After a comment on my Solvay article and some disucssion with colleagues, I got more interested in Solvac. This is a mono holding having only 1 asset: Solvay shares. There are loans as a liability and limited cots to manage this mono holding.
Solvay vs Solvac
Here is the math behind my sell and buy. All numbers are found online on the Solvay/Solvac website on June 13. I try to be as accurate as possible in my story.
What does Solvac represents?
The holding consists of 3 2375 000 Solvac shares. This represent 32 116 000 shares (end 2015) of Solvay. The holding controls roughly 30 pct. The ratio between the 2 companies is 1,5. This means that 1 Solvac share controls 1,5 Solvay Stock.
Solvac is worth at closing 91.75€. Solvay closed on June 13 at a price of 85,1 €
When I apply the ratio of 1,5, Solvac would be worth 137,625 €
What does Solvac has as liabilities?
According to the 2015 financial report, there will be 160 million € in debt by March 2016. This represents 7,485 € per share.
That means value of Solvac would be 137,625 – 7,485 or 130,14 €. This is still far less than what it is worth today. In fact, this represents a discount of 30 pct. (Actually, the Solvac 2015 publication has a similar more detailed calculations, including an historical evolution).
Such a discount is often seen in holdings. The holding itself has no way to adjust its strategy by taking the business into another direction. It’s faith is very tied to the success of Solvay.
Next, there is at the high pay out ratio of Solvac. In short, they pay out mostly all dividend income to the shareholders. This is actually the dividend policy of the holding: to pay out the maximum of the Solvay dividends. Then the high pay out is no problem. The dividend will track the Solvay dividend.
Solvay currently carries some debt. The debt is used to buy additional shares of Solvay. A long term loan with a cost of 1,5pct was used to buy almost 400 000 additional Solvay shares. These shares yield today about 3,5 pct. A certain amount of leverage is created by doing this.
A last point is the more complex buy/sell approach. The stock price itself quotes on Euronext. It can not be bought online, only via paper based process. When selling, some verifications are needed in the named stock register.
What does that mean for DGI?
As I own Solvay shares already, I wonder what it means when I sell these and buy Solvac stock with the proceedings. When selling my Solvay shares and buying Solvac shares, I can get approx 45 Solvac shares, trading costs (tax and fees) included.
My current net forward dividend of Solvay is 120,45 € net dividend, assuming the same is paid in 2017 as in 2016.
Owning 45 Solvac creates a 169,2 € forward net dividend (assume same paid in 2016 as in 2015)
This is 49 € more or a 40 pct increase.
Given the limitations that Solvac brings, I am willing to take the higher risk and hassle for the increased income!
Anther conclusion is that I need to improve the quality of my research initially. Then, I would have found all of this sooner. Then again, I now have twice the fun!
In the mean time, I will use Solvay as put option stock!