Kavaljer

Investmentbolagsfond

April 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.

A rollercoaster ride

April ultimately turned out to be a relatively neutral month for the stock market. The Stockholm Stock Exchange (OMXSPI-GI) declined by only 0.3%, the small-cap index (Carnegie Small Cap Return Index) increased by 0.2%, while the Dow Jones World Index rose by 0.8%.

However, the stock market month was a real rollercoaster, and on April 9 the market was down as much as 14% for the month when fear of Trump's tariffs causing a global recession peaked. As Trump postponed the start of all tariffs over 10% (excluding China), and thereby opened up for reasonable negotiations, market sentiment improved.

In our previous letter, which was sent out when the stock market was falling several percent virtually every day, we wrote the following:

“It is easy to feel worried when the stock market falls quickly, and it is impossible to know what will happen in the short term. But we know from history that stocks rise in the long term, and some of the best buying opportunities in history have been on days when the stock market is marked by fear. Therefore, as usual, we believe that the best course of action is to ‘stay the course’. Our focus is on owning good companies that grow and create shareholder value over time.”

Our actions: analysis of the situation and calm behavior

As always, we believe that as an investor or fund, one should not attempt macro-analysis. The legendary economist John Kenneth Galbraith once said:

“The only function of economic forecasting is to make astrology look respectable.”

We fully agree with the above, with the addition that it is important to look at the potential effects macro events might have on our holdings.

Fund Performance

April was slightly negative for the fund with a return of -1.3%, i.e., slightly behind the index. The largest positive contributors among the fund’s holdings during the month were MedCap, VEF, and Fairfax Financial with +0.9, +0.2, and +0.2 percentage points respectively. The largest negative contributors during the month were LVMH, Berkshire Hathaway, and Investor with -0.5, -0.3, and -0.3 percentage points respectively

Portfolio changes

During the month, LVMH released a report that was received negatively by the market. The stock had also been weak prior to that, and we now see a very interesting opportunity. We therefore chose to sell part of our holding in Latour to increase our position in LVMH.

Ratos — A Fragmented but Cash-Flow-Strong Group in Transformation

Ratos is a long-held investment that we believe is misunderstood and where we now expect and hope for a turnaround in the share price.

Ratos – From Hero to Zero and on the Way Back Again

Under the leadership of Arne Karlsson (1999–2012), Ratos was transformed from a traditional investment company into a private equity-like firm with a focus on active ownership and business development. After stepping down as CEO in 2012, he remained on the board until 2016. During Karlsson’s tenure, Ratos became a true stock market darling and was regarded as one of the finest companies on the exchange.

Susanna Campbell joined Ratos in 2003 and became CEO in February 2012. She left the role in June 2016 in connection with a strategic shift. Her tenure was marked by weak portfolio performance, expensive acquisitions, and few major exits. Companies such as AH Industries, Jøtul, and Euromaint underperformed, and the stock price fell by over 30%. She was succeeded by Magnus Agervald in July 2016, who remained for only 1.5 years.

Current CEO with a Stellar Track Record from ÅF (2002–2017)

Jonas Wiström then took over as CEO after 15 years at the helm of the engineering consultancy ÅF (Ångpanneföreningen) from 2002 to 2017. During those 15 years, he executed an impressive transformation of the company – in terms of size, profitability, and strategic direction. Under his leadership, ÅF’s revenue grew from around SEK 2 billion to over SEK 10 billion. This was achieved through a combination of organic and acquired growth. The share price rose from under SEK 12 to around SEK 200, corresponding to an average annual return of 20.6% (excluding dividends).

Ratos Under Jonas Wiström – From Crisis to Cash Flow Machine

Strategy and Direction

When Jonas Wiström took over as CEO in 2017, Ratos was a highly leveraged and fragmented company. The focus shifted to improved profitability, annual EBITA growth, and a leverage ratio below 2.5x EBITDA. Through cost savings, a new leadership culture, and restructuring, debt levels were significantly reduced, which enabled new acquisitions starting in 2021.

Streamlining and Portfolio

Shifts Ratos has gradually transformed towards three core areas: industry, technical solutions, and infrastructure services. Weak holdings such as Jøtul and Gudrun Sjödén were divested early. New acquisitions – such as Semcon, Knightec, and Expin – have complemented the portfolio. The merger of Semcon and Knightec into Knightec Group, and the spin-off of Aleido, demonstrate the strategy: fewer, larger, and more focused companies. The sale of Airteam in 2025 is a first step in the declared streamlining process.

Handling of Problematic Holdings

Plantasjen has undergone tough efficiency measures and a restructuring in 2024. The store network has been downsized and the focus is now on restoring profitability. Expin, acquired in 2022, turned out to have serious accounting irregularities. Ratos increased its ownership to 94%, filed a police report against the former management, and restructured the company to focus on profitable railway electrification. Diab has been repositioned after weak demand in the wind power segment. In general, Ratos under Wiström has shown a willingness to both divest weak companies and invest in core assets with turnaround potential.

Financial Performance

• Under Wiström, EBITA has increased from around SEK 425 million (2018) to SEK 2,329 million (2024), a fivefold increase. The adjusted EBITA margin for 2024 amounted to 8%.

• Free cash flow in 2024 reached SEK 2.1 billion (around 90% conversion), with a sustainable long-term level of approximately 70%.

• Net debt/EBITDA has dropped from 3.4x to 1.2x, and dividends have been able to increase.

• Organic growth in 2024 was weak (-5%) due to Plantasjen, but several portfolio companies are growing.

Ratos Today: Fragmented at First Glance

Ratos consists of three business areas: Industry, Construction & Service, and Consumer, of which the first two represent the core operations and currently generate all profits.

Revenue Distribution – Mixed but Concentrated

Revenue is unevenly distributed, with Sentia accounting for about one-third of the group’s total revenue, followed by Plantasjen, Knightec, Presis Infra, HL Display, and Aibel, each contributing approximately 10%. In addition to these, there are several smaller companies contributing less, which adds to the group’s fragmented appearance. However, this also means that the majority of the company’s revenue is anchored in a few relatively stable businesses

Decent Profitability and Strong Cash Flows from a Stable Core Portfolio

In 2024, the Ratos Group reported total revenue of SEK 32 billion with an EBITA margin of 8%. Five of the group’s holdings – Sentia, Presis Infra, Aibel, HL Display, and Knightec – together account for a full 80% of the group’s EBITA.

The EBITA level for 2024 should be considered depressed due to write-downs in Plantasjen and Expin totaling over SEK 800 million. At the same time, the restructuring efforts carried out – primarily in Plantasjen – point toward a more profitable core going forward.

Seemingly High Quality in the Most Important Subsidiaries

Sentia and Presis Infra account for a significant portion of Ratos’ profits. Based on available data, the quality of these companies appears to be high, as outlined below.

HENT (85% of Sentia)

• Construction company based in Norway. Example projects include:

• Norway’s largest university building: the Life Sciences Building

• Two blocks of the new government quarter in Oslo

• Sections of the Fornebu Line

• The Norwegian Ocean Technology Center

• Hospital projects – six currently ongoing Aker’s new headquarters, which will also be the largest office building in Norway

  
  

According to Ratos, Sentia as a whole should be able to maintain an EBITA margin around or slightly above 5%. The company has fully exited residential development and is now focused on public-sector buildings, which contributes to stability in demand. Our impression is also that the company applies conservative revenue recognition, reducing the risk of unexpected negative surprises.

Presis Infra
Presis Infra is a Norwegian corporate group based in Bergen, specializing in infrastructure maintenance, with a leading position in its industry in Norway. The company also operates in the maintenance of ferry terminals and rockfall protection. Presis is known for its lean organization, decentralized business model, and is unique in its sector for achieving leading margins. Since Ratos acquired its stake, the company has grown organically by over 20% annually on average. Profitability has also been strong, with a consistently high EBITA margin above 13% and historical cash conversion of 90% of EBITA.

Strong Balance Sheet and Solid Cash Conversion

Cash conversion was strong in 2023 and 2024, ranging between 90% and 130% of EBITA – driven by improved working capital. Over the longer term, a more normalized conversion range around 65–70% is expected. The weaker levels in 2021–2022 (4% and 35%) were largely due to high CAPEX and inventory buildup. Since 2023, investments have decreased to healthier levels, around SEK 200 million per year. We view this as a normalized level. The company has also strengthened its balance sheet. After the sale of Airteam in March 2025, net debt stands at around 0.5x EBITDA – a low level that provides flexibility for future investments or opportunities.

Ongoing Internal Streamlining and Structural Changes

Beneath the surface, Ratos today operates as a relatively well-functioning company, although the portfolio still appears somewhat fragmented. However, streamlining is steadily progressing:

• Airteam was sold in March 2025

• Aibel, which contributes just under SEK 450 million in EBITA, is the only holding with minority ownership (49%) and is expected to be listed once the IPO market improves. The company also had a net cash position of NOK 1.9 billion at year-end. If Aibel were sold or listed at 7x EBITA (excluding cash), Ratos’s share would be worth approximately SEK 4 billion – compared to the current enterprise value of around SEK 11 billion. This would significantly unlock hidden value in Ratos.

• Plantasjen has undergone an extensive restructuring – 36 of 125 stores have been closed and lease agreements renegotiated. The remaining business is expected to become more profitable and then positioned for divestment. In a conservative scenario, the business could generate over SEK 3 billion in revenue and EBITA of SEK 150–200 million. Ideally, this unit could be sold for over SEK 1 billion within a year.

• Expin Group has also been restructured, with four subsidiaries shut down. The remaining business is expected to generate around SEK 700 million in revenue and return to profitability, making it an insignificant part of Ratos going forward. The remaining unit is focused on electric infrastructure, including maintenance of railways, trams, and metro systems.
  
  Once the dust settles, the remaining structure is expected to mainly consist of the Construction & Services segment (led by Sentia and Presis Infra) and Industry – the latter still relatively diversified but stable.

Construction and Infrastructure as the Core of Future Streamlining

The construction sector is particularly important to the group. Sentia and Presis Infra together account for around SEK 1 billion in EBITA.

• Sentia focuses on critical public construction in the Nordics – including schools, hospitals, and police stations

• Presis Infra specializes in the maintenance and development of railways, roads, and energy – part of the growing field of Critical Infrastructure

Construction and Infrastructure as the Core of Future Streamlining

At a share price of around SEK 32, Ratos is trading at approximately 7.5x free cash flow, providing a solid valuation floor. If the company succeeds in demonstrating that Plantasjen and Expin are sustainably profitable post-restructuring, a multiple of 10–12x FCF would be fully reasonable – implying significant revaluation potential.

Summary: Solid Foundation, Undervalued Upside

Ratos offers a combination of improved profitability, strong cash generation, low leverage, and ongoing portfolio streamlining. A few high-quality holdings drive the majority of value creation. Once the effects of the restructurings in Plantasjen and Expin start to materialize in the financials, there is good reason to believe in a valuation uplift from today’s level of around 7.5x free cash flow.

Ratos currently represents 4.8% of the Kavaljer Investmentbolagsfond.

Investor Q1’25: Stable Development but Write-Offs in the Unlisted Portfolio

Investor’s adjusted net asset value (NAV) decreased by 3% during Q1 2025 to SEK 308 per share. The total return for shareholders was 2%, slightly outperforming the SIXRX index, which was essentially flat during the period. The North American holdings and Mölnlycke had the most negative impact on the valuation.

The decline was partly offset by underlying earnings growth and cash flow generation in the portfolio companies.

Performance of Listed Holdings

Total return: -1%, slightly underperforming the SIXRX index.

Share price development was mixed, with Saab and SEB showing strong performance, while several other holdings had a tougher quarter.

Performance of Patricia Industries (Unlisted Portfolio)

• Total return: -9% following a portfolio value write-down.

• Organic sales growth for the larger subsidiaries was 4%, and adjusted EBITA growth reached 5%.

The 9% decline (approximately SEK 25 billion) in the Patricia Industries portfolio is attributed to two main factors:

1. Currency effects: A stronger Swedish krona accounted for roughly 50% of the decline.

2. Multiple contraction: Lower valuation multiples accounted for the remaining 50%.

Mölnlycke (The entire write-down driven by operational development)

• Value decreased by SEK 11.4 billion during the quarter.

• Organic growth of 3%, particularly driven by 5% growth in wound care, gloves, and antiseptics.

• EBITA margin declined despite growth and favorable product mix, primarily due to negative currency effects and higher sales & marketing expenses.

• Temporary supply issues in the U.S. affected the wound care segment.

Other Key Holdings and Write-Downs Due to Weaker U.S. Dollar

• Sarnova: Write-down of SEK 4.4 billion

• Laborie: Write-down of SEK 2.3 billion

• BraunAbility: Write-down of SEK 1.8 billion, with continued challenging market demand

The write-downs in Patricia Industries’ private portfolio thus primarily reflect external factors (currency and valuation multiples) rather than operational issues in the companies, although certain holdings like BraunAbility and Atlas Antibodies continue to face difficult market conditions.

Investor currently represents 7.5% of the Kavaljer Investmentbolagsfond.

Beijer Alma Q1’25: Strong Start to the Year with Impressive Profitability Growth

Beijer Alma delivered a solid and strong first quarter, with both revenue and EBITA increasing by 8%. Organic growth reached 3%, while adjusted EBITA rose by an impressive 14%. The quarter’s result was impacted by a SEK 9 million severance payment to the outgoing CEO, which justifies the EBITA adjustment.

Order intake increased by 8.5%, of which 4% was organic, indicating  continued strong demand. Beijer Tech contributed the most to the growth.

Geographic and Market Highlights

From a regional perspective, the Nordics performed the strongest, followed by Asia and Europe. The U.S. showed weaker development, primarily due to a single project within the MedTech segment. It’s worth noting, however, that all production in the U.S. is conducted locally, which reduces risks related to global supply chains.

The market environment is described as generally stable, with particularly positive signals in the energy and infrastructure segments. This supports a robust foundation for continued progress going forward.

Financial Position

Net debt in relation to EBITDA stands at 2.0, which is a balanced level that provides flexibility for acquisitions and other investments.

A strong quarter for Beijer Alma, characterized by high stability and an impressive improvement in adjusted EBITA. The adjustment appears well justified and reflects the underlying strength of the business.

Beijer Alma currently represents 1.7% of the Kavaljer Investmentbolagsfond.

Idun Industrier Q1’25: Steady Growth and Strengthened Profitability

Idun Industrier continues to deliver, reporting organic growth of 3% and total growth of 4% in the first quarter. EBITA increased by 8%, reflecting solid profitability improvement across the portfolio. A new credit agreement will reduce annual interest expenses by SEK 20 million, which, combined with improved profitability, boosted earnings per share (EPS) by 25%. During the quarter, Idun increased its ownership in two existing holdings at an EBITA multiple of 7x – reflecting continued discipline on the acquisition front. Net debt/EBITDA stands at 2.0, including the follow-on investment in 2B Best Business, which was completed after the quarter-end.

The company continues to perform steadily and reliably. Given its continued low valuation, we see strong potential for significant upside going forward.

Idun Industrier currently represents 1.1% of the Kavaljer Investmentbolagsfond.

VEF: Solid Capital Allocation, Divestments at Valuations Close to NAV,

Over the past six months, VEF has completed three significant divestments, generating a total of USD 32 million in gross proceeds:

• BlackBuck (IPO) – VEF sold 40% of its holding during BlackBuck’s IPO in India, generating approximately USD 2 million. The remaining stake is valued at USD 4.6 million as of Q1 2025.

• Gringo (full exit) – In January 2025, Corpay acquired Brazilian company Gringo, resulting in net proceeds of USD 15.2 million to VEF. This matched VEF’s initial investment in the company.

• Juspay (partial divestment) – In early April 2025, VEF sold part of its stake in Juspay during their USD 60 million Series D funding round, generating USD 14.8 million, while retaining 7.8% ownership in the company.

These divestments were executed within a narrow range around the companies’ NAV valuations. Despite this, VEF’s share still trades at a discount of over 40% to NAV. In total, the three divestments delivered a 1.4x return on invested capital and a gross IRR of 11% over a three-year weighted investment period.

Share Buybacks a Natural Part of Capital Allocation Strategy

VEF maintains a clear capital allocation strategy, with share buybacks playing a key role, particularly given the significant NAV discount. In its latest quarterly report, VEF confirmed it has sufficient capital to support both (partial) bond repayments and share repurchases, which have already been announced.

VEF currently represents 1.0% of the Kavaljer Investmentbolagsfond.

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: Equities, Global & Sweden
AUM: 850 mkr
Morningstar Rating: ⭐️⭐️⭐️

Nacka Strand, May 5, 2025
Peter Lindvall, Håkan Telander & Jesper von Koch

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