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Origo cheers NKT restructure

Report: Systematic Strategies

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Stockholm (HedgeNordic) – Swedish activist hedge fund Origo Quest 1, managed by Origo Capital, cheers the decision of Danish conglomerate NKT Holding to restructure its business into two separate entities which was announced Wednesday sending the shares of the company almost 10 per cent higher. The restructure follows on a deal with Swedish ABB where NKT buys its high-voltage cable business for 8 billion SEK.

”We have been active in suggesting splitting up the business since February 2013. The acquisition of ABB Cables and the decision of the board to divide the company into two separate entities is completely in line with our view and will spur increased growth and expose hidden values”, says Stefan Roos (pictured) Managing Partner at Origo Capital.

According to Roos, NKT has been one of the fund´s largest holding since it launched in early 2013 and has represented 10-13 per cent of the Net Asset Value since.

”NKT was the first investment we did and the investment case was developed in close cooperation with our network of industrialists. We saw values in the company that were not exposed, especially within Nilfisk, an industrial ceaning and washing company, which we judged to have a value exceeding that of the whole NKT conglomerate despite only representing 40% of NKT’s total sales”, Roos says.

Nilfisk is one of three business areas that NKT has built its organisation around since 2013, according to Roos a highly profitable company with a strong global market position. However, instead of releasing the growth potential of Nilfisk, Origo saw NKT allocating resources to its cable division ”NKT Cables”, a company with a relatively weak market position and uninspiring profitability, Roos argues.

“We saw that NKT was not driving the growth potential of Nilfisk but rather allocated its stong cash flows to the cabel division which has had a lot of problems. Our investment was based on the idea that the company structure needed to change in order to make Nilfisk a separate company.”

As the deal with ABB now has been announced, Staffan Östlin, Investment Manager at Origo, sees strong growth ahead.

”The cable division of NKT has made a turnaround and through the acquisition of ABB Cables our view is that it becomes a lot more competitive, at the same time Nilfisk can focus on its own business and increase growth. The third line of business that NKT ran previously, related to highly efficient fiber laser systems, will remain within the cable division but we see opportunities in selling that part of the business or to spin it off.”

According to Östlin, Origo bought shares in NKT in 2013 at around 200 DKK with a target of 500-600 DKK to be reached within 5 years. As of close Thursday, the stock traded at 426 DKK, a gain of 19% for the year.

Since launching the fund in 2013, Origo Quest 1 has generated compounded returns of 18% to a sharpe of 1.6, according to HedgeNordic data. As of end August, the fund was up 9.3% year-to-date.

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Jonathan Furelid
Jonathan Furelid
Jonathan Furelid is editor and hedge fund analyst at HedgeNordic. Having a background allocating institutional portfolios of systematic strategies at CTA-specialist RPM Risk & Portfolio Management, Mr. Furelid’s focus areas include sytematic macro and CTAs. Jonathan can be reached at: jonathan@hedgenordic.com

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