Monthly Update - May

Positive signals

• Small Caps have taken over the baton
• Significant potential in the Nordic health care sector
• ORIGO SELEQT rose by 7.0% and ORIGO QUEST by 4.1%

2024 has started strongly in the world's stock markets and May was no exception. The world index rose by 3.8% and the Nordics by 1.6%. Small caps, which have underperformed for three years up to March this year, were winners again with a rise of 5.6%. The strength of this year's rise is interesting, given that at the same time we have seen rising long-term interest rates, which normally reduces risk appetite on the stock market. Not many believed in that combination six months ago.

We interpret it as the stock market has begun to focus increasingly on growth, both regarding the world economy and listed companies. In the US, consumption is holding up better than expected, as so many times in the past in periods of economic turmoil. In China, the government seems to be accelerating with stimulus, which should have positive effects on global growth, and in Sweden, the Swedish Riksbank chose to run ahead of both the FED and the ECB and lowered the key interest rate during the month.

In the last year, we have been "chattering" that we think the risk/reward relationship is positive when we leave an environment where growth is revised down and inflation is high to a macro environment characterized more by better growth and lower key interest rates. We stand by that view and think the valuation of small and medium-sized companies is clearly attractive.

Vaisala, the Finnish weather technology company we own, received a mega order for 18 radar stations for Spain's meteorological agency. The value of the order was EUR 25 million, the largest order ever for Vaisala. The contract also provides service revenue during 2024-2026. An increased need in the world to predict extreme weather events will be a value driver for Vaisala for many years to come. The other business area of ​​Vaisala, Industrial Measurement (IM) is a bit more cyclical and has yet to take off. We still raise our forecasts and see great potential in the share going forward. The weather part will grow nicely and IM, which has higher profitability, will probably pick up at the end of the year. The company is a leader in a structurally growing niche, has a net cash position, delivers a ROCE of over 22% in a weak industrial economy and is valued at 15X earnings in 2025. We have increased the holding during the month.

In February, we built up a medium-sized position in Raysearch Laboratories when the share traded below SEK 100. In mid-May, when the share stood at SEK 130 and expectations were at a completely different level, the company came out with its Q1 report. The report was very solid with an organic growth of 11% but what impressed the most was the cost control and cash flow.

Our investment thesis is that the company has left a long and partly heavy investment period behind and has recently turned the strategy towards profitability. The three main products are completely out on the market and priority one now is to increase sales volumes. The client list is impressive and we note that some leading hospitals have taken in Raysearch's software solutions at the expense of competitor Varians. The report demonstrates the scalability and confirms our optimistic analysis.

Our Norwegian-Swedish service company Norva24, on the other hand, delivered a slightly sad report for the first quarter. The currency-adjusted organic growth was 1.6% and the operating profit fell by 12%. Behind the relatively weak numbers, however, we see that they have been affected quite a bit by fewer working days in this quarter compared to last year. The management also writes in the report that if you look at the first four months, the trend has instead continued to be positive. We also note that five companies have already been bought this year, which was the number we expected for the whole year. The M&A strategy is convincing and the industry is still deeply fragmented.

We have met with many companies recently and are in the process of putting together the puzzle for the second half of the year and 2025 and the question we ask ourselves is; Where do we find undervalued quality companies and where are they in terms of timing on the stock exchange? For a very long time, at least the last ten years, we have been very impressed by the Nordic health care sector including all the niches that are nearby. The problem is that it has been hyped on the stock market and the valuations have required completely unrealistic growth forecasts.

During the pandemic, hospitals generally pulled the handbrake and many companies had problems, which together with a general stock market decline caused many stocks to collapse. This segment is now one of our favorite areas and we have built up a very exciting position (Raysearch is an example) with 6–7 fast-growing Nordic small and medium-sized companies with a focus on both pharmaceuticals and medical technology.

At the time of writing, we are also doing the same major mapping within another sector that we estimate will grow significantly more than GDP in the next five years. More on this work in future reports!

ORIGO SELEQT
Origo Seleqt rose by 7.0% during the month and has thus risen by 20.5% in the last 12 months. Nolato, ALK-Abello and Vaisala made strong contributions to returns. Bakkafrost had a negative impact at the same time. The portfolio essentially consists of high-quality companies with good profitability and strong balance sheets, but which we also judge to be undervalued and in several cases misunderstood. The beta against the benchmark amounts to 0.8 since the start. We have continued to increase in areas such as medical technology and software and have started to build up a couple of new holdings. The purchases have been financed with sales in, among others, ATEA.

ORIGO QUEST
ORIGO QUEST rose 4.1% in May and is up 15.6% in the last 12 months and 165% since inception. The long book rose clearly more than the short book, so the quality of returns was high. Raysearch, New Wave and Freetrailer made good contributions among the fund's long positions. In the short book, two holdings within the Daily Goods group contributed positively, while Basic Industry had a slightly negative impact. The net exposure amounted to 36% and the volatility over the last 12 months was 8.9%. The corresponding volatility figure for the small cap index (CSRX) is 19.0%. Since its inception in 2013, the fund has returned 9.0% annually. During the month, we continued to increase in medical technology. Greetings Team Origo

/Team Origo