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Where could you find a successful but undervalued online global fashion brand? Offline in Stockholm


Stockholm-based Kinnevik is a good example of our strategy which seeks to invest in companies which are trading at a discount to net asset value.  We invested in Kinnevik which was trading at a discount of 34% to a unique portfolio of e-commerce, telecoms and emerging market online businesses. It is difficult to claim that Internet retailing is an undiscovered trend. In the UK, internet retailers from ASOS to AO.com have attracted fevered interest from investors, with share prices bid, in some cases, unsustainably high. At the same time, it is clearly a growth trend. The question is how investors can gain access without over-paying.

Many dedicated online shoppers will be familiar with Zalando. In many cases it looked like its more high profile rivals such as Asos or AO.com; it had a similar growth trajectory and prospects, but instead of being conspicuous, it was hidden away within Swedish group Kinnevik, a family owned holding company. Analysts weren’t keen on the company because it was a rather unfocused holding company with disparate assets and an unfathomable strategy.  We saw a company that was trading at a nearly 50% discount to its net asset value. Kinnevik owned a listed portfolio of telecom companies that accounted for 73% of its assets. Another 24% of assets were comprised of investments in online companies. This is where Zalando was hidden and largely overlooked by the market. This was in spite of the group – founded in 2008 – already establishing itself as a serious contender in the online retailing business, rapidly taking market share and outpacing its competitors.  


Investors gradually noticed and started buying Kinnevik to access the value in Zalando. Zalando was ultimately floated and now has twice the market value of ASOS. Kinnevik shareholders reaped the rewards.

To us, this is the essence of value investing. The market has structural biases and imbalances in the way it looks at companies, which can lead it to treat similar businesses in different ways. Since the float of Zalando, Kinnevik also sold its stake in Russian online classified advertising firm Avito at a sizable uplift to carrying value.

The outcome for investors can be very different. Contrast our experience with Kinnevik with the recent experience for investors in ASOS. ASOS was at the forefront of a revolution – the Internet was fundamentally changing the way that people shopped for clothes. At its peak at the start of 2014, it was trading at over £70 per share and investors accorded it a rating of almost 100x forward earnings.

Attractive growth stories are one thing, but investors always need to question the price they pay for that growth. The subsequent fall in ASOS shares has been savagely painful for those who believed that the growth prospects merited the valuation. A profit warning and some supply problems quickly made its high valuation look unsustainable. Its share price fell 62% over the course of 2014. It remains at just over £25 today.  

Let’s be clear, we believe  ASOS is not a bad company. The results that got the market so concerned still saw retail sales up 25% year on year, with UK sales up by 43%. The number of its ‘active customers’ grew by 32% year-on-year, rising to 8.6m. ASOS may have experienced some short-term problems, but it is still at the vanguard of a sea-change in retailing.  

The problem is more how the market treats certain types of companies. ASOS became the very public face of UK Internet retailing. There were relatively few listed companies in this space in the UK, so investors crowded to get exposure to this exciting growth story, but chose not to look more broadly.

British Empire Trust focuses on a diverse universe of investment opportunities often ignored by mainstream investors: family controlled holding companies, closed end funds, property companies, conglomerates and asset backed companies. This ‘investing in undervalued assets’ is what makes British Empire Trust an interesting addition to your portfolio.

Read about other places we have found value and British Empire Trust's rich history