Three in four Swedish listed companies beat analysts’ expectations

Macroeconomic data, both retrospective and forward-looking, have in recent months pointed to significantly higher global economic activity than previously expected. Although EU GDP shrank during the first quarter due to the closure of large parts of society, the decline was much lower than feared.

The securities markets have also developed strongly this year, and high risk-taking has been rewarded. Expectations for first-quarter corporate reports were therefore generally high.

It turned out that there was no cause for concern, and the reports generally exceeded expectations. Up to three in four Swedish listed companies beat analysts’ expectations, in many cases substantially, and the picture is the same in many other markets. The stock market also rose in April, but perhaps not to the extent that corporate profits reasonably indicated. The explanations for this may be multiple. Market expectations were perhaps in reality well above those of analysts; we already know that analysts are better at describing history than predicting the future.

The steep profit gains by industrial companies are now mainly being driven by improved margins and good cost control rather than increased sales. The improvements by banks are largely factors of a more temporary nature such as capital gains and lower bad debt losses. Several companies also report component shortages and higher prices for input goods. The latter may certainly have a temporary effect, but should not affect the long-term situation. It is not only Volvo that is being impacted by the shortage of semiconductors, but probably also its competitors, and the same applies, for example, to Essity’s impact from pulp prices. Considering their market positions, they will eventually pass on the cost increases to their customers, and high demand is ultimately a positive.

Not least against this background, we have chosen to increase the fund’s position in Volvo. The company’s quarterly report was strong across the board, with higher sales, earnings and cash flow. In addition, order intake was very strong and beat market expectations by a good chunk. The operating margin amounted to almost 13 percent, thus exceeding the target of 10% over a business cycle. It is particularly positive that profitability is now so high despite deliveries of trucks still being below previous peaks.

In other respects, the fund has not made any major changes on either the equities or bond sides. The fund rose 2.7 percent in April, which means it is up 9.0 percent so far this year. It is not realistic, of course, to think the fund will deliver more than its anticipated annual return every four months, and we should therefore expect setbacks. For the long-term investor, we still believe that a relatively high proportion of equities is preferable. At the same time, we will continue to stick to companies with strong cash flows and stable balance sheets.


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