Private companies a valuation haven today: PrimaryMarkets

Are private companies a ‘stability anchor’ in volatile times?

An often-overlooked aspect of investing in private companies is the volatility buffer they can provide within a portfolio during economic turbulence and uncertainty, according PrimaryMarkets, Australia’s number one trading platform for unlisted companies.

“Valuations of listed equities tend to overreact to market sentiment both positively and negatively,” said Marcus Ritchie , CEO PrimaryMarkets .

“Despite the rule that listed equities reflect forward valuations, negative market events and negative economic and political sentiment can profoundly depress a share price no matter how good the long-term outlook is for the company.”

Current market sentiment is poor says Ritchie.

“Despite a 6% rebound in the S&P/ASX 200 index in January, the market has since handed all those gains back. Inflation, the prospect of further interest rate rises, the Russia - Ukrainian war, recessionary fears and now tremors in the global banking system, are all contributing to market volatility and undermining investor confidence.

“The recent takeover of Credit Suisse by UBS following on from the Silicon Valley Bank collapse raises the spectre of another GFC whilst ongoing uncertainty about China’s economic growth is impacting on traditional haven sectors of the ASX such as banks and resources.

“The performance of the property based equities markets in 2022 is a good example of the potential bifurcation of volatility and valuation between listed and unlisted securities.

“According to Property Council of Australia data there was a significant discrepancy in the performance between listed funds (~minus 20%) and unlisted funds (~positive 19%).

“This investment scenario is prompting wholesale investors to look at alternatives, including significant unlisted companies valued at more than $20 million with proven earnings track records and strong growth prospects, particularly in technology, heath care and renewables.

“Quality private companies, if equity can be purchased in them, may be less vulnerable to market sentiment. Also, longer term, they can offer opportunity to be in on the ground floor of an IPO,” Ritchie notes.

One such private company available on PrimaryMarkets is Virtual Gaming World (VGW) which has seen substantial growth in revenue to over $3 billion, supported with sound profit margins while paying shareholder dividends. The company predominately operates social casino games in the USA, with a current market capitalisation of over $2.3 billion.