Monthly report 6-2020


  • Entered a «kangaroo market», and a possible market top on 8 June
  • Still a high cash position, but exploited some good opportunities
  • Takeover bid for one of my holdings
  • Initiated a position in Evolution Gaming as a hedge in case the bid on NetEnt fails
  • Added to my positions in Bakkafrost, Mowi and Essity and trimmed position in NetEnt. Sold all holdings in Beijer Ref as share price has outrun fundamentals
  • Portfolio performance year to date: 13.31 %

Portfolio: Nordic Compounders

I want a portfolio with high quality Nordic compounders. To be of interest a company has to have:

  • Solid balance sheet,
  • High return on capital,
  • High historic growth,
  • Stabile margins and a long term megatrend in the back.

By constantly focusing on quality compounders over the long run the outperformance against benchmarks will be great.

June has felt as long as a year, and 2020 as long as a decade. I’m still very cautious in this market and maintaining a high cash position of 27.4% at month end, up from 25.6 % in May.

Portfolio as per 30 June 2020

The portfolio is tilted towards Industrials and Healthcare, and the exposure to Finance are at a mimimum. Going forward the focus will be to add companies in the Information Technology and Consumables sectors to further diversify my portfolio

Sector allocation as per 30 June 2020

Beginning of June, the stock market did not lose any steam and is still backed by Central Banks willingness to intervene in the slightest sign of market turmoil. Investors seize the opportunity eagerly, but one can almost sense their willingness to jump on the sidelines at the release of negative market news. Some market commentators have termed it a «kangaroo markets», which is neither a bull market nor a bear market, but a market that hops up and down over a longer period of time without a strong uptrend or downtrend. Perfect for swing traders, but also a signal of increased market uncertainty.

The market narrative for the bulls are:

  • Further stimulus by the Fed will fuel the market to higher highs
  • TINA: there are no alternative to stocks with a low interest-rate environment
  • Re-opening of the economy: A normalisation of business operations when the virus finally fades away
  • Discounting 2021-22 earnings with a lower discount factor

The bear case is explained by Sven Henrich and well worth a read: The secret is out: “The Fed is busted”

Investment Journal:

As I wrote in the May report I would add to existing positions or become aggressive if the right opportunity presents itself. Several opportunities presented itself this month and I’ll go through them below.

Seafood – crashed on 15 June

Added to my positions in Bakkafrost (@550 NOK) and Mowi (@178 NOK). In my view the market clearly overreacted to the rumours of Covid-19 on a chopping board in Beijing. I believe the possibility that the virus came from Nordic salmon was minimal and the risk/reward of buying on this pullback was great.

Public offer on NetEnt by Evolution Gaming

The main event this month for my portfolio was a public offer by Evolution Gaming for all outstanding shares in NetEnt. The offer represented a premium of 43 % compared to the closing price of NETB-shares on 23 June, and the offer is 0.1306 shares in EVO per NETB-shares. Normally, the share price of the acquiring company falls on the news of large takeovers and this was not an exemption. Share price of EVO was down over 10% on the news and I picked up some shares in the company as a hedge in case the bid fails (in that case EVO share price increases and NetEnt shares decreases). After adding EVO to my portfolio my exposure to the combined EVO-NETB was 14.5%. On 26 June I cut my position in NetEnt by 50%, bringing my cash balance back to 27%.

Complete position in Beijer Ref was sold due to low risk-reward at current prices and in my opinion the ESG-premium has been priced in for now. I’ll definitely keep an eye on the company going forward and initiate a position at more favourable levels.

Valmet Corporation – Out of the woods

I’ve been looking at the company for a while now and today I initiated a position in an industrial I argue has a conservative pricing.

Summary: I find the current share price to be too conservative for this quality company and expect that the return in the coming year will come from multiples expansion (from PE 16.6 to 18), dividend of 3.5% (EUR 0.75 / 21 EUR per share) and future earnings growth (5 year historic earnings growth of CAGR 33%).

About the company: Valmet Oyj is a Finnish company with an industrial history over 200 years. As a standalone listed company, the history stretches only back to 2013, when it was spun off from Metso Corporation. Valmet is the leading global developer and supplier of technologies, automation and services for the pulp, paper and energy industries.

Business overview:

The company has four segments:

  • Services
  • Automation
  • Pulp and Energy
  • Paper
Valmet segment overview

At Valmet, Services and Automation are considered to be “stable” businesses, as they represent rather stable and slightly growing markets that are driven by the size of the installed base and mill operating rates. Currently, the increasing consumption of board, tissue and pulp in particular, as well as demand for bioenergy, are boosting production growth, which is creating new demand for Valmet’s services and automation (source: Valmet Investor Relations)

Pulp and Energy and Paper business, such as board, paper and tissue machines, pulp mills, and biomass power boilers are referred to as “capital” businesses. They are driven by new investments in machinery and mills, which makes these businesses more cyclical and volatile compared to the more stable services and automation businesses (source: Valmet Investor Relations)

Market leader in the growing market of converting renewables

Pulp & Paper industry: Paper and packaging experiencing several “megatrends”, which are important demand drivers for new packaging and consumer board products.

  • Urbanisation,
  • Digitalisation (headwind for traditional paper and print industry)
  • A rapidly growing global middle class,
  • Eco awareness
  • Population growth
  • Booming e-commerce


The current dividend yield is ~3.0 % and has increased since the IPO in 2013. The current payout ratio is 50.2% and the ratio has declined since the IPO, which is a result of increased earnings and growth. Net debt / EBITDA is 0,69 and the net debt is 7.7 % ( Net debt shows how much net interest-bearing liabilities in the company in relation to total assets ). The dividend safety is satisfactory, and I expect an increase for 2019 to EUR 0.75 per share (increase of 15%).

Valmet dividend history and payout ratio


The stock is currently trading at P/E 16.6 (P/E 2020E is 13.7 Source: Bloomberg consensus) which is fairly conservative for this company on a historical basis and compared to peers (e.g. ABB, Honeywell and other industrials). I expect a return on my investment of ~45 % and a share price of EUR 30. This is based on the current conservative pricing, which gives room for multiples expansion (based on historic multiples and peers), combined with expected earnings growth and a dividend yield of 3%.

Investment Checklist:

Valmet scores 86 points in my investment checklist, which is above my treshold of 80 points.

Investment Checklist Valmet


  • Lower pulp prices may reduce the willingness to invest in Valmet’s products
  • Weaker economic outlook in the overall economy
  • Climate change may cause increased damage to the forest from the bark beetle in Central Europe.
  • Project-specific risk (project cost estimation, scheduling, quality and performance)

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Kitron ASA – strong revenue growth and improving margins

Established in Arendal in 1962, Kitron has a long track record within the manufacturing of high-complexity, high-reliability electronic products. It is expanding its global presence with manufacturing facilities in Norway, Sweden, Lithuania, Germany, Poland, China and the U.S. Its customers outsource manufacturing of electronic circuit boards and related services to improve flexibility, cost efficiency, accuracy and innovation. The company has a reputable customer base, including companies like Kongsberg Gruppen, Northrop Grumman, Saab, Volvo, Lockheed Martin, ABB.

Segment overview

The company operates within five different segments; Defence/aerospace, Energy/telecoms, Industry, Medical devices and Offshore/marine. Below is an overview of split in revenues per segment.

Source: Company presentation Q3


The company’s dividend history is not too long, but they have paid a consecutive dividend the past five years and has a high dividend growth rate (extraordinary dividend of 0.2 NOK paid out in 2018 based on 2017 financials). Kitron’s dividend policy is to pay out an annual dividend of at least 50 % of the company’s consolidated net profit before non-recurring items. The EPS as per 30 September 2019 is 0.55 NOK and it is estimated that the full-year EPS will be around 0.8 NOK.

Today the current yield is around 4.3% (share price 9.38 NOK), but I expect that the dividend for the fiscal year 2019 to be 0.50 NOK; implying a forward yield of 5.3%. The payout ratio is approximately 55%, which I believe is OK for this type of company.


Growth and EBIT-margin

On the latest Capital Markets Day (CMD) the company launched a revenue target for 2025 of NOK 5 billion and EBIT margin of 7%, with potential M&A adding upside. This implies an EBIT’25e of NOK 350m, representing a solid CAGR’19-25e of 10% (Source: Kitron CMD and Pareto Equity Research).

Source: Kitron CMD
Source: Kitron CMD


The stock price for Kitron ASA has since a low of 1.51 NOK per share increased to today’s price of 9.38 NOK per share. This increase is well justified due to the strong revenue growth and improving EBIT-margin, and there isupside potential if the company’s targets are reached. These are the key drivers for value creation for shareholders and one should expect accretive acquisitions going forward based upon the communication to the market by the management on the Capital Market Day.

Comparing EV/EBIT to its closest Nordic Competitors; NOTE AB and Scanfil Oyj, it is trading at a premium. EV/EBIT for Note is 11.6, while Scanfil trades at 10.3.


Disclaimer: I hold a position in Kitron ASA.

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Hemfosa – takeover bid

Updated 21 November 2019:

Sold my shares at 117.4 SEK on the 21 November 2019. The price of SBB AB B-shares was trading at 23.5 SEK, implying a discount of ~6.5 % if I held my shares until the offer had gone through (beginning of January 2020). Even though a bid for one of my companies is welcome in the short-run I believe shareholders of Hemfosa would have been better of as a standalone company.

Why did I choose to sell now?

I have no interest in becoming a shareholder in SBB since I don’t know mcuh about the company, its management or its properties

There is a risk that the deal will not go through (risk inherent in takeovers)

SBB AB is currently trading at a premium of 80% compared to its NAV, while Hemfosa is trading at a premium of 40%

One year ago I purchased my first shares in Hemfosa Fastigheter following the spinoff of Nyfosa. Spinoff-situations are usually a great way for investors to achieve superior returns, and this was one of the reasons why I invested in the company in the first place (read more about spinoff situations here). Since then the shares has returned great value to its shareholders, and with the recent takeover announcement by SBB I have a total return on my holdings of ~100%.

On Friday 15 November Samhällsbyggnadsbolaget i Norden AB (Ticker: SBB) made a public offer on Hemfosa Fastigheter, with a mix between shares in SBB and a cash offer. Hence, the correct price for HEMF will now be a function of SBB’s share price going forward.

Pre-bid, the shares in Hemfosa traded around 102 SEK, and SBB traded around 24 SEK. The bid presented therefore a premium of approximately 22% and priced Hemfosa at 126 SEK. Following the announcement, shares in SBB dropped 8% and therefore lowering the value of the takeover bid (this is normal when a company announces its intent to acquire another company).

Source: Google Finance

The offer

SBB offers each shareholder in Hemfosa the following consideration alternatives. Offer for Hemfosa common shares (the “Common Base Case Consideration”)

  • In respect of 55 percent of the number of Hemfosa common shares tendered by such shareholder: 5.5 SBB Class B common shares per Hemfosa common share, and
  • in respect of the remaining 45 percent of the number of Hemfosa common shares tendered by such shareholder: SEK 120.00 in cash per Hemfosa common share.

The acceptance period will commence on 19 November and end on 20 December. The deal will most likely go through as the board of directors recommend the offer and large shareholders has indicated that they will accept the offer.

What is the correct price of Hemfosa’s shares today?

As mentioned above, the share price going forward will be a function of the share price in SBB. Therefore, the final premium might be higher or lower than the premium at announcement. Shareholders in Hemfosa should therefore closely monitor the share price in SBB. As per close on Friday 16 November the calculation is therefore as follows:

Author’s own calculations

Based on closing prices on Friday the shares in Hemfosa is trading at a discount of ~3.5%

Under the «Mix & Match Facility» presented, the shareholders can choose between a pure cash offer, shares in SBB or to accept a partial cash offer and shares in SBB. The result of this depends on the choices made by other Hemfosa shareholders, as there are limitations set by SBB. If you choose to wait, the announcement will be made on or around 20 December.

If you have less than 50 shares you will receive an all-cash-offer at closing of acquisition.

Should you sell your shares in Hemfosa in the market or accept the offer from SBB?

It depends.

It depends on:

  • whether you are interested in becoming a shareholder in SBB
  • how many shares in Hemfosa you own
  • choices made by other investors under the “Mix & Match Facility”
  • share price development of Hemfosa and SBB in the coming days / weeks.
  • the probability of the deal going through

Should you buy shares in Hemfosa to collect the current discount?

This is called “Risk-Merger Arbitrage”, and it is not recommended for private investors to try to exploit anomalies or mispricing in securities. There are several risk factors you have to consider:

  • The probability of the deal going through
  • Time value of money (time until the deal is completed)
  • Declining share price in SBB (usually a risk-merger arbitrage also includes a short position in the acquiring company).

Disclaimer: I own stocks in Hemfosa Fastigheter.

20 Nordic companies which will benefit from 7 Megatrends

It goes without saying that the world tomorrow will not be the same as the world yesterday. Changes happen constantly, and the changes may be of a temporary character, but others are so powerful that they will result in changes for the society on a fundamental level.

I have written a short article describing 7 Megatrends and presents 20 Nordic companies which will benefit from these seven megatrends.

Enter your email on my subscription list and receive a free copy of the PDF (link enclosed in welcome message). I will not bombard you with emails but send you regular updates once a month with past write-ups, dividend income updates and other articles on my blog.

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Wärtsilä – IMO 2020-deadline

Wärtsilä is a global leader and supplier of smart technologies and complete lifecycle solutions for marine and energy markets.

Initial interest August / September 2018 and the shares traded around EUR 17. This review was written in September 2018. I bought my first shares 17 January 2019 at EUR 14,15, increased my holdings on 14 June 2019 at EUR 12,89 and another pruchase on 18 July 2019 at EUR 10,83. Average cost price EUR 13,12.

For other investment journal entries go to my journal here!

Investment thesis: The IMO (International Maritime Organization) has finally decided that 2020 will be the date of an upper sulphur emission level of 0.5% compared to the previous 3.5%. By then, shipowners must decide whether to switch to LSFO (low-sulphur marine oil) or install scrubbers on the ships. This will have a major impact on the demand for marine fuel, which will have an adverse effect on the price of oil and refined products.

As a small proportion of the world fleet has installed scrubbers on their ships, the capacity of the suppliers of scrubbers is beginning to be strained, and as we approach the deadline, this will lead to a significant increase in demand for LSFO and thus the spread between gasoil and fuel oil will increase. Switching to LSFO is the preferred option for shipowners rather than installing scrubbers, who have had a wait-and-see attitude to see if the 2020 deadline is delayed or if there are other alternatives. It is now seen that larger orders are coming for scrubber installation and that shipowners suggest that the scrubber install time is low and installation will be a competitive advantage as they can continue to burn HSFO at a lower cost.

A survey by UBS found that only 2% of the global fleet will install scrubbers by 2020. 68% will burn LSFO, while 21% will install scrubbers. 9% will phase out new ships, while 6% will choose LNG. The survey also showed that only 64% of the fleet will meet the requirements for ballast water purification systems and sulphur emissions by 2020. Analysts estimate that the green shipping market could be worth USD 250 billion over the next five years.

Supplier capacity issues: Due to an increase in demand, it has become tight at scrubbers suppliers. At Wartsila, there is still room to install scrubber in 2019. The company’s orders increased by 14% in the second quarter and received a USD 198 million order from MSC. Alfa Laval experienced a significant increase in the number of orders where systems associated with scrubber accounted for a large part. Three major suppliers are Wartsila, Alfa Laval and Yara Marine.

The systems were first installed on cruise ships and ferries as they operate within discharge areas, but are now installed on bulk, tanker and container ships. Based on EGCSA data, 983 ships with scrubber exhaust systems were installed or on order as of May 31, 2018.

Technical analysis: Technically, Wartsila is a sales candidate with lower tops and bottoms. Trading around the support level at EUR 16.76 and a breach through the support level indicate further decline. The stock went through 200 days moving average. Death cross observed in mid-August and the stock has responded with a sharp fall afterwards. RSI of 30 supports the thesis that the stock is a sales candidate. (September 2018).

Investment checklist: Score 80

To read more about IMO 2020 I recommend the overview provided by the Visual Capitalist:

Mowi – Pricy, but high quality

I add 50 shares in my position in Mowi ASA, which adds 520 NOK to my annual dividend income.

The current dividend yield is 4.7 %, which is low compared to their historic dividend yield. The lower yield is due to the sharp increase in the share price the past years, but I believe the company will increase its dividend going forward (quarterly dividend of 2.6 NOK per share at the moment).

The shares trade ex. div on friday 30 August 2019

Mowi, formerly known as Marine Harvest, is by far the world’s largest fish farming company with operations in Norway, Chile, UK, Canada, Ireland and the Faroes.

Increasing population worldwide and the need to increase the food supply gives farming of atlantic salmon a favourable demand-scenario. The World Bank estimates that by 2030 approximately two-thirds of the consumption of seafood will be farm-raised. This gives rise to a ncie structural growth for companies like Mowi.

The combination of increasing population and the demand for more sustainable protein sources. Salmon is a efficient protein source and 1.15 kg of feed provides one kilo of salmon. Salmon is the livestock that utilizes the feed most efficiently – more than twice as efficient as pig and poultry. This is partly because salmon has the same body temperature as the water, and does not use energy to keep the body warm.

Equinor: too cheap to ignore

Today I bought my first 150 shares in Equinor (buy and build) because of the attractive valuation of the company at these levels.

The dividend yield at current level is approx 5.5% and I expect the dividend to increase the next couple of years due to the oil and gas – field “Johan Sverdrup” coming into production. This will add an estimated NOK 1275 to my annual dividend income and increases the yield in my portfolio from 3.9% to 4.0%.

Comment from Pareto Securities (analysis dated 25 July 2019):

Q2 results were well below market expectations but fairly in line with our estimates. With what were known to be a weak quarter now behind us, we believe focus will shift to Equinor’s industry leading 2020-21e FCF yield of 11% (Brent USD 65/bbl) post Sverdrup production start later this year. We reiterate our BUY recommendation and TP of NOK 240.