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Transcript of 1 SEB Eastern European Equity Funds Sven Kunsing Head of Eastern European Investment Management SEB...
1
SEB Eastern EuropeanEquity Funds
Sven KunsingHead of Eastern European
Investment Management
SEB Wealth Management
2
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
3
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
4
SEB Eastern European Equity
Investment Team & Process
5
Why did SEB select us?We have delivered >500% return in <8 years
SEB Growth Fund performance since 1999 (in EUR)
SEB Growth Fund [perf %]
Emerging Markets, MSCI, Eastern Europe Index, Close [perf %]
SEB Östeuropafond [perf %]
Source: EcoWin, Bloomberg
Dec
99 00
Aug Dec
01
Apr Aug Dec
02
Apr Aug Dec
03
Apr Aug Dec
04
Apr Aug Dec
05
Apr Aug Dec
06
Apr Aug Dec
07
Apr Aug
Per
cent
-100
0
100
200
300
400
500
600
SEB Baltic Fund mandate
Full SEB EE equity mandate
SEB Growth Fund (Bloomberg: UHIKASV ET) is an Estonian domiciled Eastern European equity fund managed by SEB EE Equity Team
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
6
Sulev
SEB Russia
Alo
SEB ex Russia
Wojciech
SEB EE SmallCap
Piotr
SEB ÖsteuropaRaul
MaterialsDainius
Energy
Robert
Financials
Meelis
Healthcare
& Industrials
Wojciech
Macro Strategy
Peeter
Telecoms & Utilities
(left Feb 2007)
Taken in Dec 2006. Wojciech Wasilewski (Consumer sectors) joined the team in Jan 2007.
Eastern European equity team
7
The TeamLocation and market experience
POLAND: sub-portfolio managers
Financials – Robert Sobieraj (11 years) Consumer Staples & Disc – Wojciech Wasilewski
(2 years) IT – Piotr Sieradzan (6 years)
macro strategist
Wojciech Bialek (12 years)
ESTONIA: fund managers
Sulev Raik (12 years) – SEB Russia Fund
Alo Kullamaa (11 years) – SEB EE ex Russia Fund
ESTONIA: sub-portfolio managers
Basic Materials – Raul Rannaste (10 years)
HealthCare, Industrials – Meelis Angerma (7 years)
LITHUANIA: sub-portfolio manager
Oil & Gas – Dainius Bloze (8 years)
Telecoms – Gediminas Milieska (3 years)
POLAND: fund managers
Piotr Sieradzan (6 years) - SEB Östeuropafond
Wojciech Rostworowski (15 years) – SEB EE Small Cap Fund
Fund managers (avg experience 11 years) Sector sub-portfolio managers (7 yrs)
Tallinn
Vilnius
Warsaw
8
Investment philosophy
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
We believe that…
9
Our investment style
“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)
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
10
Bottom-up processDetails of the bottom-up process
Bottom-up stock picking forms the basis of our
investment process
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
11
Company visitsintegral part of the investment process
Sulevvisiting Efes Brewery
Rostov na Donu
Sulevon a Lukoili oil field,Kogalym, Western
Siberia
Sulev with a gold bullion Uralelektromed,
Verhnaya PyshmaWestern SiberiaSulev & SS-17/Spanker
(intercontinental ballistic missile)Yuzhmash
Dnipropetrovsk, Ukraine
Sulev & DainiusOn Kazakh oil fields
12
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
13
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
Bottom-up model portfolios Product portfolio
Top-down recommendations
Interpretation by fund manager
14
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
15
SEB Eastern European Fund Range
16
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 SEBEEUA LX
Investment region Eastern Europe ex RussiaBenchmark Nomura CEE ex Russia
TE guidance 5-10%
Base currency EUR2007 YTD Performance (Jan 22 - August 31) +14.7%
Benchmark (Jan 22 - August 31) +14.8%
Morningstar rating (3 years)
17
Profit on change:SEB Russia Fund
SEB Russia Fund
Bloomberg ticker SEBRUSS LX
Inv universe Russia (+CIS countries)
Benchmark RTS indexTE guidance 5-10%
Base currency EUR
2007 YTD Performance (as of August 31) -3.1%Benchmark (as of August 31) -3.4%Morningstar rating n/a (new fund)
Sulev RaikFund manager, ESTONIA
12 years of CEE equity market experience
18
Eastern Europe3:SEB Eeastern European Small Cap Fund
Wojciech RostworowskiFund manager, POLAND
15 years of CEE equity market experience
SEB Eastern Europe Small Cap Fund
Bloomberg ticker ABBBASC LX
Investment region Eastern Europe (broad)Investment focus Small caps (<500m EUR)Benchmark noneBase currency EUR2007 YTD Performance (as of August 31) +11.5%
Benchmark (as of August 31) -
Morningstar rating (3 years)
19
SEB ÖsteuropafondBloomberg: SEBOSTE SS
Piotr SieradzanFund manager, POLAND
6 years of CEE equity market experience
SEB Östeuropafond
Investment region Eastern Europe (broad)
Benchmark MSCI Eastern Europe 10/40
TE guidance 3-5%
Base currency SEK2007 Performance YTD (as of August 31) +7.0%Benchmark +7.2%Morningstar rating (3 years)
20
Chinese-style growth
with
Scandinavian-style risks:
SEB EE ex Russia Fund
21
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.
22
Strong GDP growth
11,4%11,9%
7,5%
3,9%
6,1%
8,3%
5,2%
7,7%
6,1% 6,1%
4,8%
5,7%
3,0%
8,0%
9,7%
8,0%
5,6%
2,3%
6,5%
8,7%
4,3%
6,7%6,1%
4,9% 4,8%
5,9%
2,9%
7,0%
8,2%
6,5%
5,0%
2,8%
5,5%
7,2%
4,0%
6,3% 6,2% 5,9%
4,5%5,3%
2,7%
6,5%
7,8%
6,0%
4,7%
3,0%
5,0%
6,8%6,4%
0%
2%
4%
6%
8%
10%
12%
14%
Estonia
Latv
ia
Lithu
ania
Czech
Hunga
ry
Poland
Slovak
ia
Sloven
ia
Roman
ia
Bulgar
ia
Turke
y
Croat
ia
Serbia
EU 27
2006 2007E 2008E 2009E
Source: EcoWin, European Commission Spring 2007 Forecast, SEB Nordic Outlook August 2007
23
Economic growthBack to the future – you have already seen this 25 years ago
GDP per capita (in SEK)
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
TIME: Estonia 1993 - 2027E
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
TIME: Nordics 1950 - 2005A
Estonia GDP/capita, SEK
Sweden GDP/capita, SEK
Finland GDP/capita, SEK
24
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
Defensively biased – financials dominate, limited exposure to commodities and materials
Not benchmark-driven, but active & dynamic management style
Your Value AddedDiversification relative to developed markets
Limited risk compared to “true” emerging markets
Less risk compared to funds targeting only one country in the region
More exposure to domestic macro rather than to global themes
Increased probability of future performance
2525
Bumpy road to Monetary UnionInflation LT
interest rate
Fiscal balance
% of GDP 06
Public debt
% of GDP 06
Currency
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
26
0% 10% 20% 30% 40% 50%
Cash
Slovakia
Croatia
Slovenia
Estonia
Latvia
Lithuania
Bulgaria
Turkey
Romania
Austria (Pan-CEE)
Hungary
Czech
Poland
Portfolio %
Benchmark %
Underweight mainstream, seek opportunities out of benchmark (August 31)
27
Sample pick: Erste Bank – CEE financial powerhouse
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
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
28
Thoughts on mid-term market outlook
Potential positives Potential negatives
High & steady growth in coming years; efficiency gains in companies
Global growth providing no 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 balance sheets healthy
Baltics overheated; expected improvement in Hungary and Turkey does not materialize
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
Localmacro
Globalmacro
Valuation
Flows
M&A
29
Eastern Europe3:
SEB EE Small Cap Fund
30
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
31
Small certainly can be beautiful
Polish Small Caps vs general Eastern European Equities
MSCI Eastern Europe Index, Close, EUR [rebase 12/31/1999 = 100.0]
sWIG80 Index (Polish small caps) [rebase 12/31/1999 = 100.0]
WIG20 Index (Polish large caps) [rebase 12/31/1999 = 100.0]
Source: Reuters EcoWin
00 01 02 03 04 05 06 07
50
100
200
400
800
1600
32
Portfolio as of August 31A very different composition vs traditional Eastern European indices
Poland32%
Cash3%
Hungary1%
Georgia1%
Turkey1%
Bulgaria1%
Latvia2%
Czech3%
Slovenia2%
Ukraine0%
Romania4%
Kazakhstan5%
Lithuania5%
Estonia6%
Pan-CEE8%
Russia26%
Industrials24%
Cash3%IT
3%
Utilities4%
HealthCare4%
Consumer Staples
5%
Telecom5%
Energy7%
Basic Materials10%
Consumer Discretionary
16%
Financials19%
33
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
34
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
35
Thank you!
Sven Kunsing
Head of Eastern European Investment Management
+372 6656 645