Stockholm (HedgeNordic) – Warren Buffett has regularly used the analogy of baseball players striking the ball only within their sweet spot when talking about investing. Activist fund Accendo appears to have applied Buffett’s science of hitting with great success.
Accendo has been enjoying a great ride over the past seven years, with its concentrated portfolio delivering exceptionally strong returns for investors in the past three years. Accendo booked a full-year gain of 58.4 percent for 2021 to bring its annualized return over the previous three years to 57.5 percent and its inception-to-date annualized return to 18 percent net of fees.
“We had another great year in 2021,” says Elise Auer, Director of Investor Relations at Accendo. Although “not much has changed since the very beginning with the team running the same strategy that was set up almost 14 years ago,” according to Auer, “the returns have accelerated in the past seven years.” Accendo has generated an annualized return of 32 percent in the seven years through the end of last year.
“We are happy to roll up our sleeves to work with the other shareholders and together with management teams to make these businesses thrive.”
“We are still looking to invest in publicly listed companies in the technology space in the Nordics,” reiterates Auer. “What makes us a little different is our entrepreneurial approach to investing,” she continues. “We are happy to roll up our sleeves to work with the other shareholders and together with management teams to make these businesses thrive.”
Accendo generally acquires ownership stakes between five and 25 percent in a select group of listed companies in the Nordics often with a technological edge, with the investment team relying on their entrepreneurial mindset and cooperation efforts to initiate and run their collaborative campaigns of value creation. The team consisting of Henri Österlund, Mark H. Shay and Kai Tavakka introduced the concept of “10×10” investing last year to better explain their approach to investing.
“We aim to achieve a ten times return on our invested capital in each investment over a period of about ten years.”
“The concept of 10×10 investing serves to conceptualize in a very simple way what we are looking to achieve,” says Mark H. Shay, who joined Accendo shortly after Henri Österlund founded the firm in 2008. “We aim to achieve a ten times return on our invested capital in each investment over a period of about ten years,” Shay explains. “A ten times return requires a transformational change in the company,” he elaborates. “On the time dimension, fundamental change does take a long time and ten years is not an unreasonable time horizon for the changes that we are trying to achieve.”
Main Return Driver
With a 560 percent return during 2021, Hexatronic, a technology group specializing in fiber communications, was one of Accendo’s main return drivers in 2021. “Hexatronic was the major contributor to the fund’s P&L last year, but also SSH and Doro contributed materially,” according to Shay.
“What we have seen over our six-year holding period so far is a company that has really matured and has built an industrial platform that has never been better positioned for growth.”
“Hexatronic, our largest position, is a leading company in providing fiber-related connectivity and communications solutions,” says Shay. “What we have seen over our six-year holding period so far is a company that has really matured and has built an industrial platform that has never been better positioned for growth.”
“It is a tremendous achievement and evolution that is reflected in the share price.”
Back in 2016, Hexatronic’s sales amounted to about SEK 1 billion and operating profit equaled SEK 90 million. For 2022, analysts expect the company to generate almost SEK 5 billion in sales and almost SEK 600 million in operating profit. “That’s a five times gain in revenue and almost a seven times gain in operating profit,” says Shay. “It is a tremendous achievement and evolution that is reflected in the share price.” Despite the strong operational and share price performance in recent years, Shay says “there is a lot more to come from Hexatronic and the demand has never been more clear and vibrant than today with the unquenchable thirst for broadband.”