Our Path to Disciplined Value Investing

This is the very first monthly letter for Amos Value. We have launched the fund based on a clear idea of how capital is best built over time. The philosophy is simple in theory but requires focus, patience, and discipline. We invest in financially stable quality companies at prices significantly below what we assess to be their intrinsic value. This way, we reduce risk in case we misjudged earnings, and there is also good potential if the market eventually agrees with us.

We do not try to guess where the economy is headed in the coming months, but rather focus entirely on what companies are actually worth. In practice, this means our ambition is to have higher exposure to cyclical and more "offensive" companies when their valuations are low, and a more defensively oriented portfolio when the broader market is highly valued.

Straight into the Crucible

Having the first trading day on July 6 meant that the fund started at the very beginning of the reporting season. This has led to larger movements, both up and down, but also creates opportunities:

1. Market's Short-Termism: Price and value often differ during report releases. When the market punishes a well-managed company for a temporary slump or margin pressure due to transitional effects, opportunities arise for us to build or expand positions with a good margin of safety.
2. Reports as Quality Assessment: Reports give us an indication of whether our portfolio companies maintain their operational strength and financial discipline. This provides us with more information, and we will update our intrinsic value for each company we follow.

A Bid, an Overreaction, a Ferrari

During the month, we have seen several interesting movements in the portfolio in connection with report releases. In addition to the reports, just a couple of days after the fund launched, we also received information that a bid was intended to be made for a company in the portfolio.

Bahnhof issued a press release stating that Telenor intends to make a bid corresponding to SEK 62 per share. Bahnhof has increased its revenue and earnings per share by around 10 percent annually and has intensified its international expansion in recent quarters, which is an exciting growth opportunity. Bahnhof is among the more expensive companies in the portfolio and qualified primarily due to its high operational and financial quality, with good resilience in an uncertain situation. We considered a takeover bid for the company highly unlikely, even though Bredband2 was recently acquired by Telia. Bids often come when you least expect them, and we do not factor them into our calculations. If it happens, we see it purely as a bonus. We are not an activist fund and will not evaluate bids based on whether they are good for "AB Sweden" or not. If we consider a bid attractive, we either sell the shares on the market or accept the bid and await payment, depending on where we believe we will achieve the best return during the waiting period. Our position in Bahnhof remains unchanged in terms of the number of shares but has decreased as a proportion of the fund, as we have not increased our holding after the bid while the fund has received inflows.

Securitas delivered a weak report, resulting in a decline of just under 11 percent on the report day. Organic growth was somewhat weaker than expected, and CEO Magnus Ahlqvist warned that it might be difficult to further strengthen margins during the second half of the year. We considered a certain decline justified, but 11 percent is excessive for a stable and relatively non-cyclical company with good future prospects. Especially given that the company was trading at a clear discount to the overall stock market even before the report, while earnings actually rose. We significantly increased our position on the report day, which elevated Securitas to one of the fund's top ten positions. According to analysts, the company trades at a forward-looking EV/EBIT multiple of just under 11x, where revenue forecasts are cautious, while some margin expansion is expected to continue. One could argue that this is a somewhat unusual combination in the forecasts, but regardless of whether analysts may overestimate future margins, it is a very attractive valuation multiple.

Inwido met low expectations ahead of its report after a frankly weak first quarter, when the company's management stated that they had a business like a Ferrari but could only drive it at 40 km/h. However, the report was stronger than expected, and the company also received a record order. The conflict in the Middle East will unfortunately lead to increased costs for input materials, which the company is addressing with price increases. This may dampen the recovery somewhat in the short term, but the pent-up need for renovation of older homes is extensive and should benefit Inwido over time.

According to analysts, the share trades at a forward-looking EV/EBIT multiple of just over 11x with reasonable assumptions. We also anticipate value-creating acquisitions that could increase earnings per share more than consensus predicts, but this is not a requirement for us to justify the investment. The company is attractive on its own merits with its current subsidiaries.

Looking Ahead: Focus on Fundamental Strength

We primarily own operationally strong companies with sound financial risk and a good ability to continue generating high cash flows. Remaining positions are investment companies with profitable holdings that trade at clear discounts to their net asset value. Although the stock market as a whole is trading near its highest levels, we believe we have managed to acquire our portfolio companies at prices that provide us with good conditions for an attractive risk-adjusted return over time.

Thank you for the trust you show us by investing in Amos Value. We will do our utmost every day to provide you with a good return over time.

You can find Amos Value's largest holdings in July here.