Kinnevik is well timed – at a discount
As so many times before, the stock market chose to rise steeply and look to the future, right in the middle of one of the worst crises ever and just as everyone was waiting for a better time to buy.
It is, of course, possible or even likely that the stock market will fall back a little in the near term, and the only thing we know about Covid is that it will take time and have a cost in terms of both lives and the economy, resulting in a changed society. But it is impressive that the stock market is looking to the future, at least for now.
We have said it multiple times before and will say it again: 2020 is a lost year for profits, and the important thing now is to protect balance sheets, which is why cancelled dividends should be applauded – the money still remains in the companies – and we should look to future profits. Our big concern is that expectations for 2021 are far too high, so the market may be disappointed several times in the coming year.
The recent interim reports reflect the past and not the future, which makes them less significant. But most companies we have spoken with are showing an impressive ability to handle the slump in demand, employee safety and shuttered factories.
We have made some changes to the portfolio, including larger holdings in SKF, Skanska and spin-off Electrolux Professional. The last of these now has a market cap of SEK 7-8 billion, which is half of what everyone thought a year ago.
Kinnevik is a new holding. Its portfolio has relatively stable Tele 2 along with the exciting Zalando, which is steaming ahead as the shift from offline to online accelerates. Kinnevik’s unlisted portfolio also includes Mathem and other timely holdings. All this can be bought with a discount of more than 20 percent at a time when other investment companies are trading at a premium.
The stock market is bisected, with pharma and technology up and many other companies down 30-40 percent in short order. We believe the valuation spreads will probably correct eventually, but everyone should be prepared for a deep recession.