Monthly Update - August

Better risk/reward in small caps

  • Volatile stock markets
  • Strong reports from several portfolio companies
  • Great potential in MTG

Our funds performed relatively well during a month that was difficult to navigate and generally messy. Origo Seleqt rose by 0.6% during the month, which was approximately 2 percentage points better than the fund's benchmark index. So far this year, Seleqt has returned 18.1%.

The hedge fund Origo Quest rose at the same time by 0.4%. The fund has delivered almost 9% in annual returns since inception and 11.3% in the last 12 months. At the same time, the fund has had a limited net exposure (beta-adjusted) of around 20-25% recently.

August began with a major global stock market correction. A negative development in the American labor market, the geopolitical situation in the Middle East and great nervousness about the valuations of American technology companies contributed to the slide. After a week or so, however, the market began to discount an increased likelihood of a US soft landing rather than recession, which bounced back for the remainder of the month.

Elekta, a larger position in our funds, came out with a Q1 report that was positive. Both sales and the important gross margin beat the market's expectations. However, it kept its "mid-single-growth" forecast for the rest of the year, which perhaps dampened the positive reaction somewhat. We have continued to buy the share as we think the company is still severely undervalued and has good growth prospects when the new product portfolio is gradually introduced in the coming years. We follow the development of the new flagship product EVO, which is in an early stage, extra closely. CE marking has recently been applied for, where permission in the autumn could lead to a sales boom next year.


MTG has been on our radar screen since they sold the esports business in 2022. They were paid well and thus a strong balance sheet and net cash. MTG also sold a smaller part of its mobile gaming business, where the need for investment was greater and the cash flow was negative. The entire sector, except for MTG and a few other companies, has had balance sheet problems, which has pushed valuations down considerably. On top of that, mobile gaming as an industry is still suffering from the effects of the pandemic and a more restrained consumer. Improved demand will result in increased turnover, but will also mean increased marketing costs. However, our view is that the underlying margins in MTG are structurally higher now than a few years ago, which means that we expect a margin expansion when demand turns despite increased market activities.

In the spring of 2024, we started to build up a position in our funds and after a small price development during the summer, the share has now become even cheaper, especially adjusted for the large net cash. We believe that MTG should buy back more shares than has been communicated and that they should take a break from future acquisitions until they have proven that they can scale up both revenue and margins. From current valuation levels, we see strong IRR potential over the next 3-5 years as demand returns to the industry and MTG delivers in line with its ambitions. The Playsimple studio is the clear shining star, but we also see great marginal potential in the Innogames studio. The CEO and board have shown good capital allocation skills since the sale of e-sports, and if they continue with that, we expect the valuation to rise. If that does not happen, the MTG share is an acquisition target as they have strengthened their position but still risk becoming a pawn in a larger game plan when the industry recovers and the M&A window opens.

Another company that came up with an encouraging report was trailer company Freetrailer. "We assess that Freetrailer, with its sharing economy platform, is well positioned to generate profitable and sustainable growth in the coming years," we wrote in the press release in the fall of 2021 after we had acquired a larger stake in the company. At the time, the Danish micro-company had a turnover of around DKK 50 million and had around 600,000 rentals. For the coming year, we expect a turnover of around 130 million and 1.6 million rentals. The stock has risen by more than 80% since our purchase, an increase that is thus driven by significant operational progress.

During the year, Freetrailer launched its new IT platform and a brand new App, which is an important step on the way to becoming the leading micro-mobility platform in Europe. The partnership with IKEA celebrates 20 years this year and together with new customers such as Byggmax, Power and not least Jem & Fix, the continued growth prospects look very promising.

We expect the high August volatility to persist in the second half of the year and assess that small companies have a better risk/reward than large companies in general. This definitely applies to the USA but also to the Nordic countries.

We also want to take the opportunity to tell you a little about what is happening at Origo. Origo Fonder was a bit of a pioneer when we launched the small-cap oriented hedge fund Quest in 2013. In 2022 we followed up with the distinctly alpha-oriented long-only fund Origo Seleqt. Now we take the next step.

I am very happy to now be able to tell you that Origo has recruited the experienced fund manager Per Johansson. Per has an impressive CV with, among other things, 11 years at long-standing Fidelity Investments in London and Boston and several years at the Brummer & Partners-backed hedge fund Bodenholm. The closest comes from Per from D&G where he was a partner. Per has shown that he can create sustainable excess returns regardless of market trends and is sharp when it comes to identifying Special Situations. Per will become a co-owner/partner and together we will form a very experienced small company team with well-documented results on both the long and short side.

We have also hired Oscar Severinsson as new COO. Oscar is a very driven man and with his background as a business developer at ISEC and Head of Fund Operations at Catella Fonder, he will contribute enormously to Origo in the future.

Earlier in the year, we also hired Milo Wahlgren within Operations & Research. Milo has just started the master's program at the Stockholm School of Economics and at the same time works at Origo. Milo is a math pro and has a background as an elite athlete.

Origo Seleqt (Nordic Small Cap)

Origo Seleqt rose by 0.6% during August, which was a couple of percentage points better than the index. In the last 12 months, the increase amounts to 26%. The Danish allergy company ALK-Abello raised its profit forecast once again and the share contributed the most to the fund's return. Freetrailer and Catena also made positive contributions. On the negative side, we find SparNord Bank, which after a longer period of growth bounced back. Net profit in the bank has gone from DKK 900 million to approximately DKK 3 billion in 2024, while the number of shares has decreased by 6%. A huge boost in earnings per share, in other words. We believe that growth will continue, but at a somewhat slower pace.

Origo Quest (Equity L/S) Origo Quest rose by 0.4% during the month which gives 11% on a rolling 12 months and 159% since start. The long book gave a positive return and the short had a neutral development, while the small cap index (VINX Small Cap SEK NI) fell by 1.4%. SOBI accounted for the largest positive contribution. The stock has climbed 18% this year as the market sees the breadth of the product portfolio and that the news flow around the projects has been positive. SOBI is the fund's largest holding (+7% of NAV). Raysearch also had a nice development after presenting another strong report.

Thank you for your trust and support,
Team Origo