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Analysis of Fram Skandinavien

Fram Skandinavien was founded in 2014 by Christopher Beselin and Max Bergman and it is a venture builder focused on Vietnam. 

The business is conducted on the basis of two business areas: Standing Teams and Venture Building. 
Standing Teams develops IT-systems for clients such as Samsung for example and it is currently the business area with the highest
revenue and it is also profitable. The fastest growing business area is Venture Building which is the part of the company that starts and
builds new technology companies with proven business models. Here are some examples of the company’s ventures:

WowMelo: A "pay later" model for online shoppers to seamlessly delay their payment for up to 14 days within the date of the e-commerce
order placement. 
DragonLend: An online lending platform that helps small and medium sized companies in Vietnam get access to the finance they need.
Carmudi Vietnam: A leading car classifieds site in Vietnam.
SmartBuddy Vietnam: An online retail platform enabling consumers to compare, select and buy finance and insurance products.
BidBidi - An online auction site.

The setup of the two business areas makes a potential investment less risky as the steady revenue as well as the continued growth from
Standing Teams can be used to fund further growth and to cover expenses of starting new ventures. Running a venture builder where all
of the legal, HR, operational and financial resources are centralized also allows the different ventures to focus solely on developing their
technology and polishing their business models. The company's good access to strong digital expertise within the Standing Teams business
area constitute a symbiotic platform where the two business areas can leverage each other to drive the company’s continued growth.

Another advantage that Fram Skandinavien has is that the company has access to great engineering talent.
According to HackerRank, the top three best coders in the world hail from Ho Chi Minh University of Science in Vietnam. In addition to this, the average
salary for an IT-engineer in Vietnam is approximately  12 000$ a year while in the US the average is about 90 000$ a year. Considering that computer
science students from Vietnamese universities perform better in various tests than their US counterparts and cost less, companies utilizing their talent
should be well positioned. Fram Skandinavien claims that only about 1,6% of IT-engineering applicants are offered a position. This ensures that the company
is competitive not just in terms of price but also in talent. 

Vietnam is one of the world’s fastest growing economies and the country has seen annual GDP growth between 5% and 7,5% in the past two decades.
This economic growth has spurred the increase of the middle class and the market research firm Nielsen has estimated that the number of middle class
Vietnamese will reach 44 million in 2020 and 95 million by 2030. This increase in household income will lead to higher consumer spending and increased demand
of the services that Fram provides. 

In recent years, there has been an increase of interest in Vietnam from foreign investors. A total of 38.02 billion USD of foreign direct investment (FDI) was poured
into Vietnam this year which represents a 10-year high, an amount up 7,2% from last year. An increase in foreign investment is good for Fram Skandinavien if they
need to raise capital or if they decide to sell any of their ventures and it is likely they will be able to do so at higher valuations. 

The company’s management has previous experience in starting businesses in Asia. The chairman and co-founder Christopher Beselin previously founded and ran
Lazada which is an E-commerce platform that can be likened to an Amazon in Southeast Asia. The company was sold to Alibaba after a series of investments totalling
4 billion USD. Mr Beselin owns 27,8% of the equity in Fram Skandinavien. The CEO of the company, Max Bergman, previously worked at the German Venture Builder Rocket
Internet and after that for the Swedish investment company Kinnevik in Sri Lanka. Mr Bergman owns 3,9% of the equity in the company. The company also has several minor
shareholders that have an entrepreneurial background. It can be concluded that the team behind Fram Skandinavien have proven track records of both full and partial exits
and previous experience in starting and running companies in Asia. 

In their latest quarterly report Fram gave a rough estimate on the valuation of all their ventures using multiples of similar internet companies that are publicly
traded. This gave an estimate that the Venture Builder had an enterprise value of 124 - 414 million SEK while the company today is trading at a market cap of approximately
210 million SEK. The higher multiples in this interval represent the multiples of similar private companies that have been sold. The higher multiples within the private
companies (the size of which is more similar to the size of Frams ventures) are mainly driven by the fact that they show higher growth rates than the public companies that
constituted the comparison. In this regard, the private companies multiples are more relevant than the public ones. While one should not put too much emphasis on just one
valuation metric it does provide us with some insights. The Standing Teams division is however, simpler to compare to other listed IT consultancy firms such as Cognizant, TietoEVRY
and Accenture. These have a Price/Sales ratio of 2.35, 2.23 and 3.13 respectively. In comparison, Fram values Standing Teams at a 1.8 P/S multiple showing that they are conservative
in their valuation. This multiple puts Standing Teams at a 45 MSEK valuation and their estimate of the valuation of the total company, with 40 MSEK in cash, at a range of 209-499 MSEK. 

An investment in this company is not only a bet on the company itself but a bet on the country of Vietnam. Possible catalysts could be some of the ventures taking off or the company
selling off ventures.

Disclaimer: I own stock in the company.


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