Kavaljer Quality Focus

August 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.

Mixed Stock Market Month – Small Caps Fell While Large Caps Rose

August turned out to be a month of mixed developments, with the Stockholm Stock Exchange (OMXSPI-GI) up 1.0% while the global index (Dow Jones World Index) rose 2.6%. The Small Cap Index (Carnegie Small Cap Return Index Sweden) performed somewhat weaker, just as in July, and ended the month at -1.0%.

During August, global markets were initially driven by gains in large tech companies, particularly those focused on AI. However, during the month a report was released by MIT (Massachusetts Institute of Technology) showing that 95% of corporate AI pilot projects generated no return. This raised the question of whether AI-related stocks are in a bubble, followed by the tech sector losing around USD 1,000 billion in value within just a few days.

Beyond this, we observe that stability in large caps continues to be rewarded, and that the market tends to “forgive” revenue and earnings declines in large companies caused by currency headwinds (likely because these firms are closely monitored by numerous analysts, making the effect “expected”). In contrast, small caps – which do not attract the same analyst coverage – appear to have been punished more severely by the market when showing weakness linked to the same currency headwinds affecting the large caps.

Fund Performance and Contribution

Kavaljer Quality Focus showed a slightly negative development, with -0.7% during the month. The fund’s return so far this year is +6.0%, compared to +5.4% and +1.4% for the Stockholm Stock Exchange (OMXSPI-GI) and the Small Cap Index, respectively.

Over the past 5 years, the fund’s return amounts to 87%, compared to 69% for the Stockholm Stock Exchange (OMXSPI-GI) and 44% for the Small Cap Index.

The largest positive contributions among the fund’s holdings during the month came from Dometic with +0.3 percentage points, as well as Swedencare, FlatexDegiro, RVRC, and Exsitec with +0.2 percentage points each. The largest negative contributions came from Pandora, New Wave, and Valmet with -0.6, -0.4, and -0.3 percentage points, respectively.

Changes and Holdings

During the month, the fund reduced its holdings in Afry and Valmet, and sold its position in Xano. At the same time, the fund increased its holdings in Exsitec, Swedencare, Pandora, Catella, and Proact.

Later in the letter, we provide several reviews of quarterly reports that we found particularly interesting. These include Swedencare, Carasent, RVRC, Pandora, New Wave, Ratos, and Catella.

The equity allocation was 99%.

Pandora: Market Once Again Depressed About the Brand – We Are Buyers

Pandora’s Q2 report came in quite solid in our view (+8% revenue growth and +7% EPS growth, +16% when adjusted for FX). The market’s reaction, however, was to send the share down -18% on the same day. In our opinion, this reaction is highly peculiar.

The entire concern seems to be built around like-for-like growth (growth from the stores the company had a year ago, i.e. excluding store expansion), which was on the softer side. Still, +3% is far from catastrophic. The “weakness” has a logical explanation: a successful new collection launch in Q2 last year. Moreover, we find it reasonable to expect the company to deliver +4–5% like-for-like growth for the full year, as several new collections will be launched during the fl.

It should also be noted that Pandora’s store expansion is highly profitable, generating a 40% return on invested capital (ROIC). We therefore view this part of growth as attractive as well.

Margins are pressured from three fronts:

• FX

• Silver prices

• US tariffs

All of these factors are already included in the company’s guidance for 2026, where an EBIT margin of 24% is assumed. Given the company’s, and not least the CEO’s, strong track record of successful execution, we believe in Pandora’s 2026 guidance. This implies the company is currently trading at around 10x earnings.

The question then is what the company should be worth. Concerns have previously circulated that “charms were just a passing trend” and that the Pandora brand was in decline. These concerns have been disproven time and again, which is why the stock traded at around 24x earnings only a few months ago. While that was admittedly too high in our view (which is why we sold our shares around DKK 1,400), we firmly believe Pandora deserves a 17x earnings multiple. That would imply an upside of +70% in just over a year.

What about the risks?

• Tariffs are now set.

• Silver prices have been hedged at 70–75% through 2026.

• FX remains uncertain, but the USD is at least trading at lower levels than in a long time.

• Macro: The current weakness is primarily in Europe, Australia, and China. The US remains relatively strong (+8% LFL growth and +12% including store expansion), though this segment could also soften.

  
  

In summary, risks certainly exist, but we see the upside as outweighing them. For this reason, we chose to increase our position.

Pandora represents 3.2% of Kavaljer Quality Focus.

Swedencare: Irrational Decline – We Increase Our Position

We conducted a thorough review of Swedencare (market leader in pet supplements with nearly 80% of sales in the US) in our June letter. Since the Q2 report, the share price has fallen from SEK 48 to SEK 35 – a staggering drop. We took the opportunity to add to our position then, and the stock now trades around SEK 40. The obvious question we ask ourselves is whether something structural has happened, or if this is simply another classic case of market overreaction. We briefly commented on the Q2 report in our July letter, but here we provide a more in-depth discussion of our thoughts.

NaturVet – Excessive Concern

Our impression is that the market currently views the subsidiary NaturVet (USD 65m in revenues at the time of acquisition in 2022 vs Swedencare’s total revenues of about SEK 2 billion, i.e. roughly 25%) as going through a deep downturn. Investors also seem to question whether Swedencare paid a very high valuation for NaturVet, only to see the business continuously deteriorate.

Our view differs from the market here. We believe that NaturVet, which is almost entirely US-based, has undergone significant changes that have caused temporary revenue declines along with one-off costs. However, we primarily see this as a classic – and indeed necessary – skin-shedding process, and that NaturVet continues to develop strongly. Moreover, our view is that the company has now come out “on the other side” and that both growth and profitability will improve going forward.

Since the acquisition, NaturVet has maintained its strong market position in the US and remains the #1 supplement brand in four out of the five largest pet retail chains in the country (Chewy, PetSmart, Petco, PetMeds, and Amazon). The one chain where it previously was not #1 – PetSmart – is now being entered. Initially, they are rolling out 3–4 NaturVet products and 3–4 ProDen PlaqueOff products. By year-end, the target is about 10 products, and 20–30 products by the end of 2026. We view the rollout as very successful, with no cannibalization from existing channels.

In addition, Swedencare, primarily through NaturVet, has entered so-called “big box retailers” (Walmart, Costco, Sam’s Club – the best Swedish comparison would be Gekås/Ullared). In Q1, they started online via Walmart, Costco, and Sam’s Club, and in July began rollout in 1,400 physical Walmart stores. (The rollout was executed exactly according to plan in the last week of July, but the order was booked at the start of July instead of Q2 as previously expected – something the market did not appreciate.) The online trial period at both Sam’s Club and Costco appears to have gone “better than expected,” which bodes well for physical store launches – likely in 2026. In addition, products were recently launched in the pharmacy chain CVS, which will also have a positive impact, albeit less significant than the big box retailers.

All in all, we believe the company continues to strengthen NaturVet in a solid way through ongoing brand development and successful rollouts with new partners. Adding more partners will also make sales less volatile and less dependent on individual orders.

Swedencare: In-House Amazon Sales – An Underrated Potential

In the previous quarter, Swedencare acquired its former Amazon partner and has since been managing its Amazon sales in-house. This means that instead of having an intermediary purchasing products from Swedencare and then reselling them via Amazon, the company now handles its Amazon distribution directly. This has two key implications:

1. Swedencare will capture the entire sales volume itself instead of allowing its former partner to take an estimated 20% share. With 40% of Swedencare’s total sales online, of which around 75% is through Amazon, roughly 30% of total sales runs via Amazon. Going forward, this portion should increase by about 20%, corresponding to approximately +5% on total sales.

   
   

2. Swedencare regains control of both brand and pricing, and can also manage its own campaigns. The critical factor on Amazon is securing the so-called “buy box” – i.e. the product suggestions that appear during purchases, such as “others who bought X also bought Y.” According to several sources, these represent 82–83% of all Amazon purchases. Our view is that the risk of losing the buy box rises if Amazon sales are managed incorrectly, for example by targeting low-price hunters instead of less price-sensitive customers. A similar initiative was carried out some years ago with ProDen PlaqueOff (chews etc., the company’s original product and a major success story), which then increased sales tenfold. While NaturVet is much larger and cannot achieve the same relative impact, we believe the potential should not be underestimated.

Strong Pipeline for Accelerating Growth from H2 2025

Beyond Swedencare’s strong long-term positioning, we also believe near-term developments will be robust. For H2 2025, we see the following growth drivers:

• Amazon sales brought in-house since late April. Full margin effect from mid-August. UK operations to be transferred in-house during the quarter as well.

• The company’s largest ever pharma contract manufacturing project starts in Q4. However, we sense improvements already from Q3, as the inventory cycle seems to have turned and customers are starting to rebuild stock.

• Walmart order of SEK 20–30m in Q3, adding 4–6% to total sales.

• The veterinary segment, which has struggled, is showing more positive signs.

• PetSmart ramp-up.

• Easier comparables, as NaturVet posted a very weak H2 last year.

Overstated Concerns About Canadian Tariff Impact

On August 1, a 35% tariff was announced on goods imported from Canada to the US. We believe this has created some investor concern since Swedencare produces via its subsidiary Vetio North in Canada. Nevertheless, our view is that Swedencare’s Canadian production falls under CUSMA (the Canada–US–Mexico Agreement), which covers certain goods. Therefore, US tariffs should not have any material impact on Swedencare.

Company Worth at Least 20x Earnings – Versus Current 13x

Swedencare reports SEK 2.6bn in revenues on a rolling twelve-month basis. To achieve its guidance of double-digit organic growth (FX-neutral), 14% growth is required in H2. While analysts remain skeptical, we believe the company has a solid chance of meeting this target. FX headwinds are likely to persist, but we estimate 2025 revenues of around SEK 2.7bn. Operational EBITDA margin (underlying operating margin excl. amortizations and depreciations) has been guided higher versus 2024, when it came in at 22.2%.

Looking into 2026 is even more interesting. We believe the company will deliver organic growth of just above 10% and reach around SEK 3bn in revenues. We also expect the EBITDA margin to expand to about 25%, supported by scale effects. This equates to SEK 750m in EBITDA. Depreciation of tangible assets amounts to about SEK 80m, giving us roughly SEK 670m EBITA. To reach Warren Buffett’s measure of underlying profit – “Owner Earnings” – we subtract leasing (SEK 40m), interest (SEK 70m) and tax (SEK 60m), resulting in approximately SEK 0.5bn in underlying earnings.

In our view, a market leader in a non-cyclical sector with strong market tailwinds should trade at no less than 20x Owner Earnings, implying a fair value of around SEK 10bn, or just above SEK 60 per share. Even at this level, we believe Swedencare can deliver attractive returns over time.

Swedencare represents 4.1% of Kavaljer Quality Focus.

Ratos: Sum of the Parts Far Above the Share Price

Ratos delivered a Q2 report in line with our expectations, with comparable revenues up +1% and profitability improving. However, net profit declined in absolute terms – something the market did not appreciate, sending the share down nearly 10% on the day.

The reason for the lower net profit is the restructuring of Plantasjen, through which a number of unprofitable stores were closed. That said, even the unprofitable stores tend to be profitable during Q2 – as well as Q3 – since this is when consumers mainly shop at Plantasjen. This makes the profit drop a completely natural consequence of the closures. For the full year, Ratos expects Plantasjen to deliver an EBITA margin of around 5%. We believe Ratos will wait until the Q3 report before selling or listing Plantasjen, allowing the market to see the solid profitability of the remaining “healthy” part of the business. In our longer review of Ratos in the April monthly letter, we speculated on a valuation of around SEK 1 billion for Plantasjen.

In addition to a potential divestment of Plantasjen, construction company Sentia was listed during Q2, freeing up SEK 1.5 billion for Ratos. After the IPO, Ratos still owns just under 40% of Sentia, which we believe will be sold within a year. Ratos’s remaining holding is valued at SEK 2.65 billion. This should be compared with Ratos’s total market capitalization of around SEK 11.5 billion. With net debt of SEK 4.1 billion, the price for the actual operations (enterprise value) amounts to SEK 15.6 billion.

Another holding we expect to be divested is Aibel – a company within oil services. Ratos owns 64% of NCS Invest, which in turn owns 49% of Aibel. This gives Ratos an effective stake of just over 31% in Aibel. Ratos reports that 49% of Aibel’s EBITA 2024 equaled SEK 434m, which implies Ratos’s share at SEK 278m. Assuming this is listed at 7x EBITA, the value for Ratos’s stake amounts to nearly SEK 2 billion. Aibel also had a net cash position of NOK 1.9 billion at year-end 2024, adding nearly SEK 0.6 billion for Ratos. In total, we estimate a value of about SEK 2.5 billion for Ratos’s share of Aibel.

If we strip out the values of Plantasjen, Sentia, and Aibel, the remaining enterprise value is SEK 9.5 billion. Should these divestments materialize, Ratos would then consist primarily of Presis Infra (infrastructure services), Knightec (engineering consultancy), and HL Display (retail communication and merchandising solutions). Together, these three companies generated around SEK 1 billion in EBITA during 2024. In addition, several smaller holdings contributed just under SEK 0.5 billion in EBITA in 2024.

For SEK 1.5 billion in annual EBITA (with strong cash generation), investors today pay SEK 9.5 billion – equating to 6.3x EBITA. In our view, this valuation is far too low, and we believe the share still has significant upside.

Ratos represents 4.7% of Kavaljer Quality Focus.

New Wave: Market Headwinds Persist Longer Than Expected – Investments Made While Competitors Remain Passive

New Wave delivered a weak report, with revenues up 1% but profitability declining compared to last year. After CEO Thorsten Jansson struck an optimistic tone regarding a market recovery following the Q1 report, he was disappointed with developments in Q2 and does not expect any relief during at least the second half of 2025.

True to form, the company pays little attention to being defensive or cutting costs when the market is weak. Instead, New Wave continues to invest aggressively to capture new market share while many competitors are struggling in today’s tough environment. In addition, Trump’s tariffs are making many competitors passive – something New Wave is capitalizing on by stepping up efforts and seizing emerging opportunities. While this naturally weighs on short-term profitability, it is a key factor behind the company’s ability to consistently gain market share in both good and bad times.

One important initiative is Teamwear – team apparel for sports clubs – targeting the German and US markets. While Germany has developed somewhat weaker than expected, the US expansion looks very promising. Growth is now extending into Texas and California, where college teams are the main customer group. Canada is also an important initiative, starting already this year but becoming more noticeable in 2026.

New Wave represents 3.8% of Kavaljer Quality Focus.

Carasent: Strong Commitment to the Share Buyback Program

Carasent (a leader in digital medical record systems) is one of the companies that has already contributed strongly to portfolio performance this year, and where we continue to see significant potential ahead. In its Q2 report, the company announced its intention to repurchase shares worth SEK 150m (compared to a market cap of around SEK 2bn), corresponding to about 7.5% of the company at the current share price. Although the company has not yet publicly communicated any buybacks (as most companies tend to do), ownership data shows that it has already repurchased shares worth SEK 56m, equivalent to 2.7% of the company.

As we believe Carasent’s intrinsic value is clearly higher than today’s share price, we are very positive towards the company’s aggressive share repurchase program.

Carasent represents 4.2% of Kavaljer Quality Focus.

Catella: Positive Operationally and Correct Capital Allocation – Underlying Valuation at About 3x Operating Profit

Catella’s Q2 report came in strong, and the real estate market finally seems to have bottomed – both in terms of valuations and transaction volumes.

All three segments grew both revenues and earnings compared to Q2 last year. Net inflows into assets under management also look solid again (+SEK 5bn versus Q1, adjusted for positive FX effects).

Following the divestment of Kaktus (the mega project in Copenhagen sold in May), the balance sheet is very strong, with a net cash position of SEK 1.7bn (including property projects on its own balance sheet).

With a market capitalization of SEK 2.7bn, investors are still essentially only paying SEK 1bn for a scalable business with a high share of recurring revenues, which we estimate should deliver SEK 300m in operating profit in a “normal” year, and up to SEK 500m in a strong year.

An important step in highlighting how undervalued the company is was the buyback offer on nearly half of its SEK 1.3bn bond debt – although the company only managed to repurchase just over SEK 100m. This debt has so far led to large interest costs, nearly eliminating net profit. We hope to see further measures going forward to unlock more of the underlying value.

Even though the share price rose on the report, we believe the reaction was too weak – and therefore chose to increase our position.

Catella represents 3.6% of Kavaljer Quality Focus

Fund Facts

Fund Type: SICAV (UCITS)

Name: LMM -  Kavaljer Quality Focus

Custodian: CACEIS Investor Services Bank S.A.

Auditor: PriceWaterhouseCoopers Société cooperative

Management fee: 1.25% / yearly

Minimum investment: SEK 100

Subscription/Redemption: Daily

ISIN: LU1232457504 (SEK A)

Risk Level: 4 out of 7

Category: Equities, Sweden, small-/mid cap

AUM: SEK 743 millions

Morningstar Rating:  ⭐️⭐️⭐️⭐️⭐️

Nacka Strand, September 3, 2025
Peter Lindvall, Håkan Telander & Jesper von Koch

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