Monthly Report February 2024

Performance

Adrigo Small & Midcap L/S and Class C rose 1.04% and 0.90% respectively in February, net of fees. The Carnegie Small Cap Return Index Nordic rose by 1.2% in February.

Among the fund’s larger holdings, Golden Ocean (Transportation) and Pierce Group (Online retailing) provided good contributions. Among the fund's mid-sized positions, we noted good contributions from Maven Wireless (Technology), Cint Group (Software) and Himalaya Shipping (Transportation). Our short positions had a negative contribution in aggregate. 

Adrigo Small & Midcap L/S Class A has returned 101.7% since inception, net of fees. The average compounded return has been 11.7% per year since inception. In the same period, the benchmark STIBOR 1M rate returned 4.0% and the Carnegie Small Cap Return Index Nordic gained 77.7%.

Market comment & the companies

During January and February, expectations for how rapidly central banks will lower rates has become more and more nuanced. The US 10Y yield has moved from below 3.9% to today's 4.1%. Despite this, the stock markets have continued to perform strongly. The Japanese stock market rose by 8.0% in February. The fact that its Nikkei index reached a new all-time high created lots of headlines – the old all-time high was from 1989! S&P 500 rose by 5.3% while STOXX 50 advanced by 5.1% and MSCI World by 4.6%.

The Danish market was again the strongest in the Nordics and rose by 4.3% followed by the Swedish market which was up by 4.0%. Norway and Finland declined by 1.0% and 2.0% respectively. Large caps led the markets, illustrated by OMXS30, the Swedish large-cap index, which rose by 4.2% compared to the small-cap index CSX Sweden which was up by a mere 1.0%. Small caps tend to significantly outperform large caps over longer periods. However, over the past year, large caps have performed 16% better than small caps. We do not believe that this is a new trend, but rather a notch in the curve. Focusing on valuation instead of only at share prices, we find that the relative valuation of small caps vs large caps in the US today is close to the level of 2001 and hence the lowest in 50 years (source: JP Morgan). Small caps have a 40% potential to reach the median since 1973. This is well in line with our view of significant revaluation potential in certain Nordic small caps. 

A large portion of our holdings reported during the month. We saw strong share price reactions in Golden Ocean, Maven Wireless and Cint Group. Sinch and Bonesupport, on the other hand, traded down after reporting. Q4 for Sinch was mixed with stronger than expected cash flow but no organic growth. We believe that the company has to prove its ability to grow before the stock market is willing to re-price the share. Bonesupport delivered very strong growth, but earnings were hampered by some costs of a one-time nature. A few analysts questioned the scalability of the business. At the same time, we heard about some very positive views from US surgeons and KOL's. As we had trimmed our position during Q4 and early 2024, we used the share price weakness to significantly increase the position.

We made our first investment in Maven Wireless in November 2023 and the company delivered a set of very strong numbers for Q4. The company, which is developing and selling products (DAS)  that improve wireless coverage indoors and in tunnels, was founded in 2016, and is in the early stages of its growth journey. During 2023, the company for the third year in a row, doubled its sales and profitability was significantly improved. Sales rose by 91% in Q4 while the gross margin rose from 29% to 44%. Increased volumes, a good mix and fewer component shortages were the main reasons. We also note that this led to a sharp improvement in EBIT margin and cash flow. We see it as a good signal that the Board has decided to pay the first dividend in the company's history. We foresee continued high growth for Maven Wireless and see the highest potential from the US market which is also the largest market for the company's products.

Golden Ocean, the largest owner and operator of dry bulk vessels, reported late in the month. Results for Q4 were above expectations. However, even more importantly we believe that bookings for Q2 were at higher levels than expected and a quarterly dividend of USD 0.3 vs USD 0.1 is anticipated. The share price rose sharply after the release, and we have trimmed our position. During the first days of March, our other investment vehicle in the dry bulk sector, Himalaya Shipping, released its monthly update. Although we continue to be very optimistic about the sector, we have also trimmed the position in Himalaya Shipping. 

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.