IVSBF - Investor AB: Not So Impressed With The Private Market Multiples

2023-12-12 06:24:17 ET

Summary

• Investor AB is a Wallenberg holding company focused on Swedish markets and resident industrial and healthcare companies in public markets.
• The portfolio has a slight premium in NAV calculations.
• Our concerns are around the private market valuations, which we think could be and should be valued more conservatively by the intelligent investor.
• There is a lot within Investor AB that can be picked from and we don't see the value in buying the whole vehicle.

Investor AB (IVSXF) is the Wallenberg holding company focused meaningfully on Swedish markets and resident industrial and healthcare companies. The portfolio is high quality with much to like as we said last time. But with a concentrated portfolio like this, why take any overhead and a premium to NAV by buying Investor AB when you can just study their few picks and take them on yourselves. In the private exposures, we continue to question the multiples on these businesses, especially since upward revisions in the multiples are driving the valuation changes. We continue to prefer taking allocations into our own hands over buying Investor AB.

Portfolio Breakdown

The following is the updated NAV calculation for the company.

There is a slight premium in NAV calculations. Naturally, this doesn't take into account the negative cash flows from the overhead of Investor which makes the ownership of the portfolio a little more inefficient.

The Patricia valuation is the one provided by the company, and we take issue with some of their assumptions. Since our last report, valuation multiples have actually risen on these companies where they were high to begin with in our opinion. While some increase in valuations may make sense as the sponsor markets are a little less gelid now in Europe, thanks to more apparently peaking rates, we wouldn't be comfortable with the extent of some of these valuations especially when it appears that incrementally the value gains of this part of the portfolio isn't being driven by growth in the financial statistics, mostly it's in the multiples . While there has been growth in some of these companies, as there are plenty of attractive healthcare exposures within, the multiples as they were before adequately captured the values. What's more is that compared to 2021 , the multiples weren't revised downwards particularly much despite very meaningful changes in prevailing capital costs. In summary the multiples look rather high and don't gel well with a conservative approach, even if with some commonly accepted gymnastics they can be justified.

In a similar vein, we have concerns about EQT AB (EQBBF), which has multiple funds in which Investor, which was a seeding member at the founding of EQT, has substantial shares, as well as shares in the equity of EQT itself. EQT, just like the rest of the private markets, made the bulk of their investments in 2021 , which was a ridiculous vintage for PE . EQT, which has quite a bit of venture exposure and China exposure, has not seen that large NAV declines as provided by the company. Adjusting for the fact that Investor disposed of shares in EQT proper, there is about a 10-15% decline in the value of these holdings from late 2021, which would have been the absolute peak in these markets and in sponsor activity in general. For us the margin of safety here is not enough considering how utterly these markets have crashed. They have a lot of latitude in setting these valuations over at EQT so a more conservative approach, if these things were liquid and could be marked to market like that, should reflect much larger probable declines considering how badly these markets have done and how impaired they are even now.

Bottom Line

We have never believed in investing in a vehicle on the basis that their managers will somehow know how to choose winners better than the rest of us, beyond possibly a valid focus on markets like healthcare which has its benefits in myriad environments. There are interesting companies within the public portfolio that could be worth considering further. We've always like Sobi (BIOVF) with its Sanofi (SNY) link. But what we don't want to do is buy a vehicle at a NAV premium, paying also for overhead, and where the premium is also based on possibly aggressive values in a pretty large private portfolio across EQT and Patricia. Whether the values are justified or not in this particular case of Investor is not really interesting to us, although eyeballing the multiples they look high. It's enough for us to know that private investors have every incentive to use the fact that their assets aren't easily valued on a mark-to-market basis. We don't want this stock.

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