Transcript Slaid 1 - Incisive Media Plc

SEB Eastern European
Equity Funds
Sven Kunsing
Head of Eastern European
Investment Management
SEB Wealth Management
1
Agenda
 Introduction to SEB Wealth Management Eastern Europe
 Eastern European equity team & process
 Eastern European equity products (a short overview)
 SEB EE ex Russia Fund
 SEB EE Small Cap Fund
 Q&A
2
SEB WM in Eastern Europe
 Presence in Estonia, Latvia, Lithuania, Poland,
Ukraine
 AuM 2.6 bn EUR (July 2007)
– Eastern European equities management is most
important single business line (AuM €1.33bn)
 Wide range of local products to local clients
 Over 500 000 local (Eastern European) clients
 SEB Eastern European equity mandate
–
–
–
–
SEB EE Small Cap since June 2003
Full EE equity mandate (4 funds) since July 2005
Redesign of products during 2006
Average Morningstar (3-year) rating 4.33
3
SEB Eastern European Equity
Investment Team & Process
4
Why did SEB select us?
We have delivered >500% return in <8 years
Full SEB EE equity
mandate
SEB Baltic Fund
mandate
SEB’s Eastern European equities mgmt fully
outsourced to London-based global manager
2003-2005 Partial in-sourcing
from Estonian team
2005 onwards: Full in-sourcing
from own Eastern European team
SEB Growth Fund (Bloomberg: UHIKASV ET) is an Estonian domiciled Eastern European equity fund managed by SEB EE Equity Team
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Eastern European equity team
Wojciech
Macro
Strategy
Alo
SEB ex Russia
Piotr
SEB Östeuropa
Raul
Materials
Dainius
Energy
Meelis
Healthcare
& Industrials
Wojciech
SEB EE
SmallCap
Sulev
SEB Russia
Robert
Financials
Peeter
Telecoms &
Utilities
(left Feb 2007)
Taken in Dec 2006. Wojciech Wasilewski (Consumer sectors) joined the team in Jan 2007.
6
The Team
Location and market experience
Fund managers (avg experience 11 years)
Sector sub-portfolio managers (7 yrs)
ESTONIA: fund managers
ESTONIA: sub-portfolio managers
Sulev Raik (12 years) – SEB Russia Fund
 Basic Materials – Raul Rannaste (10 years)
Alo Kullamaa (11 years) – SEB EE ex Russia Fund
 HealthCare, Industrials – Meelis Angerma (7 years)
POLAND: fund managers
Piotr Sieradzan (6 years) - SEB Östeuropafond
LITHUANIA: sub-portfolio manager
Wojciech Rostworowski (15 years) – SEB EE Small Cap Fund
 Telecoms – Gediminas Milieska (3 years)
Tallinn
 Oil & Gas – Dainius Bloze (8 years)
POLAND: sub-portfolio managers
 Financials – Robert Sobieraj (11 years)
 Consumer Staples & Disc – Wojciech Wasilewski (2
Vilnius
Warsaw
years)
 IT – Piotr Sieradzan (6 years)
macro strategist
 Wojciech Bialek (12 years)
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Investment philosophy
We believe that…
 capital markets are not always efficient – especially in underdeveloped
CEE region, even more so in Russia and in the CEE mid and small cap arena
 analyzing stocks by sectors rather than by countries provides better
insight
 in our team we need sub-portfolio managers rather than pure analysts
 combining equity analysis with top-down insight will add value
 each investment decision should have a good fundamental explanation –
fundamental analysis is the key to superior performance
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Our investment style
GARP: Growth At Reasonable Price
We seek companies with above average earnings growth potential, but we
also have an eye on value – we do not want to overpay for growth prospects
“Reasonable price” or value is defined by combination of
 absolute valuation based on discounted free cash flow
(DCF) models and
 comparative valuation based on applicable valuation
indicators (EV/S, EV/EBITDA, EV/Comps, P/E, P/S, P/B
etc)
9
Bottom-up process
Details of the bottom-up process
Bottom-up stock picking forms the basis of our
investment process

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



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Stock picking is carried out by 7 analysts covering 10 sectors
Company visits
Understand the business & know management, bear in mind
corporate governance issues (extremely important in this region)
Preferred valuation method: DCF and modified Gordon Growth Model
Comparative ratio analysis
Identify long term growth factors/risks, short term catalysts
Sub-portfolio manager’s performance evaluated by model
portfolio performance vs sector index
10
Company visits
integral part of the investment process
Sulev
visiting Efes Brewery
Rostov na Donu
Sulev & SS-17/Spanker
(intercontinental ballistic missile)
Yuzhmash
Dnipropetrovsk, Ukraine
Sulev & Dainius
On Kazakh oil fields
Sulev
on a Lukoili oil field,
Kogalym, Western Siberia
Sulev with a gold bullion
Uralelektromed,
Verhnaya Pyshma
Western Siberia
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Top-down process
We use top-down inputs
to provide additional insight, but
it is not central* to our investment process
 Identify macroeconomic value drivers
– Economic growth
– Overall country risk outlook
– Interest rate outlook
– FX outlook
 Recommended sector allocation targets
* note: the importance of top-down process varies by product from being relatively
important for the SEB Östeuropafond to unimportant for the SEB CEE Small Cap Fund
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Portfolio construction

The final responsibility for portfolio construction lies with the fund
manager.
– Freedom to follow or not to follow exactly the sector model
portfolios and top-down process – model portfolios act as idea
generators and are interpreted by the fund manager
Top-down recommendations
Interpretation by fund
manager
Bottom-up model portfolios
Product portfolio
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Summary: what makes us different?
 Our Team
– We are truly LOCAL
– Multinational
– Experienced
– Talented
 Our Investment Process
– Sector based research (vs country based)
– Focus on stock selection
 Our organization
– Fun place to work – no bureacracy
– Personal responsibility/accountability
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SEB Eastern European Fund Range
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Profit on convergence:
SEB Eastern Europe ex Russia Fund
Alo Kullamaa
Fund manager, ESTONIA
11 years of CEE equity market experience
SEB Eastern Europe ex Russia Fund
Bloomberg ticker
Investment region
Benchmark
TE guidance
Base currency
2007 YTD Performance (Jan 22 - August 31)
Benchmark (Jan 22 - August 31)
Morningstar rating (3 years)
SEBEEUA LX
Eastern Europe ex Russia
Nomura CEE ex Russia
5-10%
EUR
+14.7%
+14.8%
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Profit on change:
SEB Russia Fund
Sulev Raik
Fund manager, ESTONIA
12 years of CEE equity market experience
SEB Russia Fund
Bloomberg ticker
Inv universe
Benchmark
TE guidance
Base currency
2007 YTD Performance (as of August 31)
Benchmark (as of August 31)
Morningstar rating
SEBRUSS LX
Russia (+CIS countries)
RTS index
5-10%
EUR
-3.1%
-3.4%
n/a (new fund)
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Eastern Europe3:
SEB Eeastern European Small Cap Fund
Wojciech Rostworowski
Fund manager, POLAND
15 years of CEE equity market experience
SEB Eastern Europe Small Cap Fund
Bloomberg ticker
Investment region
Investment focus
Benchmark
Base currency
2007 YTD Performance (as of August 31)
Benchmark (as of August 31)
Morningstar rating (3 years)
ABBBASC LX
Eastern Europe (broad)
Small caps (<500m EUR)
none
EUR
+11.5%
-
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SEB Östeuropafond
Bloomberg: SEBOSTE SS
Piotr Sieradzan
Fund manager, POLAND
6 years of CEE equity market experience
SEB Östeuropafond
Investment region
Benchmark
TE guidance
Base currency
2007 Performance YTD (as of August 31)
Benchmark
Morningstar rating (3 years)
Eastern Europe (broad)
MSCI Eastern Europe 10/40
3-5%
SEK
+7.0%
+7.2%
19
Chinese-style growth
with
Scandinavian-style risks:
SEB EE ex Russia Fund
20
Why invest to the converging equity markets of
New Europe?
 Convergence is more than a date of EU entry, it is an ongoing process.





Growth dynamics (of personal disposable income, for instance) is
“anchored” by EU averages – provide both momentum and also better
long-term macro visibility compared to traditional emerging markets
Scope for new EU members to see sustained medium term GDP
growth of double “old” Europe growth rate
Efficiency improvements in companies as a result of know-how
transfers and educated workforce
Tax + labor cost competitiveness
Massive inflows from EU Structural and Cohesion Fund in coming
years to reimburse investments to infrastructure and environmental
projects– one of the GDP growth drivers
Liquidity and transparency have dramatically improved as regional
stock markets mature structurally – many new listings; local
pension&mutual funds stronger; more small cap coverage by brokers;
EU-compliant regulation etc.
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Strong GDP growth
14%
12%
11,4%
11,9%
9,7%
10%
8,0%
8%
7,0%
6,5%
8,7%
8,3%
8,2% 8,0%
7,8%
7,5%
6,5% 6,4%
6,0%
5,6%
5,0%
4,7%
3,9%
6%
4%
6,5%
6,1%
5,5%
5,0%
7,7%
7,2%
6,8%
6,7%
6,3% 6,1%
6,2% 6,1%
6,1%
5,9%
5,2%
4,3%
4,0%
4,9%
4,8%
4,8%
4,5%
3,0%
2,8%
2,3%
5,9%
5,7%
5,3%
3,0%
2,9%
2,7%
2%
C
ze
ch
H
un
ga
ry
Po
la
nd
Sl
ov
ak
Sl ia
ov
en
ia
R
om
an
Bu ia
lg
ar
ia
Tu
rk
ey
C
ro
at
ia
Se
rb
ia
EU
27
a
ua
ni
ia
Li
th
La
tv
Es
to
n
ia
0%
2006
2007E
2008E
2009E
Source: EcoWin, European Commission Spring 2007 Forecast, SEB Nordic Outlook August 2007
22
Economic growth
Back to the future – you have already seen this 25 years ago
GDP per capita (in SEK)
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
TIME: Nordics 1950 - 2005A
350,000
300,000
350,000
Estonia GDP/capita, SEK
300,000
Sweden GDP/capita, SEK
250,000
Finland GDP/capita, SEK
250,000
200,000
200,000
150,000
150,000
100,000
100,000
50,000
50,000
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
-
1994
-
TIME: Estonia 1993 - 2027E
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Play EU convergence – China-style
growth with Scandinavian-style risks!
Selling Proposition
 Invests in strongly growing
economies in Balkans, Baltics
and Central Europe
 Focus on EU & Euro
convergence themes
 Geographically well-diversified
pan-regional fund
Your Value Added
Diversification relative to
developed markets
Limited risk compared to
“true” emerging markets
Less risk compared to
funds targeting only one
country in the region
 Defensively biased – financials
dominate, limited exposure to
commodities and materials
 Not benchmark-driven, but
active & dynamic management
style
More exposure to
domestic macro rather
than to global themes
Increased probability of
future performance
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Bumpy road to Monetary Union
Inflation
LT
interest
rate
Fiscal
balance
% of
GDP 06
Public
debt
% of
GDP 06
Currenc
y
Currency regime
Expected EMU
entry
(optimistic
scenario)
Maastricht
reference
3,0*
6,4*
-3,0
60,0
Smooth participation in
ERM II for 2 years
Estonia
4,7
n/a, but ok
+3,8
4,1
Kroon
ERM II
2011
Latvia
7,0
4,5
+0,4
10,0
Lat
ERM II
2012
Lithuania
4,2
4,2
-0,3
18,2
Litas
ERM II
2011
Poland
1,6
5,3
-3,9
47,8
Zloty
Float
2012
Hungary
6,2
7,1
-9,2
66,0
Forint
Target zone(EUR)
2013
Czech
1,9
3,9
-2,9
30,4
Koruna
Managed float (EUR)
2012
Slovenia
2,6
4,0
-1,4
27,8
Tolar
ERM II
Already in!
Slovakia
3,5
4,5
-3,4
30,7
Koruna
ERM II
2009
Bulgaria
6,2
4,3
+3,3
22,8
Lev
Currency board (EUR)
2016
Croatia
2,6
4,2
-2,3
42,1
Kuna
Managed float (EUR)
2018
Romania
5,2
7,5
-1,9
12,4
Leu
Managed float (EUR)
2017
Serbia
8,3
n/a
1,6
34,9
Dinar
Free-float
2020?
Turkey
10,1
17,5
0,4
60,7
Lira
Fee-float
2025?
*Referring to the period April 06 to March 07 Source: ECB Convergence report May 07
25
Underweight mainstream,
seek opportunities out of benchmark (August 31)
Poland
Czech
Hungary
Austria (Pan-CEE)
Romania
Turkey
Bulgaria
Lithuania
Latvia
Estonia
Slovenia
Croatia
Portfolio %
Benchmark %
Slovakia
Cash
0%
10%
20%
30%
40%
50%
26
Sample pick: Erste Bank – CEE financial powerhouse

Central European and Balkan financial powerhouse with strong presence in
Czech Republic, Slovakia, Hungary, Croatia, Serbia, Romania and Ukraine

Core strengths – retail leadership combined with wealth management
What makes us excited?




Very low valuation - 2008E P/B 1,7 and P/E 11,7 with EPS growing 20-25% in
coming years and ROE close to 20% by 2009
Market is too sceptical on Romania what is still very “underbanked” and may
be a trigger for the stock
Cyclical recovery in Austrian market
Management has strong track record of crossborder expansion and delivering
on targets
Watch out for

Economic slowdown in the region

Regulatory issues such as lending restrictions
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Thoughts on mid-term market outlook
Potential positives
Potential negatives
Local
macro
 High & steady growth in
 Baltics overheated; expected
coming years; efficiency
gains in companies
improvement in Hungary and
Turkey does not materialize
Global
macro
 Global growth providing no
Valuation
Flows
major disappointments;
commodities stay stable
 With average P/Es in mid-
teens, most of large caps
still look reasonably valued
 Local mutual and pension
funds increasingly
influential
 Boom continues as
M&A
 Rising USD&EUR interest
rates; less liquidity;
deteriorating risk appetite;
significantly higher oil prices
 P/B has been rising (>2);
some small caps very
aggressively valued
 Foreign investors may prefer
other emerging markets
 Too many IPOs & SPOs
balance sheets healthy
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Eastern Europe3:
SEB EE Small Cap Fund
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Why Eastern European Small Caps?
 Eastern Europe3 – general Eastern European story, leveraged
– More growth
– More benefits from structural change
– More exposure to development of domestic financial markets
– Less efficient valuation of equities = more opportunities
 SEB ready to benefit due to
– Truly local team
– Local languages
– Contacts to local brokers
– Focused on bottom-up stock selection
– Active investment management
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Small certainly can be beautiful
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Portfolio as of August 31
A very different composition vs traditional Eastern European indices
Georgia
1% Bulgaria
1%
Turkey Hungary
1%
Ukraine
1%
Latvia
0% Cash
2%
3%
Slovenia
2%
Czech
3%
Romania
4%
HealthCare
4%
Poland
32%
Kazakhstan
5%
Cash
3%
Industrials
24%
Utilities
4%
Consumer
Staples
5%
Telecom
5%
Energy
7%
Lithuania
5%
Financials
19%
Estonia
6%
Pan-CEE
8%
IT
3%
Russia
26%
Basic Materials
10%
Consumer
Discretionary
16%
32
Sample pick: Amrest – leading restaurant operator in
CEE region
 AmRest is the second largest quick service and casual dining restaurant
operator in Poland and in other countries from CEE. The company operates a
network of 243 restaurants in Poland, Czech Republic, Hungary, Bulgaria and
Russia.
What makes us excited?
 Amrest is a true growth story in otherwise defensive sector. The company
strives opening 100 restaurants annually, which translates into tripling sales by
2009.
 Ambitious strategy to run two new brands: Burger King and Starbucks and to
expand on the markets of the whole CEE region
 Recently Amrest acquired a Pizza Nord, which operates 22 KFC and 19 Pizza
Hut restaurants in Russia. Further expansion in Russia planned.
 Booming domestic consumption in Poland and other countries of the region to
support strong growth ambitions
Watch out for
 The expansion on CEE and CIS restaurant markets
may slow down
 The profitability may be hit by higher costs related to
wages, rental expenses
33
Sample pick: Rambler Media – largest Russian web portal
 280m Russian speaking people globally, 145m in Russia
 Internet penetration has reached 25% (European average 40%)
 Russia will have largest number of internet users in Europe by 2010
What makes us excited?
 Largest Russian multi-service internet portal worldwide
 62% of internet users in Russia regularly visit rambler.ru - 23.8 million unique
users and 1.8 billion page views every month.
 Internet ad market expected to grow threefold to $500m/year by 2011 and
more than fivefold to $850m/year by 2014
 EBITDA margin to exceed 35% in 2009
Watch out for
 Competition from local integrated
media and international companies
(but go visit www.yahoo.ru too ...)
Rambler.ru – yahoo of Russia
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Thank you!
Sven Kunsing
Head of Eastern European Investment Management
[email protected]
+372 6656 645
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