The economy is very strong, but there are red flags worth mentioning
Finally! The stock market has been one step ahead for more than a year, but now the increasingly positive effects of a waning pandemic in Western Europe and Sweden are also visible. More and more people are being vaccinated, society is slowly opening up and people are even starting to get back to their offices.
Speaking of offices, one of our most unloved shares is becoming a winner, namely Atrium Ljungberg. Because even if some people will continue to work from home and the flexibility between home and office is likely to be greater, it is the companies with the most innovative capabilities that will be winners, in combination with the best locations, of course. And that is where Atrium can be found.
Take Sickla as an example. Suddenly, Curanten and padel courts have moved in, while Intersport and Hennes & Mauritz have moved out. And beautiful and pre-sold (!) apartments are being built at Nobelberget, where there will be a subway within a few years. Atrium is traded around SEK 200, but its net asset value is around SEK 220. If we take into account the land and future housing projects as well as the surplus values around Slussen, the net assets are probably closer to SEK 300. This means we can buy one krona for SEK 0.66 (!). You can’t go wrong.
Especially not when the price per square metre for the whole of Atrium is around SEK 40,000 while most of its properties could probably be sold for twice that.
Overall, the economy remains very strong and companies are setting profitability records. This is underpinned by a combination of cost savings – think minimal marketing, no trade fairs and/or travel – and strong demand. We continue to see bubble tendencies in some areas, especially on the smaller lists and among start-ups. Banks and industrial companies are still traded at 12-22 times earnings and this is where it is easier to identify values and positive returns at a fairly low risk.
We therefore increased our holding in Sandvik, which will soon spin off SMT and thus will have a completely different return on capital employed and become more comparable with Atlas Copco.
But warning flags should be raised when certain cinema chains attract new shareholders with popcorn instead of dividends.