Last week, I published a 14,000-word deep dive on Latour, a Swedish investment company founded by Gustaf Douglas in the 1980s that’s dedicated to investing in both private and public Swedish Investment companies. Today, I’m sharing my 700-word summary of its investment case for readers who prefer to go straight to it.
Note: I studied each of Latour’s 17 companies in depth, modelling their individual revenue and earnings projections over the next five years to calculate our estimate of Latour’s overall net asset value (NAV). You can view the detailed valuation model here.
Company
Latour is a (SEK 143 billion, USD 15 billion) Swedish company dedicated to investing in Swedish industrial companies, both private (41% of assets) and public (59% of assets).
Private portfolio: Latour owns 7 private companies in full, each focused on industrial products and services, led by Swegon, a SEK 19 billion HVAC specialist, and Hultafors, a SEK 15 billion manufacturer of tools and equipment for tradespeople.
Public portfolio: Latour has “ultra long term” 10-50% investment stakes in 10 leading Nordic industrial companies, led by Assa Abloy (9.5% stake in its SEK 363 billion market cap) the global leader in door locks and solutions and Sweco, (27% stake in its SEK 59 billion market cap) a leading European architecture and engineering advisory company.
Business quality and track record
Since going public in 1985, 40 years ago, Latour has compounded its share price at an annual rate of 22%, a 3,000-fold return. More importantly, both its public and private investment fundamentals have been world-class during the period.
Private portfolio: Its private companies have compounded their operating profits (EBIT) at an annual rate of 15% over the past 20 years, driven by both organic and acquisitive drivers.
Public portfolio: Of its 10 current listed investments, two have been 100-baggers (Assa Abloy and Securitas), one a 50-bagger (Sweco) and one, HMS Networks, a 20-bagger since Latour invested in 2008. Overall, only one current company, CTEK (battery solutions), has been loss-making for Latour.
Its 17 companies range from global market leaders (Assa Abloy, Securitas, and TOMRA) to niche product leaders (Nord-Lock, Caljan, and Alimak). All 17 companies, excluding CTEK, have passed the test of time, with many dating back to the early 20th and even 19th centuries (Hultafors) since their founding.
Its businesses provide essential products, including door locks, security services, architectural consulting, HVAC, and workwear. Although cyclical to some degree, these companies remain healthily profitable (10-20% EBIT margins) even during periods of economic or industrial stress and recessions, and they have high barriers to entry from new or international players.
Growth
Private portfolio: While Latour doubled its EBIT over the last five years (15% CAGR), my conservative earnings model expects Latour’s private, wholly owned EBIT to grow at 9.1% annually through 2029.
Its growth is expected to be driven by a market recovery in Caljan - e-commerce logistics solutions and Bemsiq, a 20% grower in smart home and automation products. I expect laggards to be Hultafors - 6.8% projected 5-year EBIT CAGR due to the high earnings base and slower acquisition drive. And Latour Industries, which is experiencing weaker fundamentals since its spinoff of Innovalift, a new, wholly owned Latour subsidiary.
Public portfolio: I expect its existing 10 listed companies to grow their EBIT by 8.1% annually over the next five years, driven by a recovery in HMS Networks (industrial internet of things solutions), Tomra, the global leader in reverse vending machines, and Sweco, due to its strong pipeline of acquisition targets in Europe.
Valuation
I see an upside of 47% (share price appreciation and dividends or exit NAV of SEK 195 billion), from its current price of SEK 224 per share, leading to an IRR of 9.35% to 2029.
The return profile is supported by earnings growth (8-9% CAGR) and an attractive 2-3% dividend yield, but with an earnings multiple contraction. Several Latour public companies trade at what I view as premium multiples, which impacts their overall returns.
I do not include the additional optionality from any future public or private investments but include growth from acquisitions in current subsidiaries.
Risks
Nature of demand and pricing power: Although diversified, Latour’s companies and their products have somewhat lumpy demand and are subject to broader construction and industrial cycles. The limited room for pricing power keeps its growth potential geared towards volume and acquisitive driven growth.
Debt: To support its acquisitions over the past ten years, Latour has increased its leverage capacity, and while it’s not at a balance sheet risk level nor approaching it yet, it’s worth noting that repeating its 15-16% acquisitive-fuelled earnings growth comes with further leverage costs.
Currency and export reliance: Like many Swedish industrial companies, Latour’s 17 companies are predominantly exporters, with some costs in local Swedish Krona but revenues in Euros and USD. The mismatch could lead to unexpected exposure to tariffs and currency swings, impacting earnings.
At Jenga IP, we currently do not own Latour AB but have it on our core watchlist, with a preferred purchase price of SEK 179.5 per share, a further 19% share price decline from its current price, leading to a potential IRR of 15% per internal estimates.
An observation will be that: much will depend on whether the successor CEO and its management team can maintain or exceed the drive, momentum and visionary of the late founding CEO. I do not think it will take a matter of years to find out but within the next few quarters. Best to maintain a close watch scrutiny; prior to any further investment decision especially as the portfolio is quite a mixed bag.