Monthly Report December 2023

Performance

Adrigo Small & Midcap L/S Class A and Class C rose 9.1% and 8.7% respectively in December, net of fees. The Carnegie Small Cap Return Index Nordic increased by 7.4% in December.

Among the fund’s larger holdings, Ossdsign (Medtech), Cint (Software), Sinch (Software) and BHG Group (Online retailing) provided good contributions. Among the fund's mid-sized positions, we noted good contributions from Brinova (Property) and Aker Carbon Capture (Carbon Capture) Software). Our short positions had a negative contribution in aggregate. 

Adrigo Small & Midcap L/S Class A has returned 95.1% since inception, net of fees. The compounded return has been 11.4% per year since inception. In the same period, the benchmark STIBOR 1M rate returned 3.7% and the Carnegie Small Cap Return Index Nordic gained 76.7%.

Market comment & the companies

Long-term interest rates reached their annual high in the last week of October. Between then and year-end, the development can be compared to a double black diamond ski slope. As an example, Swedish 10-Y Government bonds fell from 3% to 2%. This gave fuel to a wave of optimism in the stock market. MSCI World and EURO STOXX50 rose by 4.1% and 3.2% respectively. Swedish large caps were popular and OMXS30 rose by 7.3%. Swedish small caps (CSRX Sweden) continued to shine and jumped 9.6%. The latter index rose by 26% since the year’s low point on October 26th. The Finnish and Danish markets rose by 3.7% and 2.7% respectively. Hampered by a weak oil price, Norway was again the weakest Nordic market with the OBX index being up by 0.2%. 

Adrigo Small & Midcap L/S rose by 14.75% during 2023. De largest contributors were Bonesupport, Initiator Pharma, Kahoot, Frontline and Camurus. All of these companies have been in our portfolio for a long time, however, with various weightings. The conscious weighting is an important point as we have an actively managed fund. We can also note that all these stocks, except for Initiator Pharma (in the fund since April 2021), are among the five largest contributors since the fund was launched in November 2017.

Bonesupport’s share price has been mainly driven by the very high sales growth of its main product Cerament G which, with a gross margin north of 90%, resulted in rapid earnings growth. Initiator Pharma announced highly favourable Phase 2 results for two of its drug candidates within erectile dysfunction. News about potential partnerships should come during the first half of 2024. Kahoot managed to improve its growth and a bid for the company was announced during the summer. Frontline continued to deliver strong cash flow and quarterly dividends. Camurus earnings exploded as the sales of Buvidal, its drug against opiod use disorder, advanced and the company's partner received FDA approval for the important US market.

Two investments that clearly disappointed during the year were Online Brands and Pierce Group. Both companies suffered from a weak retail market and the shares have suffered from low liquidity. We have had ongoing contact with the management teams and we see a good chance for a comeback in 2024. Our view is that these two companies today are in better shape than they were a year ago.

We continued to increase our position in BHG Group in December. It is a company with a history of too rapid expansion and too expensive acquisitions. The share price peaked at SEK 180kr in May 2021 only to fall by 95% during the next two years. The share price performance illustrates the company's operational failures. However, the current management has faced reality and taken necessary but costly measures. We initiated the position in June when the company announced that it had amended the financing agreements, thereby improving flexibility. Hence, we saw less risk of a capital raise at the same time as insiders increased their holdings substantially. An extensive restructuring program was announced in the autumn. A couple of operations were divested at symbolic prices and a number of physical stores will be closed. Management has had a strong focus on inventory reduction which has created good cash flow. The largest risks we see are that the debt burden is still too high and the large chunk of goodwill on the balance sheet. We are not forecasting a quick recovery in demand. However, with the activities mentioned above, we do see a significant potential in the share.

For 2024 we see mediocre global growth, inflation under control and lower interest rates. This should be decent ingredients for stocks. We see large revaluation potential in many small caps. We have added some of them to our portfolio during the year. Maven Wireless, Himalay Shipping, Enea and Brinova are among these. They represent various sectors and give a good illustration of our way of investing; active stock-picking among Nordic small and mid-caps where we see high growth potential. 

Finally, we would like to thank you, our co-investors, for your continued trust.