Wilh. Wilhelmsen Stock: A Fast Growing Compound Mispricing (OTC:WLLSF)

alvarez

The following segment was excerpted from this fund letter.

Wilh. Wilhelmsen (OTC:WLLSF)

Our Korean preferred stocks and the nonvoting shares of Wilh. Wilhelmsen (OTC:WLLSF) all feature characteristics of compound mispricings. The thesis for the closing of the voting, nonvoting, and holding company valuation gap includes evidence of better governance and liquidity. We are also looking for corporate actions such as spinoffs, sales, or holding company transactions and overall growth.

Wilh. Wilhelmsen is amongst the fastest growing compound mispricings in the portfolio. Return on equity for the core business (Wilhelmsen Maritime Services) has increased from 6% in 2018 to 23% for 2022 with a return on incremental invested capital (RoIIC) of about 30% laid out below. 2017 was the first year after Wilh. Wilhelmsen contributed its roll-on/roll-off (‘RORO’) assets to form Wallenius Wilhelmsen and received a 38% stake in the combined entity in return.

WWIB

	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022		30.6%

Capital Invested						39	34	23	64	19	56		196
2-yr sum								57	87	83	75
4-yr sum										140	162

CFO						58	61	126	123	118	118		60
2yr change								68	62	-8	-5
4yr change										60	57
												5-yr avg
2-yr ROIIC								119.3%	71.3%	-9.6%	-6.7%		43.6%
4-yr ROIIC										42 9%	35 2%		39.0%

Equity						194	380	353	489	521	432
RoE						49.0%	5.5%	51.8%	20.4%	19 0%	22 9%

Wilh. Wilhelmsen’s largest investment (representing 33% of Wilh. Wilhelmsen’s NAV), Wallenius Wilhelmsen (OTCPK:WAWIF), which Wilh. contributed its RORO fleet to in 2016, also has increased its return on equity from 7% in 2017, to 44% in 2022, with a cyclically driven RoIIC of 140% over the past five years as laid out below. The RORO market that WW competes in has seen steadily increasing demand from auto and high and heavy (H&H) exports from China and supply which is moderately growing and returning to long-term trend growth of 3% by 2025. WW is currently generating 17% RoICs in an oligopolistic industry with modest supply growth and robust demand growth. The current ship utilization is highly evidenced by fixed asset turnover increasing from 0.7 in 2019, to 0.98 currently. WW is the largest of the RORO carriers in a six-player market.

Wallenius Wilhelmsen

	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	136.8%

Capital Invested	221	33	20	147	136	359	183	144	127	136	78	668
2-yr sum			53	167	283	495	542	327	271	263	214
4-yr sum					336	662	825	822	813	590	485

CFO	259	199	233	213	190	538	563	840	456	825	1452	914
2yr change			-26	14	-43	325	373	302	-107	-15	1452
4yr change					-69	339	330	627	266	287	889
												5-yr avg
2-yr ROIIC			-49.1%	8.4%	-15.2%	65.7%	68.8%	92.4%	-39.5%	-5.7%	678 5%	158.9%
4-yr ROIIC					-20.5%	51.2%	40.0%	76.3%	32.7%	48.6%	183 3%	76.2%

Equity	535	508	543	630	505.2	2622	2647	2678	2391	2539	3153
RoE	7%	33%	39%	10%	11%	7%	14%	26%	14%	27%	44%

Below is an intrinsic value for Wilh. Wilhelmsen based on the value of the underlying subsidiaries they hold.

Wilh Wilhelmsen (‘NOK’)

NOK/$ YOU MAY ALSO LIKE PTC Inc.: The Market Is Pricing In Stagnation At 16x Earnings BRICS leaders meet in India as wars and US tensions test the bloc – AP News	9.831						WW
	EBITDA	Mutliple	Value	% of NAV	Mkt Cap	% Owned	Value
WMS Ops	1,415.7	7.0	9,909.6	33%
New Energy			479.2	2%	1,864.7	25.7%
WWL ASA			15,369.9	51%	40,650.3	37.8%	15,369.9
Treasure			4,101.9	14%	5,919.1	77.0%	4,557.7	10%	Hold Co Disc to FMV
NorSea	552.9	6.0	3,284.2	11%	3,317.4	99.0%	3,284.2
Net Cash			-3,116.4	-10%	Cash less debt at Holdings & WMS & Investments
Net Asset Value	EPS	Multiple	22,521.4		25%	Hold Co Disc to FMV
Shares			46.5
NAV/Share	114.9		484.3		Discount
A Shares		3.0	340.0		-29.8%	1.424501
B Shares		2.9	330.0		-31.9%
Book Value/Share	430.03	77%

Expected Dividend	45.97825	13.9%

Hold Co Discounts
	Est			Current
	Disc	Exp	ER	Discount			Earnings Yield	35%
WWI	2%	41.29	0.2%	48.9%			Bond Yield	8%	NIBOR + 3.25%
Treasure	1%	3.14592	0.1%	27.7%			Spread	27%

	10-yrs	5-yrs
BV & Div Growth	6%	6%
WWIB Share	5%	17%
NI growth		55%
WWI NI growth	4%	26%

What makes Wilh. Wilhelmsen and WW interesting is their high returns on equity of 30–40%, and the factors that have driven these returns—namely Chinese exports and modest increases in fleet size—are expected to continue over the next few years. The RORO market benefits from oligopolistic competition to the point that participants have even settled on price fixing charges in the past. These factors are likely to persist and should allow for high returns on equity for the next few years, if not longer. The price for entry into this oligopoly is currently only 3x EPS.

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