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Epiroc joins Sverigefond

The Stockholm exchange ended in the red for the first time since 2011. Profits will have increased by double-digit amounts in 2018 but, as many shares had double-digit falls, equities have become over 20 percent cheaper, all else equal.

And they were hardly expensive to begin with, considering interest rates. On the other hand, the Swedish exchange was earlier traded at just over 17 times earnings, or a little over the historical average, and is now around 14 times, which is back to normal.

If profits remain at current levels or slightly below, this is likely to be a positive year, making a parallel with 2011 even more obvious; the stock market fell but earnings rose. In the following year the opposite happened, with rising equities and falling earnings.

Carnegie Sverigefond owns 24 shares and we estimate most of these will retain or raise their dividend, giving a yield of just over 4 percent. The portfolio is traded at 12.5 times earnings, compared with an average of 16 times over the past five years.

Assuming this is not the end of the world, this should be an excellent buying opportunity on a five-year horizon for those who like value.

Talking of value, Epiroc is a new holding that ticks all the boxes. This spin-off from Atlas Copco deals with mining and construction products and, although operating in a cyclical industry, two-thirds of sales come from the aftermarket, making it much less cyclical than one might think. The aftermarket is driven by mining output, which rarely falls. Over the past 18 years, Epiroc has grown organically by 8.5 percent per year, which may be unique among major Swedish engineering companies. Its return on equity is a brilliant 35 percent, as is the return on capital employed, and since net debt corresponds the one quarter of earnings (!) it will have net cash in 2019. And to quote the talented owner Investor, “We should not run a bank”. Over time, a quarter of the market value could be transferred to shareholders, but Epiroc is valued at only 14-15 times earnings for buyers of B shares. A wise investment for the long-term.

More about the fund

Carnegie Sverigefond A

Carnegie Sverigefond investerar i svenska börsnoterade aktier och innehåller landets bästa och mest stabila bolag. Vi investerar långsiktigt i värdebolag – bolag med hållbara verksamheter, starka balansräkningar och goda utdelningsmöjligheter. Carnegie Sverigefond...

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