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Why is Securitas falling?

While the Stockholm exchange, Sverigefond and most other assets fell quite sharply in February as the coronavirus spread across Europe, one of our shares, Securitas, took a particularly brutal beating.

This is worrying, surprising and difficult to understand. Difficult to understand because Securitas is unlikely to be greatly affected, or at least no more than other stocks. Surprising because the share is quite defensive, the company is non-cyclical, and it also trades at 12-13 times earnings, which is 20-30 percent lower than the stock exchange.

So here is the worrying thing: Securitas is probably falling because it is liquid. It features in multiple small cap funds, and managers are happy to sell liquid holdings that can be sold, while avoiding sales that have weak or non-existent liquidity. It therefore seems very likely that Securitas is evidence that the market is set to get weaker before it gets better, with the price of a range of illiquid small caps on various obscure lists eventually falling as well.

Nobody knows how the virus will impact the equity markets, but expect a deluge of profit warnings in the coming weeks. The lesson from the US is that this is not necessarily a bad thing. On the contrary, a number of companies that have issued warnings have seen their stock rise (!) because the market had already assumed the worst. Also, expect a US interest rate cut or two, more liquidity from the ECB and, in the long run, fiscal stimulus as well.

Losing two quarters is not the end of the world in the longer perspective; more important is that the wheels start turning again soon so that the autumn and 2021 are not hit too hard. In the short term, and purely technically, this may lead to a recession but, correctly handled, we may look back on this as just a notch in the curve. It is possible that this year’s expected increase in profits will be wiped out, and share prices may fall quite a bit more, but it will probably turn out that anybody who bought shares in spring 2020 got a good deal over 3-5 years.

We naturally upped our stake in Securitas this month.

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Sverigefond A

Carnegie Sverigefond investerar i svenska börsnoterade aktier och innehåller landets bästa och mest stabila bolag. Vi investerar långsiktigt i värdebolag – bolag med hållbara verksamheter, starka balansräkningar och goda utdelningsmöjligheter. Carnegie Sverigefond...

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