Monthly Update March

Another bid on a portfolio company

• Fear of inflation returns
• Bid on our sewage services company
• Swiss catalyst in BioGaia

THE MARKET
The macroeconomic picture is rarely constant, but it is currently shifting unusually quickly. Donald Trump’s trade war will likely lead to slightly higher inflation in the U.S. and fewer interest rate cuts overall. At the same time, Germany’s new government is ramping up and introducing significant investment plans. More countries in Europe appear willing, or rather forced, to follow suit and growth prospects for Europe may be revised upward going forward.

Global equities, which have been in a clear uptrend since autumn 2023, suddenly focused on the uncertainty surrounding tariffs and inflation risks and corrected in March. The currency and commodity markets have also been volatile, with, for example, oil prices rising. The American tech giants fell by 10% (CNBC Magnificent 7 Index), adding pressure to both U.S. and global indices. The world index closed -5.1%. Nordic equities had a weak month, with broad Nordic indices down 10.6%. Small caps fared somewhat better overall but still ended down 7.0%.
24M: World Index (blue), Nordic Index (orange) & Nordic Small Caps (green)

The Copenhagen stock exchange has started the year down by just over 10%, while Stockholm is roughly flat. The Oslo exchange, sensitive to oil, has performed the best with a 7% increase. At the sector level, we see similarly large discrepancies: banks have risen by 11%, driven by expectations of rising interest rates and hence increasing profit margins. Real estate stocks, on the other hand, risk being negatively affected by rising inflation, especially if higher rates become persistent. The real estate index dropped about 9% in the first quarter of the year.
 
March was thus an unusually turbulent month. In situations like this, it is often wise to take a step back and reflect. Markets move in cycles, with periods of growth followed by corrections or declines. These downturns are often triggered by macroeconomic factors such as inflation, geopolitical tensions, or global financial crises. However, there are usually temporary setbacks, and markets tend to bounce back when conditions stabilize. Understanding the cycles, doing your homework, and investing contrarians in quality companies or funds is often a better strategy than following the negative sentiment.
 
ORIGO SELEQT
Seleqt's NAV decreased by 6.7% in March, which was slightly better than the fund’s benchmark index, which fell by 7.0%. Year-to-date, the fund has returned -1.4% compared to the index a -4.9%. Since its inception in 2022, the return amounts to 18.4%, which is 14.1 percentage points above the fund’s index.
 
During the month, Norva24, Invisio, and Protector contributed positively. Among the smaller holdings, BIM Object also showed strong performance. Some of the healthcare-related investments, including BioGaia and Carasent, contributed negatively.
 
At the beginning of the month, we received a bid for the sewage services company Norva24. See the section “Companies in Focus.”
 
The portfolio currently consists of around 30 companies where we see a combination of Value, Quality, and Change. On a sector level, Consumer Discretionary and Healthcare weigh more heavily, while we have limited exposure to highly cyclical sectors such as Industrials and Raw Materials. We see a significant valuation discount in several of our holdings compared to their historical averages and relative to large and mid-sized companies.
 
ORIGO QUEST
Quest declined by 3.2% in March. The short book contributed slightly positively, while the long book had a negative impact. Long positions in Carasent, Freetrailer, and Kalmar stood out on the negative side, while long holdings in Norva24 and Invisio yielded good returns.
 
At the beginning of the month, we received a bid for the sewage services company Norva24. Read more in the section “Companies in Focus.”
 
The rolling 12- and 24-month returns are 9.2% and 18.9%, respectively. The Nordic Index (VINX Benchmark SEK NI) has returned 5.9% and 12.8% over the same period. The portfolio's beta has simultaneously been 0.12 (12M). The strong risk-adjusted return has primarily been generated through successful stock selection in the long book, but the short book has also contributed well in absolute terms over the past two years.
 
We made some reallocations during the month. The Invisio position was reduced at a significant profit after an extreme price move. At the same time, we invested in software companies with interesting niche positions. Some of the funds’ larger long holdings are Bilia, Dynavox, and Carasent.

The short book is more diversified and includes gambling companies and others where we have identified accounting concerns and/or other red flags.
 
COMPANIES IN FOCUS
At the beginning of the month, we received a bid for sewage services company Norva24. The offer represents a 59% premium over the previous day’s closing price.
The bidder is the private equity fund APAX, and the larger shareholders Valedo, Briarwood, and the board of Norva24 are supportive of the deal. We understand the logic behind it, APAX likely sees exactly what our investment thesis is based on: an imminent European expansion in the UIM sector, driven by acquisitions and stable cash flows.

The timing of the bid, from our perspective, is up for debate. APAX made their move just after a couple of mediocre reports when the company was cleaning up its German operations. However, the deal now looks like a “done deal,” so we have chosen to sell our shares and lock in the gains.
 
Worth noting it’s only been four months since Origo also received a cash offer for the Danish bank SparNord. Looking back a few years, our funds have averaged 1–2 bids per year (DIBS, Tribona, Cherry, Recipharm, SOBI, Veoneer, Mercell, among others). We believe this value driver will accelerate in 2025–2027 as large companies’ rising cash flows, cheaper financing, and renewed pursuit of growth become a reality after the unusual pandemic years.
 
We were quite surprised when RaySearch CEO Johan Löf sold a block of shares worth SEK 500 million to Swedish and foreign institutions in mid-March. However, we are less worried than the market, as Johan remains a major shareholder with 16% of the capital and 53% of the votes. He had “all” his wealth in the company and has rarely sold shares in the business he founded in 2000. The news nevertheless pushed the stock down 20%, which negatively affected our monthly return.
 
Speaking of big transactions and founder-led firms, BioGaia deserves mention too. Founders and long-time leaders Jan Annwall and Peter Rothschild have led the supplements company to great success, with a stock journey of over 6,000% since the IPO in 1996. A few weeks ago, however, they chose to sell their shares to the Swiss-based investment company Anatom, owned by the Kahane family. The Kahanes know the industry, and one of the key individuals has a background at the Danish enzyme company Chr. Hansen, which was acquired by Novozymes in 2022. We see the transaction between the founders and Anatom as a possible catalyst for both M&A and for optimizing the defensive balance sheet. We are digging further into this and will likely return to it soon!
 
The Finnish climate-tech company Vaisala, a mid-sized holding in our funds, recently held an analyst meeting to update on its U.S. operations. It’s only been a month since their Q4 report, so no big surprises were expected. Our interest was on tariffs and whether the operational improvements in the U.S. business were intact. The short answer from the analyst meeting: Vaisala is prepared to raise prices, and customers have so far not hesitated with new orders. The cost and improvement program is on track. There is a big difference between companies right now regarding whether they’re seeing a slowdown in new orders due to tariffs, but Vaisala was more positive, at least so far.
 
In the medium and long term, we believe innovation is what drives Vaisala. Over a third of its employees work in R&D, and we see no competitor putting as much emphasis on research as Vaisala does.
 
It is interesting to see how the company has renewed and developed its perhaps greatest innovation, HUMICAP, over more than 50 years. The system is now a global standard for humidity measurement across various industries. It began with measuring equipment for road weather stations, but today the technology is leading in sectors including the highly regulated pharmaceutical industry.
 
We increased our holding slightly after the decline in March.
 
Our investment thesis is based on:
 

• The market is growing rapidly and benefits from multiple megatrends
• Technology leader with a strong position and superior customer list
• Profitable growth with high ROCE and no debt
• Underestimated potential for continued margin expansion
•  We also note that the company is now valued at 15x operating profit, which is attractive compared to global tech firms in leading niche positions.

 
Finally, an update on Bakkafrost. The stock has fallen over 25% in the past year and is one of our weakest investments in the period. Unfortunately, things do not always go as planned. That said, we believe the company is moving in the right direction operationally. We note that harvests in both Norway and Scotland have slightly exceeded expectations, and average harvest weights were also higher.
 
The explanation for the weak share performance is likely that the spot price of salmon is somewhat below the short-term expectations previously priced in. If we extend the time horizon a bit, the price remains at high levels. Another factor negatively affecting profit forecasts is a slightly higher corporate tax in the Faroe Islands for 2025
 
Thank you for your trust,
Team Origo