New chapter for Ratos
At the end of the month, the fund took in Ratos as one of its largest holdings. We believe the market has entirely forgotten this company, which ten years ago went from being a darling among investment companies to a mess of underperforming enterprises that required write-downs.
Since Jonas Wiström moved from being chairman to CEO in December 2017, there has been a major restructuring journey that has gone largely overlooked. The managements of both Ratos as the parent company and several of the subsidiaries have been replaced, and several write-downs have been made. Now that 11 of the 12 companies have demonstrated a higher EBITA margin in the fourth quarter compared to a year ago, we believe that a new chapter has begun.
Consisting of 12 subsidiaries in various industries with shareholdings from 32 percent to 100 percent, this is a diverse portfolio. We believe parts of it will be streamlined, and other parts will grow larger and the market will eventually focus on business areas rather than the individual company, which will simplify the image of Ratos. Many investors are aware of the weak performance of Plantasjen, but few have noticed how its margins have turned in the past year. Even fewer have discovered that materials supplier Diab is a much larger part of the company than Plantasjen, and has a strong tailwind from the expansion of wind turbines and energy-efficient vehicles, industries that require light but strong materials. Another company that we feel many investors still negatively associate with Ratos is Aibel, which was bought at entirely the wrong time. The truth is that after a few years of low margins, it has now clearly improved, something we believe will continue in the coming years given the phase of the project portfolio and that the order book today consists of 50 percent wind power and electrification contracts.
With new financial targets involving multiple acquisitions, we do not think that Ratos’ current structure is much different from other serial acquirers, which typically have a significantly higher valuation. We have also valued Ratos at subsidiary level by reviewing all its subsidiaries with our own estimates and valuations. No matter how we look at it in terms of valuation method, we find over 50 percent upside.
There is always a risk that cheap companies will remain cheap. In Ratos’ case, we believe that the completed transition and the start of an acquisition journey will force more people to spend time on Ratos. In addition, we are upbeat about most of the subsidiaries’ development in the coming years. All this means that the market needs to reconsider its negative attitude towards the company, which looks completely different today than it did three, five or ten years ago.