Bellevue Entrepreneur Europe Small (Lux)

Small and mid caps, as measured by the MSCI Europe Small Cap ex-UK, declined 2.1% in April, a more robust performance compared to very weak global and US markets (SPX -8.8% in USD). Geopolitical tensions, growth and inflation scare dominated, with China’s lock downs further weakening the top down picture. Inflation data reached new records in the US and Eurozone and government bond yields kept rising while central banks become more hawkish. In the Eurozone Q1 GDP increased 0.4% qoq in line with expectations but surprisingly declined 1.4% on an annualized pace in the US. Flash Eurozone PMI rose to a 7-month high of 55.8 in April from 54.9 in March, led by Services (57.7 vs 55.6) which benefited from loosen COVID restrictions, and helped offset the waning manufacturing output (50.4 vs 53.1), impacted by production curbs and ongoing supply constraints. In term of sector, energy (+3.5%), utilities (+3.3%) and materials (+2.6%) performed best while real estate (-6.7%), healthcare (-6.6%) and information technology (-6.5%) lagged the most.

Against this backdrop, the fund declined 2.2% (EUR / B shares), in line with its benchmark.

Top detractors in the month were BESI (-24.6%), Zur Rose (-11.2%) and Kamux (-13.2%). BESI, the Dutch semi equipment manufacturer, reported Q1 revenues and profitability in line or above forecasts, but the order intake disappointed due to both China lockdowns and a seemingly weak innovation cycle with Telco clients. Both are likely to normalize through 2022/23, while the announced sector Capex roadmap confirms good growth ahead. With net cash at hands, EBIT margin of 45% and hybrid bonding technology ramping up, we see significant upside potential at valuation <12x EBIT. Following the publication of its FY figures and the postponement of its EBITDA breakeven point by one year to 2024, Zur Rose continued its downward trend, down to the level of CHF 100, which we consider a trough value scenario, asserting zero value to the German eRx opportunity. On April 25, German Health minister Lauterbach finally sent positive signals for the roll-out of digitalization and e-script, propelling the shares up 20%. We continue to believe that the 30’000 test prescriptions required for the mandatory introduction of e-script will be achieved at the latest in the second half of 2022. Kamux, the Finish online car retailer, gave back all its March performance in April, penalized by falling consumer confidence. At 12x and 9.5x EBIT 2022 and 2023, Kamux is trading close to its trough multiples, 25% below its 5-year average and half its peak levels. Contrary to a common belief, Kamux' 20% trend growth is much more driven by the shift from offline to online than the used car market itself.

Top performers in the month were Melia (+17.0%), Bakkafrost (+8.2%) and Polypeptide (+17.4%). Melia, the Spanish hotel chain company, continued to benefit from the positive tourism and travel industry pointing to record levels of summer bookings and ahead of 2019 levels. The Norwegian salmon producer Bakkafrost benefited from a strong salmon market, underpinned by prices reaching new highs. We note that Bakkafrost in-house marine based feed production is also a good protection against rising input costs. After having risen more than 110% following its IPO in 2021 and fallen 40% ytd in the indiscriminate rotation out of growth stocks, Polypeptide regained the attention of investors, thanks to its excellent defensive growth characteristics. With one of the broadest portfolio among the peptide CDMO players, an attractive late stage pipeline, as well as the rising outsourcing trend, Polypeptide is very well placed to outperform the underlying peptide drug market, itself already structurally growing at 7% p.a.

After a rebound in March, equity markets are finally catching up with reality. Supply driven issues like availability of goods, commodity price inflation etc. slowly shift to demand side worries around consumer demand and risk to growth. Market sentiment is poor and better than feared Q1 earnings delivery did nothing to change this. The growth category has taken a serious beat with many names down 50% to 60% since the highs of 2021. On the aggregate, sentiment and positioning seem not bearish enough yet for markets to stage a reversal. We remain well diversified across all styles and sectors, favoring quality companies inherent to our Entrepreneur universe squaring strong balance sheets, high margins and capital returns. These times ask for experienced stock picking along the main themes of rising inflation, slowing growth, post COVID reopening, energy dependence and ESG.