Sofina (OTCPK:SFNXF) is a must-have holding for retail investors in these volatile times. It is well-managed, family-owned and -controlled, and is very active in Private Equity which has led to serious profits. At the same time, it has invested in several defensive companies that have formed the core of the holding for more than 50 years.
Sofina's Track Record
As stated earlier, the net asset value of Sofina increased last year by 15%. This is no anomaly, as Sofina has had a compound annual return of 9.8% over the last 15 years.
Image source: Annual Report 2018
Sofina has three investment strategies and portfolios.
1. Minority shareholder in a large company for the long term
This strategy covers 46% of the assets of Sofina, and investments are made for the long term. For example, Sofina started investing in Colruyt (OTCPK:CUYTF), its largest holding, in 1975. In Danone (OTCQX:DANOY), another asset, it started investing in 1987.
Sofina continued to invest for the long term, with the next investment in 1992 in Luxempart, an asset manager. In 1998 came SES, a satellite builder and service provider to telecommunications companies.
In 2007, Sofina helped The Forestier Group (Cooling Services) with its delisting. In 2009 and 2014, Sofina made two investments in healthcare service companies.
Sofina has also made recent investments (2016) in online retail, by taking stakes in Veepee and The Hut Group. Most recently, in 2018, investments were made in Biotech Dental and Cambridge Associates, another asset manager.
Today, this is a well-diversified portfolio. Focal points are consumer staples and goods, online retail, healthcare services, and asset managers.
2. Investments in Venture Capital funds
While Sofina started investing in venture capital funds in 1978, it is only in the last 15 years that it has ramped up investments in this portfolio. Today, it covers more than 30% of the assets of Sofina.
69% of investments are made in North American funds, 8% in European and 23% in 'Emerging Markets'. In total, Sofina has around 60 so-called general partners.
The 20 largest are: "Abry, Aberdeen Standard, Atomico, Bain, Battery, Crescent Point, Draper Fisher Jurvetson, General Atlantic, H.I.G., Iconiq, Insight, IVP, Lightspeed, NEA, Sequoia (Verenigde Staten, India and China), Silver Lake, TA Associates, Thoma Bravo, Tiger Global en Trustbridge".
3. "Sofina Growth"
Started up in 2013, this segment already accounts for 13% of Sofina's assets. It was in that year that Sofina made its first investment in Flipkart. The Indian e-commerce platform was later sold, in 2018, to Walmart (NYSE:WMT).
Other investments are:
|Healthkart||Platform for sports nutrition and health supplements||India|
|Giphy||Gif (video loops) creator||The U.S.|
|Byju's||Online learning platform||India|
|Dailyhunt||The Google News from India||India|
|Zhangmen||After-school tutoring space||China|
In total, Sofina has invested in 28 private companies, almost all are based in Asia.
Net Asset Value and Discount
At the start of March, the NAV stood at €194.28 per share. The share price on the first of March was €178. The discount was thus around 8%. But what has the discount been, historically?
|31st of December 18||194,28||165,8||14,7%|
|30th of June 18||183,25||155||15,4%|
|31st of December 17||171,75||140,4||18,3%|
|30th of June 17||166,99||125,8||24,7%|
|31st of December 16||156,52||125,6||19,8%|
|30th of June 16||151,24||119,65||20,9%|
|31st of December 15||154,89||103,4||33,2%|
|30th of June 15||146,03||105,1||28,0%|
|31st of December 14||138,02||100,25||27,4%|
|30th of June 14||130,64||84,21||35,5%|
|31st of December 13||121,75||85,58||29,7%|
|30th of June 13||115,55||70,8||38,7%|
|31st of December 12||108,69||71,22||34,5%|
Source: writer's own research and Sofina's financial reports
As stated earlier, the growth in the NAV of Sofina is very strong. Over the last 6 years, the compound annual growth stood at 10.1%, a tad bit higher than its 15-year average of 9.8%, while paying out a dividend of around 2% a year.
Source: writer's own work
The discount to NAV has been declining steadily, from around 40% to now around 15%. At the end of April, the stock hit a price of €184, which even resulted in a discount to NAV of just a mere 5%.
This decline in the discount to NAV comes as Sofina has ramped up its investments in private equity and in "Sofina Growth". Investors expect significant added value to those growth firms and are thus willing to pay more for the same book value.
Outlook for the portfolio
In volatile times, defensive stocks fare well. Last year, Colruyt (6% of the portfolio) hit an all-time high while the Belgian stock market plunged. This year, management sold off the stock before it came back down to Earth (Colruyt has dropped 30% thus far). At the same time, the other large holding of Sofina (also 6%), Danone, has performed very well. It is up 25% YTD. This will boost the NAV of the portfolio significantly.
Management is shifting the allocated capital towards "Sofina Growth", which should be of no surprise given the stellar returns it has seen the past couple of years. For the next couple of years, I do expect some more nice returns. As most of the companies Sofina has invested in focus on the domestic market, Sofina will suffer significantly less from a possible trade war.
With around 12% of the portfolio invested in just two very defensive stocks, and 36% spread out across defensive sectors (online retail, healthcare), Sofina will not suffer all too much from market volatility. The other half of the portfolio consists of private growth companies, which will spur the growth of Sofina's net asset value in the coming years. This part of the portfolio has been pushing down Sofina's discount from around 40% to around 15%, as investors are starting to see the potential of Sofina. I believe net asset value will continue to increase by double digits over the coming years, while the discount to NAV might stabilize around this level (15%).
Disclosure: I am/we are long SFNXF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.