Q1 2022 Quarterly Update Partnership Investing Portfolio

Review of the portfolio as of Q1 2022 and general comments on the blog moving forward.

The last few months have tested many investors about their convictions and I am no exception. After not updating you for Q4 of 2021, it is time to review what has happened to the Partnership Investing portfolio and the blog. Let's start with a review of our holdings.

The portfolio

Naked Wines: Naked Wines has had a year below what the market expected, affecting the share price. The H1 results were below expectations due to higher marketing costs to all advertisers and lower than expected LTV to compensate for this rise in CAC. Management's choice was to slow down spend until the environment justified investments into new customers. This continued and the full-year results were up 5% from last year. Certainly not heroic, but higher than the market's renewed expectation after H1.
Although the market has taken down many COVID winners, including Naked Wines, I feel confident in the durability of Naked Wines' business model going into a normalized environment. Customer retention for the full-year was 80%, which is the same as it was pre-COVID. This is another datapoint that supports my view that Naked Wines has a real business that can grow significantly after COVID and lockdowns.
With almost 1M Angels, Naked Wines is determined to use its scale to improve the customer proposition and provide more opportunities to talented winemakers. Nick Devlin has been clear about that he is about maximising the long-term value of Naked Wines, and as a shareholder with the same time horizon, I couldn't agree more.
For this reason, I'm still long WINE.

Intellicheck: Intellicheck was an intriguing situation when the investment was first made. Bryan Lewis joined the company in 2018 and started looking for opportunities for them to use their core competency in identification. The financial services industry and retailers were the first case studies to help limit fraud. The offering gained traction, and I believed the company had both pricing power and a fast growth curve ahead of it. 2021 was supposed to be a breakout year for Intellicheck with the expansion of their sales team.
The amount of implementations and new contracts was underwhelming.
Almost a year into what was supposed to be a fast expansion, I feel the company has made no progress, and worst of all, communication from management has been vague at best. The worst point was during the last earnings call (Q4 2021) when CEO Lewis blamed the lackluster performance on bad hiring of new salespeople. Suffice to say that I'm displeased with the developments at the company and that I was wrong in my assessment of Bryan Lewis. At least for the time being.
This is another lesson on how important management is and that anything less than a bulletproof management team should be a pass. Coincedently, Pushpay was an investment made during the same period. The situation was different, but it seems my Spidey-senses were off during those few months.
I decided to sell my share in IDN and will re-evaluate my process on how I evaluate management. The funds have been used to buy more WINE shares.

Vitec Software: Not much has happened since out last update to Vitec Software. The financial results were mostly in line with my expectations with nothing particular to note. They acquired Danish company DocuBizz in January 2022, which is the only acquisition since the last update. The company has guided to higher operating margins (which I expected anyway due to the long-term trend). I hope Vitec puts their warchest from the equity raise to good use soon. This 1B SEK can be used to acquire a tremendous amount of cash flow.
The shares have done very well since I explained my investment thesis. The valuation now is somewhat demanding, and I have sold a part of my position to reallocate to the newest position, Farfetch. I still intend to be a long-term investor in the company (at the right price) and have no intention of selling all my shares.

Surgical Science Sweden: Surgical Science has posted its financial goals for 2026. Its goal is to achieve 1.5B SEK in sales and an EBIT margin of >40%. This is mostly in line with my expectations in November. Although the valuation might still seem demanding based on these expectations, remember that the robotic surgery theme is going to play out over the next decade, if not longer. Additionally, CEO Hennermark is known as a underpromise and overdeliver type. By putting out this guidance, he effectively tells the market he is confident this is a target they are going to reach. I'm excited to see what Surgical Science will do in the next few years and plan to stay a shareholder for the ride.

Farfetch: I recently posted my investment thesis on Farfetch. There is a lot to like about the company in terms of quality. The questions about the true economics of the business and the margins they will ultimately achieve are warranted and I think the current price more than reflects these worries. At a 5B market cap, you can buy a business that serves as a platform/operating system for the luxury industry with marketplace economics. Oh, and by the way, this company can realistically grow to do 5B in sales in 5 years, with still some growth to go after that period.

The blog

This blog has provided me with great opportunities to meet smart and interesting people with an interest in investing. This has been incredibly encouraging and I plan to double my efforts to provide more frequent content on quality companies around the world. It will be clear when one of these write-ups is an addition to the Partnership Investing Portfolio and when it is simply an interesting company I want to highlight.
I might mix it in with some industry analyses from time to time (like my recent Gaming and Metaverse analysis) or posts about specific investing topics (company culture comes to mind), though the latter will be rare.

Please feel free to recommend topics or companies that might be of interest. As always, you can contact me on Twitter @PartnershipInv or by email at partnershipinvestingblog@gmail.com.

Disclaimer: Always do your own research. This is not investment advice and for informational purposes only. Partnership Investing is not a registered investment adviser and may or may not hold securities discussed on this blog.