It was an eventful year for our fund which resulted in a return of 23% in SEK for the full year 2023, after fees, despite weakening foreign currencies. For more information about the fund visit: www.beingandinvestments.com
During December, the fund rose approx. 5% after fees.
Among the holdings that contributed the most to the return during the month were Ericsson, Insight Enterprises, StoneCo and Dustin. In an otherwise fairly even month for our holdings.
Ericsson is a new holding that is partly based on a recovery of the 5G rollout globally, but also brings with it the fact that Huawei has been more or less banned from operating in many parts of the world. This means significantly less competition within 5G, compared to, for example, 4G. After all, Huawei was competing with what were basically government subsidies and impermissible aids, such as IP theft. This likely means more market shares for Ericsson outside of China, but also likely higher margins. Ericsson has also taken a relatively strong position against Nokia in 5G, something that was shown during the month when AT&T in the US decided to choose Ericsson over Nokia in 5G. It also indicates that the US market will soon continue to roll out 5G. However, Ericsson is a difficult company to manage: an underlying business that has both a financial and a technological cycle, with great demands on research and development. As the company also mainly builds the rail (telecom infrastructure) instead of servicing it, turnover is not as predictable as other business models. This has attracted former and existing CEOs, and probably also future CEOs, to invest in acquisitions that serve the infrastructure. The stock was up about 22% during December, which also roughly corresponds to our total return on the holding. Cevian invested in Ericsson in 2017/2018 before Huawei was banned from operating in many key markets, and before the expensive purchase of Vonage, at about the same price we entered. Cevian has today taken a board seat in the company, which we like.
Dustin is also a new holding for 2023, which we picked up when the new issue was announced. The issue was carried out in November, and the share took off in December. Our average price is SEK 7.7 per share and we were up 28% since then. Dustin has a very smooth and fine history behind him, with almost uncannily consistent growth and margin. It is a so-called value added reseller that should have even margins. In addition, the part of the company that resells Cloud services is growing, with the help of consulting activities. This part has proven to have higher margins and a recurring revenue model within other similar, but larger, companies (eg ATEA and Insight Enterprises). Dustin took a big step towards this in connection with the acquisition of Centralpoint. However, the timing of the acquisition was disastrous: during an inflated capital market with an inflated business. During 2023, the company has had to parry a declining economy, while wage inflation has increased costs. We believe that the margins should be able to be corrected, in what is very much still a distribution business (with added value). A continued high level of leverage means, however, that we limit the allocation to this holding. Altor Private Equity put Dustin on the stock exchange and was also the main owner of Centralpoint.
During the month, we also invested in FLSmidth, an infrastructure and service provider (~60% service) to the mining market (>100% of EBIT), with high exposure to minerals and metals important to the electrification of the world economy. The company is going through a significant change process, with a new approach to how they price and manage the business. There has also been a halving of the number of players recently, after FLSmidth bought out Thyssenkrupp's corresponding mining part and Metso bought Outotec. Metso has ~40% higher margins compared to FLSmidth, and is aiming higher anyway. A gap that FLSmidth intends to close. The company has a new CEO: former manager of Meto's largest business, and new major owner: Altor, who owns 11% of the company and holds a board seat.