Winston Churchill described Russia as “a riddle, wrapped in a mystery, inside an enigma”. The same could be said of the £370m Hansa, listed and managed in London but registered in Bermuda, which has been connected to the Salomon family since the 1950s.
To most professional investors, Hansa is opaque, distrusted and unpredictable. One third of the 120 million shares are voting shares (LSE: HAN) and two thirds (LSE: HANA) are non-voting. A little over half the voting shares are connected to the Salomon family, of which half are attributed to William Salomon, a director of Hansa and managing partner of its fund manager. He also owns nearly 5% of the non-voting shares and has been buying recently.
Both the voting and non-voting shares are trading at a discount to net asset value (NAV) of more than 30% and expectations of the sort of corporate change that would reduce this are low. Shorter term that is probably correct, but not so longer term.
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Struggling in Brazil
About 21% of Hansa’s NAV is attributable to its 26% holding in Ocean Wilsons, a listed holding company (Salomon family interests hold another 25% of Ocean Wilsons directly). Half of Ocean Wilsons’ valuation is due to its portfolio of investment funds and half to its 58% holding in Wilson Sons, a logistics and marine services business operating and listed in Brazil.
Alec Letchfield, investment manager of Hansa since 2014, describes Wilson Sons as “a really good company in a very difficult market”. Brazil – famously “the country of tomorrow and always will be” – has been in turmoil since 2008. Wilson Sons has struggled on, but it has accounted for a falling proportion of Hansa’s assets.
In better times, Wilson Sons will prosper, its valuation will rise and hence so will the valuation of Ocean Wilsons, which currently trades on a discount to its own NAV of about a third.
A respectable performance
The remaining 79% of Hansa is performing creditably: 43% is invested in core regional funds and about 12% in each of global equities, thematic funds and diversifying funds. The performance of the global-equities portfolio has been disappointing in recent years – having been “too value orientated”, says Letchfield – but has picked up recently. The core regional funds have performed broadly in line with global indices, but the thematic funds, comprising healthcare, biotech, disruptive growth and environmental, have far out-performed. The diversifying funds have lagged in the last year, but did exceptionally well in the two prior years.
These equity-heavy allocations could change if Letchfield becomes more cautious, but at present he is relaxed. “We expect a powerful recovery, abundant liquidity and central banks to err on the side of caution,” he says. He remains a long-term bull on the US (57% of the investment portfolio) due to “its ability to tackle problems and rejuvenate itself”. Turnover in funds is low, although turnover of direct holdings is greater.
Closing the discount
Hansa aims to be comparable with RIT Capital Partners, capturing most of the upside of equity markets, but limiting the downside. This would require changes. Few believe the Salomons would ever agree to the sale of Wilson Sons, but that’s probably wrong. Doing so would turn Ocean Wilsons into a pure investment firm, which could be merged with Hansa.
With share buy-backs and perhaps enfranchisement of Hansa’s non-voting shares, the discount to NAV could fall from nearly 40% on a look-through basis to 10%, giving the shares upside of nearly 50%. The possibility of an exit from Brazil makes it worth locking away at the current bargain price.
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