Bellevue Entrepreneur Switzerland (CH)

Swiss equities, as measured by the SPI Index, rose 3.6% in April, outperforming European markets (Stoxx 600: +2.5%; MSCI Europe Small Cap: +1.6%) as well as global equities (MSCI World:+1.6%). This performance was fueled by the defensive heavyweights, with Nestlé 5.4%, Novartis 8.8% and Roche 7.4%, in the generally cautious market following the SVB failure and CS rescue. Headline inflation continued to slow to 5% and 6.9% in the US and in Europe respectively, but their core components remained elevated. The ‘flash’ Eurozone PMI rose for a sixth consecutive month to a 11-month high of 54.4 helped by the a strong services side, while manufacturing contracted to 48.5. In Switzerland, the manufacturing PMI posted another decline hitting 45.3. Interestingly, because of high order books, output volumes have not changed and companies have continued to recruit staff, while new orders are sharply down. The service PMI remains solid and above the growth threshold. Sector wise, utilities (+7%), healthcare (+6.4%) and real estate (+5.1%) performed best, while information technology (-0.4%), materials (-0.3%) and consumer discretionary (+0.2%) lagged the most.

Against this backdrop, the fund rose 0.2% in the month (+14.0% ytd / CHF A shares), underperforming its benchmark by 333 bps (+386 bps ytd).

Main detractors in the month were U-Blox (-15.8%), Huber+Suhner (-6.5%) and Swatch Group (-2.8%). After a strong month of March (+26%), U-Blox was subject to profit taking in a generally mixed semiconductor reporting season. U-Blox released Q1 revenues with an organic growth of 20% yoy and reiterated its 2023 objective of 6% to 16% revenue growth, led by strong demand and increased penetration for IoT products in both the industrial and automotive sectors. U-Blox is trading on an attractive multiple of 7.5x 23E EBIT. Huber+Suhner continued to suffer from the absence of a 2023 guidance with the release of the 2022 results. Our recent management contact reinforced our view that 2023 should be a year of timid growth. Longterm trends are thus intact and underpinned notably by the electrification mega trend in the industrial and transportation sectors. Swatch Group, following a 20% rally ytd, experienced some profit taking during the month on a volatile Chinese newsflow, with some market participants suggesting a slowing momentum. In our view, the cautious restocking behavior of retailers is more a lagging indicators. All datapoints related to sell-out data to the final consumers, from directly operated stores or duty free operators are positive and point towards a healthy recovery. We therefore remain positive about the investment case, especially in view of the group’s low valuation with EV/EBITDA 24E of 6.5x and FCF yield above 7.5%.

Top 3 contributors in the month were Swissquote  (+6.7%), Roche (+7.4%) and Medmix (+10.9%). Swissquote advanced helped by the general higher level of interest rates but also as clear beneficiary of the UBS/CS merger. In our view, net new money in Switzerland is likely to be substantially higher versus last year, providing upside to valuation for the title. Also, the potential resumption of trading activity and regain of interest in crypto currencies provide further upside potential. Trading at a P/E of 12x on 2024E, while boasting a 3-year EPS CAGR of more than 20%, we continue to see solid upside for the name. Roche, following weak Q1 share performance, was again sought after in a market favoring defensive investments.

In view of a very robust macro environment, there is great uncertainty about the timing and extent of a possible recession in the USA and Europe. While equity markets seem to be pricing in a soft landing, other areas have experienced a sharp correction, such as the oil market, which is discounting a hard landing. Can we expect a slump in the labor market? And if so, when? SMBs in the US and elsewhere appear to be "hoarding" workers as labor continues to be in short supply. In addition, it appears that many companies are still working off their high order backlogs from the previous year, which allows for high production levels. M&A activity is coming back into focus, and it is worth remembering that European and certain Swiss companies are valued at record discounts to their US counterparts. In this challenging environment we continue to work on a diversified portfolio, searching for idiosyncratic ideas with attention to quality, moat and financial stability without overpaying.