Kavaljer Quality Focus

July 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.

Strong Stock Market Month but with Large Variations

July was a relatively strong month for the stock market, with the Stockholm Stock Exchange (OMXSPI-GI) up 2.0% and the global index (Dow Jones World Index) up 1.3%.

The small-cap index (Carnegie Small Cap Return Index Sweden) performed slightly weaker but still ended marginally in positive territory (+0.3%). However, our observations are that the seemingly calm and positive market concealed considerable variations.

In general, our view is that companies that did not report earnings performed relatively strongly, while the market was harsh on companies showing even minor weaknesses.

Fund Performance and Contribution

Kavaljer Quality Focus had a weak month, declining by -1.7% in July.

Year-to-date, the fund has returned +6.8% compared to +4.3% and 2.4% for the Stockholm Stock Exchange (OMXSPI-GI) and the small-cap index, respectively.

Over the past five years, the fund has returned 105%, compared to 75% for the Stockholm Stock Exchange and 56% for the small-cap index.

Top positive contributors to the fund during the month were Dometic, Valmet, Protector Forsikring, and FlatexDegiro, contributing +1.0, +1.0, +0.5, and +0.4 percentage points respectively.

The largest negative contributors were ITAB, Ratos, and Nilörngruppen, with -0.9, -0.6, and -0.4 percentage points respectively.

Changes and Holdings

During the month, the fund reduced its holding in Protector Forsikring and sold Tomra. It also repurchased Inwido and added the consulting and software company Excitec.  In addition, we increased our holdings in Ratos, Swedencare, Nilörn, and Carasent. '

Later in this letter, we provide a more in-depth review of the insurance company Protector Forsikring (which has already returned about 60% since we bought in March). We also explain why we repurchased Inwido and provide updated thoughts on the quarterly reports and cases in Swedencare, Carasent, Nilörngruppen, FlatexDegiro, and Dometic.

The equity allocation was 98%.

Inwido: Re-entered After Lukewarm Earnings Reception

In our previous monthly letter, we noted that we had sold Inwido despite liking the company, as the valuation had run ahead. The stock then dropped twice—first following a downgrade and then after a tepid reception of its Q2 report. We thought the Q2 results were decent, but the stock still fell 10%. Having sold our shares around SEK 210, we repurchased them at SEK 180.

Inwido now represents 1.7% of Kavaljer Quality Focus.

FlatexDegiro: Positive Earnings Surprise and Upward Full-Year Guidance – Just as We Predicted

In our April monthly letter, we wrote the following:

"The full-year 2025 guidance is maintained (revenue ±5%, earnings -5% to +10%), but we view this as conservative. Q2 is likely to benefit from continued strong brokerage activity—first from panic selling during the market downturn in April, followed by FOMO-driven buying during the recovery. In addition, interest income turned out stronger than feared, which reduces the main risk factor in the estimates. Panic selling during the downturn likely increased the cash balances in customer accounts, which positively impacts interest income until that capital is used for stock purchases. Our conclusion: one or more upward revisions to the forecast are likely during the year."

In early July, just as we expected, the company issued a positive earnings surprise and revised its 2025 guidance upward. The midpoint for net income was raised by 18%, now standing at €133.5 million, equivalent to €1.21 per share. At a share price of €26, this gives a P/E ratio of 21.5 for the current year.

The 2027 guidance of €200 million in net income translates to €1.82 per share excluding buybacks, and possibly around €2.00 including them, which implies a P/E of 13 for 2027.

Over the coming years, there is significant upside optionality if Germany and/or the EU begin including equities in pension frameworks. However, progress has been slower than the company's management had hoped. In the short term, the company plans to roll out its crypto trading offering to two-thirds of its markets, likely in August.

We repeat what we stated after the Q1 report: "The report strengthens the image of a quality company with tailwinds – and even though the stock has already performed well this year, we still see multi-bagger potential over the coming years."

FlatexDegiro makes up 3.8% of Kavaljer Quality Focus.

Carasent: 2028 Guidance Leaves Significant Upside Despite Conservative Assumptions – We Believe in Substantially Higher Earnings

A few days before its Q2 report, Carasent issued guidance for 2028, projecting at least 15% annual revenue growth from 2026 to 2028, an EBITDA margin of at least 35%, and CAPEX of 6–9%. This corresponds to a minimum of SEK 138 million in EBITDA minus CAPEX. However, during the Q2 conference call, the CEO stated that the 15% growth figure is “very conservative,” and made it clear that internal targets are far above 15%. We interpret this to mean that the most important growth drivers—Stockholm (surgical module with SEK 150 million TAM + TakeCare end-of-life replacement with SEK 300 million TAM), AI transcription, and Germany—are seen as upside optionalities and are not included in the guidance. As for profitability, it is entirely dependent on revenue levels due to the company's scalable business model. In our view, the company already has a clear picture of what its cost base will look like in 2028, meaning that the 2028 profitability guidance is essentially a direct result of what we believe is conservative revenue guidance. In other words, the 2028 guidance should be viewed as a Bear Case. Even the low end of the guidance provides a decent return. Assuming SEK 138 million in EBITDA-CAPEX and a conservative multiple of 20x implies a market cap of SEK 2.8 billion, compared to just over SEK 2.0 billion today—about 40% upside. The company also announced a SEK 150 million share buyback program, which adds roughly 10% more upside. On this conservative 2028 forecast, one should see at least 50% upside over three years, or 14% annually. Not extraordinary, but definitely acceptable. Our own view is rather 20% annual revenue growth and about SEK 190 million in free cash flow (FCF) by 2028. We believe the appropriate multiple should be 25–30x, which would imply a market cap of around SEK 5 billion—equivalent to SEK 80 per share if the full share buyback is completed at the current share price.

Other key takeaways:

• AI Transcription: Currently 30 users, paying SEK 750/month each. Still a low footprint but highly promising. These are all early adopters. Given the conservative nature of the industry, adoption will take time but is likely to reach a high level in the long run. SEK 750/month is also only a starting point; there’s upselling potential.

  
  

• Västra Götaland Region (VGR): SEK 3 million in ARR for a new clinic chain starting Jan 1, 2026. This is an extremely important data point, suggesting a TAM of at least SEK 30 million in VGR (as forced migration to Millennium seems increasingly unlikely). There is significant optionality in public primary care, which could increase TAM by an additional SEK 100 million.

Carasent accounts for 4.4% of Kavaljer Quality Focus.

Dometic: Strong Cash Flow and Discipline Provide Balance Sheet Breathing Room – We Still See Significant Upside

Dometic remains a fundamentally solid company, in many ways similar to Thule. It is led by Juan Vargues, who has a strong track record from Assa Abloy, where he drove the company toward a higher share of aftermarket revenue—leading to more stable earnings and higher profitability. Vargues also holds a significant personal stake in Dometic.

The company has gone through a "perfect storm," having made acquisitions during an economic boom that led to high leverage just before the market turned downward. High debt levels, coupled with pressured revenues and margins, led many to expect a capital raise. Despite a continued tough market, the company has maintained strong profitability (14% in Q2), while reducing inventory and using the resulting strong cash flow to pay down debt.

Looking forward, we foresee a gradually improving market, which primarily provides breathing space for the balance sheet. A year from now, we believe that investors will no longer focus on the balance sheet, and attention will instead turn to Dometic’s long-term goal—namely, increasing its aftermarket share and profitability. At that point, the market may begin to believe in long-term earnings growth, warranting a higher earnings multiple. For this reason, we believe the stock still has considerable upside despite its recent strong performance.

Dometic represents 4.1% of Kavaljer Quality Focus.

Nilörn: Weak Q2, But Recovery Likely by Q4 Report

Nilörn delivered a weak Q2 report, with revenue down 10%, but only 1% when adjusting for currency effects. The luxury segment continued to underperform, while the outdoor segment kept recovering. The operating margin was also weak (7%), primarily due to insufficient revenue to cover fixed costs. For example, the company added production capacity in Vietnam, but the intended client has not yet shifted volume from Hong Kong to Vietnam.

Additionally, the Turkish division has experienced some issues that will be reviewed in Q3. We assess that the challenges in both Vietnam and Turkey are relatively minor and temporary in nature. The key issue is generating sufficient sales volume to return to historic profitability levels of 10–12%. However, in recent years, new sustainability and reporting requirements have increased the fixed cost base, which revenue must now cover.

The CEO has long pointed out that these changes favor larger players and are driving consolidation, with bigger companies acquiring smaller ones. Nilörn sits in a mid-sized segment—not small, not large. It has not been active in M&A, and we don't see any signs that the CEO plans to change that. On the other hand, the company may be viewed as an acquisition target by larger players.

Importantly, Nilörn has historically grown revenue steadily at 7% per year, consistently gaining market share. This supports the idea that the company can handle the increasing regulatory burden and emerge stronger. In summary, we were disappointed by the Q2 report, but do not view it as a game-changer. Q3 may also be somewhat weak, but we believe increasing volumes from Q4 onward will provide a lift to profitability. It’s important to highlight that the low valuation gives the company some breathing room for a slower recovery.

Nilörngruppen makes up 2.5% of Kavaljer Quality Focus.

Swedencare: Weak Q2 Due to Postponed Walmart and Contract Manufacturing Orders – Investment Case Remains Fully Intact

Swedencare’s share price has been on a rollercoaster this past month. It started around SEK 40, climbed to nearly SEK 49 ahead of the earnings report, and has since dropped below SEK 40 again.

Adjusted for currency effects, Swedencare posted 7% organic revenue growth in Q2—another sequential improvement from +5% in Q1. However, this fell short of both company and analyst expectations. The lower-than-expected growth was due to: a Walmart order worth SEK 20–30 million (3–5% of sales) being delayed, and a major contract manufacturing project (the largest in company history) being shifted from Q2 to H2 2025.

The lower-than-expected revenue, combined with a fixed cost base, resulted in weaker-than-expected profitability (16.4% adjusted EBITA in Q2). During the earnings call, the CEO stated that the company has built a cost base designed to support significantly higher sales than those seen in Q2. He also expressed confidence that growth will accelerate starting in Q3, leading to both revenue and margin improvements.

In addition to resumed growth from the Walmart order and the contract manufacturing project (which is highly profitable), the upcoming year-over-year comparables are significantly easier in H2. Although we view the Q2 report as disappointing, we believe the deviation was one-off in nature rather than structural. In short, we think the investment case has simply been pushed into H2, rather than being invalidated.

Swedencare makes up 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: 748 mkr

Morningstar Rating:  ⭐️⭐️⭐️⭐️⭐️

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

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