Bellevue Entrepreneur Switzerland (CH)

Swiss equities, as measured by the SPI, fell 4.4% in May, in a market still dominated by worries around inflation, China lockdowns, geopolitics and the fear of further tightening. The minutes of the recent Fed meeting hinted at 50 bps hikes at the upcoming meetings in June and July, while ECB Christine Lagarde explicitly announced 25 bps hikes in July and September, followed by a gradual normalization of rates. So far the scenario of an imminent recession is not supported by economic data. In the US, retail sales and industrial production surprised positively, while in the Eurozone consumer confidence fell while business surveys remained on healthy levels. New orders PMI fell to 53 in May from 55 in April. Sector wise, financials (+0.85%), communication services (-1.90%), and real estate (-3.2%) performed best, while information technology (-7.4%), consumer staples (-7.4%) and consumer discretionary (-6.4%) lagged the most.

Against this backdrop, the fund fell 5.5% (CHF / A shares) in the month, underperforming its benchmark by 115 bps.

Main detractors in the month were Daetwyler (-26.2%), Swissquote (-25.2%) and Lem Holding (-21.2%). Daetwyler profit warned for the current fiscal year, pointing at sharply increased input costs, ongoing shortage of electronic components in its auto segment and lockdowns in China. Swissquote was under pressure in anticipation of weaker trading commission related to equities and cryptos. We see no reason to change our stance regarding the group’s ability to generate strong levels of net new money and find the current valuation attractive. Lem released FY results above expectations and revised its guidance, but announced that H1 revenues will likely decline yoy due notably to supply chain constraints. With 2021 profitability much higher than expected, the transitory slowing down of H1 should only have a modest impact on bottom line consensus expectations. Longterm trends underpinned by the electrification of the automotive and industrial sectors remain unchanged.

Top 3 contributors in the month were Aryzta (+13.8%), U-Blox (+11%) and Clariant (+9.4%). Aryzta published a strong set of Q3 figures, with an organic growth of 23%, clearly surpassing consensus expectations of 15% and also increased its FY21/22 organic guidance to 14-16% from 12-14%. The group continues to succesfully adjust its prices, and at the same time, surprises with better volume growth. Next catalyst will be the CMD on June 8 and the update on the short-to-mid-term profitability outlook. U-Blox raised its 2022 guidance on the back of persisting strong demand, rapid conversion of its large backlog and operating leverage. We see great upside still as consensus remains skeptical. Valuation multiples are very attractive at ca. 6.5x EBIT2023. Clariant announced the expiry, after the June AGM, of the governance agreement with their main shareholder SABIC. As a result, SABIC is no longer bound not to cross the 33% threshold that would trigger a takeover offer according to Swiss market regulation. This situation undoubtedly raises M&A speculation and immediately led to a sharp increase in the share price.

Following the war on Ukraine market dislocations have been massive and very heterogeneous from sector to sector. Overall, inflation remains the topic. From being negligible, then higher but transitory, inflation has quickly reached levels not seen since the 80s. While energy prices, raw materials or shipping costs are likely to normalize at some point, we also see factors, such as reshoring or the increased need for renewables likely to impact in the longterm. If sequentially we could be close to peak inflation, there are reasons to believe the new normal is higher for longer. In this context we favor companies with strong pricing power, high margin, little Capex needs and strong balance sheet. Valuations matter. The bubble has burst in high growth stocks with corrections of up to 50%, cyclicals both industrials and consumers trade at historic depressed valuations and small and mid caps have underperformed offering selectively attractive entry levels.