Expectations ahead of the reports
Before the reporting period, the uncertainty was monumental. We have just passed a bleak autumn with downturns, especially for those of us focusing on small and medium-sized Nordic companies. Throughout the year, we have had to come to terms with the fact that companies that delivered slightly worse quarterly reports than expected could fall by up to 20 percent. Companies that performed well have been well received, but not at all to the same magnitude. However, it is risky to focus on the reactions. It is even more important to follow the companies' fundamental performance, which has been strong throughout the year. With good reports, a thaw will of course come sooner or later. So how did it go for TIN New Technology's largest holdings during Q3? Below are summaries of our top 10 positions' reports.

Novo Nordisk
Already in 2022, we wrote in our report reviews that Novo was close to fulfilling the dream that one could 'take a pill and become slim.' Although their obesity medication is still taken via injections, there is now no doubt that it reduces sugar cravings and leads to weight loss. Many have even heard that the drugs are called Ozempic and Wegovy. We at TIN know people who use the treatments. Additionally, a taxi driver spontaneously mentioned that they had consulted their doctors about whether it was 'time to start Novo's treatment.' So customer awareness is high.

That the numbers have also been strong this year has escaped few people with an interest in stocks, as the company is now Europe's largest by market value. Sales rose by 29 percent to 59 billion Danish kroner, and operating profit increased by 33 percent to 27 billion DKK. One of the company's biggest problems is that they cannot produce enough weight loss drugs to satisfy the demanding obesity patients' demand.

Research shows that those who take the medications also reduce the risk of suffering heart attacks and strokes. If Novo can also make a breakthrough in this area, the growth opportunities are very promising for many years to come.

Evolution
The live casino dominator Evolution has increased its revenue by 20 percent. Profits rose by 23 percent, totaling 273 million euros. The EBITDA margin remains uniquely high at 70.4 percent. These are fantastic figures for most, but somewhat lukewarm growth compared to what longer-term shareholders are accustomed to. Live casino is growing well, while the 'one-armed bandits' (slots) are more sluggish.

CEO Martin Carlesund, however, states that the underlying activity and demand are higher than the reported revenue growth. The company is disadvantaged by unfavorable exchange rates, which negatively affect revenue growth. In addition, the demand is so high that the company needs to expand studios somewhat faster than they have managed, which has also hindered revenues during the quarter. They have not been able to open enough studios where they can set up, for example, Black Jack tables at the same pace as demanded by players. Although this is a problem that needs to be resolved, it is fundamentally positive that demand is higher than the number of gaming experiences they can deliver right now, rather than the opposite.

Carlesund, who will be attending our investor meeting in January, believes that next year will be the best ever from a player perspective!

Paradox
The video game company, focusing on strategy games, saw a 7 percent decrease in revenue compared to the same period last year. Operating profit amounted to 85 million, 61 percent lower than the previous year. The weak result is largely due to it being a quarter with few game releases (which we wrote about in the last report review) while costs such as marketing expenses for future game releases increased.

However, we should see significantly stronger cash flow already in Q4 as the sequel 'Cities Skylines 2' was launched in October. The game initially received criticism because the performance did not live up to player expectations. After some optimization, the negative reactions have largely turned positive, and the game release can definitely be considered successful! Our fund manager, Carl Armfelt, has spent many hours playing the game during the evenings following the launch, and is overwhelmed. To reconcile family life, however, he reports that the game is uninstalled for now.

Our opinion is that the company's golden age definitely lies ahead. A good pipeline, loyal customers, and a scalable business form a favorable trio. Additionally, the company announces that they have good opportunities to significantly streamline operations with the support of AI, where conversations in various languages can be implemented once the legal issues are clarified.

Surgical Science
One of the biggest challenges globally in healthcare is how to limit medical errors. Here, Swedish Surgical Science plays an influential role as one of the world leaders in robotic surgery and simulation. The company provides, among other things, aspiring surgeons the opportunity to practice operations in a simulated environment in a realistic way.

Revenue amounted to 210 MSEK, an increase of three percent. Specifically, the education branch that offers aspiring surgeons practice opportunities had a weak quarter with negative growth, partly driven by declining sales in China. Just like in Q2, however, software licensing revenues (software) were significantly rising during the quarter. Software revenues also drive scalability, and despite a lower growth rate than we are used to, the company increased its operating profit by 19 percent. Earnings per share rose even more, thanks to the company's strong balance sheet which contributed to interest income!

It was a touched and proud Gisli Hennermark who presented the report. The company has, in fact, 50 percent of its employees in Israel. Although the company experiences some disruptions due to the war, on the whole, business is going very well. The employees seem to appreciate that life goes on somewhat normally, despite the precarious situation.

Take-Two Interactive
It's the American developer and publisher of video games with iconic rights such as Grand Theft Auto and NBA 2K. Revenue fell by 7 percent to $1.3 billion while losses increased to $540 million.

Take-Two, which is partially in a development phase, announced on November 8 that the trailer for GTA 6 will be released in early December. How big can it then be, some non-gamers might wonder? Since last quarter alone, GTA 5 has sold five million units, and the game has sold 190 million copies since its release in 2013! Of course, not all players will immediately buy GTA 6. But with a price that will surely be among the highest in the industry, the potential is breathtaking. In our next report review, we promise to give our assessment of what the trailer looks like. Of course, we will also summarize how the trailer appears to have been received by players around the world!

Biogaia
Biogaia develops, markets, and sells probiotic products. A major competitive advantage is that the company's products are clinically proven. The biggest challenge for the company may be convincing potential customers that the products are 'real' and actually effective. The flagship product is the colic drops, which make life easier for both parents and infants by relieving stomach pains for the little ones and helping them manage daily life. Revenue for the quarter increased by 23 percent while operating profit rose by 28 percent to 120 MSEK.

Biogaia has been successful with direct sales to customers through advertising on TikTok, something that was not at all obvious beforehand. In this way, the company can, among other things, launch a broader selection of the product portfolio and further strengthen the brand. The EBIT margin is already high at 34 percent, but with probiotic products (high gross margin) and direct sales to customers, it is likely that it could increase further in the long term.

Nemetschek
Nemetschek is the world-leading German company in software for architects, engineers, and builders. The company delivers strongly in a challenging (construction) economic climate. Revenue increased by 13 percent while profit rose by 16 percent and totaled 45 million euros. As previously communicated, the company is transitioning to a SaaS model, and therefore the key metric of annual recurring (ARR) revenues is critical. Despite the tougher market for Nemetschek, the company's recurring revenues increased by 25 percent to 664 million euros.

The company confirms revenue and profitability targets for 2024 and 2025, assuming that global economic conditions do not deteriorate significantly.

Kindred
Kindred is the sustainable gaming operator focusing on sports betting. Revenues rose by two percent and underlying EBITDA increased by six percent, amounting to 43 million British pounds.

The company performs well in key markets like the Netherlands and the United Kingdom, while the expansion in North America has continued to be weak. The strategic review that Kindred announced last spring resulted in a controlled winding down of operations in North America. The company will also be driven more efficiently by reducing the number of employees and further focusing on core markets, where the company is one of the market leaders. The future Kindred will thus be more focused on digging where they stand, and be driven with clearer scalability focusing on cash flows.

The company forecasts an underlying EBITDA of 250 million pounds in 2024, an increase from the 200 million pounds forecasted for 2023..

Xero
Xero can perhaps best be described as the New Zealand, international equivalent of Fortnox. The cloud-based accounting company operates in over 180 countries and had a turnover equivalent to 8.8 billion SEK last year.

The company only reports semi-annually, and for the first half of 2024, the company grew by 21 percent. Operating profit exploded, increasing by 1250(!) percent, from low levels.

The company is indeed increasing its costs, but at a much slower pace than its revenues. The scalability of the company is evident. To compare profitability with Fortnox, Xero with its H1 in 2023 delivered an EBIT margin of 10 percent while Fortnox delivered a 40-percent EBIT margin. Reaching that margin for Xero will obviously take time, but the potential is enticing!

ChemoMetec
Danish Chemometec develops instruments for cell counting and cell analysis. Its customers include cancer research companies, universities, and food companies. The case for Danish Chemometec is primarily focused on the recurring revenues from consumables, which grow in step with increased instrument sales.

The company has built up a stable base of recurring revenues over many years. However, in recent quarters, the market for new research projects has been more hesitant, which negatively affects the sales of the instruments. Nonetheless, the company continues to sell its highly profitable consumables to existing customers to a great extent.

Total revenues only fell by 20 percent despite a 50 percent drop in instrument sales. EBITDA fell by 36 percent and totaled 42 million DKK. The company has just launched the next generation of products and will continue with further launches in the coming quarters. XcytoMatic® 40, a new release that can process 100 samples per hour:

Chemometec is well positioned when the cycle for new research projects turns.

Reporting period with sharp fluctuations
The reports were, just like throughout 2023, overall solid. What mainly distinguished this reporting period compared to previous ones were the market reactions. We saw several examples where previously written-off companies saw their stock prices surge on stable reports. Increased cash flow and thus reduced risk of new share issues were enough to significantly lift both Storytel (since divested) and Sinch. Surgical Science and Chemometec also delivered reports that left more to be desired for a growth investor. Despite somewhat weaker reports, both companies surged by double digits. Perhaps the market is beginning to price in that the recession won’t be as bad as feared? We've said it before, but will happily repeat it. We don't know when it will turn, but when a turnaround does happen, history shows that it tends to rise quickly.

On average, our fund's 10 largest positions grew their revenue by 10 percent organically in the quarter, while profit growth was around 7 percent. The figures are partly adjusted. We have normalized XERO's profit growth from 1250 percent to a more reasonable figure of 30 percent and excluded Take-Two, which continues to report losses. Paradox's profit decrease of 61 percent significantly drags down the average increase in results and is a result of unusually few game releases. This should not be seen as a long-term trend. In Paradox, we can expect significantly stronger figures already in Q4

Read more about the fund here.