We are happy to announce that we have by far exceeded our return targets during the last year and continue to perform significantly better than market. We see with optimist on the coming year as our portfolio consist of interesting assets with both value and value creation left (note though, our investments are medium to long term in nature, and the fund is heavily concentrated into our best ten ideas, the fund performance can therefore deviate considerably from our long-term return targets and/or market indices in any individual year). 50% gross IRR (42% net) since formation last year; beaten markets indices with 15-16 percentage points (gross).
Preceding the formation of Being and investment, the investment strategy produced an average of 24% return per year, gross of fees, during eight years, beating market indices with ~14% per annum on average.
Since formation of the new team a year ago, Being and investment has beaten historic returns, with 50% yearly return (IRR) gross of fees, and 42% yearly return net of fees.
Two investments have almost doubled, four have returned 26-41%, and the most recent investments are at ~cost
We have today seven investments in the portfolio, and still target attractive returns for all of them.
We expect to call down the remaing 30% of our clients' committments in the coming year, and grow the number of portfolio companies to ten.
The return since formation of the new team, is equivalent to a 15-16% gross over-performance vs S&P and World MSCI respectively, on a yearly basis.
A quick note on Being and investments' Public Active Value:
Our investment strategy and process consist of evaluating active ownership cases, mainly in the US and Europe. All our investments thus have an active and engaged large owner (typically an Activist or Private Equity owner).
The companies we then chose to invest in have three main components. First, they are "cheap" (i.e., trading below what we deem to be intrinsic value). Second, the companies’ operations and/or strategy can be improved (i.e., there is potential to increase intrinsic value). Third, they represent what we call "quality", with a strong competitive position, and thus predictable free cash flows.
The strategy has a track record spanning back to 2010 and has produced 24% CAGR gross returns since, in line with the best Private Equity and Activist funds.
At the same time, our fees are ~50% lower than the typical activist/private equity fund.
An important note on risk: Historic returns are no guarantee for future returns. The value of any investment may fall as well as rise. Furthermore:
Our ambition is to identify the ten best investment ideas, and then constantly prune the portfolio by challenging it with a steady flow of new ideas/cases. We believe we minimize risk by picking the best ten ideas, instead of the best hundred ideas. We thus try to minimize risk by increasing conviction. We also believe we are in better position to follow ten companies deeper, once investments are made, than we would with a hundred investments.
Our cases, and return targets, are based on assumptions regarding crystallization of value and operational and strategic change, assumptions that can fail to materialize. Our return targets thus include execution and timing risk. We can also prove to be wrong about assumptions and fail to identify variables/risks that are detrimental to our return targets.
Furthermore, our ambition is to reach our return targets over an economic cycle. Implementation of operational and strategic change takes time, and general market movements can affect returns significantly in any one year in the interim. The return for the fund can thus deviate significant from our returns targets, both up and down, in any individual year.
Furthermore, the fund is concentrated into about ten holdings, which implies high company specific risk. The fund can thus deviate significantly from market indices, both up and down, in any individual year.
Finally, the fund has foreign exchange (FX) risk vs the SEK. Our performance is measured in USD, as most of our investments are in the US. Each individual investment in turn has FX risk in its operations as they typically have large share of its operations outside of Sweden. Nevertheless, our view is that FX tend to oscillate around a mean, which again means that the FX risk is less pronounced for investments that are held over an economic cycle.
Short summary of each investment in current portfolio
Telecom Italia
Telecom incumbent in Italy (and Brazil) owning strategic not yet monetized assets in fixed broadband network, with ~80% + coverage/market share and the only player with significant Mobile+Fibre assets (key in 5G)
New leadership with step change in presence, focus and capabilities with already demonstrated results: key initiative is to monetize infrastructure assets through separation of OpCo and InfraCo (towers, fibre and data centres to be spun out).
Beneficiary of EU and state funding aiming to digitalize the country post pandemic through direct and indirect subsidies.
Value, especially considering infra assets: Trading at 0,5 P/B, 20%+FCF yield, ~4,1x EV/EBITDA, with 2,9x ND/EBITDA. Strong discount to peers. Key to unlock value is returning to growth and/or spin out assets.
We are invested in the preference shares, yielding 6%+ in yearly dividend at current prices.
KAR Auction Services
Auction marketplace for B2B used cars (e.g., cars coming off leasing). Dislocated during Covid. Transferred all transactions to digital auction platform in less than a quarter.
New CEO since last quarter.
#2player with 32% and growing market shares.
Recent reverse carve-out.
Expanding Total Addressable Market by a factor 2x+ with the ongoing penetration of dealer-to-dealer transactions (yields high case if full penetration, but takes longer time).
APAX (PE) is the key active owner.
Entry at EV/Pre-Covid EBITDA of 7,5.
Pearson
The “Disney of higher education publishing” with #1 position in the US.
~50% of profits are nevertheless stemming from growing Assessment business, where Pearson has a market leading position.
New CEO from Disney.
Historically suffered by the move towards digital in higher education publishing (yet not in terms of market shares). Tech leader (first in Online Program Manager and digital distribution of educational publishing) with potential to move from B2B2C to B2C, expanding margins and competitive position.
Long term a potential EdTech company.
Active owner in case is Cevian (Activist).
Entry at EV/Pre-Covid EBITDA of 6,9.
NN Group:
The largest insurer in the Netherlands.
Stock has seen a decline due to lower interest rates and Covid, yet cash flow generation has not been impacted (interest risk hedged and limited Covid exposure).
Potential to sell off specific risk (longevity) to specialized lower-cost-of-capital insurers, rebalance portfolio away from government bonds (increasing yield), take out cost and prune geographical footprint.
Elliott Management (Activist) is the active owner in this case. Entry PE of 7,7. Price to adjusted book value (own funds) of 0,6x.
Takeda:
Takeda is operating in an attractive growing segment of the market (less common diseases), and is utilizing a differentiated research strategy within this market.
We believe the company is trading below intrinsic value and has additional potential to leverage the “genomics revolution”, a development that could potentially lead to a new golden era for pharma (higher return on R&D investments).
10,5x EV/EBITDA-CAPEX (compared to around 15 for large pharma) and with ~40% net debt (reason for low valuation could be high amortizations due to recent large acquisition of Shire and its listing on the Tokyo Stock Exchange)
The asset also adds a noncyclical uncorrelated component to the portfolio.
Key active investors in this case are Glenview and Paulson & Company, both activist investors with a strong value tilt. Interestingly, ARK Investment Management, a tech investor (among the first investors in Tesla) is also among the key investors (through their Genomic Revolution ETF).
PBB:
PBB is a specialized lender predominantly within commercial real estate in Germany and German/Austrian government bonds, backed by a very stable funding base and conservative capital ratios.
Real Estate lending is collateralized (first lien) and made at ~0,5x loan to value, with ~25% of portfolio adjusted to new market conditions every year (term of four years)
Lower risk than a typical bank, given collateralized assets/government bonds held to maturity and stable funding base (German Pfandbriefs).
Trading at 8,8 depressed earnings, or 0,39x P/B
Government bonds portfolio to be shifted to real estate, as maturities are reached – we therefore expect earnings to recover and increase as assets are shifted towards higher yielding real estate (or distributed), and PE to normalize at 10.
Greenlight, a top tier value focused activist, is the key active owner in this case.
ABC technologies:
Largest independent plastics supplier to the automotive industry.
Plastics is lighter than steel, and thus decreases car’s energy consumption and increases battery time for Electric Vehicles (EVs) – we expect share of plastics to increase in cars as shift towards EVs increases.
Integrated production (including material formulation) positions company well in development of new types of plastics (e.g., biodegradable plastics), and several trials are ongoing.
Stock dislocated due to semi shortage, storm in Texas (Resin shortage) and Covid – trading at 7,5 EV/depressed EBITDA (1,8x net debt)
We expect normalization of car sales volumes and higher volume growth than car sales, as share of plastics increases, and company returns to pre covid margins.
Potential platform for synergistic M&A.
Apollo, a value focused Private Equity player, is the key active owner with 50% ownership.
If you you wish to learn more please contact us here Note: Historic returns are no guarantee for future returns. The value of any investment may fall as well as rise.