|
Kavaljer
Investmentbolagsfond
February 2025
|
|
|
Active management at almost the cost of an index fund
Kavaljer Investmentbolagsfond is an actively managed equity fund that takes an index-independent approach, investing long-term in Swedish and foreign investment companies and conglomerates, primarily in Sweden and the USA.
Investment companies and conglomerates are entities that invest in other companies while actively supporting their development. These types of companies offer several advantages: active ownership, effective risk diversification, and often attractive dividends. Additionally, investment companies with listed holdings are sometimes traded at a discount.
Through the Investmentbolagsfond, investors have a low-cost opportunity to benefit from the growth of a broad range of high-quality companies, both large and small, operating worldwide. The fund is available on platforms such as Avanza, Nordnet, and SAVR, as well as through banks and institutions trading via MFEX and Allfunds.
|
|
|
|
Strong Stock Market Month for Sweden and Europe – but Declines in the U.S.
February was a mixed month for global stock markets, with Europe performing strongly at +3.3% (including Sweden at +0.8%), while U.S. markets, Dow Jones and Nasdaq, declined by -1.6% and -4.0%, respectively. Additionally, the Swedish krona strengthened by approximately 3.5% against the U.S. dollar, leading to a -5% return for global funds during the month. In last month's report, we speculated whether interest in global index funds had peaked, given that both the valuation of the dollar and the companies within global indices were at historically high levels.
Fund Performance
February was slightly negative for the fund, with a return of -0.3%. The fund has 20% exposure to the U.S. dollar, which had a slightly negative impact during the month. Over the past five years, the fund has returned 83%, compared to 71% for the Swedish index and 62% for a global equity index.
The largest positive contributors among the fund's holdings during the month were:
Berkshire Hathaway (+0.8 percentage points), Ratos (+0.4 percentage points) and Prosus (+0.4 percentage points). During the month, Prosus made a bid for food delivery company Just Eat. Prosus already owns several players in the sector, including Delivery Hero.
The largest negative contributors among the fund's holdings were: Danaher (-0.3 percentage points), Byggmästare Ahlström (-0.3 percentage points) and Microsoft (-0.2 percentage points).
Adding Two New Holdings and Selling One
During the month, we sold one holding and added two new ones.
BHG Group was sold after a strong Q4 report, as we considered that the price (SEK 27 per share at the time of sale) had caught up with its fair value. Additionally, we have reassessed BHG as a company and no longer consider it a fit within the serial acquirer category.
We added two new holdings to the fund: Sdiptech and Idun Industrier—both serial acquirers focusing on niche industrial products. Idun Industrier is assessed as the highest-quality company in the category, with a significantly lower valuation than its peers. Sdiptech remains a high-quality company, though its valuation is substantially lower compared to similar companies. Since last month, the serial acquirer Green Landscaping has also been included in the portfolio, as we believe it has a low valuation.
Thus, the fund now holds three undervalued serial acquirers with strong potential for stock price appreciation, which together account for 2.5% of Kavaljer Investmentbolagsfond.
|
|
|
Economic Outlook
Global Economic Outlook
Early indicators suggest that global growth is on the rise. The IMF projects global growth of 3.3% for 2025, a slight increase from the 3.2% forecast made in October. Rising real wages and lower interest rates are contributing to the higher growth rate. JP Morgan’s global manufacturing Purchasing Managers' Index (PMI) strengthened from 50.1 in January to 50.6 in February, signaling continued expansion. However, the U.S. economy has shown signs of slowing over the past month. Weaker retail sales and a somewhat more cautious consumer sentiment have influenced developments. The manufacturing PMI declined to 50.3 in February from 50.9 in January. Nevertheless, the labor market remains stable, with an unemployment rate of 4.1% in February, though a slight increase is expected in 2025. In Europe, growth remains subdued, but there are some positive signs. The manufacturing PMI rose from 46.6 in January to 47.6 in February, indicating a degree of recovery. Growth is expected to gradually improve over 2025–2026, driven by interest rate cuts, rising real wages, and a stable labor market that could support increased consumption.
Sweden
The Swedish economy has started to recover, with strong growth in both domestic demand and exports during the fourth quarter. The manufacturing PMI rose to 53.5 in February from 53.1 in January, confirming continued positive momentum despite uncertainties surrounding trade tariffs. Household purchasing power is expected to strengthen in 2025, supported by rising real wages, lower interest rates, and a gradual improvement in the labor market.
Interest Rate Market
The bond markets in both the U.S. and Europe declined in February due to weaker economic signals from the U.S. Central banks in both regions have adopted a slightly more cautious stance on further rate cuts, as they assess the effects of trade restrictions and tariffs. In Sweden, inflation has exceeded expectations over the past two months, leading many analysts to believe that the Riksbank will hold off on further rate cuts.
|
|
|
Portfolio Update
Berkshire Hathaway - Record-High Cash Reserves
After selling significant portions of its holdings in Apple and Bank of America in 2024, Berkshire Hathaway now holds a record-high cash reserve of USD 334 billion. At the end of the year, cash made up 31% of Berkshire Hathaway’s market value, which is significantly higher than usual. This large cash position provides opportunities should the market experience a downturn.
Warren Buffett has historically capitalized on market corrections thanks to Berkshire’s strong liquidity position. Investments in both publicly traded and private companies will continue to be the largest asset class for Berkshire Hathaway, according to Warren Buffett: “Despite what some commentators currently see as an extraordinary cash position at Berkshire, the vast majority of your money remains invested in equities. That preference will not change.”
Investor – Another Fantastic Year
For Q4 2024, Investor reported a 2% decline in net asset value (NAV) and a total return (share price performance including dividends) of -6%, in line with the Stockholm Stock Exchange. Despite a somewhat weak fourth quarter, 2024 was another excellent year. The total return for Investor’s B-share reached 27%, surpassing 2023’s strong return of 26%.
We are getting used to seeing Investor outperform the Stockholm Stock Exchange. Over the past 11 years, the average annual total return for Investor’s B-share has been 19.3%, compared to 11.1% for the Stockholm Stock Exchange (including dividends).
While historical returns are no guarantee of future performance, we continue to view Investor as a solid holding, offering good diversification across both publicly traded and private quality companies.
Investor’s NAV discount has now narrowed to 5%, compared to an average of 15% over the past decade, contributing to the strong performance. However, this tailwind from a shrinking discount is unlikely to persist over the next ten years—unless Investor begins trading at a premium, which is not entirely unrealistic. Other successful investment companies have traded at a premium at times. Latour, which also holds both listed and private companies, currently trades at a 31% premium.
Byggmästare AJ Ahlström – A Focused Listed Portfolio
The two largest holdings in Byggmästare AJ Ahlström, Green Landscaping and Safe Life, together make up 75% of its NAV. Both companies are serial acquirers with strong historical growth.
The Q4 2024 report showed a 10% NAV growth for the full year, with an average annual NAV growth of 13% over the past five years. The dividend was raised from SEK 1.3 per share to SEK 1.7 per share.
The reported NAV was SEK 307 per share, meaning the stock is trading at a 19.2% discount to its reported NAV—a significantly larger discount than the five-year average of 7.9%.
During Q4, the share price performance of Green Landscaping, the second-largest holding (29% of NAV), was weak due to challenges in the Swedish market. More details on Green Landscaping will be provided later in the report.
Meanwhile, the value of Safe Life, the largest holding, was adjusted to reflect its latest financing round in Q4. Safe Life is growing aggressively through acquisitions—its revenue has increased from SEK 126 million in 2021 to SEK 2.3 billion following its latest acquisitions. The company is making strategic investments aimed at achieving scalability and improving margins. Safe Life now represents 46% of Byggmästare AJ Ahlström’s NAV.
(All discount and premium calculations are sourced from Ibindex.)
|
|
|
New Holding: Idun Industrier
Long-Term Serial Acquirer, Primarily in Industry
Idun Industrier is a serial acquirer focused on B2B companies, primarily within the industrial sector. The company was listed on the stock exchange in 2021 and follows a long-term strategy for value creation through selective acquisitions. A unique aspect of Idun’s strategy is that they rarely acquire 100% of their investments, instead retaining previous owners as minority shareholders to ensure continuity.
The company is led by a strong board and management team, with founder Adam Samuelsson holding a significant stake—30% of the capital and 80% of the votes. CEO Henrik Mella owns approximately 1.6% of the company. The board includes, among others, Gunnar Tindberg (former CEO of Indutrade) and Johan Lindqvist (Deputy CEO at Bufab).
19 Companies Across Two Business Areas with Strong Historical Growth and Profitability
Idun currently owns 19 companies, divided into two business areas, Manufacturing and Service & Maintenance. Among the subsidiaries are Fredahl Rydéns, a leading producer of coffins and urns, and Ståthöga MA Teknik, that specializes in critical infrastructure maintenance. Idun maintains high margins and has a proven track record of stable growth. Idun grows both organically and through acquisitions, with organic EBITA growth of 4-6% annually, while acquired growth of 8-10% annually.
Strong Profitability Funds Acquisitions Alongside Debt and Equity Issuances
Idun funds its expansion through a combination of cash flow and loans, including two outstanding bonds and bank loans tied to its subsidiaries. EBITA margin is approximately 15% and ROE exceeds 15%. The company’s relatively high debt levels have slowed its acquisition pace but are expected to decline over time through cash flow generation and equity issuances.
Attractive Valuation
Despite strong growth and profitability, Idun is trading at a significantly lower valuation compared to its peers, suggesting a potential re-rating in the future. Analyst estimates project Idun could achieve EBITA of approximately SEK 390 million by 2027, compared to its current enterprise value (EV) of SEK 3.9 billion (including net debt). Adding the expected cash flow generation from 2025–2027, the EV could decline toward SEK 3 billion. With a single-digit EBITA multiple for 2027, we see significant upside relative to what we consider fair value.
Cyclical Industrial Exposure and Low Liquidity in the Stock
The risks include a cyclical industrial sector and low liquidity in the stock, which limits institutional interest. At the same time, the company has demonstrated resilience by owning businesses with low economic sensitivity. Overall, Idun has strong growth opportunities with a continued focus on value creation through strategic acquisitions and operational efficiency.
Idun Industrier accounts for 0.9% of Kavaljer Investmentbolagsfond
|
|
|
Green Landscaping
Economically resilient serial acquirer with strong historical growth and increasing profitability Over SEK 6 billion in revenue and a 7% EBIT margin More than 60 subsidiaries, generally with long and stable customer contracts Strong profit growth expected, driven by a mix of organic and acquired growth, improved financial results, and acquisitions with higher profitability than the group average Estimated P/E of 12 for 2025 and P/E of 10 for 2026
An Economically Resilient Serial Acquirer with a Strong Track Record
Green Landscaping is a serial acquirer specializing in outdoor maintenance, including park and landscape management, road maintenance, and related services. The company currently includes over 60 subsidiaries, with most of its revenue coming from long-term contracts with municipalities, ensuring predictable cash flows. Historically, operations have been concentrated in the Nordic region, but in 2023, Green Landscaping entered the DACH market, completing multiple acquisitions in a short time.
Acquisition of Market Leaders with High Profitability at 5x EBIT
The company focuses on acquiring industry-leading businesses with higher profitability than the group average. While the group's average EBIT margin is approximately 7%, past acquisitions have historically shown a margin of over 10%. The acquisition strategy is clear: Green Landscaping aims to complete 8–10 acquisitions per year, with the optimal target companies having revenue around SEK 100 million. This adds approximately SEK 800 million in annual revenue, corresponding to a 13% increase, and possibly SEK 80–100 million in EBIT. Acquisitions are generally made at 5 times EBIT and are primarily financed through operating cash flow. A portion of the payment is also made in the company's own shares to key personnel to ensure proper incentives. The shares used for payment are not newly issued but repurchased on the market.
15% Annual Revenue Growth Should Be Sustainable
Organic growth is 3–6% per year, driven by a growing market and improvements in subsidiaries through the company's proprietary "Wayfarer model," a best-practices handbook. Total revenue growth should therefore remain around 15% per year for the coming years.
Strong Financial Track Record and Controlled Debt Levels
At the end of Q3 2024, Green Landscaping's total revenue reached SEK 6.3 billion, with an EBIT margin of just under 7%. The average revenue growth per share has been 15% over five years and 26% over seven years. Profit growth has been significantly higher as profitability has improved substantially. Net debt/EBITDA stands at 2.5, including EBITDA from recently acquired businesses, which is in line with the company's financial targets.
Significant Insider Ownership from Both Management and the Board
The company has strong insider ownership, with the CEO holding over 6% of the company, equivalent to approximately SEK 265 million. The COO owns shares worth SEK 17 million, and the chairman holds shares worth SEK 15 million. Salén Group and Byggmästare Ahlström each own 16% and both have seats on the board.
Key Risks Related to Acquisitions and the German Economy
The main risks we identify are 1) acquisitions failing post-purchase, 2) pricing pressure, and 3) leverage. During the capital markets day in November, the company reviewed the performance of its acquisitions to date, and there is no indication of failure. Results suggest slightly lower profitability but higher growth, which is reasonable considering that companies stop investing in their future just before they are sold. Regarding pricing pressure, the company has addressed this concern, but given the high diversification of more than 60 subsidiaries, including geographical spread, we believe this risk will fluctuate across different markets. However, we do not expect it to occur simultaneously for all subsidiaries. A total collapse of the German economy could pose a real problem. Leverage at 2.5x EBITDA could become problematic if profitability declines. However, given that we are already in a weak economic cycle, the key concern would be if the German economy deteriorates even further, shifting focus to the balance sheet.
Strong Profit Growth Expected – At an Attractive Valuation
For 2025, we expect Green Landscaping to reach revenue of approximately SEK 7.3 billion, corresponding to 15% growth. Of this, 2% is expected to come from organic growth, while the remainder will be from both previously completed but not yet consolidated acquisitions and additional acquisitions in 2025. Profitability should also improve, as acquisitions typically have higher margins than the group average. An additional SEK 55 million in EBIT will come from 2024 acquisitions, and lower interest rates should improve net financials by approximately SEK 20 million. Overall, we estimate earnings per share for 2025 at SEK 5.6, corresponding to a P/E ratio of 12. For 2026, we expect over 20% growth in earnings per share to SEK 6.7, corresponding to a P/E ratio of 10.
Attractive Valuation Compared to Other Serial Acquirers
Serial acquirers have become very popular in recent years, particularly niche acquirers like Lagercrantz, Indutrade, and Bergman & Beving, which trade at P/E ratios of 40–50. While roll-ups like Green Landscaping trade at somewhat lower levels, we see significant upside potential. With the company's predictable and strong profit growth, we believe a P/E ratio of 18–20 over time is more reasonable.
Green Landscaping accounts for 1.6% of Kavaljer Investmentbolagsfond, of which 0.7% is through direct ownership and 0.9% through indirect ownership via the holding in Byggmästare Ahlström.
|
|
|
 |
Kavaljer Investmenbolagsfond, Performance/Index |
|
 |
 |
|
|
Fund Information
Fund Type: SICAV (UCITS)
Name: LMM - Kavaljer Investmentbolagsfond
Custodian: CACEIS Investor Services Bank S.A.
Auditor: PricewaterhouseCoopers Société cooperative
Management Fee: 0,3% per year
Minimum Investment, SEK: 100
Subscription: Daily
ISIN: LU1777968246
Risk Level: 4 av 7
Category: Global & Sweden
AUM: 944 mkr
Morningstar Rating: ⭐️⭐️⭐️
|
|
Nacka Strand, March 10, 2025
Peter Lindvall, Håkan Telander & Jesper von Koch |
|
 |
|
|
|
|
|
|
|
|
