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Three winning small caps: Bufab, Mildef and Beijer Alma

July was a strong month for small caps in general, with the CSXR index up 8.8 percent. This means that small companies are now catching up with their larger counterparts, which so far this year have been somewhat stronger. Carnegie Småbolagsfond was up 12.4 percent in July but is still a few percentage points behind the small caps index for the full year. The largest contributors to performance during the month were Bufab, Mildef and Beijer Alma.

The effects of covid shutdowns and subsequent re-openings have been widely discussed for quite some time. We have not realigned the fund to either shutdown winners or their opposites, but have instead sought out long-term winners that are currently undervalued. This led us in July to Desenio, which sells posters online. We took a hard look at this company both before and after it was listed at the beginning of the year, but in the end chose to stay away. Desenio published a strong first quarter, but before its second quarter report had to issue a profit warning due to a larger-than-expected sales drop in the normally seasonally weak month of June. Management blamed the easing of restrictions, which sounds reasonable as we can observe that the entire Desenio online category has been weak. At the same time, we see other shutdown winners continuing to report strong numbers.

With a light balance sheet, more geographies to expand into, and a high proportion of returning customers, we thought the risk-reward in Desenio became too attractive to resist after its share price plummeted as a result of the profit warning. Since analysts appear to be cautious about the next two quarters, and confidence in the management’s ability to provide guidance has taken a real hit, we now dare to own Desenio as we believe the effect of disappointments in the near future will not be as negative. The risk is thus much lower now than just a few months ago.

We believe that a long-term case emerged after the share price crash, but Desenio is also a company that will have to be tracked closely in the coming quarters to really understand where its underlying market is going. We have looked at many of the IPOs so far in 2021, but only participated in a few. That we actually spent time on Desenio despite the fact that it did not result in a long-term position at the IPO turned out to be worth it, as we now have a second chance six months later.

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Småbolags­fond

Carnegie Småbolagsfond invests in smaller value companies on the Stockholm Stock Exchange. Such small caps have historically had stronger share price growth than larger companies, partly because they have more opportunities...

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