Value8: a Dutch closed-end fund trading below book value
Value8 is a Dutch company investing in small growing companies to sell them for a good profit after a couple of years. The shares trade at the EuroNext in Amsterdam for about 5.7 EUR with ticker VALUE.
Currently the company is very cheap based on EV/EBIT, P/E and P/B. I also like the extremely low volatility of the stock price, the small market cap (about 70 million EUR) and that trading liquidity is low. Multi-year metrics furthermore suggest good earnings quality.
Be careful when computing multiples yourself. You need to take 10.1% treasury shares into account and also 2.8 million unlisted shares and 1.1 million cumulative preferred shares. Currently these debt instruments trade for about 5 EUR per share.
The information in this post is mainly from the following documents:
1. Financial statements 6 months ending on 30 June 2024
This company is run by founder Peter Paul de Vries since 2008. From 2016 until 2019 his company was much criticized by investors. The criticism was related to accounting issues related to the company’s definition of profit. See also these articles on Follow the Money, mostly written by Roel Gooskens (paywalled).
At that time the stock was clearly overvalued based on book value. I think the shares traded for about twice book value because investors thought De Vries was an extraordinary investor. They thought they got access to superior returns simply by investing in shares of his company, regardless of their price.
The company used the overvaluation to do substantial dilutions. At least, that is what I see in cash flow statements from 2014 to 2017. From 2018 the company has not raised new money. In 2019 the company paid a large dividend. Also in subsequent years the company paid a dividend.
Because of these past issues De Vries lost his status as a great local Dutch investor. As a result the shares are now trading much below book value, despite improvements in governance. I think the accounting issues are a thing of the past, but that is just an opinion. Income over the last year and a half was from fair value changes of listed investments, interest on loans granted, realized results on investments and received dividends. No income was recognized from fair value changes of unlisted investments.
One of the managers is, according to the annual report “governance expert¨. This is the other founder: Gerben Hettinga. He is a member of the management board since September 2008.
There are two people in the Supervisory Board. According to the annual report, one of them, Jan Peter Kerstens, is also CFO for another company, Downtown Music Holdings. With a busy daytime job for an American company he might not have enough time for supervising of the board members of Value8.
Substantial shareholders: the CEO owns 39.0% and an individual investor J.P. Visser 28.5%. The percentages in the annual report are lower but I have corrected them for the effect of 10.1% treasury shares on economic ownership. Note that the other founder does not have a substantial stake in Value8.
Related party transactions: There are 2.3 million EUR of loans granted by related parties. This is a loan provided by MKB Nedsense. This is a smaller version of Value8 and also led by the two founders of Value8. Value8 has a stake in MKB Nedsense: 60% on 31 December 2023. That these two people run two listed companies doing the same thing is a red flag. Also this structure is inefficient. I think it was created with an offer of Value8 to buy shares of MKB Nedsense in 2015. Value8 might have bought a majority stake as a quick way to acquire assets held by MKB Nedsense.
The CEO, Peter Paul de Vries, earned 278k EUR in 2023 including a bonus of 40k EUR. The other founder earned 180k EUR including a bonus of 25k EUR. Considering the size of this company I think executive compensation is modest. I am not sure whether the compensation mentioned in the annual report of Value8 includes compensation these two people got as directors for MKB Nedsense. These amounts are minimal however: 15k EUR for De Vries and 12k EUR for Hettinga, in 2023.
Investments
Listed investments are mainly stakes in four companies: Ctac (listed, 12.8 million EUR investment, IT-consultancy with focus on cloud, hosting, ERP and IT-workplaces, 27.76% owned by Value8), Renewi (listed, 14.9 million EUR investment, recycling, waste collection), Morefield Group (listed, 24.5 million EUR investment, focusing on large contracts with large companies), Almunda (listed, 12.6 million EUR investment, listed, investor in staffing companies among other for healthcare professionals, consultants for utilities, and consultants for the financial sector). These four companies are not expensive when superficially comparing the stock price to fundamentals. Morefield Group and Ctac are even cheap.
In total the company owns 76 million EUR of listed investments. Other investments are mainly a loan granted to Morefield Group of about 11 million EUR and 21 million of unlisted equity investments. The interest rate on most of the loan to Morefield Group is 2.5%.
The balance sheet is strong. There is hardly any leverage. In case the company needs liquidity it can sell some shares of its listed investments. The dividends the company receives every year should be more than enough to cover overhead. If the right opportunity arises the company could do a large acquisition by leveraging up.
The company explains its low cash flow. Diversified investment companies generate cash by selling investments. At the moment this turn-over is low, and therefore cash flow is also low.
The annual report does not include a report from the auditor. The company says it needs a special accountant, a PIE accountant and they have an oligopoly in the Netherlands. I think a PIE accountant is just an accountant for public companies. They have found such an accountant outside the Netherlands but that accountant could not deliver on time. That I still cannot find an auditor’s report for 2023 at the end of September 2024 is a big red flag.
My take
Cheap and probably well managed investment company/closed-end fund based on P/B, P/E and EV/EBIT. It seems it invests in promising companies. The most important listed investments generate profits and are not expensive when comparing their share prices with fundamentals.
The shares are cheap because the company is out of favor with the current generation of Dutch investors, and probably also because the missing auditor’s report.
Currently I don’t think there are any governance issues. I mean, I do not think the missing auditor’s report is a big deal. It will come. There were accounting issues several years ago but I do not think these issues will occur again.
A risk is also an economic crisis or generally lower stock prices globally. That would also decrease the value of the investments of Value8. All in all, I think this is a good stock for a small position.
Disclosure: I own shares of Value8.
The question is whether investors see this as a fund (in which case the discount to NAV is quite high) or as a holding company. A 30% discount to NAV is quite normal for a holding company as investors prefer to buy stocks directly. (e.g. look at the Porsche Automobil Holding SE, which has a 50% discount to the sum of its parts valuation).