Lundbergs

Lundbergs: A Swedish Investment Company

LLogo1

Lundbergs (STO:LUND-B) is an investment company that manages and develops a number of companies based on active, long-term ownership.

The asset portfolio includes:

  • The wholly owned real estate company Fastighets AB LE Lundberg
  • The publicly traded subsidiaries Hufvudstaden and Holmen
  • The associated companies Indutrade and Husqvarna
  • Lundbergs also has major shareholdings in Industrivärden, Handelsbanken, Sandvik and Skanska

Lundbergs’ objective is to generate a return on invested capital over time that substantially exceeds the yield on a risk-free interest-bearing investment.

L3Lundbergs’ History

Since this is the first time that I look at Lundbergs, I have included their own text about their history (Source: Lundbergs).

In 1944, when Lars Erik Lundberg was only 24, he formed the company that was later to become Lundbergs in his apartment in Norrköping. This company engaged in construction operations and focused on residential building. From an early stage, Lars Erik aimed to master the entire building process from land acquisition to finished product, a full-service construction business.

Geographically, business activities were established in many locations throughout central and southern Sweden in the 1950s and 1960s. During the same period, the construction operations also expanded to include office buildings and department stores.

At an early stage, Lars Erik Lundberg started to show an interest in investing in proprietary properties, having understood the value represented by expansion into an additional business sector, real estate management. This move created greater stability in the Company, which could gradually reduce its dependence on construction operations. It is this foundation upon which Fastighets AB L E Lundberg’s property operations rest today. Since the end of the 1950s, the property holdings have grown successively, and now consist almost entirely of proprietary properties. Apart from residential properties, the holdings also include commercial properties for retail activities and offices.

At the end of the 1970s, Lundbergs began to consider a further expansion of the Group’s operations and, during the 1980s, a series of investments were made within new industries. Finance companies were acquired and developed, as were several smaller industrial companies. Investments were also made in certain publicly listed companies, which gradually resulted in several major shareholdings in such companies as Incentive, Holmens Bruk, Alfa Laval, Siab and Östgöta Enskilda Bank. The Group’s operations became increasingly diversified and, during the second half of the 1980s, it was decided that investments outside the core area of construction and real estate operations would be concentrated in a limited number of publicly listed companies. Other operations were divested and, in the early 1990s, major shareholdings in Alfa Laval and Incentive were sold to Tetra Pak and ASEA, respectively. These structural transactions meant that significant capital was released, thus strengthening the capital base considerably.

In 1983, the shares in Lundbergs, with Fredrik Lundberg as President, were listed on the Stockholm Stock Exchange. From its original status as a wholly owned family company, the step was now fully taken into the glare of the public eye. However, the Lundberg family retained a clear majority holding in the Company.

At the beginning of the 1990s, Sweden was afflicted by what was commonly called the finance crisis. As the principal owner of Östgöta Enskilda Bank, Lundbergs was hit heavily by this crisis. However, the bank was saved as a result of very substantial capital investments from Lundbergs. In 1997, the Östgöta Enskilda Bank was sold to Danske Bank at a healthy gain.

In 1994, the construction operations were transferred to the associated company Siab, which merged with NCC in 1997. During the 1990s and to date in the 2000s, substantial investments have been made and Lundbergs has become the principal owner of Holmen and Hufvudstaden. Lundbergs has also been the principal owner of Cardo since 1998. All of the holdings were divested in March 2011. Lundbergs also has major shareholdings in Handelsbanken, Husqvarna, Industrivärden, Indutrade and Sandvik.

Accordingly, during its first 65 years, Lundbergs has developed from a construction company to an investment company with interests in several different areas.

Ownership

Fredrik Lundberg is the largest owner of Lundbergs with a share capital of 54.6% and voting rights of 89.9%. Together with his wife, Anne-Marie Lundberg, and his daughters, Louise Lindh and Karina Martinson, he controls 69.6% of the share capital and 93.4% of the voting rights.

L8Dividends and Book Value

Dividend per share in 2013 was 4.60 SEK, compared to 4.30 SEK in 2012. Dividend yield was 1.7% at year-end 2013, and 1.9% in 2012. See image below for historical development. L11Net asset value at year-end 2013 and 2012 was 42,771 and 37,501 million SEK respectively, or 345 and 302 SEK per share. See image below for historical development. L12Lundbergs Net Asset Value

Lundbergs owns shares in the following Swedish listed companies:

  • Handelsbanken (Bank)
  • Holmen (Paper & Paper Products)
  • Hufvudstaden (Real Estate)
  • Husqvarna (Tools & Accessories)
  • Industrivärlden (Investment Company)
  • Industrade (Industrial Distribution)
  • Skanska (Engineering & Construction)

Lundbergs also owns 100% of Fastighets AB Lundbergs, a real estate company.

Click image below to increase the size (Source: Lundbergs, Q2 2014).

As of June 30, 2014 Lundbergs net asset value after deferred tax was 46.6 billion SEK, or 376 SEK per share, an increase of 9.0% compared to December 31, 2013, and a net asset value of 24.8 billion SEK, or 345 SEK per share.

The table shows that stocks in Holmen, Hufvudstaden, Industrivärlden and Handelsbanken make up 57% of the total stock portfolio. No single investment is below 5% of the portfolio, except for the Other shares category.

L10 Look-Through Earnings

In the table below I have tried to estimate a reasonable earning power for each individual holding in the stock portfolio, and for the wholly-owned real estate business Fastighets AB L E Lundbergs.

The estimate of earning power is a rough guess of what I think might be considered reasonable. The assessment is based on earnings data from the annual reports filed by those companies.

Company Share Capital Voting Rights Earning Power* Lundbergs’ Share*
June 30, 2014 [2] [1]×[2]
[1]
Industrivärlden 11,6% 17,5% 3 830 444
Hufvudstaden 45,3% 88,1% 850 385
Fastighets AB
L E Lundberg
100,0% 100,0% 400 400
Handelsbanken 2,0% 2,0%** 13 500 211
Holmen 32,9% 61,6% 800 263
Skanska 3,9% 11,9% 4 500 176
Indutrade 23,8% 23,8% 550 131
Sandvik 2,4% 2,4%** 6 500 122
Husqvarna 7,6% 23,6% 1100 84
Admin. aft. tax -23,4*** -23,4
Earning Power, total: 2 191
Earning Power per Share: 17,7
Earnings Multiplier, 15 times 265,1
Price per Share: 291,2
Earnings Yield, %: 6,1%
Margin of Safety -9,0%

*Amounts in million SEK except per share data.
**Taxable for Lundbergs. Amount reduced with current tax rate of 22.0%.
***Amount of 30 million SEK for personnel expense and other, reduced with 22.0% for taxes. Taken from the FY2013 parent company financial statement.

From the table above and the estimated earning power of each business, the composition of earnings is shown in the chart below. Top three and five investments make up about 55% and 77% respectively of the total.

LEC1From the calculation in the table above we see that Lundbergs’ earning power per share is about 17.7 SEK per share. Applying an earnings multiplier of 15 times gives an intrinsic business value per share of 265 SEK, compared to price per share of 291 SEK, and thus a negative margin of safety of 9%.

Lundbergs will be added to the watch list.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. This article is informational and is in my own personal opinion. Always do your own due diligence and contact a financial professional before executing any trades or investments.

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