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Kavaljer Quality Focus
October 2025
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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.
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Stock market rebound for high-quality small caps
October was a consistently strong month for the stock market, with the Stockholm Stock Exchange (OMXSPI-GI) rising by 4.1%, while the global index (Dow Jones Global Index) increased by 2.0%. After a period of weakness for the small-cap index (Carnegie Small Cap Return Index Sweden), we also saw a strong recovery here, with a gain of +4.1% for the month.
In particular, we have observed that small-cap companies with strong financial track records, but weaker short-term performance, have been vindicated to a large extent. After many seemingly “decent” reports from these companies, their shares have often risen by 10–20% on the reporting day - a clear sign that the fear surrounding small-cap stocks has been excessive.
As preparation for this monthly letter, which was written before the wave of reports with the above results was released, we wrote the following passage:
Thoughtful lessons or foolish hindsight?
On the stock market, one is constantly learning, but the difference between true lessons and mere hindsight is crucial. Right now, we see a divided market: companies delivering strong results today are priced as if the future holds only sunshine, while quality companies facing temporary setbacks are treated harshly and punished severely.
It’s easy to be wise in hindsight and conclude that one should always pay up for the highest quality - “buy cheap, cry every time; buy quality, cry only once.” But our experience shows that there is often greater value in identifying companies with a strong track record and proven quality that are currently out of favor due to temporary issues.
Small-cap companies are hit especially hard: a few weak reports or uncertain outlooks can trigger sharp share price drops and a sentiment that makes the market question the company’s overall quality. Their more volatile earnings further amplify these swings. Assuming some revenue recovery and normalized profitability based on historical performance, we arrive at very attractive valuations for many smaller quality companies. However, today’s pessimism toward this group prevents such assumptions from being reflected - it seems that yesterday’s small quality companies are now seen as mediocre forever, at least if valuations are any indication.
The question for investors, then, is when to give companies the benefit of the doubt - that is, to accept an explanation for why current earnings are temporarily depressed. In today’s climate, many small-cap companies are met with a firm “no,” despite having repeatedly proven their ability to navigate tough periods in the past. This is where one must dare to be contrarian: to see through the market’s short-term judgment and trust that quality companies with a solid history can rise again this time as well.
With hindsight, it’s clear that we were onto something — as reflected in the fund’s performance this month.
Fund Performance and Contribution
Kavaljer Quality Focus delivered a clearly positive performance, rising +5.2% during the month. Year to date, the fund has returned +9.7%, compared with +10.3% for the Stockholm Stock Exchange (OMXSPI-GI) and +3.4% for the small-cap index (Carnegie Small Cap Return Index Sweden).
Over the past five years, the fund’s return amounts to 92%, compared with 64% for the Stockholm Stock Exchange (OMXSPI-GI) and 31% for the Small Cap Index.
The largest positive contributors to the fund’s performance during the month were RVRC and ITAB, adding +1.7 and +0.8 percentage points respectively, along with Exsitec, Swedencare, and FlatexDegiro, each contributing +0.5. The largest negative contributors were Inwido and Bravida, each detracting -0.5 percentage points.
Changes and Holdings
During the month, the fund reduced its holdings in FlatexDegiro and RVRC - both of which have performed very strongly and grown too large in portfolio weight. In addition, we increased our positions in Carasent, Exsitec, Inwido, Pandora, Securitas, ITAB, Swedencare, and Bravida. We also initiated a new, albeit still very small, position in Vitec Software.
Later in the letter, we provide more in-depth reviews of Inwido, Swedencare, Nilörngruppen, FlatexDegiro, Carasent, and RVRC. A brief summary of these reviews follows below:
Inwido delivered a weak quarter, mainly driven by low demand in Eastern Europe and pressured margins due to underutilized factory capacity. At the same time, the balance sheet remains strong, cash flow is stable, and the company continues to pursue acquisitions at a high pace, providing solid opportunities for growth when the market turns. In the longer term, the stock appears attractively valued, with significant earnings growth potential once the business cycle normalizes.
Swedencare delivered a strong Q3 with broad-based growth and improved profitability - revenues increased by 15% in constant currency and the EBITDA margin reached 21.7%. NaturVet, previously a concern, showed strong growth of 17% (+28% in constant currency), and Q4 is expected to be even stronger with continued solid cash flow. The long-term potential is supported by expanding Pharma projects, a broader retail presence, and rising margins, making the valuation attractive heading into 2026 and beyond.
Nilörn made a strong comeback after a weak Q2, with revenues up 18% in constant currency and an EBIT margin of 11.4%. Issues in Turkey and Vietnam have been addressed, and the company now reports improved capacity in Asia. Order intake was stable when adjusted for currency and timing effects, and Nilörn is now actively exploring acquisition opportunities. With a strong balance sheet and potential for profitability normalization, the stock appears attractively valued.
FlatexDegiro delivered another strong quarter with revenues up 18% and profits up 57%, leading to a second upward revision of this year’s earnings guidance. Despite the stock having nearly doubled since spring, the company still shows strong long-term growth potential, driven by low market penetration and possible margin expansion. The valuation at a P/E of 17 based on 2027 targets appears attractive compared to Avanza and Nordnet, even if the stock is no longer as cheap as at earlier entry points.
Carasent continues to demonstrate strong operational leverage with 16% organic growth in recurring revenues (ARR) and a significant improvement in profitability; the EBITDAC margin rose to 14.8% from -3%. Cost control remains solid, and growth prospects are broad, supported by contributions from Germany, Region Stockholm, and the AI product Medsum. There is also additional optionality in a potential expansion within the Västra Götaland region (VGR), as the Millennium project now appears likely to be scrapped and replaced by a modular solution in which Carasent could play a role. The Q3 report reinforces the picture of a company entering a longer phase of scalable growth and rising margins. Over time, we believe this should translate into a higher earnings multiple.
Revolution Race delivered a strong Q1 with 15% growth in local currency and an improved operating margin of 19%. Growth was particularly strong in the Nordics and the DACH region, indicating a recovery after a weak period. Altor has now fully divested its 15% stake without any significant discount, removing a previous source of selling pressure on the stock.
The equity share was 98%.
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In-depth reflections on our holdings
Inwido: Weakness in Eastern Europa weights on results, but those who look beyond the short term will see an attractive valutaion
The window and door manufacturer Inwido released a weak report, mainly due to low demand in Eastern Europe (including Finland and Poland). The main issue was a decline in gross margin caused by low volumes, resulting in underutilized factory capacity. This has hurt profitability, particularly in Finland, where some factories are operating only two days a week instead of five. The company sees no signs of improvement in Finland, as both Finland and Poland are experiencing very subdued demand due to geopolitical uncertainty related to Russia. A lower share of consumer sales has also negatively affected margins.
Two acquisitions were completed during the past month, and the pipeline looks strong - “hopefully a nice string of acquisitions ahead,” according to the CEO. The balance sheet is solid, with net debt/EBITDA at 1.0x including IFRS 16 (treating leases as debt) and 0.5x excluding it. Cash flow in Q4 is seasonally strong, so leverage is likely to decrease further in the near term, leaving ample room for opportunistic acquisitions in a weak market. September showed clearly better performance than July and August, with year-over-year growth. However, the order book is now more weighted toward industrial customers, which implies somewhat lower margins.
Summary:
Currently generating genuine recession-level profits Outlook remains weak, and the order book carries low margins, so near-term earnings growth is unlikely On the positive side, the balance sheet is very strong and the M&A pipeline looks promising Earnings per share (trailing) are SEK 9.13, corresponding to a P/E of 17 at a share price of SEK 160 EBIT margin (LTM) is 9.3% versus 11.7% at the 2021 peak. The net profit margin has fallen even more, from 9.2% to 5.9%. We estimate about 30% earnings upside if the profit margin returns to 8%, implying an underlying P/E of 13. A further 20% could come from volume recovery, suggesting a P/E of 10–11 in a normalized economy -
A series of acquisitions could provide an additional boost to earnings
We estimate earnings per share of around SEK 18-20 by 2028, assuming a moderate economic recovery. In that case, a P/E multiple of 15-17 seems reasonable. Recently, the stock has been trading at a trailing P/E of 20-22, driven by expectations of a quick earnings rebound. Based on our assumptions, this implies a share price of around SEK 300 within three years. While we see no near-term catalysts, we believe that for investors willing to take a longer view, increasing exposure now represents a good opportunity - which we have done.
Inwido represents 2.4% of Kavaljer Quality Focus.
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Swedencare: Growth acceleation, profitability improvements, and strong outlook
Swedencare (pet supplements) delivered a very strong Q3 report with revenues up 11% year-on-year, or +15% in constant currency (Europe +19% and North America +17%), and an operating EBITDA margin of 21.7%. Cash flow was also strong, with operating cash flow excluding changes in working capital amounting to 75% of operating EBITDA.
A major concern among investors has been whether the acquisition of NaturVet (which accounts for 25-30% of revenues) had begun to face structural issues and would underperform going forward. In Q3, the company demonstrated the opposite - NaturVet grew 17%, or roughly +28% in constant currency — a very important piece of our investment thesis. Moreover, only half of the large Walmart order was included in Q3, with the remainder to be recognized in Q4. The company also noted that momentum in North America is expected to improve in Q4, while Europe should continue its strong trend (+19% growth in Q3). The improved North American momentum is expected to be driven primarily by the ramp-up of major projects within the company’s Pharma segment (contract manufacturing). Additionally, management mentioned a high level of ongoing quote requests, which bodes well for continued growth ahead.
In summary, it was a strong quarter across the board. Q4 is also expected to be strong, with even better profitability and growth similar to or exceeding that of Q3. New financial targets will be announced in early December, likely including 10%+ organic growth and 25%+ EBITDA.
Growth from 2026 and onward looks strong, driven by the ramp-up of Pharma contracts starting in Q4, expansion into big-box retail channels, and potential acceleration in online sales.
Profitability is also expected to improve going forward, driven by organizational scalability, higher margins from Amazon sales (which account for 30% of total sales) as operations are brought in-house and intermediaries are removed, and the ramp-up of Pharma projects that carry higher profitability than the group average.
Valuation: We continue to project SEK 3 billion in sales for 2026 and a 25% EBITDA margin, which corresponds to roughly 12x underlying earnings (owner earnings) at a share price of SEK 38. We still consider a 20x earnings multiple to be more reasonable, providing a solid margin of safety.
Swedencare represents 3.8% of Kavaljer Quality Focus.
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Nilörn: Strong comeback after a weak Q2
Nilörngruppen delivered a strong Q3 report - a relief after a very weak Q2 and previously uncertain guidance. Several areas of concern were eased or fully resolved by the Q3 results. Revenues grew 11%, or +18% in constant currency. The EBIT margin came in strong at 11.4%, and earnings per share nearly doubled from last year to SEK 1.66.
Order intake declined by 13%, of which 7% was explained by a timing effect from a large order that will be recognized in Q4, and 6% by negative currency effects. Adjusted for these factors, order intake was flat year over year. The company noted that the outdoor segment (25-30% of sales) continued to perform relatively well, while the luxury segment (5-10% of sales) remains cautious - and is expected to stay that way until mid-next year, as these customers still hold excess inventory.
Previous issues in Turkey and Vietnam now resolved
Following Q2, there were some concerns regarding the company’s operations in Turkey and Vietnam. In Q3, cost-saving measures were implemented in Turkey and have now been fully completed.
In Vietnam, the issue had been that customers previously promised to shift production from Hong Kong to Vietnam but failed to follow through, resulting in low capacity utilization and weak profitability at the Vietnam factory. In Q3, the company announced that volumes have now been successfully transferred from Hong Kong and China to Vietnam and also to Sri Lanka.
Acquisitions on the agenda
An interesting development concerns acquisitions. We have previously noted that the industry is undergoing consolidation, with larger players acquiring smaller ones. Until now, however, Nilörn has remained inactive and appeared relatively uninterested in participating. In Q3, the tone shifted - the company is now actively exploring acquisition opportunities. With a strong balance sheet, Nilörn is looking for targets that would either (1) expand its geographical presence in markets where it currently lacks strength (France, the Netherlands, Spain, and the U.S.), or (2) enable vertical integration into product areas where it is weaker (heat transfer, RFID, and packaging). That said, the company remains cautious and has emphasized that it will not rush into any deals.
Still low valuation despite rebound
From a valuation perspective, we model a normalization of profitability by 2026, with an EBIT margin just below 11%, in line with the historical average. Assuming 5% annual growth (versus a historical average of 7%), we estimate earnings per share of SEK 6.9 compared with today’s share price of around SEK 63. Although the company may seem like a “boring” one and is unlikely to ever become particularly “hot,” its financial track record clearly reflects quality. Rather than a P/E of 9, we consider a multiple of 13–14 more reasonable and consistent with its historical average valuation. We therefore continue to see a solid margin of safety.
Nilörngruppen represents 2.5% of Kavaljer Quality Focus.
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FlatexDegiro: Another earnings upgrade for the 2025 forecast after an excellent quarter
The pan-European online broker FlatexDegiro delivered another very strong report. Revenues increased by 18%, while the company’s cost base remained nearly unchanged - resulting in a solid 57% profit increase. This prompted the company to raise its 2025 earnings forecast for the second time this year, this time by around 20%.
The company has a 2027 guidance of EUR 200 million in net profit, equivalent to just under EUR 2 per share. The stock has performed exceptionally well since our purchase in the spring (almost +100%) and now trades at EUR 33, corresponding to a P/E ratio just below 17 based on the 2027 guidance.
· A P/E of 17 for 2027 is not particularly low in itself, but still below the estimates for Avanza and Nordnet, which trade around 20.
· FlatexDegiro operates across 16 markets — far more than both Avanza and Nordnet. Moreover, online brokerage penetration in these markets is much lower, suggesting a significantly longer growth runway for FlatexDegiro.
· The company’s 2027 guidance assumes a profit margin of only 31%, which is well below Nordnet’s 54% and Avanza’s 59%. As FlatexDegiro continues to scale, there should be substantial room for further margin improvement.
· Management is known for being notably conservative in its guidance, which is why we believe the 2027 forecast may well be raised again.
In summary, FlatexDegiro has performed exceptionally well since our initial investment in the spring. Although the stock has nearly doubled from our entry level, we still believe it has the potential to remain a long-term winner for many years to come. That said, the valuation is no longer as remarkably cheap as when we first invested, which has led us to slightly reduce our position.
FlatexDegiro represents 3.0% of Kavaljer Quality Focus.
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Carasent: Strong organic growth, impressive margin improvement, and promising developments in (VGR)
Carasent delivered a strong third quarter with 16% organic ARR growth and a net revenue retention (NRR) of 111%. Consulting revenues were slightly lower, mainly due to resources being temporarily reallocated to the large Volvat project (Capio in Norway).
Profitability improved significantly, with an EBITDAC margin of 14.8%, up from -3% in the same period last year - exactly what we want to see. Cost control was evident, with personnel expenses down 3% excluding the German acquisition. The company’s 2028 targets (15%+ annual growth and over 26% EBITDAC margin) allow room for continued investments while clearly signaling its ambition to exceed these goals.
In summary, we believe the Q3 report confirms our investment thesis — that the company has entered a sustained period of accelerating growth and steadily improving profitability.
The revenue acceleration going forward is expected to come from a mix of:
Germany expansion: Revenue expected to double as customers transition to Carasent’s own system, alongside substantial new sales potential in a large market with a superior product offering. Region Stockholm including the surgery module: Growth driven by the phase-out of the old TakeCare system combined with the launch of a new, best-in-class surgical planning solution for larger clinics. Medsum: An AI-based transcription product that now has its first live customers. Minor product adjustments are being made before a broader rollout to additional clients.
Major positive developments in VGR
In addition to the growth drivers mentioned above, there is additional upside potential from the Västra Götaland region (VGR) if it decides to withdraw the Millennium system - an outdated hospital record system whose implementation across hospitals and certain public health centers has been a disaster.
If withdrawn, it would likely be replaced either by one large integrated system or by a collection of systems in a modular setup.
The key risk has been that Carasent’s customers in the Västra Götaland region (VGR) - representing about 5-10% of recurring revenues — could be forced to leave the platform. However, if Millennium is withdrawn and replaced with a new, optional system, these customers would no longer need to switch providers. In addition, private clinics that have been waiting to be migrated into Millennium could instead choose to adopt Carasent’s system. Over a few years, this would likely increase Carasent’s revenues from VGR by around 5–10% as the addressable market expands.
However, if VGR were to move toward a modular solution consisting of a collection of smaller systems that share information with each other, a very large market opportunity would open up for Carasent. In that scenario, Carasent could become part of the solution for public healthcare centers — which, according to our understanding, would represent a market many times larger than the current private market in VGR.
On the third of November, a comprehensive report was published following an assignment from the VGR regional executive committee to the regional director, who in turn commissioned a coordination group. The report recommends that the implementation of Millennium should not be resumed and that it should instead be replaced with a modular solution. The final decision now rests with the regional executive committee, but our view is that the most likely outcome is that they will decide in line with the report’s recommendation. This would be very positive for Carasent.
Margin expansion through scalability – trading at 10x 2028 earnings, but we believe 30x is well deserved
Profitability improvements are expected to come from the company’s scalability - meaning costs will not need to rise significantly even as revenues increase substantially.
The stock is trading at 10x free cash flow for 2028, based on what we consider a fairly conservative outlook. We believe the company can continue to grow earnings by around 15% per year for many years ahead, with further margin improvement. In that case, paying 30x earnings seems more reasonable. As each quarterly report continues to confirm our thesis, we expect this to lead to a higher earnings multiple over time.
Carasent represents 4.3% of Kavaljer Quality Focus.
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RVRC: Growth and profitability improving - and Altor now fullu exited as shareholder
Revolution Race (RVRC) delivered a very strong Q1 report (fiscal year) with 15% growth in local currency and an operating margin improving from 16.3% to 19.0%. Geographically, the highlights were the Nordics, which grew by 19%, and the DACH region (Germany, Austria, and Switzerland), which grew by 18% in local currency.
We find the growth in the DACH region particularly impressive, especially given widespread concerns about the weak German economy. The rest of the world grew by “only” 2%, entirely due to declining sales in the U.S. following the introduction of new tariffs. Looking at the chart below, it is clear that growth has bottomed out and that the company has now entered a recovery phase.
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At the end of the reporting day, it was announced that Altor had sold its entire 15% stake in the company - at virtually no discount. This overhang had long weighed on the stock, as investors had been anticipating the sale and expected it to come at a significant discount.
The stock has performed very strongly recently (+50% since the previous quarterly report). Since RVRC was already our largest holding before the rally, its portfolio weight became quite high, which led us to trim the position slightly.
RVRC represents 5.5% of Kavaljer Quality Focus.
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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 805 millions
Morningstar Rating: ⭐️⭐️⭐️⭐️⭐️
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“It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success.”
Seth Klarman
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Nacka Strand, November 4, 2025
Peter Lindvall, Håkan Telander & Jesper von Koch |
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