Dometic is impressive
Many fund holdings reported half-year results right in the middle of summer over a couple of frenzied days. And given the circumstances, the numbers were pretty good. Several companies reported a slowdown towards the end of the quarter and then verbally confirmed that April-May had been strong, but June weak.
Despite an ongoing slowdown in Europe and Asia and the economy weakening, we do not seem to be facing a recession. In the face of the weak signals, companies like Dometic, SKF and Volvo managed to show very high margins. Dometic was especially impressive as it managed to maintain its margins despite a sharp drop in organic growth.
Builders delivered figures without major impairments for the third quarter in a row, and both Skanska and NCC seem to be on track to normal profitability. NCC fell quite sharply on its report, although it was basically spotless. The market probably underestimates the time it takes to improve margins, and net debt looked unusually high and scared many investors. However, we believe this is temporary and NCC will soon be debt free again.
NCC now has SEK 6 billion in net debt due to a sharp rise in leasing and pension liabilities, but cash flow is always positive 1-2 billion in the second half (unlike the spring, which is usually negative). Moreover, NCC has sold four properties that will yield just over one billion during the autumn, the head office in Järva Krog is about to be sold for another billion, and NCC Road Service will be sold and is expected to yield SEK 0.5-1 billion.
July was a fairly quiet month, with big companies falling slightly and small companies holding ground. August has begun very weakly, with new tweets from a certain president suddenly making the market worried about the trade war again. The stock market could certainly rapidly fall another 5-10 percent, but do not forget that valuations are reasonably attractive, the dividends are there and interest rates remain at zero. We believe this is just the stock market pattern of recent years repeating itself, with two steps forward and one step back.