Hat tip to Jeremey Grime and his daily Grime report for spotting this suggestion from Deutsche bank which suggests that our current downturn “is the deepest recession since 1710. Markets have risen this year. In the 1921 recession equity markets rose 12%, which continued over the next 7 years, culminating in a 49% rise in 1928. Perhaps the roaring 20’s may yet happen.”

One key part of the possible Roaring Twenties narrative will be the emergence of a new more environmentally friendly power grid which will, in turn, have a knock-on effect on the battery space. On this subject, two interesting data-led insights from the monthly report by the Westbeck Volta fund managers. The first is that they report that “ Q3/20 was a breakaway quarter for US storage deployments, with front of meter (utility) deployments contributing to the majority of the growth (400MW out of 476MW). Our recent channel checking conversations with US residential solar installers have all reinforced our expectations of robust demand for solar + battery systems, to the point that demand was outstripping supply for a period.”

This is supported by my own observations. The price point for home grids – solar panels around 5 Kw solar output plus accompanying battery installation – has come down drastically in recent years. A few weeks ago I saw one such package advertised at £7000 with a smaller 4 kW version at £6000. Once you do maths, it’s still a fairly long payback time (probably around 10 to 15 years although it could stretch to 20). My own guess is that once that price point reaches for argument’s sake £4500 for the 5 kW rigs, you are starting to see payback times come under 10 years at which point we could see demand shoot up.

The other interesting niche to watch out for is the much wider number of metals and minerals going into batteries of all shapes and sizes. Lithium gets all the focus but the conventional lithium-ion unit has much more graphite and nickel than lithium. There’s also the long list of rare earths – mostly sourced from China. According to the Volta fund managers, “ rare earth prices have also started to tick up in recent weeks and that has led to rare earth producers being well bid. MP Materials, the only US REE producer, completed its SPAC listing in the US, raising over US$500m for downstream expansion. Deglobalisation is a potent driver here as China is central to the REE supply chain and both the US and Europe are desperate to secure a domestic or at least “Sinolite” source of these strategically important metals.”

Valuing data

Next up on the digital front line is how we value data as investors. US-based ETF provider Global X has produced a cracking short outline of the various ways of valuing customer data. Well worth a read !! You can see it here: https://www.globalxetfs.com/the-value-of-data-in-a-digital-world/

It’s obvious to every growth investor that customer data has enormous value but most balance sheets ignore that value. Data is not even recorded as an intangible asset. Yet market transactions tell us that that data clearly is an asset and has value.

The Global X report cites two recent examples: Microsoft bought LinkedIn for $26.2 billion in 2016, the company’s largest acquisition ever. At the time, LinkedIn had 433 million users, 106 million of which were monthly active users (MAUs).8 Some quick math reveals that Microsoft valued each user at $61, or each MAU at $247. Today, LinkedIn’s current user base is much higher at 706 million globally, which would put the company’s value at about $43 billion, holding all else equal.9

“Along the same lines of historical social media transactions, Facebook’s acquisition of Instagram in 2012 valued each MAU at $20.10 TikTok’s US operations recent estimated valuation of $60 billion values each of their 100 million MAUs in the US at $600.”

That value placed on data varies over time of course as evidenced y Facebook. Looking at the firms historical value based on market capitalization, “the market has priced each user between $150 and $420 since Facebook’s public debut. When Facebook IPO’ed in 2012, its value per MAU was $265, almost the same level as its $272/MAU valuation in Q3 2020. Despite these fluctuations, Facebook has steadily improved its monetization of each user. Average quarterly revenue per user was just $1.30 in Q2 2012. In Q3 2020, it was $7.89.”

But data also has a cost, which is absolutely captured by P&Ls.

  • Cost of storing data in the cloud = $0.02/GB per month or $0.24/GB per year13
  • Average minutes browsing on Netflix = 7.4 minutes/day14
  • The average amount of data created per minute of browsing = 102MB/minute15

We can see these numbers at work in Netflix: the Global X report estimates that “the net present value of the firm’s user data from this cost-based approach to be $12.4 billion.16 In other words, the cost-based approach implies that Netflix’s user data is worth 6% of Netflix’s market cap.”

Data does take corporeal, financial shape in cash flow statements. Take Equifax. The company has 105 million active records in its database, generating $3.9 billion in annual revenue and $1.3 billion in annual EBITDA.18, 19 Those figures translate to $37 in annual revenue per record. Or Twitter where companies can pay to access Twitter’s historical and real-time data stemming from over 500 million daily tweets. They license this data to generate insights for product launches, identify consumer trends, or even inform investing activities. Over the last five years, Twitter’s data licensing revenue has grown from $56 million in Q3 2015 to $128 million in Q3 2020.

Two Trading List updates

Next week I’ll update readers on progress in my Alternative Funds trading list. Today just two updates.

The first is that we have just had full-year numbers for Schroders European Real Estate investment trust. NAV was 150.9c, “an impressive increase of 10.8% during the period”, according to the Numis report this morning.

“Underlying EPRA earnings were €8.6m, down from €10.5m in 2019, with prior year earnings having included receipt of a one-off surrender premium of €1.5m. Total dividends declared relating to the year are 5.74 euro cents per share, with a dividend cover for the year of 112%. Including income, NAV total return was sector-leading at 16.2%. The portfolio of 13 assets let to c.100 tenants was valued at €268.6m, reflecting a 10.7% uplift; the like-for-like valuation movements by sector were Offices +24.9%, DIY/Grocery +1.4%, Industrial +0.5%, Other -4.8% and Shopping centre -9.4%. The portfolio delivered an underlying property return of 15.7% comprising 6.2% from income and 9.1% (net of capex) from capital. Net LTV was 24% at a weighted average total interest rate of 1.4%”.

Here’s the Numis verdict on these numbers:

During the year, the strongest contributors to performance were Paris Boulogne-Billancourt (+65% total property return), Paris Saint-Cloud (+8%), Berlin (+8%), Apeldoorn (+7%), Rennes (+8%), Stuttgart (+9%) and Rumilly (+12%). Paris Saint-Cloud is a higher-yielding property that also delivered good valuation performance driven by favorable leasing activity. Berlin, a DIY store, and the Rennes and Rumilly properties, both industrial properties, and Stuttgart, an office property, performed well led by rental value growth and positive yield re-rating. The Apeldoorn property is over-rented and is a high income-yielding property. Despite values declining over the period due to the remaining lease term shortening, total returns for Apeldoorn were still high single-digit. The main detractors were Seville (-8% total property return), Frankfurt (3%) and Utrecht (1%). The negative return for Seville reflected rent discounts offered, increased vacancy and weakening valuation yields reflecting the impact and uncertainty that Covid-19 is having on the retail sector. Frankfurt and Utrecht’s total returns were impacted by a modest decline in value”.

Also, just worth noting in passing that RTW has announced that Nuance Pharma – a portfolio business – has just completed a $181 million Series D financing round co-led by RTW. My hunch is that Chinese biotech might be the next big bubble, with valuations shooting up.

“Nuance is a China-based privately held fully integrated pharmaceutical company engaged in creating value through China’s specialty pharmaceutical markets, with an established focus on iron deficiency, pain management and respiratory conditions. Nuance plans to use the proceeds from the financing round to advance ongoing research and development of Nuance’s existing products and business development of potential new assets….”