Updates: Kinnevik (SELL), Vostok New Ventures (ADD), Vostok Emerging Finance (BUY)
Kinenvik was an investement I first looked at in December 2017 and then decided to invest in late 2018 however only up to a 1,5% allocation.
As mentioned in the comments by a reader. since then a few things happened. From the market side, first their Zalando stock cratered and then recovered. What worries me more is the flurry of personal changes including Christina Stenbeck, the heir of the major founding family completely leaving the board. Personally; i also didn’t find their main new investment, online Grocer MatHem, very convincing. Overall, I am slightly underwhelmed from the strategic perspective. I don’t know enough about the Nordic Telecom market and if I really like Zalando, I could buy them outright. The non-listed part at Kinnevik is just to small to make a difference and the changes in the Board are hard to understand.
Vostok New Ventures
Vostock New Ventures in contrast to Kinnevik did very well, especially as they were able to sell their 60%+ stake in Russian Avito for the value they had in the books. They used part of the cash very smartly to return cash to shareholders.
I can only recommend to read their 2018 annual report. I liked especially the introduction by CEO and founder Per Brillioth. For instance this passage is very telling:
We have taken advantage of this by acquiring some 7 mln shares or nearly 10% of the Vostok shares since the start of the year. I don’t have any illusions that this will close our discount to NAV but the opportunity to buy the set of risk/reward opportunities that our portfolio comprises at such large discounts (25%+ even with a large part in cash) is too big an opportunity to miss. I am a shareholder and I am not incentivized to keep Vostok large just to keep it large so I will continue to take advantage of the opportunity that our stock offers.
This is clearly smart “capital allocation” at work. I found it also interesting that Per’s origins are clearly those of a value investor as he lines out in the same foreword:
It feels a bit like when I started at Vostok in 2000 when we shed our more traditional bluechip portfolio and built a position in the ring fenced Gazprom shares. The stock went from SEK 10 to 400 over the following 6–7 years. Gazprom grew up and left home in a particularly turbulent time of late 2008 and early 2009, at which point we found ourselves with a portfolio of new teenagers of young unlisted companies. Those with a Soviet background with large assets at extremely low prices would prove tough investments but the ones that were created from a blank sheet of
paper turned out well. In many ways our portfolio today is reminiscent of the one in 2009/2010 with Avito at some USD 100 mln valuation and TCS at some USD 300 mln
(though we had of course invested in them some years earlier at lower valuations). Avito would leave home at USD 4 bln and TCS at some USD 3 bln at IPO.
After reading the Vostok annual report and comparing it to the very “Corporate” Kinnevik report, I decided to concentrate my bets and switch my Kinnevik stake into additional Vostok New Venture shares.
Vostok Emerging Finance
Finally a few words on Vostok Emerging Finance, a stock that I also introduced in the November post on listed Venture Capital.. Vostok Emering Finance has done very wll since then (+25%). One of the main factors might have been that similar to Vostok New ventures, they sold their biggest Russian “heritage” position, Tinkoff at a good valuation and sit now on a pile of cash.
Similar, as Vostok New Ventures, their annual report 2018 is worth a read.
Not everything went perfect, for instance one of their Brazilian (Guiabolso) Holdings did not so well and had to be valued down by -50%. But overall I like their discipline and feel equally optimistic than Vostok New Ventures.
Therefore I establisghed a “starter position” of 1% in Vostok Emrging Finance alongside the increased Vostok New ventures position.
During the last 6 months I found out that I like the two Vostok vehicles much better than Kinnevik. Overall my weighting towards “listed VC” has slightly increases but now with the focus on Vostok New Ventures. It could be the case that the timing will turn out not to be super optimal, as the current run of Tech/risky stocks will be over at some time. But both stocks are meant to be really long term position (10 years plus) and therefore I care less about short term timing.
Babylon seems to have closed a funding round at 2 bn USD (not sure pre or post money…):
Vostok has a 10% stake valued at 20 mn EUR plus convertibles. Not sure how the final impact on NAV will be, but it will be significant.
Ok, so the valuation is “Post money”:
NAV will increase by +18%:
Vostok New Ventures Net Asset Value (“NAV”) is expected to increase by approximately USD 107 mln or 18% compared with the last reported NAV as per March 31, 2019 as a result of the transaction.
Good news from LatAm:
I increased my VEF position by 1% to 2% of the portfolio at 2,45 SEK/Share
Any comments on the controversy around the CEO bonus in Vostok New Ventures, related to the sell of Avito? Seems very excessive.
Well eahm… you do realize that the carrying value of TCS on VEMFs balance sheet was based entirely on the share price on the London stock exchange where TCS is trading, right? So when they were selling the stock in the open marked it is hardly a surprise that they get the marked price for the stock… so that does not say anything about whether that price mr market was yelling out was high or low, however the key metrics I mentioned above do (40% yearly earnings growth and a PE below 7, is that not craaaazy cheap?) 😉
When looking for good investors it helps to distinguish luck from skill if they have demonstrated repeated success. Their Avito investment was an absolute blinder but absolutely dwarfed their total return over last decade or so meaning everything else they did was a rounding error (relatively) in a massively favourable environment for all things disruption/tech. How can we judge they have broad skill versus one lucky call with 17mm that became way north of 500mm?
Thanks for your comment. I See this differently. With “venture style” investing, returna are always driven by very few titles. I do like their philosophy and i think there is significant upside potential in their remaining Portfolio.
The valuation was good in my eyes because it corresponded to the value they had on their balance sheet, so no discounts or so.
Personally, I like the Latam exposure more than Russia so I am very happy with them selling TCS. But of course other people have other opinions.
What makes you say that the valuation of the TCS stock (which VEMF sold) was good? 🙂 It corresponded to a PE of around 6-7 for a company that grows it earnings more than 40% per year and has a ROE above 70% and pays a 5% dividend yield. To me the TCS sale at those levels was a disaster. I originally bought VEMF primarily due to the chance of getting TCS at a 30% discount (while also holding a lot of TCS directly)