Image source @ Visual China
The | brocade
In the eyes of consumer track investors, since Pangu opened the world, consumption is the king of the capital market, and myths and beauty talks have never been lacking:
After Coca-Cola was listed in 1919, its stock price was 500,000 times that of a hundred years, and Buffett's return since 1988 has been as high as 20 times.
Maotai, the palm pearl of China's top consumption circuit liquor, gave birth to the "folk stock god" LinYuan, "Moutai 03" Feng Liu.
In the past 20 years, in the Shenwan first-class industry growth list, the core consumption track of food and beverage has greatly outperformed the electrical equipment, medicine and biology sectors.
Shenwan first-class industry increase list in the past 20 years, source: ETF Observation said
The big consumer industry is an evergreen track full of bulls, and it seems to be similar to the track of lying and winning, but the truth is never more than ideal. Through research by the "consumer goods investment expert" Tiantu Investment (currently issuing a prospectus in Hong Kong stocks), we found that consumption is not a track to lie on.
01. First reading the prospectus
Tiantu Investment started in 2002 as a PE and later became a venture capital firm focused on consumer goods investment.
The prospectus has this to say: "From 2019 to 2021, Tiantu ranked third among all private equity investors in the number of investment projects in China's consumer sector, after Tencent Investments and Sequoia China; During the same period, Tiantu ranked first among all consumer-focused private equity companies."
By the end of 2021, Tiantu had invested in 205 companies (including companies that had withdrawn), among which the projects that seem to be more successful so far include:
Nesher only opened 16 stores (currently more than 800) when he entered;
Enter the market when Zhou Black Duck rarely favors big investors;
One of the largest financial investors in the early days of community e-commerce Xiaohongshu;
……
Tiantu is a relatively successful investment case, source: the company's official website
Judging from some quantitative indicators, the sky chart is more successful.
By the end of 2021, its total asset management scale reached 24.9 billion yuan, and the average internal rate of return of 28.2% for the funds under management was 28.2%, a level of punching Buffett. More than 35 percent of portfolio companies doubled their valuations, and 23 companies were valued at $1 billion.
Regarding the above-mentioned good investments, Tiantu has its own unique methodology. Partner Feng Weidong's "Upgrading Positioning" and another partner Li Kanglin's "New Consumption Era" do their best in the essence of their methodology: they pay great attention to brand effects, believing that brands are to be unique, and categories are the foundation of brands. Categories are about constant refinement, and each refinement will split into new tracks.
At the same time, in order to export their own methodology and influence of Tiantu, since 2013, we have continued to hold "sharpening knives", which means "sharpening knives without cutting wood", sharing some business practice experience at the meeting and building a resource platform for entrepreneurs, similar to the current college MBA.
According to a survey of more than 80% of the entrepreneurs in the consumer industry by China Insight Consulting, 80% believe that Tiantu is an expert in consumer goods investment, and 56% believe that Tiantu will help to help upgrade Chinese consumer brands.
Whether it is from the rate of return, the case of star companies, or the recognition of entrepreneurs in the consumer industry, it seems to prove the impeccable impression of Tiantu Investment. But some more in-depth research has partially pushed back this impression, including the drift of investment style, difficulty in financing, and the general (and even a little pull-off) after the IPO of several star-stud companies.
02, style drift
As mentioned earlier, at the beginning of the prospectus business, Tiantu ranked first among all private equity companies focusing on consumption, and in fact, its investment style has undergone a relatively large drift.
Of the 178 companies in the portfolio as of 2021, 81 were consumer goods companies in the narrow sense, accounting for 45.5%; There are 148 consumer services/channels (including e-commerce, cold chain, etc.) in a broader sense, accounting for 83%. In terms of proportions, Tiantu is still very focused on consumption.
But from the trend of betting, the sky map is less expensive. According to the information on Tianyan, in 2021 and this year, the investment style of Tiantu has undergone a great drift compared with the previous overall situation.
In 2021, there will be 30 large consumption investments, accounting for 71.4%; Among other investments, the single variety of biomedicine has been invested 6 times, accounting for 14.3%.
In 2022, there were 7 large consumption investments, accounting for 43.8%; Among other investments, the single variety of biomedicine was invested 5 times, accounting for 31.3%.
Tiantu's investment situation since 2021, source: Tianyancha, Brocade
Tiantu 2022 investment industry segmentation, source: Tianyancha
Obviously, Tiantu has increased its investment in biomedicine and other fields, and the style has begun to drift, so what factors have led to this change? The investment cycle is too long is the core reason.
Tiantu has invested in 205 companies, of which 27 have achieved exits, accounting for 13.2%. However, in the field of consumption, there are actually only a few who invest early and then go public and exit - NaiXue's Tea (investment in the 5th year IPO), Zhou Black Duck (investment in the 7th year IPO), and Everything Xinsheng (investment in the 11th year IPO).
So you can understand why Tiantu is a fierce do biotechnology company, good exit, Jun did not see the listing of biomedical companies accounted for 22% of the total listing of the science and technology innovation board. Although biomedicine is easier to withdraw, but the research threshold is also higher, the current logic has changed, see The previous analysis of Brocade "Deep Long Test: Has China's Innovative Drugs Reached the Bottom?" Whether the investment style drift can have a better harvest can only wait for time to verify.
In addition, the difficulty of exiting not only brings about a drift in investment style, but also affects fundraising, let's take a look at the financial statements of Tiantu.
03, borrow money to invest
Tiantu's total current liabilities reached $2.643 billion in 2021, with 1.83 billion bonds due within one year. The main composition of the bonds payable is the innovation and entrepreneurship bonds issued by Tiantu in 2017 to supplement private equity investment funds.
(Figure: Tiantu short-term liabilities, source: prospectus)
Large debts lead to higher financial costs of enterprises, and the ratio of financial costs to revenue (excluding Uno) in 21 years has reached 30.24%.
(Figure: Tiantu financial cost to revenue ratio, source: prospectus)
Isn't that what Buffett said — borrow money to speculate in stocks? Although, this stock is a primary market stock. The model of the private equity industry is very simple to say: the manager has good investment ability, the funds that come to the pool obtain investment income, the manager earns 2% of the management fee and 20% of the investment income, and the way to supplement the funds may be as follows:
Entry: Issuing bonds, the cost of funds is higher, such as the final coupon rate of Tiantu's 20217 innovative start-up company bonds is 6%. For example, Buffett also issued bonds, but issued extremely low interest rate (0.4%) bonds in Japan, which has to be brushed in the face.
Ordinary: product fundraising, no capital cost, good performance of the company can always raise money to make the scale bigger, poor performance is difficult to make bigger.
Master: Cash flow through assets, no cost of funds or negative cost of funds, such as insurance float, excellent cash flow portfolio dividends, typical representative is Buffett.
All in all, the ability to make money determines the ability to raise funds, which really far exceeds the return on investment of peers, and those who send money can be arranged from the financial street to the Tiantong Garden.
Measuring the investment ability of primary market investors, we can't look at the historical internal rate of return, because the early days are relatively easy to make money, the larger the scale, the so-called VC model - one of the 100 projects can make a lot of money - the more difficult it is to sustain, And Kleiner Perkins is not very smart is an example. So what to see? Just look at the revenue in recent years.
China Renaissance Capital, 2021 revenue decline, even if there is an internal rate of return of 37%, the stock price still fell to the absurd, the current valuation is 0.6 times P/B (price-to-book ratio) or so. Looking back at Tiantu, below the historical average internal rate of return of 28.2%, it is the dairy company that has relied on the consolidated revenue in the past three years, deducting this piece, and Tiantu's revenue is lower than two years ago, which is doomed to its listing without too high valuation.
(Figure: Tiantu Revenue Breakdown, Source: Prospectus)
We say that the "consumption of a brother" tiantu is not so cattle, so what does a really powerful private placement look like? In the field of consumption, there is really a more powerful one, called 3G capital.
04, the stone of his mountain
Tiantu's investment map, even if it can be successfully listed, whether it is Nai Xue, Zhou Black Duck or All Things New Life, the market performance is not good, it has fallen below the issue price, and the time point at which Tiantu exited through the secondary market is not a high point.
(Picture: Nai Xue's tea stock price trend, source: Snowball)
(Picture: Zhou Black Duck stock price trend, source: Snowball)
Compared with the internationally renowned consumer goods investment leader 3G Capital, Tiantu actually lacks the ability of post-investment management.
3G Capital is a private equity investment institution established in the 1990s by Lehman, Beto and Marcel from a local investment bank in Brazil, and has merged and acquired a number of consumer goods star companies such as AB InBev (the world's largest brewer), Burger King, Heinz, Kraft and so on.
AB InBev's profits grew from $700 million to $17.6 billion in 20 years after 3G Capital took over, and from $320 million to $3.6 billion after acquiring and merging Heinz and Kraft. Canadian coffee chain Tim Hortons also saw its profits rise from $400 million to nearly $1.6 billion after its investment.
Among the ten golden rules of 3G capital, there is a clear sense of mission is to "focus on creating great industries, rather than focusing on financial management", so 3G capital focuses on the industry's leading enterprises, significantly reduces costs through mergers and implantation management concepts, and then achieves scale expansion through collaborative mergers and acquisitions of platform enterprise ecosystems, thus cultivating two world top 500 companies.
In contrast, the two companies that Tiantu mainly invested in and listed, whether it is Naixue's tea or Zhou Black Duck, the cost side and profit side have not made significant progress after being invested, and it is obvious that the management ability empowerment brought by Tiantu to the invested enterprises is insufficient.
(Pictured: Nesher's tea profit performance source: Choice Financial Client) said
(Figure: Zhou Black Duck profit performance source: Choice Financial Client)
At present, Zhou Black Duck is overtaken by the Absolute Taste Duck Neck Jedi, and the valuation of Xi Tea has reached 60 billion, which is already twice that of Nai Xue's tea.
In addition to the invested companies that have been listed for IPO, Tiantu's own business is not having a good time, acquiring Montien Dairy through its funds in 2018 and acquiring the business of the world's second largest yogurt brand "Uno" in mainland China in 2019.
The trading of Montien and Uno is not so ideal from the perspective of results. The acquisition consideration of 200 million US dollars, in exchange for the revenue of 700 million yuan in the past three years of Uno China, the losses in the past two years were 0.61 billion and 0.96 billion, the number of accounts receivable and inventory turnover days rose twice, and the operating capacity of Uno after the merger of holdings was not significantly improved.
(Figure: Uno China's business capacity index source: Choice Financial Client)
For Tiantu, whether it can really empower Chinese consumer enterprises as mentioned in the prospectus is an ultimate test. If Tiantu can really incubate a certain type of subdivided track enterprise into a leader, and achieve sustained performance growth in the long slope of thick snow, it will live up to the reputation of "consumer goods investment expert".