Dekpol SA – Tuchlin transfers his shares to a family foundation
During 2Q24, the company sold 121 units (105) and the number of units that will be recognized in the group's financial results is 64 (73). As of June 30, 2024, the total number of units offered for sale by the group was 950 units (609). However, the development segment only accounts for about 13% of the group's sales, so the above figures do not provide a complete picture of the second quarter's performance.
The major shareholder and founder recently announced that as of July 1, 2024, he transferred/donated his entire holding of 6.5 million shares (77.33% of outstanding shares) to the newly established family foundation OMT Fundacja Rodzinna. As we understand it, there were some changes in the Polish tax legislation in 2023 that made it tax advantageous to transfer holdings to this type of family foundation. This is the first time we have seen such a procedure, but it may be the first of many.
ChatGPT helps us with the following advantages of Polish family foundations:
Tax Benefits:
- Family foundations are exempt from corporate income tax (CIT) on income derived from activities the foundation is permitted to conduct, such as property rentals, buying and selling stocks and bonds, and other investments.
- Benefits paid out to the foundation's beneficiaries are subject to a 15% tax (CIT), and benefits to the founder and close relatives are exempt from personal income tax (PIT).
- Dividends and interest income from companies in which the foundation holds shares are tax-free.
Asset Protection:
- Assets transferred to the foundation are protected from distribution during inheritance and can continue to grow and be used to cover living expenses for the founder's family.
- The foundation can serve as protection against creditors since the foundation's liability is limited to the assets transferred to it.
Succession:
- The family foundation enables a structured and secure transfer of businesses and assets to future generations, reducing the risk of unsuccessful succession and ensuring business continuity.
Dekpol and the WIG Construction Index
Another interesting aspect is that Dekpol, along with 34 other companies, is part of the “WIG Construction” index. Despite being the tenth largest in this index, Dekpol's stock price correlation with the index has been almost non-existent since its IPO in 2015. This could be due to a combination of Dekpol's low free float, its broader operations that include some manufacturing, and its involvement in the "luxury segment" of many development projects.
What is interesting is that Dekpol's stock price has historically shown a lagging effect; when the index has trended upwards, Dekpol has shown unusually strong performance within a quarter as well as a year, and vice versa when the index has trended downwards.
The WIG Construction index has performed incredibly well since the beginning of 2023, and once again, Dekpol has so far lagged behind. We are neither macro nor technical analysis experts, but we continuously experiment with different ways to analyze our portfolio companies and their potential drivers.
In Dekpol, we see a healthy underlying risk/reward balance, and potential drivers like the above can be viewed as a possible bonus.
Upcoming events for Dekpol include the ex-dividend date on August 1 (4.1%) and the 2Q24 earnings report on September 23.
Our original write-up can be read here.
(Disclaimer: at the time of publication, the writer owns shares in the mentioned company)