Kavaljer Quality Focus

November 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.

Weak for small caps, neutral for large caps

November was a neutral month for large caps, with both the Stockholm Stock Exchange (OMXSPI-GI) and the global index (Dow Jones Global Index) trading sideways. Small caps, however, continued their weak trend, with the Carnegie Small Cap Return Index Sweden declining by –1.7%.

In last month’s letter we wrote: “In particular, we have seen that small caps with strong financial histories, but weak short-term performance, have finally received some recognition. After several seemingly ‘decent enough’ reports, many of these stocks have jumped 10–20% on the day of the report – a clear sign that fear around small caps had become excessive.” After a brief and aggressive rebound, these companies have once again pulled back and been placed back in the freezer.

Fund Performance and Contribution

Kavaljer Quality Focus delivered a weak performance in November, declining –2.4% for the month. Year-to-date, the fund is up +7.1%, compared with +10.3% for the Stockholm Stock Exchange (OMXSPI-GI) and +1.5% for the small-cap index (Carnegie Small Cap Return Index Sweden).

Over the past five years, the fund has returned 70%, versus 74% for the Stockholm market and 41% for the small-cap index. So even though the fund ranks at the top among small-cap funds during this period (#1 in the “Sweden Small/Midcap” category on Morningstar), we are still trailing the broader index – which is highly indicative of the extremely weak sentiment surrounding small caps. If history tells us anything, it’s that it is far more attractive to invest when sentiment is depressed than when it is euphoric, as weak sentiment typically signals low valuations.

The strongest positive contributors during the month were Svedbergs and Proact IT, adding +0.3 and +0.2 percentage points respectively. The largest negative contributors were Catella and Storytel, detracting –0.5 and –0.4 percentage points respectively.

The art of having conviction without being reckless

Choosing the right stocks matters – but understanding why you own them is just as important. Conviction means having a clear investment thesis. It often boils down to two questions:

1. What will happen to the company’s earnings development?

2. What will happen to the valuation (e.g., P/E or EV/EBIT)?

Earnings growth is driven by factors such as market dynamics, competition, the economic cycle, and margin improvements (or deteriorations). Valuation is about how the market perceives the company’s future.

When I know what is supposed to drive the return – earnings, multiple expansion, or both – I also know what to focus on when the market swings. If my assumptions about future earnings or market perception change, I must be ready to reassess the position. It also becomes logical to add to a stock that has fallen – if my analysis still holds and the upside has increased.

But conviction must not be confused with stubbornness. A central part of rational investing is avoiding confirmation bias – the tendency to seek out information that confirms what we already believe. It is easy to “marry” a stock after it has gone up, buy every dip, and ignore changing risks or stretched valuations. Suddenly, one starts justifying multiples one would never have accepted before.

Rational behavior requires not letting the share price dictate the analysis. A decline does not mean the thesis is broken – just as a rally is not proof that you were right. It takes humility to rethink a position, especially when you’ve expressed a strong opinion publicly or recommended the stock to friends. Every decision must stand on its own.

Portfolios also evolve over time. A stock that was once attractive doesn’t have to remain so. New opportunities may offer better risk/reward, or the company’s long-term prospects may simply have deteriorated.

True conviction is built on analysis, not emotion. It’s about having a well-reasoned thesis, being willing to reassess it, and acting rationally – even when it’s uncomfortable. That’s when conviction becomes an asset, not a trap.

Changes and holdings

During the month, the fund reduced its positions in Valmet, RVRC and VBG Group, and fully exited its holdings in Kone, Sdiptech and Alleima. We also increased our positions in Carasent, Securitas, Swedencare, Bravida, Alligo, Catella, Huhtamäki and AOJ, and initiated a new position in Bonesupport.

Later in this letter we provide deeper reviews of Storytel and Catella, as well as an in-depth analysis of the relatively new holding Exsitec. A brief summary of these discussions follows below:

The market sold off Catella on a weak Q3 report, but we believe investors are overlooking the value of the core Investment Management segment, which offers stable, recurring revenues and growing AUM. With normalized real estate activity and bond redemptions, we expect strong earnings growth over the coming years. In addition, there is potential for short-term value realization through a special dividend funded by the company’s sizable net cash position.

Storytel dropped sharply following Spotify’s audiobook launch in the Nordics, but we believe the risk is overstated and that Storytel may instead see strong earnings momentum over the next 1–2 years—both from rising overall audiobook consumption and from licensing revenue via Norstedts to Spotify (partly through fixed-fee components). Early data also suggests Spotify is attracting a different demographic (men under 44 consuming non-fiction), a segment where Storytel has limited exposure—something we view as structurally positive.

Exsitec is a Nordic IT consulting group operating as a “one-stop shop” for mid-sized companies by combining selected cloud applications (via partners like Visma and Microsoft) with proprietary integrations, support and ongoing development. The business model yields a high share of recurring, high-margin license revenue and a compounding “land-and-expand” dynamic across a customer base of ~5,500 companies, supported by structural capital from thousands of previous implementations. After softer organic growth in 2023–2024, Q3 2025 shows a clear turnaround with strong software growth, improving sales indicators and potential for operational leverage as the market normalizes. The stock trades at a discount to historical levels (EV/EBITA ~15x) despite strong ownership, M&A capacity and prospects for accelerating growth and gradual margin expansion.

The equity allocation was 99%

 Source: Redeye

In strong markets, Catella generates both fixed and variable fees. Today, earnings are under pressure due to a sluggish real estate market, meaning revenues now stem almost entirely from fixed fees. We are by no means assuming that Catella will return anytime soon to the extraordinary level of variable income seen in 2022 — only that they recover to “decent” levels. For that to happen, the real estate market simply needs to become a bit more active so that transaction fees start to come through again. Performance fees should also return as an additional upside once the property market improves.

 Source: Redeye

Today’s almost non-existent variable fees weigh heavily on profitability, as the cost base is largely fixed: the current EBIT margin of 12–13% compares with 33% when IM generated substantial variable fees in 2021–2022.

The key metric is AUM relative to the number of employees. Catella is currently at an all-time high here – around SEK 560 million in AUM per employee. This suggests that IM, even with only “decent” variable fees, should be able to reach an EBIT margin of at least 25%.

The bonds that hide Catella’s true earnings power

Catella has a net cash position of around SEK 400 million, but at the same time carries two bonds totaling SEK 1.2 billion, which generate substantial interest expenses each quarter and depress net profit. This contributes to the market overlooking how undervalued the company actually is – on top of the fact that EBIT is currently suppressed. The bonds have early redemption windows in September 2026 and April 2027, and redeeming them would significantly lift earnings.

Short-term opportunity for value realization

We believe the Board, majority owner Johan Claesson, and management are well aware that Catella is overcapitalized. The net cash position is roughly SEK 400 million excluding other investments. On the balance sheet, Principal Investments amounts to SEK 1.1 billion compared with the target of SEK 1.0 billion, implying roughly SEK 100 million in “excess” capital there, plus around SEK 500 million in underlying net cash.

For an asset-light company like Catella, we consider a net debt position of at least SEK 300 million to be reasonable (about 1x net debt/EBIT(DA) at normal earnings levels, and 2x at current levels excluding the Kaktus gain). This implies overcapitalization of roughly SEK 800 million, corresponding to around SEK 9 per share.

In addition, Catella owns a stake in Pamica, which is expected to be listed within the next year. The holding is currently booked at SEK 130 million (SEK 1.4 per share), but we estimate that close to SEK 2 per share could be unlocked at IPO. Acquisitions could be value-accretive — and the CEO has strong experience here — but we do not expect the entire excess capital to be deployed on M&A. Instead, we anticipate a substantial special dividend.

A potential doubling by 2027?

For a cyclical company like Catella, the focus should be on normalized earnings. For 2027, we forecast SEK 300 million in EBIT, entirely from Investment Management, assuming Corporate Finance at least covers group-wide costs. With interest expenses of SEK 22 million (5.5% on SEK 400 million of debt), EBT lands at SEK 278 million. After 25% tax, roughly SEK 210 million remains in net profit, corresponding to SEK 2.4 per share.

We apply a conservative P/E of 15 on 2027 earnings, implying SEK 36 per share. Adding estimated special dividends and ordinary dividends brings total value to around SEK 49 per share — versus today’s price of roughly SEK 26.

Notably, during the month Catella’s majority owner, Johan Claesson, accepted a takeover offer in Arise, where he owns 30%. The offer carried a 46% premium on a depressed share price — much like Catella’s situation. We draw no firm conclusions, but given Claesson is now 75 and seems open to liquidating certain assets, a sale of Catella to a strategic buyer is definitely a possible scenario — something the new CEO has significant experience with.

Catella represents 3.5% of Kavaljer Quality Focus.

Storytel: Attractive risk/reward after sell-of on Spotify-related fears

As expected, Spotify launched its audiobook offering in the Nordics (excluding Norway) in November. Despite the fact that “everyone knew” this was coming, Storytel’s share price fell sharply (from SEK 89 after the strong Q3 report to SEK 68).

When it comes to Spotify, we still believe it is too early to predict the long-term impact. In the short term, however, it will almost certainly generate strong earnings momentum for Storytel. Partly due to a “rising tide” effect — overall audiobook consumption is likely to grow more than Storytel’s market share declines.

But mainly because Storytel, through Norstedts, licenses its catalogue to Spotify. The more successful Spotify is, the stronger the revenue and profit boost for Storytel over the next 1–2 years. Moreover, our understanding is that a large portion of the agreement is based on fixed payments, which means Storytel benefits even if Spotify’s audiobook launch performs only moderately well.

Without speculating too far beyond the next three years, we believe that once the market sees the strong earnings growth Storytel is likely to deliver over the next 18–24 months, it will “declare victory early” and reward the company with a higher earnings multiple.

In summary, we believe the next 18 months could bring:

• Strong earnings growth

• A reasonably high multiple on those earnings

  
  

As a result, we think the share could perform very well during this period.

Early data suggests Spotify is attracting a different audience than Storytel

Only a week after Spotify’s launch, publishers reported a clear — albeit early — trend: audiobook consumption on Spotify has been strongest among men under 44, primarily consuming non-fiction such as management and finance literature.

This is a demographic Storytel has historically struggled to reach, representing only around 5% of revenues in the Nordics. A key reason Spotify succeeds with this audience is that it has acquired rights to a U.S. publisher’s catalogue rich in this type of content — something Storytel has not focused on.

While it is still too early to draw long-term conclusions about the competitive dynamics, we view this early data point as positive for Storytel. We therefore increased our position during the dip.

Storytel accounts for 3.9% of Kavaljer Quality Focus.

Exsitec: An undiscovered gem with a scalable business model

Exsitec is a Nordic IT consulting company that helps mid-sized businesses digitalize by providing a curated selection of around 20 cloud-based software products, combined with proprietary integrations. They operate as a true “one-stop shop”: selecting the right systems, ensuring they work seamlessly together, and taking long-term responsibility through support and continuous development. This makes the offering more comprehensive than traditional consulting — and far stickier than pure software licensing.

A partner-driven model: built on others’ R&D (while getting paid for years)

Exsitec partners with around 15 leading vendors, with Visma, Microsoft, Medius and Qlik being the most important. In practice, Exsitec becomes the vendors’ extended arm in the Nordics for sales, implementation, and customer management. The model is smart for two reasons:

1. Exsitec can leverage partners’ large R&D investments without bearing the cost.

2. Vendors gain faster distribution and better customer outcomes, since a strong partner reduces the risk of failed implementations.

The revenue model is based on revenue sharing: Exsitec typically receives 40–50% of the end customer’s license payments for the duration of the relationship. This creates recurring revenue with close to 100% gross margin. Around 95–98% of software sold is on long-term contracts, providing stability and a compounding effect over time.

The close partnerships and reusable integrations create a win-win-win dynamic:

• Software vendors: broader distribution + higher retention/customer satisfaction

• Customers: ready-made integrations + a coherent system environment

• Exsitec: recurring revenue + deep customer relationships

Structural capital: accumulated experience that shortens delivery times and lowers risk

Since inception, Exsitec has carried out thousands of integrations and implementations. This builds structural capital in the form of technical components, documented knowledge, best practices, and internal methodologies. The practical effect is that Exsitec has “done something similar before” in most new customer projects.

This shortens implementation times, reduces project risk, and improves delivery quality — which in turn boosts customer satisfaction and increases the likelihood of rapid adoption (and expansion).

Broad customer base and land-and-expand as the default mode

The customer base includes roughly 5,500 companies (up from ~1,100 at the 2020 IPO). Customer concentration is low (the largest customer represents ~1.5% of revenue), and churn remains low even in a weak economic environment.

The business model generates economies of scale that strengthen as the customer base expands:

• Reusable integrations: proprietary integrations can be deployed broadly → lower cost per new customer and higher profitability per project.

• Stronger partner position: more customer relationships enhance bargaining power with vendors → better terms, higher partner tiers, and larger revenue shares.

• Cross-selling: with over 20 software products, Exsitec systematically runs a “land-and-expand” model; 80–85% of consulting revenue comes from existing customers.

A key driver behind the strong customer growth is an unusually robust sales culture for an IT company. Even consultants are expected to contribute by bringing in business, supported by internal competitions and concrete activity targets (such as proactively contacting a significant share of the customer base).

Compounding effect: rising share of software = rising profitability

Revenue rests on three pillars:

• Software (~25%): recurring partner licenses plus Exsitec’s own integration products sold as subscriptions.

• Consulting (~65%): implementation, configuration, and continuous development. The very high share from existing customers (80–85%) signals both loyalty and expansion dynamics.

• Support/infrastructure (~10%): fixed monthly fees for support, operations, and security.

The interesting part is the compounding effect: license and support revenues grow “automatically” faster than the more labor-intensive consulting segment — because these agreements accumulate over time without needing to be replaced by new sales. As the software share increases, margins expand, since software revenue flows almost directly to operating profit.

This also clearly illustrates the “land and expand” strategy: the average customer now uses around 2.1 software products (up from ~1.4 a few years ago), while an “ideal customer” might use 5–6 components.

Visma: key partner and a clear M&A lever

Visma is the most important software partner and is estimated to account for 40–50% of Exsitec’s ARR. Visma uses a tier-based commission model where the partner’s revenue share increases with customer base size and sales volume. Exsitec is already at one of the highest tiers.

This creates a tangible acquisition lever: when Exsitec acquires a smaller partner, the acquired customer base can be migrated to Exsitec’s partner account, immediately qualifying for a higher commission tier (e.g., 25% → 35%). In practice, this results in an instant margin and ARR uplift without additional sales.

For Visma, this setup is also attractive: larger and financially stable partners reduce churn risk and enable more cross-selling. The clearest risk is pressure on commission levels, but according to management this has not occurred. Moreover, Exsitec represents a very small share of Visma’s total ARR, making aggressive changes to partnership terms less likely.

Financial track record: consistently strong, but cyclically pressured

Since 2015, Exsitec has combined growth with profitability, with an average EBITA margin around 16%. From 2021 to Q3 2025, organic growth has averaged ~8%, but the consulting market has been weak in recent years: in 2024, organic growth was –1% (down from +9% in 2023). Longer decision cycles and lower utilization have pressured margins, particularly in the consulting segment.

Important: Exsitec continued to invest aggressively while others became defensive, which may strengthen its competitive position as the market normalizes.

Acquiring at the bottom of the cycle – building the platform for the next phase

M&A is a central part of the strategy. Since 2021, Exsitec has completed 15 acquisitions with an average EBITA margin of ~20.4% and an average valuation of ~8.4x EBITA. Most acquisitions are small, but Vitari was a larger deal and became the foundation for the expansion into Norway. Acquisitions are used to:

• Broaden the customer base and let the “land-and-expand” model take over.

• Strengthen the offering with new competencies/platforms (e.g., BrightCom in 2024 added deep Microsoft expertise and strengthened Exsitec’s e-commerce capabilities).

Financing is primarily through cash flow, complemented by debt and occasional equity issuance. With net debt below 2x EBITDA and unused credit facilities of ~SEK 190 million, acquisition capacity remains strong.

Management and ownership: continuity through internal succession

The ownership structure is stable, with insiders holding around 36%. The CEO transition in March 2025 was a planned generational shift: founder Johan Kallblad moved from CEO to a board role, and the company’s decentralized model — built around autonomous business units — reduces key-person risk.

New CEO Niklas Ek has spent his entire career at Exsitec (starting as a trainee in 2015) and has led ERP Sweden — the largest business unit — with strong profitability even during 2024. His priorities going forward: higher organic growth, improved delivery capacity, and better operational efficiency.

Current situation: clear signs of a turnaround

Q3 2025 marks a turning point with 6% organic growth after a soft period. Recurring software revenue grew 25% and now represents roughly 25% of total revenue (RTM), strengthening both stability and margin profile. Norway reached a 15% EBITA margin and is seen as having further improvement potential.

The sales organization shows stronger execution (orders/leads up ~10%), sales cycles are starting to shorten, and the large number of hires made in 2024 are gradually becoming fully productive — all of which create operational leverage as demand accelerates.

Valuation and conclusion

Exsitec has demonstrated an ability to combine growth and profitability, but earnings are temporarily suppressed by a weak consulting market. The share is up ~20% over the past three years and trades around EV/EBITA ~15x on LTM figures — roughly a 30% discount to the five-year average. Consensus implies ~14x for 2026 and ~13x for 2027, which appears low for a company with rising recurring revenue and clear scalability.

Conclusion: Exsitec is an asset-light, compounder-like company with a strong sales culture, deep partner relationships, and a revenue mix that is steadily becoming more recurring. The combination of recovering organic growth, shorter sales cycles, and a rising share of software creates strong conditions for sustained margin expansion. The market likely does not yet fully appreciate the quality of the model or the long-term earnings power.

Exsitec 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 768 millions

Morningstar Rating:  ⭐️⭐️⭐️⭐️⭐️

Are you interested in investing in Kavaljer Quality Focus?

Sweden: Available via several Swedish platforms and advisers.

Link: Kavaljer Quality Focus - Kavaljer

Norway: Available via Nordnet.

Link: Kavaljer Quality Focus - Nordnet (NO)

Luxembourg (via CACEIS): The fund is available as Lux Multimanager SICAV – Kavaljer Quality Focus (Class A SEK, ISIN: LU1232457504).

CACEIS, Luxembourg Branch acts as the Registrar & Transfer Agent, meaning subscriptions/redemptions are processed via CACEIS (typically through your bank/broker/distributor who can route orders to CACEIS).

Investors outside Sweden, Norway or Luxembourg: If you are based in another country and would like to invest, please contact us and we’ll help you find the most suitable way to access the fund via your local set-up.

“You can’t just be a contrarian - you have to be right”

Howard Marks

Nacka Strand, December 3, 2025
Peter Lindvall, Håkan Telander, Jesper von Koch & Jakob Wahlberg

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