Monthly Update - April

The Nordics shows strength

Market comment
The global growth statistics have continued to surprise on the upside and in most markets the decline in inflation continues at the same time. The exception is the United States, where the rate of price increase is higher than expected. The market's interpretation is, however, that there is room for interest rate cuts in Europe going forward, which is an assessment that we share.

The reporting season is in full swing and at the time of writing we can state that profits have exceeded forecasts while sales have come in lower than expected. It is too early to draw any major conclusions, but the fact that turnover is weak does not feel particularly surprising given where we are in the business cycle. More surprising is that the Nordic gains are holding up so well, and for Sweden specifically, it is even more interesting as the forecasts, unlike the USA and the rest of the Nordics, have been adjusted up for the reporting period.

The world index fell by 3.4%, while the Nordic stock markets had a more neutral development. The small companies (VINX Small Cap SEK NI) on the other hand rose at the same time by 0.3%. So far this year, cyclically stable sectors such as health care and consumer goods have performed the strongest, while interest-sensitive construction and property stocks are at the bottom.

ORIGO QUEST (Equity L/S)

The fund's development and focus

Origo Quest lost -0.9% during the month. In the last six months, the fund has risen by 12.3% and since the start the return amounts to 154.9%, which corresponds to 8.7% per year. The long/short spread was negative during the month given a weak development in the long book, where mainly New Wave and Hanza cost. The short book produced a slightly positive result for the month, as well as YTD.

Munter's Q1 report was solid, with both order intake and profit margins surprising the market on the upside. Revenue grew organically by 7% (11% in total), driven by, among other things, the Datacenters business area. Order intake was even more impressive with an increase of 32% for the group. Parts of the sell-side analyst groupn have been skeptical of Munter's margin targets for the past year, but have been too cautious so far and we are now seeing upward revisions to the profit forecasts for 2024 and 2025.

We further assess that the company's successful transformation continues and believe that software, sensors and control systems will play an even more important role in the future.

The fund is positioned for some upside but with a belief that the high volatility will continue to be high. The focus is on creating additional returns and limiting market risk. The fund's volatility amounts to 9.6%, which can be compared to the small cap index of 24.6%

ORIGO SELEQT (Nordic Smal Cap)

The fund's development and focus

Origo Seleqt rose by 2.1% during April. The increase in the last six months amounts to 29.0%, approximately 3 percentage points better than the Nordic small company market.

Medicover, Freetrailer and Nolato contributed positively, while Hanza, Europris and New Wave negatively affected the monthly return.

One of the fund's best investments last year, with a share rise of over 80%, is Danish NKT. The company, which is one of the world's leading companies in high-voltage cables, has invested heavily in recent years and is now reaping the success of this. NKT benefits from the strong electrification trend and has become a winner when new energy systems are to be connected to old electricity grids. NKT, which was actually the first company that

Origo invested in after the launch of the Origo Quest fund in 2013, delivered a whopping 36% organic growth and a new record for operating profit in 2023, and the future prospects are still bright. For example, NKT recently signed an order of 40 billion to a German company to be able to carry out an energy transition.

The market capitalization has swelled and after the valuation to a P/E of over 20X for next year - on a record profit - we see, however, that the risk from here has increased. We have therefore taken home part of the profit to finance new investments.

So far this year, we see big differences in the price development on the Nordic stock exchanges and at sector level. The pattern from last year seems to be repeating itself. The Danish stock exchange has climbed over 15%, while the Finnish harrows around the zero mark. Banking and finance have led the rise so far, while real estate and above all energy have had a hard time keeping up.

At Origo, companies are not chosen based on a country och sector strategy, but on company-specific risk/reward. However, we can state that the funds currently have a clear bias towards consumer discretionary.

After the pandemic-doped super demand in 2021, large stocks of, for example, leisure products and other capital goods were built up at distributors and stores. When it then turned out that that demand was not realistic, there was a "stop" in new sales for many companies and the valuation multiples fell dramatically. We believe that the first half of 2024 marks a bottom in the inventory cycle for most of the companies in the sector.

Another favorite sector right now is Healthcare. Stable underlying demand, in several cases clear signs of normalization after pandemic-related disturbances, as well as historically low valuations are some of our arguments

So far this year, several of the funds' largest new investments have taken place within this group of companies (Elekta, Raysearch, Alk-Abello etc.)

/Team Origo