Investor AB – the swedish Berkshire Hathaway
Posted on 23. May 2016 by valuetradeblog“In the long run, managements stressing accounting appearance overeconomic substance usually achieve little of either.”– Warren Buffett quoted by the Investor AB management (Johan Forssell)
Investor AB is a swedish owner of high-quality, international companies founded by the Wallenberg family a hundred years ago. Basically it is a business conglomerate with listed investments, wholly-owned subsidiaries, Privat-Equity and Financial Investments. I have written already about them (here). Lets look at some of their biggest holdings to get a feeling for what Investor AB is all about:
Atlas Copco, about 15% of NAV: Provides compressors, vacuum and air treatment systems, construction and mining equipment, power tools and assembly systems.
SEB, about 14% of NAV: The “birthplace” of Investor AB. A financial services group with the main focus on the Nordic countries, Germany and the Baltics.
ABB, about 12% of NAV: Provides power and automation technologies to utility and industry customers. I see similarities to Siemens or General Electric with a sprinkle of KUKA
AstraZeneca, about 10% of NAV: A global, innovation-driven biopharmaceutical company.
Mölnlycke Health Care, about 7% of NAV – biggest not listed Company: Provides single-use surgical and wound care products for customers, healthcare professionals and patients
They introduce all of their holdings and subsidiaries very well and present them in a nice and clear way (like shown below) in their annual report. Their holdings are mostly “down to earth”-Industrials like Atlas Copco, ABB, Saab and Husqvarna, Techs like Ericsson and Health Care companies like AstraZeneca, Sobi or Mölnlycke. And of course swedish Bank SEB and a well known Company called NASDAQ.
In the Interim Report Q1-2016 they write:
Net asset value amounted to SEK 262,282 m. (SEK 344 per share) on March 31, 2016, a decrease of SEK 9,519 m. (SEK 13 per share) during the quarter, corresponding to a change of -4 percent. Over the past 20 years, annual average net asset value growth, with dividend added back, has been 9 percent.
The stock price of the B-class share was at that time (pre dividend) around 286 SEK. That is an upside of around 20% (note: this data is before dividend payout). This is how they list their Holdings in the 1Q16 report and display their reportet value:
|Reportet value SEK bn||EBITDA 2015 SEK bn||Notes|
|Listed Core Investments|
|Atlas Copco -A||42,1|
|Mölnlycke Health Care||22,9||0,370|
|Gross cash||22,0||<————||before dividend|
|Net Asset Value |
What is interesting is their value assumption of Mölnlycke Health Care. The company has smaller EBITDA and Sales than Permobil and Aleris but is valued much higher. I will have to dig deeper into that.
This is what they write in the 1Q16 report about that:
Quite often, we get questions about the valuation of our wholly-owned subsidiaries. We focus on the intrinsic value and try to grow this long term through industrial value creation. However, we have chosen to report our subsidiaries at book value. Acknowledging that this may not be the perfect way, we have yet to come up with a better alternative. While we have our own view of the intrinsic values, that is just one view.
Maybe its because of much better growth opportunities at Mölnlycke. What I like about their wholly-owned subsidiaries in general is their Health Care focus.
Capital allocation and performance:
From the Q1 2016 letter:Core Investments: During the quarter, we added modestly to our holding inAtlas Copco, as we found the valuation attractive
Financial Investments: Exits were made in Constant Contact, Liba, Nilörn, Transcend Medical and Yuan Chuan. Parts of the holdings in Healthline and Tobii were divested.
On October 30, 2015, Patricia Industries, a division within Investor AB, acquired 95 percent of the U.S. family-owned company BraunAbility. The consideration amounted to SEK 2,820 m. and was paid in cash.
They constantly buy and sell shares and smaller holdings, but the big holdings change rarely – mostly they add to them. As I already mentioned, they owned Atlas Copco for more than 100 years, last quarter they added to their holding.
They have outperformed their benchmark in the long run – remember, other like Berkshire they pay dividends.
It is clearly not an “moonshooting” outperformance but it is based on a solid and sound foundation and I think they will perform at least reasonable from a business perspective. I think the DNA of the holdings has built in some resilience and can weather a storm.
The dividend of Investor AB doubled from 5 SEK in 2010 to 10 SEK for 2015. The stock currently yields (at 277SEK) about 3,6%. This is what they write about their dividend policy:
Our dividend policy is to distribute a large percentage of the dividends received from the listed core investments, as well as to make a distribution from other net assets corresponding to a yield in line with the equity market. The goal is also to pay a steadily rising dividend.
There is a lot to like about Investor AB: Their rich history of value investing which even exceeds Warren Buffetts, their “down to earth”-approach, the diversity of their holdings, the long-term horizon of the management, the low-key public profile and fair behavior (low salary) of the owner family, the stock price under NAV, the dividend growth and yield.
For me Investor AB represents a good opportunity to diversify my portfolio and shift away from my US Dollar concentration.