IVSBF - Investor AB: Trading Below NAV But Healthcare Exposures Make Sense

2023-07-14 13:12:57 ET

Summary

• Investor AB is a holding vehicle composed of mostly listed stocks, a large proportion of which are in the healthcare sector.
• In the current economic setup, healthcare is an interesting hedge against the possibility that higher medium-term rates might prevail, since the last leg of inflation reduction will be the toughest.
• However, there isn't a meaningful holding company discount to take advantage of in Investor AB.
• It may be better to pick and choose the elements inside Investor AB. We have our eye on Sobi.

Investor AB (publ) ( IVSXF ) is a holding company controlled by a major family in Sweden. Its stocks are pretty established, and the company trades in line with NAV using the non-adjusted figures. We think the healthcare exposures are interesting in the current market setup, making Investor AB compelling as a pseudo-ETF of healthcare stocks. Also, its non-public holdings could see revaluation if M&A and P/E activity inflects, where the company's non-public holdings could be valued on more optimistic P/E multiples. However, without an aggressive upside, and where holding company discounts are usually perennial, we probably wouldn't move on the holding company as a whole.

The NAV Breakdown

Below is an updated NAV breakdown based on the current market caps of the public holdings in Investor AB's portfolio.

For Patricia, the adjusted figures were used above. The adjusted figures proposed by Investor AB involve assumptions on their possible multiples for valuation that look in line with where pre-rate hike multiple might have been in P/E.

The non-adjusted figures, which we prefer considering that while M&A and P/E activity may soon start inflecting the cost of capital issue still remain, result in the following NAV calculation.

Investor AB shows a premium to NAV, which is slightly unusual for a family-controlled holding company.

Bottom Line

The portfolio definitely skews towards healthcare. AstraZeneca ( AZN ), Swedish Orphan Biovitrum AB (publ) ( BIOVF , "Sobi") and the non-public portfolio make for about 30% exposure to healthcare, again using the non-adjusted figures for the non-public holdings. Otherwise, there is quite a lot of industrial. Saab ( SAABF ), which is a defense exposure can be excluded from that number since its end-markets are very different, but Atlas Copco ( ATLKY ) and others all contribute to industrial exposures.

The healthcare skew makes some sense in the current environment since these exposures will tend to be more resilient. Jobs data in combination with inflation abating has created expectations of a softer landing. We think that the final leg of inflation will be tough to conquer and that some recessionary pressures will arise as rates either go higher or stay high for longer. Healthcare should be pretty resilient to that on the fundamental side, although the cost of capital effects are somewhat inescapable.

On the non-public side, the healthcare exposures are focused on Mölnlycke. They do wound care and disposable gloves. The latter market has been particularly affected by falling ASPs and collapsing margins due to post-COVID oversupply. That has started to turn around at least on a volume basis, which is good. However, the adjusted multiple doesn't seem that appropriate considering the headwinds to that rather important part of the business. The wound care business is likely where most of the value is coming from in the proposed 15.4x EV/EBITDA multiple. We maintain that the non-adjusted figures are more prudent to use.

The industrial exposures are benefiting from the fact that there is greater perceived certainty in the rate trajectory now, although we fear that may be short-lived. Industrial exposures are a little bit concerning when we are still high in the cycle with the horizon of rate pressures still meaningfully long, at least half a year before any cuts in the best case scenario. Outside of healthcare, a lot of the exposures are industrial.

Without a strong NAV argument for Investor AB even in the case of using adjusted figures, we'd rather pick and choose exposures. We like Sobi, which has the rights to drugs with recurring revenues, some that are now being pushed by licensees like Sanofi ( SNY ) in the U.S. as of recently to help grow earnings. They are also coming off some COVID-19 pain, which spells a decent trajectory. As such, we're passing on Investor AB.

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