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Holmen’s assets are obviously undervalued

Friggesund plantskola. Foto: Holmen.

There were signs of improvement in October in two areas that have troubled the markets for some time. It seems the US and China may soon agree a Phase 1 trade deal, and the EU and UK look to have found a way to avoid a hard Brexit. But most importantly, company reports for the third quarter generally exceeded expectations.

Among the quarterly reports from the fund’s holdings, Essity and Holmen stood out on the upside. It is usual for these two to stand in contrast to each other when reporting, since Essity is negatively impacted by higher pulp prices while forest products companies with integrated production like Holmen normally benefit. But this time, strong reports from both contributed to share price gains.

Essity delivered better organic growth than expected, and profitability also beat expectations. In Holmen’s case, it was perhaps not so much the strong report as the upward revaluation of forest assets by some SEK 20 billion that was the driving factor.

The forest assets, which were obviously undervalued, may have been the most important reason why we have been optimistic about Holmen. It is remarkable that analysts feel they need to wait for the company’s higher valuation before doing the obvious with their valuations of the stock. This must be one of the most serious shortcomings the Swedish analyst corps has shown in modern times. It is worth mentioning that SCA, whose value also largely consists of forest, is following in Holmen’s footsteps and upwardly revaluing its forest.

Epiroc was disappointing, mainly due to unexpectedly low order intake for equipment due to postponed or shelved projects.

There has been no major change to the asset allocation in the portfolio. In equities we have slightly reduced the stakes in Dometic, Epiroc, NCC and Skanska, and instead upped weightings in Lifco, Orkla and Securitas. On the bond side we have bought Bulk, which owns IT infrastructure and logistics properties in Norway, and Frontmatec, which supplies automatic cutting solutions to the meat industry. This was financed through a sale of the holding in Örsted (Dong).

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