October was an eventful month, marked by both interim reports and weak stock market performance. Carnegie Småbolagsfond was down 6,0%.

MTG was a newcomer to the fund in October. The share price has seen lacklustre performance after a strong start to the year, partly due to the announced sale of its television business to Danish TDC. An abandoned deal with TDC, a half-year report that fell short of expectations, and a distribution of Kinnevik’s stock in MTG have put the share price under pressure. It is not obvious that all of Kinnevik’s shareholders want to hold stock in MTG, but we regard the valuation as attractive. Telia’s acquisition of TV4 over the summer shows that deals are being done in the sector, so this may not be the last play for MTG’s media assets. We see good prospects of a better earnings trend for the second half of the year, and we anticipate that unwilling shareholders of MTG should have sold by that time. We regard the coming split of the company as clearly value-creating since the rapidly growing arm, MTGx, cannot be valued in the same way as the stable TV business, Nordic Entertainment. The split is expected to happen in the first quarter of 2019.

As part of our focus on responsible investment, we exited the gambling sector in October and have divested the fund’s holdings in Kindred and Catena Media. We believe that both of these companies are well-managed and responsible, and our decision is related to the industry as a whole. The fund will no longer invest in this sector.

In earlier monthly newsletters we said that the Elanders half-year report was promising, and the nine-month report published in October confirmed our hopes. The loss-making areas that have adversely affected profitability through the year have been dealt with, and the strong organic growth continues. With the profitability and growth that the company demonstrated in the third quarter, this share is greatly undervalued.