Being and Investment Active Value månadsrapport – februari 2024

Being and Investment Active Value Monthly Report – February 2024

February yielded 3.2%, after fees, up about 4% on the year, following a 2023 yielding 23% and a 2022 yielding ~8%.
Among the holdings that contributed the most to the return during the month of February were Securitas (+12%) and FL Smidth (+11%). The portfolio otherwise rose relatively evenly across holdings.
Among the companies that reported, the following were noted:

We invested in Securitas in connection with the rights issue in September 2022. We are up just over 40% in 18 months.

The situation in September followed a pattern we have seen in several other cases on the stock exchange: companies that aggressively borrowed, with low interest rates, to buy companies expensively at the top of the cycle. These acquirers' share prices have since been slaughtered when interest rates have risen. In the case of Securitas, the purchase was also expensive, but strategically justified (STANLEY). At the same time, Securitas failed to bind interest rates when they were low, and sat with bridge financing during the period when interest rates rose. A new issue became inevitable. This was done in mid-2022, when stock markets were anything but hot. We saw an opportunity to solve a balance sheet problem in an otherwise well-managed and strategically interesting positioned company. For example, we saw that Securitas had managed to manage wage inflation perfectly in 2022 (wage management and pricing is part of the core business at Securitas).

Since our investment, the company has achieved synergies, the restructuring costs are now finally coming down to long-term levels (Securitas will always need some type of restructuring cost in the staffed part), and the product mix shift towards electronic seems to have an effect on the margins. All of this has reduced the loan-to-value ratio drastically in relation to the cash flows, which has given the company's share price a boost.

With the purchase of Stanley, the company has not only succeeded in freeing up cost synergies, but also positioned the company well with an offer that includes both electronic and manned surveillance. An offer that is unique on the market. The product mix shift towards electronic, which is growing faster than the staffing part, is also positive for margins. There is also an opportunity to digitize the company, but it will not be easy. Stanley is largely based on dated IT infrastructure. But the possibility exists to use 5G/IoT in the long term to build a software unit that has completely different offers and financial conditions (higher margins and ROIC).

FL Smith
We invested last month around SEK 280 per share (up 15% since then). FL Smidth is 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 (only product, no project). There has also been a halving of the number of players recently, after FL Smidth bought up Thyssenkrupp's corresponding mining part and Metso bought Outotec. Metso has ~40% higher margins than FLSmidth, and is aiming higher anyway. A gap that FLSmidth intends to close. The company has a new CEO: former head of Meto's largest business, and a new major shareholder, Altor, who owns 11% of the company and holds a board seat.

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