Kavaljer Quality Focus

June 2025

Active Management with a Focus on Profitability, Stability, and Growth – Characteristics we refer to as Quality

Kavaljer Quality Focus is an equity fund that primarily invests in Swedish quality companies. Holdings in companies based in the Nordic region and the rest of Europe may also occur.

Characteristics that define a quality company include increasing revenue and profit over time, solid finances, and an experienced and competent management team and board of directors committed to creating shareholder value. Investments in quality companies reduce the risk of unpleasant surprises.

The fund is actively managed, and stock selection is based on fundamental analysis without consideration for the respective companies’ weight in any index. The focus is on identifying quality companies with strong growth prospects at an attractive valuation. The investment horizon is 3–5 years, and the portfolio is concentrated, consisting of 25–40 companies.

The objective is to deliver returns that outperform the Swedish stock market over time. As an investor, the fund offers you a unique combination of compelling large and small quality companies.

The fund is available through, among others, Avanza, Nordnet, and Savr, as well as banks and institutions that trade via MFEX and Allfunds.

A Volatile Half-Year

June continued along a now familiar path marked by high macroeconomic and geopolitical uncertainty, as well as a delayed economic recovery. The latter, combined with lower inflation, prompted the Swedish Riksbank to lower its policy rate by another 25 basis points. This is expected to support consumption and the broader economy going forward. As a result, the Swedish stock market rose slightly during the month, although once again marked by high volatility. In contrast, global equity indices performed very strongly and ended the month up 4.4%.

Now that half of the stock market year has passed, we can conclude that the broad Stockholm Stock Exchange (OMXSGI-PI) is up 2% year-to-date after a highly volatile journey—starting the year with a sharp rise of 10% by mid-February, followed by a mini-crash to -13.5% in early April after Trump's announcement of new tariffs, and finally a strong recovery. The Small Cap Index (CSXRSE) has developed in line with the broader index and is up 2.2% so far this year.

Global indices (measured in USD) have performed more strongly, rising 8.8% year-to-date. However, a 15% weakening of the USD against the Swedish krona has resulted in weak performance for global index funds in SEK terms.

Around this time of year, we often hear phrases like "Sell in May and stay away", suggesting that one should sell their stocks after May dividends and return in August. Our view on this remains unchanged: we refrain from trying to predict overall market trends and instead stay focused on the companies themselves – how they are developing, how external factors affect each of them, and how they are currently valued. A choppy summer market can thus present opportunities to pick up quality companies at attractive levels.

Fund Performance and Contribution

Kavaljer Quality Focus rose by 1.0% in June. For comparison, the Stockholm Stock Exchange (OMXSPI-GI) was up 0.5%, the small-cap index (Carnegie Small Cap Return Index) rose 1.8%, and the Dow Jones World Index gained 4.4%.

Year-to-date, the fund has returned +8.6%, compared to +2.2% and +2.3% for the Swedish stock market and the small-cap index, respectively.

Over the past 5 years, the fund has delivered a return of 126%, compared to 75% for the Stockholm stock market and 60% for the small-cap index.

The largest positive contributors among the fund’s holdings in June were Carasent, Byggmästare AJ Ahlström, and Bravida, contributing +0.4, +0.3, and +0.3 percentage points, respectively. The largest negative contributors were Proact IT, Nederman, and Valmet, at -0.3 and -0.2 percentage points each.

Förändringar och innehav

During the month, the fund exited its position in Inwido and reduced its holding in Thule (fully exited on July 1). Two new holdings were added to the portfolio: BTS Group and Bröderna A&O Johansen. In addition, we increased our positions in VBG and Svedbergs.

Later in this letter, we provide an in-depth review of Swedencare, as well as a discussion on a long-awaited portfolio divestment in Byggmästare Ahlström, and the rationale behind our exit from Inwido and Thule.

The equity exposure stood at 98%.

Sold Thule – A Strong Company in a Weak Market, but High Valuation and Uncertainty Around New CEO

Thule is a global leader in premium products that make it easier to live an active outdoor life. In our view, Thule has become something of a benchmark for what constitutes a Swedish quality company, which has led to a very high valuation. In reality, revenues have grown by an average of 5.5% annually over the past 10 years, while profits have increased by 8.7% per year. This is good, but far from exceptional in our opinion.

Another key point is that we believe much of the company’s historical success can be attributed to former CEO Magnus Welander, who was dismissed by the board in 2023 after 17 years at the company. He was not only highly competent but also heavily invested in Thule’s stock.

The current CEO previously led Byggmax, where he performed well, but we question how transferable his industry knowledge is to Thule’s niche. Market insight was something the former CEO excelled in—something we believe is essential in a company like Thule. In addition, the current CEO’s personal ownership in the company amounts to only SEK 3 million, which we consider rather modest.

In summary, we still see Thule as a quality company, but one operating in a challenging market environment and under new leadership that we are uncertain about. The stock is trading at a trailing P/E of 27. Assuming a 10% revenue increase in a normalized market and an EBIT margin of 17%, the forward-looking P/E still comes out above 21. We consider this too high, even for a company with a strong historical track record.

We have therefore sold our holding in Thule (finalized in early July).

Long-Awaited Divestment of Safe Life by Byggmästaren Expected to Unlock Value for the Market

On June 13, Byggmästaren announced the sale of shares in Safe Life for SEK 525 million to Bridgepoint, reducing its ownership from 30% to approximately 12%. The transaction generates a capital gain of around SEK 400 million. Safe Life is valued at approximately SEK 5.5 billion in the deal—15% above Byggmästaren’s most recent valuation. Following the sale, the holding in Safe Life now represents roughly 30% of Byggmästaren’s net asset value (NAV), down from 48%. Safe Life currently generates revenues of around SEK 2.5 billion and consists of 37 companies across 12 countries.

We believe this transaction is important in several respects. First, it confirms that the valuation of Safe Life has been reasonable—if not somewhat conservative. In our view, uncertainty around this valuation has likely been a major reason why Byggmästaren has traded at such a steep discount to its NAV. Second, the transaction reduces Byggmästaren’s exposure to a single holding, thereby lowering overall portfolio risk.

Given that the company has now freed up capital while the stock is still trading at a 17% discount to NAV, we would welcome the use of part of the proceeds for share buybacks.

Byggmästare AJ Ahlström represents 2.9% of the Kavaljer Quality Focus portfolio.

Swedencare: A Temporarily Out-of-Favor Star

Swedencare is a fast-growing, profitable, and international pet health company. With over 1,200 products sold in more than 70 countries, the company has established itself as a global leader in the premium segment of pet supplements. Nearly 80% of its sales are generated in the U.S.

Swedencare is responsible for product development and production, while sales are primarily handled through various distribution channels—veterinarians, pet stores, big-box retailers (e.g., Walmart), and e-commerce platforms such as Amazon. The company’s strength lies in the combination of strong brands, innovation capacity, and global distribution, both digitally and through physical channels.

Insider ownership is strong, totaling 24%, including shares worth approximately SEK 250 million held by the CEO and close to SEK 1 billion by the Chairman of the Board.

A Market Growing 8–10%, Relatively Immune to Economic Cycles

Pet ownership is rising, particularly in urban and aging societies, where animals are often seen as family members. This "humanization" is driving increased consumption in health, preventive care, and wellness—clearly visible in the growing demand for supplements. The supplements segment is growing faster (6–8%) than the broader pet products market, and the premium segment is growing even faster (8–10%).

Swedencare has consistently gained market share and targets double-digit organic growth. The segment is also less price-sensitive and relatively insulated from economic downturns.ractive

Business Model and Competitive Advantages

Swedencare’s business model is capital-efficient and scalable. The company focuses on product development, branding, and marketing, while production is handled both in-house and through strategic partners.

Approximately 40% of sales are made online, with the remainder going through veterinarians, pet shops, and pharmacies. Gross margin is around 60%, and the goal is to improve operating margins through scale.

A key competitive advantage is Swedencare’s portfolio of clinically proven products, often recommended by veterinarians and focused on areas such as dental health, joints, skin, and digestion.

Product Portfolio

Swedencare has developed a comprehensive portfolio of health products for pets across several therapeutic areas:

• Supplements (49%): Support for joints and mobility, digestive health, immune function, stress and anxiety relief, as well as cardiovascular health.

• Topical/Dermatological Products (23%): Skin care, flea and tick protection, ear and wound care.

• Dental Care (15%): ProDen PlaqueOff® powder, dental chews, soft chews, toothpaste, and wipes.

• Pharma/Contract Manufacturing (6%): Custom pharmaceutical formulations, production of soft chews using patented technology, and R&D projects for external clients.

• Treats/Rewards (2%): Functional and reward-based pet treats.

In addition to Amazon, Chewy.com is an important e-commerce channel for Swedencare. Due to Amazon’s scale, the company remains highly dependent on this platform, which introduces a risk of margin compression. Swedencare is also investing in expanding its own direct-to-consumer e-commerce, particularly to strengthen its leading brands that are capable of attracting organic traffic.

Specialty retail and veterinary channels each account for approximately 30% of revenue. However, veterinarians have faced significant public criticism in recent years for high pricing, leading to fewer customer visits—an effect that has negatively impacted Swedencare’s sales in this segment.

Last but not least, the company is entering the big-box retail segment. In Q1 2025, Swedencare announced agreements with Walmart, Sam’s Club, and Costco for the distribution of its products. The first shipments are scheduled for June, which is expected to contribute to accelerated growth starting in Q2 2025 and onward.

Financial Development

Since its IPO in 2016, Swedencare has experienced a strong growth journey—driven by both organic growth and strategic acquisitions. The company has achieved an average organic growth rate of 27% over this period. However, organic growth has slowed somewhat in recent years, with growth rates of 12%, 15%, and 9% for 2022 through 2024. Q1 2025 also saw modest organic growth of +5%. In parallel, the company has executed more than ten acquisitions.

Swedencare typically realizes substantial synergies, particularly in sales, production, and procurement. One key advantage is its diversified distribution network, which allows Swedencare to acquire products or businesses and quickly scale their revenues by integrating them into its existing channels. The company can also enter new geographies or sales verticals at speed.

Few entrepreneur-led businesses are capable of building distribution that spans both veterinarians and pet retail across multiple countries. However, when Swedencare acquires such companies, it often resolves this challenge—unlocking untapped market potential. This has been a vital contributor to Swedencare’s historically strong organic growth.

See the chart below for a breakdown of growth sources over time:

Organic Growth: Weaker Since 2022, but Signs of Improvement Ahead

The weaker organic growth observed during 2022–2025 can largely be attributed to three main factors:

• Structural market shifts post-pandemic, particularly related to inventory drawdowns in 2022–2023

  
  

• Operational challenges at manufacturing facilities

  
  

• Above all, the weak performance of NaturVet during 2024–2025, which significantly impacted Swedencare’s overall organic growth as it is the group’s largest business unit.

  
  

During H2 2024, the headwinds faced by NaturVet (acquired in 2022 for nearly SEK 4.4 billion) became increasingly evident. In Q3, NaturVet posted negative organic growth, while the rest of Swedencare grew by 30% organically. The trend continued in Q4, with -21% growth for NaturVet, whereas the remaining units posted +18%. In Q1 2025, NaturVet showed slightly positive growth. That said, we believe we are now beginning to see a turnaround toward significantly stronger organic growth, which we will explore further in the next section.

Acquisitions

Swedencare was particularly active in M&A between 2020 and 2022, during which it executed several large acquisitions (see below):

Between 2020 and 2022, Swedencare completed eight major acquisitions for a total purchase price of approximately SEK 7.0 billion. The largest deals were Vetio (SEK 1.6 billion) and NaturVet (SEK 4.4 billion), both of which significantly strengthened the company’s position in the North American market. In our view, the valuation multiples paid for these acquisitions were somewhat high—but Swedencare used its own stock, which at the time was trading at even higher multiples, to finance the deals.

Across the board, the acquired companies displayed strong profitability, with EBITDA margins ranging from 16% to 44%—confirming Swedencare’s strategy of acquiring profitable businesses with strong market positions.

Financing: Combination of Cash Flow, Bank Loans, and Opportunistic Equity Issuances

The acquisitions were financed through a mix of internal cash flow, bank debt, and new share issues. While we generally view equity issuances with caution, in this case they were conducted opportunistically—at a time when Swedencare’s own valuation multiple was high, which actually created shareholder value.

In connection with the acquisition of Vetio (June 2021) and NaturVet (January 2022), Swedencare issued 12 million and 40 million new shares, corresponding to dilution of 11% and 34%, respectively. The shares were issued at prices of SEK 96 and SEK 100, implying a valuation of Swedencare at 76x and 58x EBITDA, based on our estimates (including pro forma earnings from the acquisitions not yet reflected in the books). So even if we consider the 21x EBITDA valuations paid for Vetio and NaturVet somewhat high, the fact that the deals were financed using Swedencare stock trading at nearly three times higher valuation multiples is a strong mitigating factor.

To better illustrate the trend, the chart below presents revenue per share, reflecting the impact of new share issues. Swedencare has consistently maintained strong profitability, generally reporting EBITDA margins above 20%. The preferred measure of profitability is EBITA margin, as it best captures the underlying performance of the business—it excludes goodwill amortization but includes depreciation of tangible assets. The EBITA margin has typically ranged between 17% and 27%.

Ambitious Financial Targets for 2026

Swedencare has set a target to reach SEK 4 billion in revenue by 2026, with an EBITDA margin of 30%. Our impression is that the company prioritizes the revenue side of the goal and may be comfortable with a somewhat lower level of profitability.

While we believe organic growth is likely to accelerate from Q2 2025 and remain strong into 2026, one or more significant acquisitions will be required to reach the revenue target.

Although there is some room for increased leverage (current net debt/EBITDA of 2.0), a new share issue will be needed. However, the company has stated it is not interested in issuing shares at the current valuation of around SEK 44 per share. In other words, the 2026 target is contingent on share price performance. If the stock remains at current levels or lower, no major acquisitions are likely to occur. If the share price rises significantly, the company would likely pursue acquisitions—partly funded through equity issuance.

Strong Ownership Structure

Swedencare has an exemplary ownership structure. Chairman Håkan Svanberg owns 14.5% of the company (worth approx. SEK 1 billion), board member Johan Bergdahl (JCC Group) owns 4.7% (approx. SEK 330 million), and CEO Håkan Lagerberg owns 3.6% (approx. SEK 250 million). In addition, other insiders collectively hold shares worth over SEK 24 million.

Clear Acquisition Target

German-listed Symrise AG owns 41% of Swedencare. Symrise is a global specialty chemicals company, active in flavors, fragrances, cosmetic ingredients, and nutritional solutions. The company has a strong M&A track record and often begins with minority investments, giving it flexibility to evaluate the potential of a partnership before pursuing a full acquisition. Symrise, for its part, is considered a high-quality company with a very strong financial track record.

Historically, Symrise primarily focused on acquiring full ownership of companies directly. However, beginning in 2020/2021, the company shifted its strategy to start with “strategic minority investments”. This approach allows Symrise to establish long-term partnerships and evaluate potential synergies before pursuing full acquisitions. That said, minority investments were not entirely new—for example, Symrise acquired an initial stake in Swedish probiotics company Probi as early as 2012, and eventually acquired the entire company and delisted it from the stock exchange in 2025.

Symrise initiated its investment in Swedencare in 2021. In 2023, its ownership exceeded 30%, which triggered a mandatory public offer under Swedish takeover rules. However, the bid was not successful in gaining full control.

The image below (from the Q4 2022 presentation) illustrates Symrise’s strategic perspective—highlighting how Swedencare enables the group to move further down the value chain:

We believe that if Swedencare delivers in line with its strategic plan, Symrise is likely to consider acquiring the company and taking it private. That said, based on valuation expectations, we think other major shareholders—such as the Chairman, CEO, and key board members—would demand an offer closer to SEK 100 per share to accept a buyout. Notably, Symrise has an average cost basis of SEK 96 per share, which supports the case that a well-priced offer near SEK 100 is not unreasonable.

Current Situation: Organic Growth Expected to Recover

What makes Swedencare particularly interesting at this point—besides its position as a fundamentally strong company in a structurally attractive market—is that we believe a rebound in organic growth is imminent.

As previously noted, NaturVet has been the main drag on growth since Q3 2024. Initially, this was due to a temporary deterioration in the relationship with the third-party managing NaturVet’s Amazon sales. Swedencare has since acquired this partner, allowing greater control over distribution, which should also support improved margin development in this channel.

In addition, NaturVet experienced challenges in brand sales, including weaker performance on Chewy.com (its second-largest customer) and among its top pet-specialty retailers.

Recovery in Sight for NaturVet

Looking ahead, NaturVet is expected to improve, helped by both a recent rebranding and several large customer launches.

Rebranding with Promising Results

The rebranding was unveiled at Global Pet Expo in March 2025. Interestingly, March 2025 also marked the highest sales volume month in NaturVet’s history.

Reducing Customer Concentration in Private Label

Historically, NaturVet has relied on a small number of large private-label customers. Going forward, this dependence will be reduced. The company has secured two major new customers beginning in Q2 2025, and has also entered a nationwide pharmacy chain in the U.S. with launch scheduled during the same quarter.

Big-Box Retailers – A Key Growth Driver from Q2 2025

Previously, NaturVet had avoided big-box retailers (BBRs) due to concerns over brand dilution. As a premium supplier, they were reluctant to risk weakening their positioning by partnering with discount-oriented retailers.

However, following multiple successful examples of premium products in the BBR space, NaturVet decided to enter this channel through partnerships with the three largest U.S. BBRs: Walmart, Costco, and Sam’s Club. Online distribution began at the end of Q1 2025.

Walmart will be the first to launch in-store, with an initial rollout to 1,400 locations (out of 4,600 total stores in the U.S.) scheduled for late Q2. As of early June, the CEO stated that the order had not yet been placed, but is expected before quarter-end. The company aims to launch in physical stores with one additional BBR during 2025.

BBR is expected to become a significant contributor to growth, supporting progressively stronger quarters for NaturVet through the remainder of 2025.

Strong Growth in Chewable Products Remains a Key Driver

Chewables accounted for 21% of sales in Q1 2025, primarily through the company’s flagship brand ProDen PlaqueOff—a dental health powder that comprised 91% of Swedencare’s total sales in 2016, prior to its acquisition-led expansion. Now available in soft chew formats, the product line is currently growing at a 50% annual rate.

The reasons behind its continued success are difficult to pinpoint from the outside, but the company attributes this to 50 years of research, clinical trials, and dual VOHC (Veterinary Oral Health Council) certifications, resulting in very strong brand positioning. Though the patent expired in late 2021, growth has continued unabated—further validating the product's strength.

Swedencare’s global distribution network has also contributed. For instance, NaturVet’s sales team began distributing the product as early as 2022, the same year as the acquisition.

Looking ahead, further growth is expected from:

• Big-box distribution through NaturVet’s portfolio

• Pet food partnerships, integrating PlaqueOff as an ingredient (including with Symrise)

• New product launches such as Soft Chews in the U.S. (late 2023) and Europe (2024) and a cat-specific product in H2 2025

• A rapidly growing market, with U.S. dental chews up 20% year-over-year

Pharma Segment to Contribute Meaningfully from Q2 2025

Swedencare’s Pharma segment includes custom pharmaceutical formulations, production of soft chews using proprietary technologies, sterile liquids, and product development for third parties. Though it represented just 6% of total revenue in 2024, we see significant upside potential.

In the Q4 2024 report, the CEO noted that Pharma would become "really strong" from Q2 2025 onward, as multiple signed contracts enter production. Both Q2 and Q3 are expected to see substantial volume ramp-ups. At the time of the report, capacity utilization was well below 50%, indicating potential for high incremental margins.

Despite being a contract manufacturing operation, which often implies modest profitability, Swedencare’s Pharma unit is believed to deliver EBITDA margins above 30%, well above the group average.

This segment strengthens Swedencare’s position by allowing it to develop and manufacture products for others (e.g., retailers with private-label ambitions), reducing dependency on its own brands. The model is also "sticky"—clients in health-related industries are reluctant to switch contract manufacturers unless quality drops drastically or prices become untenable. In some cases, FDA approvals may even be required to make such changes.

The company’s in-house production also supports its journey toward vertical integration, as more of its own brands are gradually moved into internal manufacturing—expected to lift margins over time.

Valuation and Outlook

Swedencare boasts an impressive historical track record in both growth and profitability. However, the past year has included challenges—most notably from NaturVet, which underperformed in 2024 and weighed on group-level margins.

The stock has plummeted around 70% since its peak in late 2021/early 2022, in line with many acquisition-driven growth companies. This correction has led to a current valuation of just 13x EBITDA (LTM), a significant discount to historical multiples.

We believe the company is entering a phase of renewed growth and margin recovery. NaturVet is expected to return to growth—particularly from Q2 2025 as Walmart contributes. Additional distribution partnerships and new online platforms will drive incremental sales, while the Pharma segment should scale rapidly under already-signed contracts—delivering margin uplift.

We believe the market has yet to fully price in the upcoming margin recovery and growth acceleration. With a strong brand portfolio, improving scale, and enhanced cash conversion following the capex-heavy investment period, Swedencare is well positioned for both earnings growth and multiple expansion.

In our view, the combination of 1) a fragmented industry, 2) significant M&A synergies, 3) high structural growth, and 4) private equity interest, supports substantially higher valuation multiples. Comparable U.S.-based peers often trade at 25x EBITDA or higher.

Conclusion

We see Swedencare as an attractive investment case, offering defensive growth, strong brands, and high profitability in a market supported by long-term structural trends. Accelerating organic growth and sharper operational focus under the current leadership suggest the best years may lie ahead.

With scalable operations, strong innovation, and a global footprint, Swedencare has the potential to reclaim a premium valuation and deliver significant long-term shareholder value. As an added bonus, the company represents a clear takeover candidate for Symrise. Given the significant insider ownership, we believe that any offer would need to be meaningful—likely in the range of SEK 100 per share—for it to be accepted.

Swedencare currently represents 2.9% of Kavaljer Quality Focus.

Fund Fact

Fund Type: SICAV (UCITS)

Name: LMM -  Kavaljer Quality Focus

Custodian: CACEIS Investor Services Bank S.A.

Auditor: PriceWaterhouseCoopers Société cooperative

Management fee: 1,25% / year

Minimum investment: SEK 100

Subscription/Redemption: Daily

ISIN:LU1232457504 (SEK A)

Risk Level: 5 av 7

Category: Equities, Sweden, small-/mid cap

AUM: 744 mkr

Morningstar Rating:  ⭐️⭐️⭐️⭐️⭐️

“Heads I win; tails I don’t lose much.”

Monish Pabrai

Nacka Strand, 4 juli 2025
Peter Lindvall, Håkan Telander & Jesper von Koch

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