Strong report across the board
The Stockholm exchange rose 3.4 percent in July and the small cap index was up 7.6 percent. Carnegie Småbolagsfond gained 8.5 percent.
As usual, July was influenced by the half-year reports from listed companies, and these generally beat market expectations. The coronavirus has created exceptional uncertainty and, in hindsight, listed companies have so far weathered the crisis better than analysts predicted. The fund’s holdings generally issued reports that easily beat expectations.
“The most important thing is that the company is very well managed and has a significant market share in a roofing market dominated by a few players. This suggests continued good growth, both organic and acquired, combined with high profitability.”
In our assessment, the best of the holdings during the second quarter was roofing company Nordic Waterproofing. Its report was thoroughly strong, with sales and earnings that far exceeded expectations. Profitability was partly helped by low raw material prices, but above all we believe this was a good performance on the part of the company. The most important thing is that the company is very well managed and has a significant market share in a roofing market dominated by a few players. This suggests continued good growth, both organic and acquired, combined with high profitability. The share rose 15 percent in July, but the profit forecasts increased by the same amount so the share has not become more expensive, despite the company showing its excellence, and the balance sheet is strong. We expect continued good development and see the valuation as attractive.
Knowit also performed very well. Its quarterly report showed growth in sales, profitability and earnings, and analysts’ forecasts were easily beaten. There had been concern that IT consultants would be short of work in the wake of the pandemic, since this can be seen as an easy saving for customers. Our thesis that Knowit’s work is largely business-critical and that investments in information technology are not the first thing to be cut was supported by the report. The share rose 17 percent in July, but analysts’ earnings forecasts were also upped after the excellent report so we believe the valuation of the share remains low.
The best holding of the month was Nent, which also presented strong quarterly figures. This is another example of a company with a skilled management, and we lift our hat to what it has achieved since it had to stand on its own two feet last spring. Subscriber growth in the Viaplay streaming service has exceeded all expectations, value-creating deals have been completed and interesting expansion plans have been launched. But perhaps above all, the strategy of combining locally produced series with attractive sports rights has proven its appeal. Greatly simplified, we still believe that we get a modern, high-performance streaming company for the valuation of an old-fashioned media company. The stock rose 28 percent in July.