Factsheet

Monthly report September 2022

-1,6%

in September

+7,0%

annualized

-5,6%

in 2022

€ 293,54

NAV

Portfolio and market

The Antaurus Europe Fund (AEF) fell 1.6% in September. This puts the September closing price at €293.54. The annual return in 2022 is thus -5.6%. From its inception in 2006, the average annual net return is +7.0%.

This return was realized in September with an average net gain of 15%. This meant that the AEF's market risk was substantially lower than that of an equity investment.

Performance and risk since start

Antaurus Europe Fund (NAV)

Performance AEF (%)
1 month -1,6
3 months -2,4
Year to date -5,6
2021 10,7
2020 14,7
3 years (annualized) 5,9
5 years (annualized) 6,1
Since start (annualized) 7,0

Volatility

Risk analysis 1 month 5 years Since start
Gross position (Long + Short in %) 114 134 131
Net long (Long - Short in %) 15 27 41
Beta adjusted net long (%) 15 25 36
Positive months (%) 56 61
Maximum drawdown (%) -8,8 -20,9
Best monthly return (%) 6,5 11,9
Worst monthly return (%) -6,0 -8,6
Volatility (%) 7,7 10,5
Sharpe ratio 0,80 0,66

After sharp losses in the first half of the year, European stock markets fell again in the third quarter. Initially, stock markets recovered sharply in July, after which the recovery was more than wiped out in August and September. The broad DJ Euro Stoxx 600 fell by more than 5% on balance in the third quarter and the AEX by 3% (excluding dividends). The average net gain of the Antaurus Europe Fund was 17% in the third quarter. As a result, beta contributed negatively to returns. In addition, stock selection (alpha) made a limited negative contribution to returns.

Both long positions and short positions fell harder on average than the stock market.

The best-performing long positions were D'Ieteren (auto glass replacement) and Holcim (building materials). The worst-performing long positions were KPN (telecommunications) and Also (IT distributor).

D'Ieteren's share price rose 4% in the third quarter. The company surprised with very strong half-year figures. It substantially raised its earnings outlook for 2022. The auto glass replacement business with the Carglass brand expects to further increase profitability for the second half of the year. Two recently acquired businesses appear to be performing better than expected. The share price reacted very positively to these reports.

Holcim's share price rose 4% (in Euros). The producer of building materials, including cement, achieved solid half-year results. Holcim succeeded in absorbing sharply increased energy costs through price increases. Furthermore, the company is making strong progress in transforming its portfolio. In the third quarter, sales of the Brazilian and Indian cement operations were completed with revenues of more than $7 billion. At the same time, Holcim is making acquisitions of companies with products for roofing, insulation and specialized construction solutions.

KPN's share price fell 17% (including dividends) in the third quarter. KPN was the long position contributing the most in both the first and second quarters. The stock has still made a positive return this year after the decline in the third quarter. KPN raised the outlook for its earnings forecast and free cash flow for 2022 when it released its half-year results. Furthermore, KPN completed its 300 million euro share buyback. We look for the reason for the fall in the share price mainly in the sharply increased interest rates, which makes high-dividend stocks relatively less attractive. In addition, one reason could be that investors decided to take profits because KPN is one of the best performing stocks this year.

ALSO Holding's share price fell 19% (in Euros). ALSO is a new investment in the fund. ALSO is a Swiss distributor of IT products operating in 28 European countries. ALSO handles distribution for all kinds of computer hardware and software for both consumer and corporate clients. Stocks with exposure to cyclical consumer goods are currently being left by investors for fear that consumers will reach out for this type of spending. In addition, there are fears that during the corona period, many consumers and businesses have already invested in new computer hardware (including for working from home), so demand will be lower for the time being. However, we are positive about the potential earnings growth in the coming years for ALSO due to the rapid growth of their online sales platform, where business users pay per month for their IT consumption. This will make revenues more predictable for ALSO and will begin to increase the profit margin. Thanks to this development, profits remained virtually unchanged in the first half of the year, despite a 7% drop in sales due to a decline in IT products by consumers. Sales growth of the online sales platform exceeded 60% in the first half of the year. A few weeks after the half-year results, the company announced a share buyback program for 100 million euros, which will buy back over 5% of its share capital.

Of the short positions, the positions of companies in manufacturing, consumer goods and real estate contributed positively to earnings.

Investment Case: Aryzta

Aryzta manufactures and distributes luxury frozen bakery products that are baked off in supermarkets, gas stations, train stations, the hospitality industry and fast food chains such as McDonald's. Aryzta sells its products in Europe, Asia and Australia. Aryzta is a market leader in a fragmented market.

Aryzta was created when Ireland's IAWS acquired Switzerland's Hiestand in 2008. After years of mismanagement, the Irish board and management were sidelined by shareholders in 2019. The former CEO of the Swiss company was appointed to lead the turnaround. He then assembled a team with extensive knowledge and experience in the baking industry. The CEO himself comes from a family of bakers. He began his career at Aryzta as an intern where he also kneaded the dough.

We are excited about Aryzta because we see tremendous improvement potential in the company after years of mismanagement. The company has identified practical measures to make improvements in purchasing, recipe, production, logistics and overhead. The initial results reinforce our confidence that management will achieve substantial profit improvements in the coming years. In addition, we expect Aryzta to benefit from the recovery in sales after being hit hard by the lockdowns for Covid.

Due to the defensive nature of the business, we expect Aryzta to cope relatively well with current market conditions, with consumer spending under pressure and costs rising sharply. Bakery products are one of the cheapest calories within food. We also expect Aryzta's upscale bakery products to be relatively unaffected by lower consumer demand. Furthermore, we expect that Aryzta will be able to absorb the negative impact of cost inflation through price increases and efficiency measures. The substantial price increases have so far been accepted by customers. Importantly, management has reacted alertly. Immediately when costs began to rise a year ago, management was determined to implement price increases decisively. The results show that Aryzta is succeeding well in this regard.

Aryzta has succeeded in significantly reducing debt since new management took office. Due to divestments, strong free cash flow and improved profitability, debt ratios have improved significantly. We expect Aryzta to be able to refinance the remaining expensive debt on more favorable terms in the coming years. This will reduce interest expenses and further increase earnings for shareholders.

We find it interesting that Aryzta stock has been out of favor with investors for years. Investors have been so disappointed with the company in the past that they are now unwilling to give the stock another chance. At the same time, these investors are willing to pay high valuations for other food companies with similar market positions. We expect Aryzta to succeed in gradually regaining investor confidence through solid results.

We expect Aryzta to achieve strong earnings growth in the coming years. Based on our earnings forecast, the shares are very attractively valued. If Aryzta's valuation were to rise toward the valuation of similar industry peers, the stock price would rise sharply. Due to the defensive nature of Aryzta's business, we believe the stock's risk profile is relatively limited.

Strategy and outlook

European stock markets fell for the third quarter in a row in 2022. The main cause is the ever-rising inflation. To curb it, central banks have gone full steam ahead and are rapidly raising interest rates. At the same time, we see corporate profits coming under pressure due to a combination of demand slack and rising costs.

Meanwhile, in the United States, inflation is over 8%. In Europe, inflation was as high as 10% in September, as Europe is suffering to a greater extent from extremely high energy prices. Due to the limited supply of gas from Russia, prices for gas and electricity in Europe rose by hundreds of percent from a year earlier. Higher energy prices act directly as a tax on consumers and businesses. Higher energy prices also affect the production costs of companies, which will therefore have to increase their sales prices, resulting in further inflationary pressures.

To control inflation, central banks are aggressively raising interest rates to cool the economy. The U.S. central bank (Fed) has already raised interest rates five times this year, the last three times by as much as 0.75% each time. These are historically large steps. The Fed has expressed the expectation that policy interest rates will rise further this year from the current 3% to nearly 4.5%. In addition, the Fed is selling 90 billion worth of loans every month, which also puts upward pressure on market interest rates. The European Central Bank (ECB) has also finally stepped in, but policy rates in Europe are still only 0.75% after two rate hikes.

Meanwhile, skyrocketing inflation is showing its impact on the economy. Since inflation is well above wage growth, it is eroding consumers' disposable income. Consequently, it currently appears that we are in a recession. The combination of falling demand and rising costs, such as for salaries and energy, is putting pressure on corporate profits. We therefore expect negative earnings growth for many companies for the remainder of 2022 and for the first half of 2023.

At the same time, rising interest rates are also going to create a negative impact. Rising interest costs have a taxing effect on governments, businesses and consumers. Namely, it means that interest expenses claim a larger portion of their income. This leaves less for consumption and investment. Higher interest costs therefore act as a burden on economic growth.

What further negative consequences higher interest rates will lead to is sometimes difficult to predict in advance. In England, for example, the rapidly rising interest rates caused British pension funds to run into liquidity problems. This forced the Bank of England to intervene.

A positive upside for companies is that the weaker economy is also causing demand for raw materials and transportation to decline. Prices for steel, aluminum and copper, for example, have fallen sharply. Many companies will therefore start to benefit from lower purchase prices from now on. This is positive for the development of gross profits. We also see that prices for intercontinental transport more than halved last quarter. The strong development of foreign currencies against the Euro (such as, for example, the U.S. dollar), are also a windfall for European companies that generate a significant portion of profits in countries with a sharply rising currency. 

All in all, it is clear that financial markets must learn to deal with the ending of the extreme monetary stimulus measures of recent years. The prospects for earnings growth are limited at many companies given falling consumer spending and rising costs. It does appear that purchasing costs for companies are declining. Also, due to the sharp price declines, stocks are currently priced more attractively. AEF's current net long weighting of about 20% therefore reflects our cautiously positive stance.

Performance and risk since start

Top 3 positions Weight
Long
D'Ieteren 11,6%
KPN 7,3%
Aryzta 5,1%
Short
Utilities 5,0%
Consumer discretionary 4,2%
Industrials company 3,7%

About Antaurus

General

NAV (€) 303.42
Fund size AuM (€m) 354
ISIN code EN 0000 686848

Leverage

Maximum Gross 150%
Net long range -50% to +75%

Related parties

Depositary Caceis
Custodian Caceis
Administrator Bolder Fund Services
Auditor Mazars

Fund characteristics

Style Long/Short Equities
Geography Europe
Inception October 2006
Base currency Euro
Additions Monthly
Redemptions Monthly

Free structure

Management Fee 1.8%, p.a.
Performance Fee 20%, quarterly
High Watermark Indefinite

Disclaimer

This document has been prepared by Antaurus Capital Management B.V. solely for the information of the person to whom it has been delivered. The distribution of this document and the offer, sale and delivery of units (Units) in the fund (Fund) in certain jurisdictions may be restricted by law. This document does not constitute an offer for, or an invitation to subscribe to or purchase, any Units in any jurisdiction to any person to whom it is unlawful to make such offer or invitation in such jurisdiction. Persons into whose possession this document comes are required to inform themselves about and to observe any such restrictions. The information herein is for general guidance only and it is the responsibility of any person in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This information is not intended to provide and should not be relied upon upon for accounting, legal or tax advice or investment recommendations. You should consult your tax, legal, accounting or other advisors about the issues discussed herein. Material terms of the fund are subject to change. Any prospective investor will be provided with a copy of the prospectus and an opportunity to review the documentation. Prospective investors should review the prospectus, including the risk factors, before making a decision to invest. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Antaurus Capital Management, its employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions, and nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance. This is neither an offer to sell nor a solicitation of any offer to buy any securities in any fund managed by us. Past performance of a fund is no guarantee as to its performance in the future.