Kavaljer Quality Focus

September 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.

Another mixed month on the stock market with weak performance from small caps but very strong gains from large global tech companies

September turned out to be another mixed month for equities, with the Stockholm Stock Exchange (OMXSPI-GI) rising by 0.5% while the global index (Dow Jones Global Index) gained as much as 3.2%. The Small Cap Index (Carnegie Small Cap Return Index Sweden) once again underperformed, as it has in recent months, ending at -2.0%.

During September, global indices were driven – just as earlier this year – by gains in large tech companies, particularly AI-focused ones (the MAG7 companies rose on average +8% for the month).

We have now seen a longer period where global tech giants have pushed global indices to new highs time and again, while Swedish and Nordic small caps have shown very weak performance. In times like these, it is easy to experience FOMO (fear of missing out) and to “throw in the towel” on small caps “since the shares are performing so poorly anyway,” reallocating everything into global funds or U.S. tech funds that have performed strongly due to the momentum in the MAG7 companies.

We believe that investment legend Howard Marks expresses our view well:

"Resisting – and thereby succeeding as a contrarian – is not easy. Several factors make it difficult; among them our natural tendency toward herd behavior and the pain of going against the tide, since momentum inevitably makes pro-cyclical actions look correct for a while. Given the uncertainty of the future, and thus the difficulty of being certain that your position is correct – especially when the price moves against you – it is a challenge to be a lone contrarian."

Several studies show that small-cap stocks tend to outperform large caps over time. In addition, we remain confident in our ability to select the best companies among small caps when valuations are attractive – something also reflected in our long-term returns. We therefore stay the course and believe in strong returns going forward.

Fund Performance and Contribution

Kavaljer Quality Focus had a negative development of -1.6% during the month. Year-to-date, the fund has returned +4.3% compared with +5.9% and -0.7% for the Stockholm Stock Exchange (OMXSPI-GI) and the Small Cap Index (Carnegie Small Cap Return Index Sweden), respectively.

Over the past five years, the fund’s return amounts to 72%, compared with 64% for the Stockholm Stock Exchange (OMXSPI-GI) and 34% for the Small Cap Index.

The largest positive contributions among the fund’s holdings in September came from RVRC with +0.3 percentage points, and Ratos, Alligo, Kone, and New Wave, each with +0.2 percentage points. The largest negative contributions came from Swedencare, Dometic, and Carasent with -0.6, -0.4, and -0.3 percentage points, respectively.

Changes and Holdings

During the month, the fund sold Afry and increased positions in VBG and Storytel. Later in this letter we provide more detailed reviews of Catella, BTS Group, and Storytel. A brief summary follows here:

Catella: The new CEO, Rikke Lykke, has a strong background in both asset management and company divestments, making her well equipped to create shareholder value. We believe she can drive growth in Investment Management or execute a successful sale of the company, and we therefore feel confident about the company’s future capital allocation.

Storytel: Delivered a solid Q2 report with strong growth, rising margins, and robust cash flow, leaving the company nearly debt-free. The share has been pressured by concerns over Spotify’s entry into the audiobook segment, particularly in the Nordics. However, we believe Storytel’s larger catalogue and sustainable business model provide a clear competitive edge. We therefore view the company as well positioned even if Spotify launches in the Nordic audiobook market.

New holding: BTS Group: BTS is a global consulting firm specializing in strategy implementation through simulation software and has a long history of profitable growth. The company is currently in a downturn with weaker development in North America, but new AI initiatives are expected to drive significant efficiency gains and strengthen profitability going forward. The stock is trading at a very low valuation relative to its history, creating a substantial margin of safety for long-term investors.

The equity share was 100%.

New holding: BTS Group – consulting firm with simulation software – temporary downturn but promising future

BTS Group was founded in 1986 by Henrik Ekelund with the vision of supporting companies in strategy implementation. Since then, the company has developed into a global player, now serving 40 of the world’s 100 largest companies and 60 of the 100 largest companies in the U.S. (Fortune 100).

The company was listed on the Stockholm Stock Exchange in 2001 and has since delivered 13% annual revenue growth and 15% annual profit growth, driven primarily by organic growth but also through acquisitions.

Consulting firm with simulation software

BTS is a global consulting company helping clients with strategy execution and cultural transformation. The company divides its offerings into “Strategy execution & business transformation,” “Leader readiness & development,” “Go to market,” and “Talent acquisition & succession.”

What stands out most with BTS compared to peers is its simulation platform – software enabling simulations of everything from strategic CEO challenges to sales conversations. The rationale behind simulation is straightforward: practice and preparation lead to proficiency.

A good example is simulation of strategic CEO challenges. This allows a CEO to input the company’s conditions into a program. Based on these challenges, the CEO faces different decisions, each with different consequences. The choices made and the way the CEO responds to outcomes create new situations with new decisions, and so forth. In this way, BTS’s clients can prepare themselves for future scenarios in a more realistic way.

This creates a major advantage over other strategy consultants, who often deliver a PowerPoint presentation of a new strategy that management is expected to implement more or less on its own – which is why such presentations often remain just presentations without visible results. '

With BTS’s simulation platform, entire teams can go through upcoming challenges together, discuss how to solve them, and then see what consequences their decisions bring in the next stage. This builds engagement while also preparing the group more thoroughly.

Wonderway acquisition adds real-time AI coaching

In Q2 2024, BTS acquired a small tech company called Wonderway, a Berlin-based AI startup with software designed to help salespeople improve their skills. The program is an AI coach that observes your sales technique while you practice a sales call and gives you real-time tips: “Go for the close!”, “Mention reference clients!”, “You missed an opportunity there!”, and so on. BTS has now integrated Wonderway into seven of its nine business units, making it an important and integral part of the company’s offering.

50% U.S. revenues with low client concentration across many sectors

BTS primarily serves large multinational companies across nine industry sectors: IT, financial services, manufacturing, professional services, pharmaceuticals/biotech, FMCG, energy, telecom, and trade/distribution.

In simple terms, about 90% of revenues come from consulting (where simulation is often an integrated component, allowing for higher billing rates), while 10% comes from pure subscription-based software sales.

Geographically, 50% of revenues come from North America, 17% from Europe, and the remaining 33% from the rest of the world.

The ten largest clients accounted for 21% of sales in 2024, showing limited client concentration. The largest client represented about 5% of total revenues.

Competitors range from strategy consultants to HR advisors – and everything in between

Financial history and developmentThe market for corporate training and management consulting is highly fragmented. BTS does not have a single global competitor, but rather faces different competitors in different markets. At times these include strategy consultants like McKinsey, Bain, and Boston Consulting Group, sometimes implementation-focused consultants like Accenture, and in other cases HR-focused consulting firms.

Founder led until 2022 – new CEO with long BTS experience

Henrik Ekelund founded BTS in 1986 and remained CEO until 2022. He was, of course, an important part of the company’s success – not least in building a corporate culture admired by many others. The new CEO, Jessica Skon, has been with the company since 1991. Before becoming CEO, she was responsible for the North American business for nearly six years, which she ran very successfully. From our own conversations with her, as well as interviews and presentations, we have gained a very positive impression.

Founder still major shareholder – management ownership acceptable

Founder and current Chairman, Henrik Ekelund, owns just under 19% of the capital and 41% of the votes in BTS. After him, large institutional investors, primarily funds, dominate the shareholder base. Insider ownership among management is acceptable but not outstanding. The CEO owns shares worth just under SEK 13m, while the Deputy CEO owns shares worth just over SEK 17m. The CFO owns shares worth just under SEK 1m.

Financial history and development

BTS has a long and strong history of profitable growth. Since its listing in 2001, the company’s revenues have increased by an average of 12% per year, while EBITA has grown by an average of 15% per year. Earnings per share have risen at a pace similar to EBITA.

Current situation: market challenges and distrust on the stock market

For 2025, management expects EBITA to come in below 2024 following a profit warning in early August. The main weakness stems from the North American division (50% of revenues), which reported -8% organic revenue growth in Q2. The company largely blames itself, pointing to the wrong leadership fit – and has therefore appointed a new U.S. management team internally.

The company maintains that the overall market remains intact, but that the leadership of the U.S. division had been too scattered in its client prospecting. Instead of focusing on deals where simulation was the core, they tried to win more traditional consulting assignments. Since BTS does not stand out in traditional consulting in the same way, the U.S. division’s “win ratio” – the share of deals won out of those competed for – was far too low. In contrast, in Europe the company has focused heavily on simulation-related assignments, with great success and a higher win ratio than ever (around 60% over the past 9–12 months).

BTS expects Q3 and Q4 to remain weak for the North American division, but for North America to return to positive organic growth in the first half of 2026.

We believe that part of the market’s skepticism stems from concerns that the company was overly dependent on its founder, Henrik Ekelund. Our view is that while Ekelund was certainly exceptionally skilled, the weaker development can also be explained by a softer market. On the other hand, it should be noted that the U.S. division has been the problem area, and it was likely the current CEO who appointed her successor to lead that division. This raises some questions regarding the CEO’s judgment. That said, after having led the company’s most important division for nearly six years with great success, we believe she has what it takes to get back on track.

AI and automation initiatives likely to drive margin expansion for years

This year the company launched an AI and automation initiative expected to deliver USD 5 million in cost savings, equivalent to 1.8 percentage points of margin improvement. The full effect is anticipated by the end of Q1 2026.

Currently, as much as 43% of the company’s employees are classified as back-office staff – i.e., not consultants meeting clients, but rather developers and support personnel managing the company’s simulation platform and similar operations.

We often find AI an overhyped topic, but in this case we believe it can represent enormous cost savings for BTS. Our impression is that the company aims to reduce the share of back-office staff to only a low double-digit percentage within just a few years. The cost savings this would generate are difficult to grasp and would result in a very significant profitability improvement.

What is particularly interesting is that BTS often competes in tenders against pure consulting firms – companies without the same high share of back-office personnel. This means competitors are unlikely to achieve the same cost reductions as BTS, and thus will not be able to lower prices to the same extent.

This could create a very interesting situation a few years from now where BTS maintains its pricing level and revenues while significantly reducing its cost base. In that case, profitability could rise well above the company’s target of 17% EBITA. If this scenario plays out even close to what we consider possible, the stock would quickly look very cheap and could be re-rated both strongly and rapidly. That said, this is not a scenario we build into our base case.

Valuation at crisis levels

At the end of 2021, BTS shares traded at SEK 430 and have since fallen to levels around SEK 180. The company is currently valued at just over 1.2x sales – compared with 5- and 10-year averages of 2.7 and 2.2, respectively – in other words, about half of historical levels. On a trailing 12-month basis, the stock trades at roughly 13x EBIT despite depressed operating earnings. See below for current valuation compared with historical levels:

Q2 developed weakly and we do not have high expectations for this year’s results. Looking ahead to 2026, however, we should have seen the effects of at least 75% of the company’s first efficiency program, and we believe it is quite possible that an additional one will have been launched. The company’s target is a 17% EBITA margin, which corresponds to approximately a 14.5% EBIT margin. BTS states that this will be achieved through a combination of back-office efficiency measures already initiated and a higher revenue level.

We do not dare to hope that this target will be reached already in 2026, but we model 12% EBIT next year. At the current share price, this implies a P/E of 14. Thereafter, we believe the company has a good chance of continuing to deliver very strong profitability improvements for several years. Historically, BTS has traded at very high P/E multiples, namely P/E 23 on a 10-year average and P/E 31 over the past 5 years.

Summary and conclusion

BTS Group has a very strong financial history. The company has generally also managed economic cycles relatively well.

Recently, the company has experienced a slump with lower growth and some margin pressure. This coincided in timing with the company’s founder stepping down as CEO, which likely created some concern in the market about whether the company’s past success could be entirely attributed to the founder and whether the company was in fact highly dependent on one individual. We do believe the founder was very important, but the company he left behind is a well-oiled machine that is not dependent on one person. In addition, we have strong confidence in the new CEO.

Another potential threat to all consulting firms is AI. Our view is that certain types of consultants may find it very difficult, while others are likely to manage well. For example, we believe firms offering simpler programming services will face tough competition, as well as consultants in market research. However, we believe that BTS, with its offering, will continue to be needed just as much as before. Decision simulations are likely to become even more important in a world where technological development moves faster than ever and where the domino effects of different decisions become increasingly significant. Likewise, coaching of leaders and salespeople will continue to be relevant. Therefore, we are not particularly worried about the AI threat.

AI, on the other hand, will significantly help BTS Group streamline and optimize its entire back-office function, which we estimate currently accounts for 25–30% of the company’s personnel costs.

Regarding valuation, we see a large margin of safety relative to what we consider reasonable. If one believes in the company’s target of a 17% EBITA margin, this implies a P/E of 12 or slightly below. We believe that, over time, BTS will return to its historical valuation or slightly below, say around P/E 20. In addition, there is the optionality that back-office efficiencies could create a period of very strong profit growth well beyond the company’s target of 17% EBITA.

Right now, the company is experiencing a somewhat tougher period, but one that we believe is temporary. Therefore, we like the BTS share and believe that those with some patience will be rewarded.

BTS Group represents 1.6% of Kavaljer Quality Focus.

Storytel: we are increasing our holding on share price weakness without reason

Q2 report with decent growth, scalable profitability, and almost net cash

At the end of July, Storytel reported its Q2 results, which we consider fairly uneventful. Revenues increased by 8% in local currency and 7% for the streaming segment. During Q2, the streaming division achieved its highest customer loyalty (measured as churn) ever – an effect of the company actively focusing on the quality of customer acquisition, engagement, and retention. Adjusted EBITDA increased by 28%, and the business model now shows its scalability with a 17% EBITDA margin compared with 13.8% in Q2 2024 (19% EBITDA margin for the streaming division). Moreover, cash flow (excluding changes in working capital) was strong at SEK 140m – compared with SEK 163m in adjusted EBITDA and a cash flow conversion of nearly 86%. This now leaves the company almost debt-free, providing room for potential acquisitions.

Expansion into Estonia

Since then, the company has also announced its expansion into Estonia. This is part of a more selective geographical growth strategy with a focus on profitability from the start, instead of, as before, allowing certain geographies to remain unprofitable for several years before scaling into the cost base. Therefore, we expect a cost-efficient approach also in Estonia.

The threat from Spotify

After the Q2 report, the share price fell from around SEK 95 to SEK 75 over the course of a few weeks. Historically, the Storytel share has been very volatile with shifting sentiment. In our view, it is the perceived threat from Spotify that is being evaluated in different ways. Therefore, we want to outline our thoughts on this and how we view the threat.

Market expansion or direct threat?

Storytel has repeatedly emphasized that when Spotify launches its audiobook offering in a new market, it is net positive for all players. This is because the overall interest in audiobooks in that market drives greater customer acquisition than the number of customers lost to Spotify. This has also been shown with actual data, e.g., from the Netherlands and the US.

Challenges for Spotify in making its audiobook model profitable

Storytel’s management has often pointed out that Spotify has a structural problem with its audiobook business model. Spotify’s model is as follows:

• Typically 15 hours of audiobook listening per month included in a standard premium subscription.

  
  

• If the limit is reached, users can purchase a top-up – similar to how mobile data subscriptions work when monthly data runs out.

  
  

• If users frequently listen beyond their 15 hours, they can purchase “Audiobooks+,” which provides an additional 15 hours of listening per month.

The key question is how large a share of Storytel’s customers might consider switching to Spotify. For heavy listeners, there is simply no Spotify payment plan that allows unlimited listening. This is a problem for Spotify since the average Storytel user spends 30 hours per month in the app. However, “only” about 50% of Storytel’s subscribers listen to more than 10 hours of audiobooks per month.

Our conclusion is that Spotify listeners who consume many hours are simply not a fit for Spotify.

Different offerings attract different target groups

Storytel has a significantly larger audiobook catalog than Spotify. This is an important difference and can be compared to Spotify’s initial struggles when certain artists were not available on the platform. If your favorite artist or favorite author is missing, it creates so much irritation and friction that you start looking for other services that include them. This also highlights an important difference in the business model, as Storytel often owns publishing houses and can therefore control the supply available to competitors. Generally, one can say that Spotify targets users who listen only occasionally, while Storytel appeals to those who place a higher value on audiobooks themselves. In addition, Storytel users can switch between reading and listening to a book, unlike Spotify which only offers listening.

The threat in the Nordics – Storytel’s core market

The Nordics account for 65% of Storytel’s revenues as of Q2 2025. So far, Spotify is not active in the Nordic audiobook market, but there are rumors (e.g., from Mediavision and Boktugg) that Spotify will launch audiobooks in Sweden during autumn 2025 or 2026.

Given that almost everyone in Sweden already uses Spotify, the overlap of Storytel users who also have Spotify would be very high, opening up the risk of a significant churn. That said, corresponding Spotify launches have already taken place in both the Netherlands and the US without any negative effect on Storytel. An important reason for this is that the overall interest in audiobooks as a category increased significantly when Spotify began marketing it.

However, in Sweden, we suspect that the audiobook concept is already so well established that the positive category effect would not be as strong. Therefore, direct competition could potentially weigh more heavily than the positive effect on the audiobook market as a whole.

That said, we believe two factors still weigh in Storytel’s favor: a larger catalog and a viable business model. We have already discussed the importance of catalog size. As for the business model, it is clearly a challenge for Spotify when packaging audiobooks together with music – it is simply not possible for Spotify to be profitable if it offers music + audiobooks at a price lower than what a standalone Storytel subscription costs.

If, however, Spotify were to launch a standalone audiobook product, competition would become tougher. But the question is whether Spotify would really want that – and in that case, it would probably be much easier to acquire Storytel to reach critical mass.

Summary and conclusion

The Spotify threat is and will remain a hot topic for the Storytel share. However, we feel confident that Storytel will remain relevant even when Spotify launches its audiobook service in Sweden and the rest of the Nordics. Above all, we believe its superior and partly proprietary catalog constitutes a moat, while its business model provides a barrier for Spotify.

Last but not least, Storytel recruited a new CFO on October 1. We consider this an excellent hire – the head of research at Pareto Securities (investment bank), who has followed the company for 20 years, knows it inside and out, and understands what the market wants to see.

Storytel represents 3.2% 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 730 millions

Morningstar Rating:  ⭐️⭐️⭐️⭐️⭐️

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

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