Small-cap universe shows signs of spring

Performance

Adrigo Small & Midcap L/S Class A and Class C rose 4.45% and 3.61% respectively in March, net of fees. The Carnegie Small Cap Return Index Nordic rose by 6.57% in March.

Among the fund’s larger holdings, Ossdsign (Medtech) and Opter (Software) provided good contributions. Among the fund's mid-sized positions, we noted good contributions from Cint Group (Software) and Maven Wireless (Technology). Our short positions had a negative contribution in aggregate. 

Adrigo Small & Midcap L/S Class A has returned 110.7% since inception, net of fees. In the same period, the benchmark STIBOR 1M rate returned 4.0% and the Carnegie Small Cap Return Index Nordic gained 89.4%. The average compounded return for the fund has been 11.7% per year since inception. 

The Market and the Companies

Global stock markets continued to perform well during March. The S&P 500 and the MSCI World rose by 3.2% and 4.4% respectively. The Nordic markets enjoyed a comeback after having performed weaker than the large global markets during the first two months of the year. The Danish market was again the strongest with the Copenhagen Benchmark index rising 6.0%, closely followed by the Swedish Stockholm Benchmark which rose by 5.0%. The Norwegian Benchmark was up by 4.9% while Finland (again) lagged with an increase of 1.8%. Small-caps, which underperformed large-caps during the beginning of the year, developed strongly with CSX Sweden increasing 7.7%. The large-cap index OMX S30 rose in line with European large-caps and was up by 4.2%. Thereby, Nordic small-caps have performed in line with large-caps YTD. However, looking two years back, large-caps are up by some 22% while small-caps have delivered a mere 1%.

In early April, Ossdsign was awarded a long-term agreement with Premier Inc. Premier is one of the largest GPO's (Group purchasing organization) in the U.S, with around 4,350 member hospitals.  The agreement has no guarantee of volumes, but it makes Ossdsign's marketing process towards the individual hospitals easier. Ossdsign's sales of Catalyst, its nanosynthetic bonegraft for spinal surgeries, rose sequentially by 60% in the fourth quarter. We expect to see continued strong growth over the next years, although one should expect certain fluctuations between the quarters. Moreover, the growth opportunities have improved significantly since the loss-making and margin-diluting cranial business ceased end of 2023. This gives additional resources for clinical studies and to the marketing organisation at the same time as management resources can be used more effectively. 

We have been investors in Opter since the IPO in late 2021. The company has an impressive track record of growth and profitability and ARR rose by 20% during 2023. The EBIT-margin rose from 18.3% to 22.6% and we expect it to move towards the 30%-level in the longer perspective. The company's product is a complete transport planning software. The company was founded in 2002 and the founders are still active in the company and are also the largest shareholders. The annual growth since 2002 has been around 25%. After having been active on the domestic Swedish market, Opter expanded to all Nordic countries and Estonia. We believe that Opter has good prospects to grow further geographically into the DACH-area. Hence, we believe the company has good possibilities for continued double-digit organic growth with high profitability. Its accounting standards are conservative with no capitalized R&D costs, It has a net cash position, generates strong cash flows and the dividend will be hiked by 47% this year. The share has given us more than 20% annual returns and is a good example that our long-term strategy of investing in small, nisch-oriented growth companies is highly rewarding. 

We have seen signs of increased optimism among consumers during the first quarter. We have also seen that the Swedish housing market has turned the corner. The district Östermalm in Stockholm is a good bellwether and there was a clear change in the market during February and March. We expect to hear slightly upbeat tones from consumer-related companies in the upcoming earnings season. Our portfolio, characterised by pure stock-picking, has today some 30% weighting towards this segment of the market.

During the first quarter, we have initiated new positions in Nanoform Finland, Lindex Group, Smarteye, Karnell and Proact. The positions in Aker Carbon Capture, Calliditas, Dolphin Drilling, Balder and Hafnia have been divested. We continue to see very good opportunities in the Nordic small- and midcap sector.

As always, we would like to thank you, our co-investors, for your continued trust. Please feel free to contact us with comments or questions.