskalis a reasonable than this covers a large part of the total value for HAL Trust. This is the key part of finding HAL Trust very attractive. Still even if you just use the acquisition price of 4.3B than HAL Trust might still be interesting from an investment perspective. If you have more insights into Boskalis or HAL Trust, please let me know.

Branches

Listed investments

HAL Trust has 4 investments in listed companies with all except Technip Energies some form of control. The largest 3 investments are fairly reasonably valued.

Vopak 48.15%: value 1.8B at year end, 2.4B now
The most important branch is Vopak. Vopak provides on land storage terminals in ports. I kind of like this type of business. Profits are somewhat cyclical, but cash flow is more predictable. In addition I think over the cycle profits are decent. Vopak has a net debt of 1.6B euros. Given the ownership of land with large storage units (asset heavy) this is not surprising, just a normal capital structure. Vopak in H1 2024 committed to a large LPG export in Canda total cost 924M euros (Vopak share 462M euros). Earnings are somewhat high at the moment, but 11.2 times earnings are not demanding. Decent holding & fairly valued by the market.

Safilo 49.8%: value 188M at year end, 214M now
Sunglasses business with some decent brands and Carrera as their top brand. 17.6M profit in H1 2024. Adjusted profitability is ok. Not an expert on this business. HAL Trust has good experience in this sector. A haircut might be justified. Given the quality of HAL Trust management I keep the listed value.

SBM Offshore 22.88%: value 515M at year end, 680M now
Main activity is to design, supply, install, operate and maintain Floating Production, Storage and Offloading (FPSO) vessels. This industry is very cyclical. After tough years the market is clearly recovering. 7.6 times earnings is cheap. You have to believe though that the good years will last for a bit. I do think this is likely and having an option to buy SBM Offshore at a discount is a reason to invest in HAL Trust.

Technip Energies 14.9%: value 574M at year end, 519M now
French engineering and technology company for the energy industry and chemicals sector. Strong position in LNG. Showing good performance. 10.4 times earnings is fine. Another company that can benefit from a up cycle in the energy markets.

Total value listed investments: 3.1B at year end, 3.8B now. The valuations of this portfolio are very reasonable in my opinion.

Twigs

In addition to the listed investments HAL Trust has many unlisted investments. Many of which with fairly little disclosure. The larger ones are Broadview, TABS, Anthony Veder, MSPS & Coolblue. I will cover all briefly and generally value them at a relatively low multiple of operating income. Some potential gems might be hiding. Given the value of them it is not likely that one of them makes a significant impact in the share price.

Other investments.

Broadview 97.4%: 53M operating income. Value 530M. Active in:
1. material technology: The companies in this cluster manufacture, fabricate and sell surface materials and related products with superior esthetical and functional properties. These panels are primarily wood based but also include casted polymers. Applications include façade cladding, furniture for home, office and laboratory as well as interiors for healthcare, retail and hospitality.
2. Energy: The portfolio focuses on the growing category of small scale distribution of liquefied natural gas (LNG).

van Wijnen 88%: construction company. 3M (19M in 2022) profit due to delays with ramp-up of industrial house factory. Revenue 1,249M. Value 200M.
Construction companies are performing well again after a difficult 2022.

Timber And Building Supplies Holland (94.3%): 48M operating profit 89M in 2022: value: 480M. Leading supplier of timber products and building materials used for new construction, renovations and maintenance. The company has outlets throughout the Netherlands

Pro gamers Group (64.3%): operating income 28M. Value: 200M.
Active in the development, distribution and e-commerce of computer gaming equipment.

Auxilium (53.1%): 22M op. Value: 100M.
Sells medical aid products in Germany.

Ahrend (98%): 12M op value: 100M
Delivers furniture and fit-out services for office, education, healthcare and retail environments.

Anthony Veder Group (62.9%): Gas tankers 42M op. Value: 370M
Rotterdam based shipping company. Operated 29 gas tankers (2022: 31), of which 28 (2022: 27) were owned. Fits nicely with the other maritime assets.

Atlas Professionals (86.9%): 3M op. Value: 30m.
Temporary staffing agency supplying technical personnel to the international oil & gas, marine and offshore wind industries.

Green V (74.6%): 4m (8M) operating profit. Value: 40M
Active in the greenhouse construction sector.

FD Mediagroep (98.3%): 16M op. Value: 200M
Leading financial news group in the Netherlands

MSPS 95.1%: 48M op. Value: 720M
Medical Software & Processing Services. The group company is comprised of five businesses dedicated to optimizing primary care providers in the Netherlands. Given the focus on predictable software & processing revenues a higher multiple of operating profit is warranted in my opinion.

Ryk Holding (100%): 4M op value 40M
Optical retail chain Rotter y Krauss that is active in the Chilean market. Leftover from the Grandvision sale.

HR Top Holding (86.1%): 8M op. Value: 120M.
Top Employers Institute is globally active in certification and benchmarking of human resource practices. Certification is a good business.

AN Direct 90%: 1M op. Value: 14M
MD Hearing which sells hearing aids via its website and call centers in the United States. Interesting business. Hope it grows.

Coolblue (49%): online retailer with small store presence. Third largest in The Netherlands ahead of Amazon (4), but behind Albert Heijn (3, dominant supermarket) & BOL (1, online marketplace owned by Ahold Delhaize that also owns Albert Heijn). Coolblue is growing in Germany & Belgium as well. 88M EBITDA value 9x EBITDA 388M. In 2021 there was an idea to IPO the business for a value between 3-6B euros. This valuation would lead to a value of 1.5-3B for HAL. Given that growth has been slow in recent years. Plus retail is a tough business. I stick with the 388M valuation for the 49% that Hal owns (founder Pieter Zwart + management own the other 51%).

Prodrive Technologies 47%: EBITDA 66M. Value 279M 9x EBTIDA
Active in the research, development and manufacturing of high-tech electronics, software and mechatronic products and systems. Prodrive Technologies provides solutions for, among others, the semiconductor, medical and electric mobility industries.

DMF Holding (28.5%): 64M revenue. Value: 0

280ppm (95%): Value: 0
Focuses on early stage growth investments in areas related to the reduction of greenhouse gases. The company owns a 10.7% stake in Enough, a producer of a protein rich product called “Abunda” which is used as the protein source and main ingredient in meat replacement products. The construction of the plant with a capacity of 10,000 ton in Sas van Gent (the Netherlands) was completed by the end of December 2022. The plant is in the commissioning phase. The company also owns a 34.8% stake in OTC Flow B.V., a trader and broker in energy certificates and biofuels.

IQIP: Bought in 2023 for 250M.
Installation & foundation projects. Focus on coastal & offshore.

Total other investments value 4.1B.

Real estate

Luckily only a small twig. Too many holdings have too much real estate in my opinion without a clear strategy. In the case of HAL Trust, it is a share in different real estate development projects. US projects are valued at 206M euros and located in the greater Seatle area. Focus on office and residential. The 206M is already a discount to book value. Is the value that HAL Trust gives accurate? No idea.

In the Netherlands HAL Trust owns a 90% stake in two shopping malls with redevelopment potential with a value of 63M euros.
Total value 269M euros.

Net cash

Cash & equivalents: 2.8B.
Debt: 1,760M at company level. Other debt is in listed companies (Vopak.) which is valued separately.
1.0B net cash.

SOTP:

Boskalis: 8.5B
Listed equities: 3.8B
Unlisted equities: 4.1B
Real estate: 0.3B
Net cash: 1.0B
Total value: 17.7B

This compares favorably to the market cap of 10.1B.

Reasons for low valuations

Holdings are not popular at the moment. Some holding companies are poorly managed and deserve the big discount they trade for. In my opinion this is especially true for holdings with significant investments in private equity. These valuations are very opaque and the controlling private equity parties have all the financial reasons in the world to inflate those numbers.
Given that HAL Trust has no private equity exposure & a good track record on creating value I think these reasons for a discount should not apply to HAL Trust.

Historically HAL Trust had always paid a dividend of 4% of the volume-weighted average share price. With 50% paid in cash & 50% in stock. This policy was changed. The new policy is to pay just a 2.5% dividend, but all in cash. This is a good decision, given that stock dividends do not add value for shareholders. In my view they actually hide value creation somewhat (price goes up less due to dilution). This changed might have been misinterpreted by investors.

Investors disappointed that HAL Trust did not make a killing by selling Coolblue at the top. HAL Trust tried to IPO Coolblue when online retail was very popular, but did not manage to do it in time. Coolblue is not a big part of the current valuation.

Great performance of Boskalis is somewhat hidden given that it is an unlisted 100% owned asset. This makes sense to me. Half & full year reporting of HAL Trust plus reporting of other companies in the same industry will shine light on the value of Boskalis though.

Conclusions

HAL Trust has a history of smart investments and timely divestments. The latest transformative acquisition again seems to be hit. This is in my view not yet recognized by the market. The stock is trading at a significant discount to my SOTP valuation. Which is unjustified given the high quality of management.

The performance of the trunk (Boskalis) will determine to a large degree how the investment will play out. Given my optimistic views on the maritime sector. Plus the great track record of HAL Trust management. I included HAL Trust shares in my portfolio.

Disclaimer: These are my ideas and not personal investment advice. I might own shares discussed and can sell those shares at all times. I don’t know your financial situation. Do your due diligence and do not blindly follow an article on the internet.