Monthly report April 2024

Performance

Adrigo Small & Midcap L/S Class A and Class C rose 2.23% and 1.87% respectively in April, net of fees. The Carnegie Small Cap Return Index Nordic rose by 1.01% in April.

Among the fund’s larger holdings, Getinge (Medtech) and Online Brands (E-commerce) provided good contributions. Among the fund's mid-sized positions, we noted good contributions from Enea (Software), Golden Ocean (Transportation) and Sedana Medical (Medtech). Our short positions had a positive contribution in aggregate. 

Adrigo Small & Midcap L/S Class A has returned 115.4% since inception, net of fees. In the same period, the benchmark STIBOR 1M rate returned 5.0% and the Carnegie Small Cap Return Index Nordic gained 91.3%. The average compounded return for the fund has been 12.5% per year since inception. 

The Market and the Companies

Global developed stock markets had a negative performance in April. MSCI World fell by 3.2%, S&P 500 by 4.1% while EURO STOXX 50 fell by 2.3%, However, emerging markets performed strongly with the Hang Seng and MSCI China rising 7.5% and 6.5% respectively. Norway was the strongest Nordic market and rose 3.2%. Fortum and the larger industrials in Finland reported strong numbers and the stock market rose by 2.7%. Sweden and Denmark performed more modestly with increases of 0.9% and 0.5% respectively. Nordic small caps rose by 1.0% while Swedish small caps fell by 0.7%. Base metals performed strongly with increases of 22%, 15% and 12% for Zink, Nickel and Copper respectively.

In mid-April, we reinvested into Getinge. Last year was a year of disappointments with quality problems (mainly packaging-related) which we thought management could have communicated in a better way. The stock market reacted negatively and Getinge was again perceived as a company with constant quality problems. After the Q1 report, management confirmed that quality costs in 2024 should go down by some 50% vs the level of SEK 800 million (2.5% of sales) in 2023. Early May, the FDA sent out another warning letter to the users of Getinge's balloon pumps and certain ECMO products. The problems are not new, and the financial impact is likely to be limited. Nevertheless, this is bad news and adds to the negative perception. We see significant potential in the stock once Getinge has left these problems behind.

Electrolux (white goods), which we have bought during the spring, might be our most contrarian long position. The company has gone through some extraordinarily tough years with huge losses in the US (partly due to very intense price pressure from Asian competitors), a weakening balance sheet and unusually weak volumes in the European operations. We were not surprised when, the day before the Q1 report, it was announced that CEO Jonas Samuelson will leave. The report, as such, was not as bad as feared. We believe that many analysts are somewhat tufted after some years of constant downgrading of estimates and target prices.  We therefore believe that there are good chances of positive surprises in the coming years. The impact on margins when new plants are starting to produce at full capacity, and with good productivity, is huge but difficult to estimate from the outside. Electrolux has spent some USD 250 million on the cooking plant for ovens in Springfield which finally will be up and running at full capacity towards the latter part of this year. We would like to highlight that we are not naïve when it comes to price pressure – we have followed the company and the industry for more than three decades and are fully aware that competition is always very stiff. However, the fact that market leader Whirlpool recently announced that it will increase campaign prices by 5% is a positive signal. The share is currently trading around SEK 100 and we see a potential of at least 30-50% in a one-year horizon.

We re-invested in the Swedish software company Enea last summer. The stock had crashed and the CEO was fired. Acting CEO Ander Lidbeck has, since then, implemented significant cost cuts but also refocused marketing efforts. The report for Q1 was much better than expected with organic growth within the core areas, cyber security and networks, around 10% with a very strong cash flow. Even if the stock has risen significantly after the report, we see good potential going forward. It is rare to see a software company with good market positions being valued at an EV/EBIT of around 10%.

Among our other holdings, Opter, Cint Group, Sedana and Lindex have reported during the month. The reaction to Cint Group’s results were in our view way too harsh. Sure, cash flow was weaker than expected but otherwise, the transformation continues as expected. We have used the weakness to increase our position.

As always, we would like to thank you, our co-investors, for your continued trust. Please feel free to contact us with comments or questions.