Vostok New Ventures is a Swedish holding company, that invests in unlisted companies with network effects. The investments have strong exposure to the developing world. On 19th June 2018, we were able to attend the Vostok New Ventures Investors Day 2018 in Berlin. The investor’s day was held near Gendarmenmarkt. It gave us the chance to get more insights into the company. On the website of Vostok New Ventures, you can find a video recording of the investor’s day. So, you can follow our arguments and get your own impression of the investor’s day.
What kind of businesses does Vostok New Ventures own? – A summary of the presentations of the Vostok New Ventures Investors Day 2018
The homepage of Vostok New Ventures gives a good overview of the businesses Vostok New Ventures is invested in. For more details, I also recommend reading the latest annual report. Nearly all Vostok’s businesses are not listed. The company focuses solely on unlisted businesses. If a company goes public, they sell its stake. The reason is simple: You can buy such companies on your own. So, you don’t need a holding company like Vostok New Ventures.
Here I want to mention some of the companies in detail, that was presented on the Vostok New Ventures Investors Day 2018.
Avito is the biggest and, in my eyes, a very interesting holding of Vostok New Ventures. The Swedish company holds 13,2% of the Russian classified add website. Besides that, Naspers holds around 77% of the company. The verticals of Avito are quite unique. It has a good position in auto, real estate (Domofond), and jobs and services. For the Russian market Avito is a combination of all the number one property sites, that exist in other markets (see for instance Rightmove).
“Avito has only scratched the surface to what is internationally possible”, was one of the quotes I noted done from the investors day. There seems to be a lot of room to grow, as for example only 70% of the Russian population uses the internet and 98% of the users of Avito use it for free. Vostok New Ventures estimates the medium-term value of Avito around 10,5 billion $. At the end of 2017, the 13.2% investment in Avito was valued at approximately $600 million. If the medium-term valuation of $10.5 billion can be realized, Vostok New Ventures’ share should be more than twice as valuable as today. Another future estimate can be found in the SOHN conference presentation of Dylan Adelmann from April 2018 and in this Value Investors Club writeup from January 2018.
Bla Bla Car is one of the leading ride-sharing platforms in Europe, Russia, Turkey, India, Mexico, and Brazil (see all countries on this map). Vostok New Ventures holds 9,3% of the ride-sharing company. Bla Bla car was founded in France in 2006. From 2009 on the company expanded to other European countries. 2014 it went into the Russian market and 2015 to India. Currently, 20 million people travel by Bla Bla Car per quarter. So, the platform has 80 million paying users per year. Bla Bla Car’s platform is still growing strongly. For its growth, Bla Bla Car focussed on countries, where they don’t have that much competition and can be the leading platform.
A typical ride at Bla Bla Car costs 25 €. From these 25 €, Bla Bla Car takes a 10% commission. And there seems to be a lot of space to grow into: There are 3 billion passenger rides in Europe, which might be interesting for Bla Bla Car. If the company gets 1% of them, this may result in a revenue of 75 million. This revenue might come in a 50% margin, which might lead to a quite interesting enterprise value.
There could also be other options for Bla Bla Car to make money, for instance with selling insurances, cars, or other services based on the data they gather from their customers.
Hemnet is the leading property portal in Sweden. Vostok New Ventures is holding 5,9% of the shares of this company. In 1998, Hemnet was founded by insurance brokers with the goal to present their houses, flats, etc. The platform was kept for free for 15 years. In 2013 this changed: They started monetizing the listing on Hemnet. In 2016 investors became the chance to invest in Hemnet. This was the chance for Vostok New Ventures to make an investment in this already well-established platform.
Based on its history Hemnet started to monetize the platform quite late. This means that there is still room to grow into a comparable level of international peers. For instance, in 2017 revenue of Hemnet grew by 30%.
Babylon gave a very interesting presentation at the Vostok New Ventures Investors Day 2018. Babylon is one of the healthcare apps, that are the new investment focus of Vostok New Ventures. Another example is Vezeeta, a platform for medical appointments in the Middle East.
Babylon, which was founded in 2015, offers a digital healthcare service. Vostok holds 10% of the shares. The company is still in the earlier stages of its development. Through its app, which is based on AI, users can get medical diagnoses. By user interaction, the data quality and service of Babylon get better day by day. The accuracy of these diagnoses seems to be already quite impressive. 80% of the diagnoses seem to be as accurate as doctors. The reviews of the Babylon Apps (Android – iOS) give a quite interesting indication of the quality of the service.
The company is operating in developed markets, like the UK, and in developing countries, like Rwanda. In developed countries, the service of Babylon offers support for the often-overburdened health system. The apps can release resources and, for instance, free the doctors from some diagnoses. In developing countries apps like Babylon can even be of bigger importance, as there is no functioning public health system.
Why might Vostok New Ventures be interesting for Value Investors? Looking beyond the Vostok New Ventures Investors Day 2018
I also want to look a bit beyond the Vostok New Ventures Investors Day 2018 and ask the question: Why might this company, in general, be interesting for Value Investors? I think there are several reasons:
1. At end of March 2018, the estimated Net Asset Value (NAV) of Vostok New Ventures per share was roundabout SEK 90 (Source: Annual report 2017, page 17 + own calculation). It might even be higher, as three additional months of development and growth already passed. The current share price is SEK 75. So, Vostok New Ventures is currently traded at a double-digit discount to NAV. This discount to NAV is one of the highest in the history of Vostok New Ventures.
2. Vostok has a big stake in Avito, the largest online classified add platform in Russia. One can use an investment in Vostok New Ventures to become a shareholder of Avito. Now one is investing in Avito at a quite reasonable price a quality company with a long runway for growth.
3. Besides Avito, Vostok has many other interesting holdings with potential. For instance, Bla Bla Car is a fast-growing ride sharing platform. Hemnet is Sweden’s largest online property portal.
4. In the space of unlisted companies and start-ups with network effects Vostok New Ventures still can make interesting deals. The last investments were in Housing Anywhere (an Airbnb for longer-term rentals), Booksy (a booking platform for beauty services) and Jobnet/Shwe Property (a property and jobs vertical in Myanmar). In my eyes, this is capability to re-invest capital is currently not normal, as the Vostok operates in an already quite crowded area of the market.
To summarize, Vostok New Ventures offers an opportunity to invest in Avito at a reasonable price, to invest in other interesting assets, and to “buy into” good management, that still can make interesting deals in the space of companies with network effects.