Financial Holding Company (FHC) offers various investment opportunities through various financial services and products offered by its subsidiaries. FHC is a good target for value investors. However, there can be difference in rewards, which investors get from financial holding companies mainly due to the structure of ownership; the market value of investments in FHC is quite high.
Generally, a holding company operates through its subsidiaries in which it has obtained stocks of subsidiary company. Therefore, in case of holding company the profitability of business is reflected only through the valuation of its subsidiaries, which is mainly in the form of dividends. The general trend in financial holding company is that the investors have to wait until value of holding company is unlocked. The value of holding company can be realized through sale of strategic partner, listing of subsidiaries or through de-merger. Sometimes, in case of large inflow into subsidiaries of financial holding company the investors get dividends.
However, before investors start considering their chances, they should keep the following points in mind:
- Find out ways of figuring the value of FHC independently and that of its subsidiaries. If the FHC has stake in strong subsidiaries then there would be no need to divest the stake.
- Find out the loopholes. Figure out the reasons behind the creation of FHC as it may be possible that the company in question is hiding debts in subsidiaries books.
- Check the history and reputation of FHC and see whether the management of FHC has the expertise to guide the growth of its subsidiaries.
- In the end if investors think that, the total estimated is more than what market estimates, than invest in the prospective FHC.
If you any queries related to how to invest in a financial holding company then send your query to CorpInfo@Atlanticus.com
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