In the short story ‘The Jesting of Arlington Stringham’, the commentator suggests ‘the people of Crete make more history than they can consume locally’.
The same can be said of Dubai and the UAE, which has undergone dramatic reforms in the past few years, which the local media has struggled to keep pace with. One such has to do with Abu Dhabi based IHC’s acquisition of Grupo Nutresa, which unfolded over a period of three years, culminating in the latest announcements whereby the former would hold nearly 15 per cent of Grupo Nutresa through its subsidiary Graystone Holdings. This would cement IHC’s status as a global operator of businesses ranging from food to AI.
The story of Grupo Nutresa, narrated breathlessly by the Medellin press in Colombia, is part of a larger portfolio for IHC (that includes the holding in Lulo Digital Bank amongst others). This is a synergistic play that allows for double-digit growth, whilst allowing for strategic goals of food security to be monetized at profitable prices. (Grupo Nutresa shares have doubled over the last 5 years).
The latest IHC acquisition, through an open tender offer, shows not only the dexterity of its management but also the depth of the capital markets in Colombia, where auction markets often yield better results for the buyer than a straight up share issue (negotiated sale).
While its stakes in Alpha Dhabi, Multiply, Q Holding, Al Dar, Ghithia Pure Health, the creation of TwoPointZero and other UAE businesses are well known (including its efforts to spin off its businesses into the local capital markets to create value), less public are the international investments.
And that IHC has become the North Star in the UAE as well as the region. As the holding company continues to scour the globe for deals, it has continued to grow its balance-sheet at a breathtaking pace.
Indeed, when it comes to IHC, we are awash with more history than what we know what to do with, but in sum, the ‘project’ as we have come to call it, is coming together with startling speed.
Yet, despite its increasing transparency, it is a company that remains not well understood by the investing diaspora at large. In the case of Nutresa, IHC placed a bid nearly 2 years ago to acquire nearly 30 per cent of the South American group, which was undone.
Its latest transaction, which is a combination of a share swap and a public tender offer, allows Nutresa to expand into other markets. And with growth rates well into the double-digits, with a PEG (price/earnings-to-growth) ratio of under 10, it represents a value proposition that only large companies can capitalize on.
It is increasingly likely that IHC will start to focus on larger ticket items internationally, as the size of its balance-sheet has ballooned, and will not be distracted by smaller scale investments. In fact, the focus will be to nurture domestic companies to a stage where they can go public, whilst acquiring larger stakes in international companies as it propels its growth story.
Unlike today’s goofy investment ideas involving meme stocks, GAAP (growth at any price) companies and other fads, IHC retains a laser focus on its bottom-line, which has gone largely unremarked by the investment community at large.
This is perhaps baked into its very preamble, and the Nutresa acquisition marks the end of its beginning (its effect will be in the accounts from Q2-2024). While it will continue to act as a bulwark for domestic value creation, the true value of its enterprise resides in creating expertise in a diversified pool of international assets that it is able to acquire through its disciplined approach.
The latest set of quarterly results further attests to the continuing success as well as its transitioning strategy. This is perhaps also reflected in its latest decision to announce a share buyback, going down the road of companies like Berkshire Hathaway in signaling that its shares are undervalued.
IHC has demonstrated its ability to generate superior returns on capital and the Nutresa investment is another demonstration of this. As its first quarter results drive its story home, perhaps the bien pensant approach would be the best way to approach IHC. We could try and pick up the basic book of investing for a change.
