Adrigo Monthly Report May 2024

Performance

Adrigo Small & Midcap L/S Class A and Class C rose 10.87% and 9.63% respectively in May, net of fees. The Carnegie Small Cap Return Index Nordic rose by 5.07% in May.

Among the fund’s larger holdings, Calliditas (pharmaceuticals), Pierce Group (e-commerce) and Initiator Pharma (e-commerce) provided good contributions. Among the fund's mid-sized positions, Smart Eye (Software), Cint Group (Software) and Enea (Software) made good contributions. Our short positions contributed negatively overall.

Adrigo Small & Midcap L/S Class A has returned 138.8% since inception, net of fees. Over the same period, the benchmark STIBOR 1M rate returned 5.4% and the Carnegie Small Cap Return Index Nordic gained 101.0%. The average compound return for the fund has been 14.1% per year since inception. 

The Market and the Companies

May was a strong month for the global developed stock markets. MSCI World rose by 4.1%, S&P 500 by 5.0% while EURO STOXX 50 rose by 2.4%. Emerging markets also performed well with Hang Seng and MSCI China up 2.5% and 2.5% respectively. Norway was again the strongest Nordic market gaining 5.1%. The Finnish market returned 4.6% while Denmark and Sweden were more modest at 3.5% and 2.8% respectively. Nordic small caps gained 5.1% while Swedish small caps gained 5.6%. The oil price weakened during May falling by 7% and continued to fall in June. OPEC met on 2 June and decided to continue with the current production cuts, which will be phased out by the end of December 2025. 

The main event of the month was the cash bid for Callditas by Japanese Asahi Kesei. We invested in Calliditas at the IPO 2018 and have been actively trading around the position over the years. The premium of 83% is obviously very attractive, although we have mixed feelings. Calliditas is at a very interesting phase with full approval in the US in Q4 2023 and accelerating sales. European approval is on the cards for 2024, a year in which the company is expected to show profits and very strong cash flows.

Pierce Group reported good first-quarter results and returned to organic growth and profitability. CEO Göran Dahlin was appointed early last summer, and he immediately took swift action, which now is starting to bear fruit. Headcount reductions and some reorganisation have reduced costs and increased flexibility. It's worth emphasizing that 2025 most likely will be a transition year in terms of profitability. However, we expect margins to increase significantly in 2025 and we see good potential in the stock despite the recent good performance.

BHG Group, the Swedish e-commerce company, held a CMD with updated financial targets. Management is optimistic after strengthening the balance sheet without issuing new equity. The cost-cuttings and divestments are starting to show results and we believe that 2025 will be a highly interesting year.

Smart Eye, a software company focused on Driver Monitoring Systems and Interior Sensing solutions, reported a total sales growth of 34% and 138% growth within Automotive. The company is at an inflexion point with an accelerating ramp-up within Automotive (with 322 design wins from global auto producers) and a positive EBITDA towards the latter part of 2024. The share has historically been highly volatile and fell from a level above 200 SEK in mid-2021 to below 50 SEK in H1 2023. We have previously invested in the company and reinvested when the company made a directed issue (hopefully the last) in spring 2024. 

In our April monthly letter, we wrote about an investment we made in Getinge in April. We were lucky in the short-term as the Q1 results were stronger than expected. However, shortly thereafter, the FDA sent out a warning letter, causing the stock to plummet. Even if the earnings impact of the letter will not be significant it was clearly bad for the sentiment. We assess that it will take at least a couple of quarters without any negative surprises for the company to regain the trust of the market.

We have noticed a clear increase in takeovers over the last couple of months. Maybe not surprising, given that small-caps are now clearly undervalued from a historical perspective. We continue to find attractive investment opportunities in the space.

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.