Origo Quest 1. Investor Presentation November 2018

Transcription

1 Origo Quest 1 Investor Presentation

2 Disclaimer This document produced by Origo Capital contains general marketing information about its investment products. Although the content is based on sources judged to be reliable, Origo Capital will not be liable for any omissions or inaccuracies, or any loss whatsoever which arises from reliance on it. If Investment research is referred to, you should if possible read the full report and the disclosures contained within it, or read the disclosures relating to specific companies found on Information relating to taxes may become outdated and may not fit your individual circumstances. Investment products produce a return linked to risk. Their value may fall as well as rise, and historic returns are no guarantee of future returns; in some cases, losses can exceed the initial amount invested. Where either funds or you invest in securities denominated in a foreign currency changes in exchange rates can impact the return. You alone are responsible for your investment decisions and you should always obtain detailed information before taking them. For more information please see inter alia the simplified prospectus and information brochure for the fund available at If necessary you should seek advice tailored to your individual circumstances from your bank advisor. 2

3 "We invest in Change! We are a selective, value oriented and long-term small-cap investor that are specialized in companies undergoing or expected to undergo change..."

4 Who we are About Origo Capital Independent investment firm founded 2011* Under the supervision of Finansinspektionen (Swedish Financial Authority) since 2012 Members of Swesif (ESG-forum) since 2016 Manages the alternative fund Origo Quest 1 since 1 February 2013 Specialized in small and mid cap companies Assets under management, appr. 400 MSEK (as of Oct 31, 2018) * Origo Capital is an registered AIF (Alternative Investment Fund) manager in Sweden 4

5 Team Origo Local team with extensive experience and complementary skillsets Investment Team Investor Relations & Operations Stefan Roos, Managing Partner 25+ years in the sector Several fund management awards Head of Swedish Equities, SHB Funds Head of Nordic Equities, SEB Asset Mgmt Managing Partner / Investment manager Anders Nilsson, Investor Relations 25+ years in the sector Previously money market and FX-advisor Background: Danske Bank, SHB and ABN Investor Relations Manager Carl Rydin, Investment Analyst 10+ years in the sector Previously at New York-based L/S equity fund Lucerne Capital +5 years corporate finance experience Investment Analyst Karl Eckberg, Chief Operating Officer +10 years in the sector Previously Legal Counsel at Nordnet Bank Attorney at Wistrand Advokatbyra Specializing in securities and financial markets law 5

6 Origo Quest 1 - Key Characteristics Unique strategy and alignment of interests Quest 1 Traditional Equity Fund Return target Competitive risk-adjusted return Relative return over a benchmark Risk target Below small cap index In a range around the market risk Strategy Long-term, value and change driven Index driven / opportunistic Real active ownership Yes No Responsible investments (ESG) Yes Sometimes Number of holdings Can take short positions Yes No Can hold substantial cash position Yes No Correlation with the market* Limited (~0.3) High correlation (~1.0) Fee structure Performance related Fixed fee Liquidity & NAV Monthly, weekly Daily Fund company Independent small-cap specialists Generalists * 36m rolling numbers 6

7 Origo Quest 1 Performance since 2014 Highly competitive returns with low market correlation* Quest: Total Return of 66% with a systematic market risk of 0.3 Similar funds (alternative equity) has gained 25% (NHX Equity) OMXSGI incl. dividends has gained 52% 1/1/2014 Quest 1 OMXSGI NHX EQUITY Yearly Returns 10.9% 8.9% 4.6% Beta 36m St. dev. 36m 10.6% 10.9% 3.6% Quest since % 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% 51,7% 65,6% 24,6% Quest 1 OMXSGI (Incl.div.) NHX (Equity Hedgefund index) * Beta reflects the tendency of a security or portfolio s returns to respond to a swing in the market. A beta of less than 1 means that the portfolio historically has had less correlation with the market trend. Performance numbers as per 1/ / Source: hedgenordic.com, Origo Capital 7

8 Unique and Proven Investment Approach We combine the best characteristics found within both public markets and private equity We invest in companies listed on public markets Our active and research-driven investment approach can be compared to business analysis found within private equity Public Markets Private Equity Liquidity Larger universe of potential investments Utilize market volatility Short-term oriented market participants Focus on business analysis (not transactions) Limited/poor small-cap analyst coverage Combining the best of two practices Focus on low risk investments Long-term investment horizon Focus on fundamental analysis Throrough due-diligence High conviction cases Concentrated portfolio 8

9 Investment Philosophy Fundamentally driven investment approach and focus within core competences Our investment universe (Nordic Small Cap s) often include mispriced and misunderstood companies We focus on change and company specific value drivers We are value investors. High return on invested capital and free cash flow growth are important metrics to us We have a long term investment horizon (3-5 years at least) We prefer to have a close contact with the management/board and to engage in a change process We believe in specialization and are highly focused The fund is concentrated and has approximately 15 long and 15 short positions 9

10 We are Active Owners Using share holder rights to maximize share holder value Focus on value creation in the portfolio companies Protect our unit holders common interest Reduce investment risk Maximize return on invested capital 10

11 Research-driven Investment Process We view ourselves as business analysts, not stock analysts Our investment process is research-driven Emphasis is placed on identifying the competitive situation and specific value drivers Idea generation In-depth research Define value drivers Define long/short potential Execution and monitoring Own idea Idea from industrial advisors Screenings Industrial focus Sustainability issues (ESG) Market position Long term view Change analysis Value drivers & risks Possibilities to be an active owner Private equity approach Potential for fair value Catalysts / triggers Liquidity Impact on the portfolio Active ownership Follow-up on value drivers Portfolio adjustments 11

12 We Identify Clear Value Drivers as Catalyst The Origo model for analyzing the value drivers Strengthen existing products Industrial segments Introducing services, new tech. etc. Geographies Business model Differentiate Expand Channels Structure portfolio Transform Execute Corporate governance Spin-off underachievers ESG improvements Optimize capital structure Shareholder value 12

13 Why We Focus on Small-caps Over time, small-caps generate higher return but also with higher volatility There are over 500 small-cap publicly traded companies in the Nordic region Less than 25% of these are covered by the local research brokerage houses, leading to an advantage for a researchdriven investment firm like Origo Capital Smaller companies have historically grown faster and have outperformed as an asset class, but with higher volatility Higher Return but Also Higher Volatility in Small-caps Larger Universe of Potential Investments in Small-caps 23,0% 17,4% Annual Return Annual Volatility Large Caps (SEK >57bn) 12,7% 10,5% 8,8% 12,2% # of Nordic Listed Companies Mid Caps (SEK 10-57bn) Small Caps (SEK <10bn) 5,1% 3,4% 560 Small-Caps Large-Caps Corp. Bonds Gov't. Bonds Source: Ibbotson, Origo Capital 13

14 Why Our Long-term Investment Approach Makes Sense Our long-term investment view is one of Origo Capital s most important advantages In general, investors have gradually targeted low-volatility returns, and have turned to investing in short-term focused vehicles to achieve this, leading to average holding periods decreasing to less than 18 months today We view this as an excellent opportunity for long-term investors such as Origo Capital We have both patience and conviction to step outside of the crowd and take a contrarian view Average Equity Holding Periods Decreasing Longer Investment-horizon has Outperformed Holding Period (years) The Market (average) Short-term holding period increases risk as more investments are lossmaking on average Origo Capital Market participants tend to disregard any positive changes >2 years away 's 1950's 1960's 1970's 1980's 1990's 2000's 2010's Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Source: S&P, NYSE, Cremers and Pareek 2016, Origo Capital 14

15 Optimal Portfolio Construction to improve risk-adjusted return Our portfolio is long-biased with select short positions to reduce risk and maximize return On average we hold long positions and aim to take small (1-4%) short positions in over 15 companies We analyse our potential short positions with the same scrutiny and in-depth fundamental analysis as our long positions Our model implies reduced market risk and increased stock selection impact long positions Long 3-5 year investment horizon Market cap typically SEK 5-20bn Engaged and active owner Focus on change as value driver/catalyst Short positions in Small & Mid-caps Pair trades where applicable Short Market hedges (futures) 15

16 Business Partners Origo Capital has a lean organization and utilizes professional third-party functions With a view to focus on both the core business (management and marketing of the fund) and reducing the risk of conflicts of interest, Origo Capital have consulted professional contractors for various functions of the business Our Chief Operating Officer, Karl Eckberg, has a close relationship and daily communication with representatives of our outsourced functions Administrator / Risk Mgmt Compliance Custodian Auditor Distribution / platforms 16

17 Case Studies (long) COMPANY DESCRIPTION A pure-play logistic property firm with modern and strategically located logistic properties in Sweden and Denmark Current market cap: SEK 7.3 bn INVESTMENT THESIS Significant underperformance versus peers in a strong sector Main shareholder s agenda not aligned with minority shareholders ORIGO ENGAGEMENT Active partner in informal investment consortium Voiced dissapointment towards Tribona s management and governance structure In 2015, Catena made a public offer to acquire Tribona COMPANY DESCRIPTION Owner and developer of fast-growing and profitable gaming, media and entertainment companies Portfolio covers B2C gaming operations B2B gaming technology and gaming marketing platforms Current market cap: SEK 8.0 bn INVESTMENT THESIS B2B game developer Yggdrasil should be separately listed Communication and governance to be improved List on OMX Nasdaq Stockholm ORIGO ENGAGEMENT Open letter to BoD addressing issues and voicing rationale for listing Yggdrasil (Origo estimates EV of SEK 3.5 4bn) Catena acquired Tribona Origo sends letter to BoD 17

18 Case Studies (short) COMPANY DESCRIPTION Sports retailer with a focus on selling apparel and equipment at the lowest prices from its large physical stores and online Current market cap: NOK 5.8 bn INVESTMENT THESIS Short-term issues including high inventory levels and expensive expansion outside of the Nordic region Longer-term structural shift towards E-commerce Net Debt to EBITDA at high levels which puts dividend at risk Aggressive accounting methodology with like-for-like growth excluding any cannibalization effects Insiders net sellers while criticizing short sellers Darling among sell-side analysts with downside revisions inevitable COMPANY DESCRIPTION Equipment rental company for the construction and other industries in the Nordics and continental Europe Current market cap: EUR 0.6 bn INVESTMENT THESIS Overvalued both on an absolute and relative basis with 60% price / book value premium compared to Cramo Deteriorating ROIC and a lack of ability to generate free cash flow even in a positive underlying market Although some self-help in terms of margin improvement, the market has priced in any potential upside Asset/investment-heavy company in a extremely competitive environment Origo prized for XXL idea Ramirent is leaking cash 18

19 Summary Quest 1 - Alternative equity approach that adds value to your portfolio Experienced team with well-documented results Unique philosophy and process - combing the best of Public markets and Private Equity We aim to continue to deliver equity-like performance or more, with much less market correlation 19

20 Contact Details: Anders Nilsson Investor Relations Manager