I went on a search for undervalued Swedish stocks and the result was surprising. Based on market valuation 17th of September the Stockholm stock exchange has only 10 low or undervalued stocks, most undervalued stocks according to the screen was in the investment company class. The criteria for being undervalued in this screen was the following
- P/B- ration less than 3
- P/B (most recent quarter) less than 2
- Trailing 12 months P/E-ratio 0-20
- ROE over 15%
- ROA over 10%
- Gross margin over 40 %
It is not a surprise we see so few undervalued stocks in Sweden. The market has risen a lot and OMX Stockholm Price index is up over 26% year to date, since 2011 it has risen 242% equivalent to a CAGR of 13 % per year. In other words the broad index has given a good return to investors. But to the topic of undervalued companies..
Which companies did show up on the list, let me introduce Stockholms undervalued companies;
- Investor Ab
- Kinnevik Ab
- Bure Equity Ab
- Creades Ab
- VNV Global Ab
- Svolder Ab
- VEF Ab
- Ab Traction
- Kopy Goldfields Ab
- NAXS Ab
Here I will focus on only six of the ten companies, reason is that all are not interesting for me and primarily want to see what the return would have been if I invested in the company back in the days. Let me start with the biggest and oldest of them all.
Invesor AB is a known Nordic company mainly ruled by Wallenberg family. Investor has investments in many known global companies and some more niche specific and less known companies. The last 10 years Investors A share has risen 558% excluding dividends. A good return if you jumped on the stock back in 2011. If you bought a share back in September 2011 you would have received gross dividends of 23,75 SEK (adjusted for stock splits), almost as much as you would have paid for a share in the company. What might be special with Investor and the Wallenberg family is their investment policy and horizon, they see their investments as almost forever and focus on development and improvements instead of fast gain and splitting companies to quickly realize a short-term profit.
Kinnevik Ab is an investment company, like many others they provide expertise and possibility to develop companies through the large network they have. The last 10 years the share has returned 526%, still a very good return even though a bit behind Investor Ab. Dividends since 2011 Kinnevik has paid a total of 170,40 SEK including share distributions of investments Kinnevik had. The shares they distributed have been a bit harmful for some owners as it has increased their workload to ensure they claim their right to the shares, example with Zalando. It has also been a bit confusing how to proceed and fulfill your claim for the shares Kinnevik has distributed to you. If we exclude the issues with dividends as shares, one share in Kinnevik would equal a dividend return of 224%, which means a very good total return.
Bure Equity Ab is also a more normal investment company like Kinnevik and one very small position I have. The share has returned a staggering 1 909% in return over the last 10 years. Dividends it has paid out a total of 12 SEK and is a bit below the price you would have paid back in 2011. Bure Equity Ab is also one of the companies that now in 2021 launched a SPAC on Stockholm's stock exchange. Bure has many investments in for me unknown companies and interestingly they own a railway company, if it does not ring a bell then look at Berkshire Hathaway. Overall the return from Bure as an investment would be terrific in capital terms but not from a dividend perspective.
Creades AB like Kinnevik and Bure Equity is a normal investment company, yet first trading day was in 2013. If you would have bought a share on the first trading day you would by today have a appreciated value of 689 %, strong growth in other words. From a dividend perspective you would be far behind with only 6,30 SEK in dividend compared to a purchase price of 13,256 SEK. From cash-flow perspective not the best but from a value appreciation perspective a solid return. Creades is also one of the companies that launched a SPAC on Stockholm stock exchange in June 2021. From Creades investments I only recognized one, apotea.se which is a pharmacy company (if you ever look at Swedish TV you eventually will see an apotea.se commercial).
VNV Global Ab is an unknown investment firm to me, a Swedish mid cap company with an IPO back in 2007 just in time before the financial crisis. Just like the other investment firms VNV Global has many investments in companies I do not know nor have ever heard. Their investment idea seems to be utilizing network effects, assume the idea behind is good and solid as focus seems to be on value appreciation and not that much on cash flow. If you bought one share in VNV Global back in 2011 you would see a nice 1 617% value increase by today, not that bad, yet you would not have received any dividends from the company. From a value perspective the company has managed to show owners a good return in market value, yet the cash flow to investors is still open.
Svolder Ab is an investment firm that invests in listed mid and small cap companies. Svolder could be seen as a small Investor Ab as they also invest mainly in listed companies. The idea seems to be close to the same with the difference that Svolder focuses on the mid cap and small cap companies that are not subject to a large analytic army. This way they can find value before others, or the market realizes it. One share of Svolder would have returned an awesome 1 208% for 10 years while dividends would account for about 59% of the purchase price. Interestingly Svolder announces NAV (net asset value) of their investments every week.
Summary
As these firms are undervalued on a few indicators and have high margins I am not that confident they all will be good long run holdings. Gold mines have the issues of dependence on gold price which markets determine, not the company. This means the business is vulnerable and can be volatile, it also has the environmental issue as mines are hardly sustainable nor are they good at managing their waste.
Investment firms value their holdings at market value, during booming markets it all looks spectacular, but as we saw in Q1 2020 it can rip large holes in their income statement. Investment firms cash flow would be a better option to analyze just as REITs have EPRA and FFO to better reflect the business health. I am not suggesting investment firms should be regulated or required to change reporting, just simply saying that it is strange they do not have a similar cash flow or operational reporting KPI. Operational performance before market valuation could give better indication of the business health.
Assume there is some lobbying behind it and finance has deep pockets, might explain a lot.
To shortly reflect the annual growth (CAGR) of stock price of the reviewed companies I could draw some conclusions, but not any final.
| Company | Stock CAGR % |
|---|---|
| Investor Ab | 21 % |
| Kinnevik Ab | 20 % |
| Bure Equity Ab | 35 % |
| Creades Ab | 29 % |
| VNV Global Ab | 33 % |
| Svolder Ab | 29 % |
I am not that interested in the Swedish undervalued firms that the screen gave me. If markets fall rapidly by 20-50% I might take positions in Investor Ab or some other company and do hope that day will come in the nearest future. Was not able to find the market P/E-ratio for Sweden, would however guess it is over 25 as Western markets in general are reflecting a stimulus monetary policy.
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