Bellevue Entrepreneur Switzerland (CH)

Swiss small and mid caps, as measured by the SPIEX Index, declined by 0.8% in December (SPI -1.3%), closing 2024 up 3.8%. The SNB cut interest rate by 50 bps, its biggest reduction in almost 10 years, responding to weaker than expected inflation in Switzerland and growing uncertainty about the global economy. Meanwhile, both European and US central banks cut interest rates as expected by 25 bps, but the more hawkish tone triggered a sell-off across asset classes. US LT rates rebounded sharply, pulling European rates in their wake. In France, the government under M. Barnier collapsed, widening bond spreads to levels last seen in 2012. Eurozone inflation rose to 2.2% year-on-year, up from 2% in the previous month, but the core inflation remained at 2.7%, marking a five-month low. The Eurozone’s flash PMI for December came in at 49.5, up from 48.3, with services returning to expansionary territory (51.4 vs. 49.5), while manufacturing remained weak (45.2). In Switzerland the manufacturing PMI stood slightly lower in December at 48.4 from 48.5 in the previous month, with Services up to 53.2, above the growth threshold for the 3rd consecutive month. In terms of sector performances, consumer discretionary (+5.3%), real estate (+1.9%) and financials (+0.2%) performed best, while communication services (-5.5%), healthcare (-2.6%) and consumer staples (-2.5%) lagged the most.

Against this backdrop, the fund declined 1.1% (CHF / A shares) in the month, 29 bps below its benchmark. This brings the annual 2024 performance to 1.4%, 246 bps below its benchmark.

Main detractors in the month were SoftwareOne (-21.4%), Bachem (-11.5%) and Barry Callebaut (-10.4%). SoftwareOne announced the acquisition of its Norwegian peer Crayon for a total consideration of ca. CHF 1 bn, paid in cash and shares. While negative from a timing perspective, this combination, rumoured in the past, should improve SoftwareOne fundamentals and generate high synergies of CHF 80-100 mn, leading to a strong EPS accretion of 25% as soon as 2026 – 40% excluding implementation costs. Bachem suffered from the negative reception of Novo’s (-17.6%) Phase III Cagrisema study. The peptide CDMO strongly capitalizes on GLP-1 specialists to fill its new-build large capacity and reach its reiterated 2026 revenue target of CHF 1 bn. Barry Callebaut suffered from cocoa price surging back to new highs, likely to lead to negative volumes weakness in end markets, to be partially offset by market share gains.

Main contributors in the month were Gurit (+33.8%), Compagnie Financiere Tradition (+14.2%) and Galderma (+11.5%). Gurit provided an update of its strategic realignment and right sizing measures, which leads the company to close plants in wind in Turkey, Denmark and temporarily in India, while the company reinforces its footprint in key markets in marine and industrials. While not very precise financially and initially negative on revenues, we understand that this plan should be positive at the adjusted EBIT level, suggesting upside to the consensus. The interdealer broker Tradition staged a year-end rally after posting strong revenue growth of 16.2% in its Q3 update, published early November. Galderma announced the FDA approval of Nemluvio for atopic dermatitis. This second approval helps de-risk the future growth of the company, which reiterated guidance for USD >2 bn Nemluvio peak sales achievable beyond 2027. Nemluvio is core to the investment case, as the product will contribute ca. 50% to Galderma’s growth in the period 2025-30.

After the SNB move, the ECB is expected to be next, maybe even before the US. Compared to the Fed, the European Central Bank finds itself in a less complicated situation. The business cycles of the US and Europe have decorrelated a lot in the last 6-12 months and while growth expectations rise in the US, it is the opposite in Germany and a large part of Europe. Another positive factor for Europe and Switzerland is China. The economic momentum seems less fragile and we have witnessed some positive macro data. The Caixin China General Manufacturing PMI increased to 51.1 in March, the fifth straight month of growth in factory activity. Copper also reached an 11-month high. This should also bode well for Swiss companies and industrials in particular.