Graham Ashby, head of UK equities at LV=, explains his enthusiasm for Nordic-based industrial holding company Investor AB
Although I focus most of my time analysing UK-listed companies, the increasingly global nature of the fund management business means I like to keep a close eye on what is happening in companies listed overseas. One firm I have become enthused about recently is Investor AB. For those unfamiliar with the stock, Investor AB is a Nordic-based industrial holding company founded almost 100 years ago by the wealthy Wallenberg family. The shares are quoted on the Stockholm Stock Exchange and have a market capitalisation of SEK 104.3bn.
The company is a true long-term investor, holding stakes in ‘core investments’, which make up approximately 77% of the portfolio. These investments are high-quality, global-quoted businesses such as AstraZeneca, Atlas Copco, and ABB. At a time when many investors frequently change their portfolios based on the latest quarterly earnings and the economic outlook, this longer-term approach is refreshing and results in lower transaction costs.
Investor AB also invests approximately 12% of its portfolio in ‘operating investments’. These are typically medium to large-sized enterprises and are majority owned by Investor AB. One example is Moelnlyke Health Care – a hygiene business 66% owned by Investor AB. This philosophy is similar to Warren Buffett: if it is a great business, why not own nearly all of it rather than just a share?
Finally, Investor AB has another 12% of its portfolio invested in private equity. This is split into the wholly-owned Investor Growth Capital, which undertakes venture capital investments, and stakes in independently controlled EQT funds. Interestingly, the EQT funds currently own a large amount of ISS – the Danish outsourcing business rumoured to be seeking an IPO, possibly including a listing in London. Were this to happen, the valuation of the EQT funds should receive a boost from their current depressed levels.
This long-term approach has consistently rewarded shareholders in Investor AB. For example, over the five-year period to 30 June, the annualised total return to shareholders was 7% compared with just 1% from the MSCI World Index.
The beauty is investors can currently buy Investor AB at a significant discount. For example, at the current price of SEK 136 per share, Investor AB is trading on a 31% discount to its estimated NAV per share of SEK 199. Another way of looking at it is to note the share price is currently 11% below the SEK 153 per share value attributed to the group’s core investments – with both the operating and private equity investments in for free.
On top of this, Investor AB has a good track record in returning cash to shareholders via dividends. According to Bloomberg, the group has delivered 12.2% p.a. dividend growth over the past five years and, following a slight reduction over the past two years, is forecast to increase dividend payments to shareholders in April of next year.
So what are you waiting for?
