A strong April result and a leap forward for Bonesupport

Performance

Adrigo Small & Midcap L/S Class A and Class C rose 4.11% in April, net of fees. The Carnegie Small Cap Return Index Nordic rose 2.03% in April.

The fund’s larger holdings in Bonesupport (medtech), Lundbeck (pharmaceuticals), and Online Brands (ecommerce) provided good contributions as did our mid-sized positions, Attendo (elderly care), Opter (software), and Dometic (leisure products). Our short positions had a slightly negative contribution in aggregate driven by our OMX index future hedge.

Adrigo Small & Midcap L/S Class A has returned 69.9% since inception, net of fees. The compounded return has been 10.1% per year since inception. In the same period, the benchmark STIBOR 1M rate has returned 1.0% and the Carnegie Small Cap Return Index Nordic gained 72.2%.

Market comment & the companies

The earning season is coming to an end. Nordic industrials continue to report solid order intakes while they continue to work through elevated order books. The previous component shortages that hampered production have eased considerably. Higher output with less under-absorption and pricing has driven margins upwards. Future pricing adjustments will be of importance to track in the coming quarters as input costs have, in general, fallen. Rising interest rates and weaker consumer confidence have pressured consumer discretionary goods' companies. However, we note that Dometic, Thule, and Electrolux rebounded strongly in April. Although partly due to short sellers covering their positions, this might indicate that the pessimism has peaked.

Bonesupport delivered a very strong Q1 report. Focus has been on the sales trajectory for its recently launched Cerament G in the US. Market estimate (and our own estimates),  have been high, and the results exceeded projections. We were positively surprised by US surgeons’ willingness to reorder Cerament G and not waiting for a long-term follow-up of already treated patients. Our interpretation is that the antibiotic-eluding bone graft provides great value add to patients and hospitals. Alongside increased use among existing hospitals, Bonesupport continues to expand into new sales channels, and we estimate BONEX to currently have access to some 10% of potential hospitals. It is still very early days in the US Launch for Bonesupport, and we estimate that Cerament G has a +1 bn SEK sales potential. An important milestone in Q1 was also that Bonesupport showed positive results for the first time.

In 2023, Bonesupport will apply 510k to broaden Cerament G into the largest indication, trauma. We see the likelihood of approval as good and this would be a catalyst for upward estimate revisions in the coming years. We continue to see significant upside in the share despite strong performance during 2023.

Attendo acts in an environment subject to political risk. Earlier this year, the industry peer Humana had its permit to conduct operations with personal assistance revoked. Attendo does not operate within this area, but the negative industry sentiment has affected the share performance.

Attendo’s Q1 report showed a clear shift in the earnings momentum. Pricing adjustments compensated for increased costs and higher occupancy contributed to the earnings momentum. Attendo highlighted further price adjustments will take place in 2Q 23. Its Finnish operations went from loss-making in 1Q 22 to an above 6% margin in 1Q 23, showing the underlying scalability. Besides Finland being proactive in raising prices, the Scandinavian business area still lags, not compensating for cost increases fully. However, occupancy rates are improving and will drive margins higher. We continue to see significant an upside as Attendo nears its 4 SEK earnings per share target in the coming years.

Lundbeck, one of the larger holdings in the fund, has an exciting 2023 ahead. In April, the FDA’s advisory committees gave a positive response to the indication of agitation in Alzheimer’s disease. A final decision will be taken by the FDA before May 10. A positive outcome would imply that Rexulti will be the first approved drug in this indication.
 
Finally, we would like to thank you, our co-investors, for your continued trust!