Opportunity in Italy?

One of the stocks that came up on my screen of international net-nets was Vianini Industria which is a €43m company trading right around cash and investments.  But as I dug deeper I was led down a few paths, first to Vianini Lavori which is owned by the same holding company, and then finally to Caltagirone SpA which is the main holding company.  The holding company and holdings trade on the Milan exchange. 

Caltagirone is a fascinating company, they own 66% of Vianini Industria (Water pipes and pilons), 56.5% of Vianini Lavorni (Construction), 31.7% of Cementirholding (Cement producer) and 35.6% of Caltagirone Editore (Newspapers, Advertising, Internet).  For each holding it should be noted that the Caltagirone family also owns a significant share.  In the case of Vianini Lavorni the free float amounts to 33%, so these companies are closely held.

The first thing that strikes me about the holding company is that it's undervalued on a sum of the parts valuation.  All of the holdings are publicly traded so we can come up with a valuation easily.  The second thing is that the sub holdings appear to be trading at cheap multiples themselves.

Sum of the parts:
Caltagirone: €246m

Vianini Industria (VIN) €43m (66.7% ownership) : 28.6m
Vianini Lavorni (VLA) €194 (56.5% ownership) : 109m (They also own 25% of Cementirholding)
Cementirholding (CEM) €343 (31.7% ownership) : 108m
    -Cimentas (CMENT) €839m (98% owned by Cementirholding) 822m
Caltagirone Editore (CED) €223m (35.6% ownership) : 79m

If we take a top level sum we get Caltagirone worth 324m whereas the shares are trading at 75% of the that value.  But it gets more interesting, nested deep in the structure is Cimentas which has a public market cap of 839m, if we use this value for Cementirholding we get Caltagirone's ownership stake at 260m instead of 108m bringing the sum of the holdings up to 476m.

This means that Caltagirone is trading at 51% of the value of it's publicly traded holdings.

What I find fascinating about this is that the pricing discrepancy is so large and transparent.  Just some simple math can calculate what the value of Caltagirone should be if markets were efficient.  It could be argued that a discount should be applied at the top level because Caltagirone doesn't have complete ownership of all of it's holdings, but I'm not sure a 50% discount is appropriate.  

The problem with a simple sum of the parts valuation is that it's hard to arbitrage this holding, and the Caltagirone family has such a large ownership stakes it's unlikely they will do something shareholder value enhancing like distribute shares.

Another argument could be made that some of the parts are possibly overvalued and the holding level captures a true value for the entire company.  I have not dug deep into each holding, and I plan to in the future, but I just want to mention a few stats from two of the holdings.

Vianini Lavorni: 
  • EV/EBIT 5.45
  • P/E of 9.6
  • ROE of 3.7% which is dragged down by the 572m of equity investments
  • 572m of equity investments for a company with a market cap of 194m
  • No debt
Vianini Industria
  • EV/EBIT of 12.72 up from 4.82 a year ago.  The difference is primarily due to completion of the Piastroni Metropolitana di Napoli and the work stopage on the Rome Metro C.
  • Net-net value at 70m with a current market cap of 43m

I'm still not sure what to make of this situation, this seems like a lot of values are out of line, but I haven't done enough research to figure out where the best value lies.  I also want to further research why the company or pieces of it are trading at discounts to their equity portfolio values.

If anyone has any information that could help me, or point me in a good direction to help me further understand this please leave a message for me in the comments.               

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