September doesn't have the best reputation in the stock market almanac, typically being one of the weakest months of the year. The month also began with falling prices, but global stock markets gradually recovered and ended more or less unchanged. The funds performed largely in line with the overall market. After the earnings season concluded, the news flow was quieter, with some notable individual company events. If we exaggerate, a quiet September is a good September. Outside our core segments, we have seen several profit warnings, primarily in sectors exposed to the end consumer.

Sectra, which operates on a broken fiscal year (May – April), reported its first quarter at the beginning of the period. The company has long held a strong position in healthcare software, particularly in imaging across several different verticals. Its customer base is relatively conservative and only in recent years has it increasingly moved towards purchasing software as a cloud service. As a result, Sectra has predictably experienced restrained growth, where large one-time revenues have been replaced by recurring revenues over a longer period.

This transition is not new in software generally; we have seen the same process in numerous companies. Initially, the market often misunderstood the slowdown in growth and underestimated the long-term positive impact. "Felling the skyscraper" or "getting through the bathtub" became popular metaphors for the entire process. Often, the area under the curve becomes much better in the long term for companies that sell their software in this way. But naturally, it requires the customers to be on board.

We believe the market has captured the overall trend in Sectra well, but the report was still better than many had expected. Net sales increased by 24%, while recurring revenues from cloud services grew by 42%. Currently, cloud services account for about one-sixth of total sales. Despite the increasing share of cloud services, which should temporarily dampen profitability (as long as cloud services do not constitute the majority), the company showed an improved margin compared to the same quarter the previous year. The company’s churn rate, i.e., the percentage of customers leaving them, is an impressively low 0.4% annually.

North America is the market with the greatest medium-term potential for Sectra. They have secured contracts with several hospitals and hospital chains in recent years, but opportunities among the other top 50 players are significant. They have a partnership with the ERP company Epic and are one of the few partners with Microsoft in healthcare. Microsoft naturally wants hospitals to store the massive volumes of image data in their data centers.

At the end of September, Sectra signed a contract with Quebec’s Ministry of Health for their 150 public hospitals, worth approximately SEK 3 billion over 12 years. The contract is being legally challenged, presumably by a competing supplier, and it was evidently finalized already this spring. In May, Quebec's Supreme Court decided to allow the project to proceed while negotiations continue.

Finally, we would like to highlight Sectra's exemplary reporting, particularly regarding currency effects. The Swedish krona has strengthened recently, especially against the U.S. dollar. What we appreciate about Sectra is that they clearly report currency effects on both revenue and operating profit. Most other companies usually only report the impact on revenue. In the report for the first quarter, the effects were small, but we can still see the leverage in revenue changes. For every krona (more or less), approximately 30% drops down to EBIT.

On the negative side, Norwegian company Nordic Semiconductor held a capital markets day that unfortunately turned out to be a communications failure. Although the company set ambitious long-term goals—20% annual growth for the rest of the decade and a 25% EBITDA margin—the short-term outlook disappointed the market. Despite the first half of the year providing relatively easy comparative figures, they indicated that growth in 2025 would be lower than the average for the forecast period.

The company develops and designs semiconductors primarily for Bluetooth applications in consumer electronics. Short range accounts for over 90% of the company’s revenues. Additionally, they offer semiconductor solutions for long range, Wi-Fi, and PMIC (power management IC), which controls power supply. These represent separate business areas with significant growth potential but are far from profitability. The majority of the Short Range business is based on a platform launched in 2015—the so-called nRF52 series. Its successor, the nRF54 series, which they "would have liked to launch earlier," has much higher performance and is manufactured by TSMC and Global Foundry on a more modern, cost-effective platform (22 nanometers).

The inventory correction among customers in the first quarter and the sequential growth recovery seen in the second quarter led to raised expectations. Unfortunately, these were dashed at the capital markets day. With a new platform on the way that needs to be tested and evaluated by customers, there is a gap that will be difficult to bridge in the short term. It is likely that products from the 52 series can still be sold, but the price risk is on the downside. Perhaps the capital markets day can be seen as an unusually decorated profit warning.

We are now entering the fourth quarter, which is traditionally seen as the strongest in the stock market calendar. "Stocks are a winter sport," goes the saying. It is important to remember that no year is exactly like another. This year, we also have a U.S. presidential election, which is unpredictable. The first week of the new quarter is also, as we have pointed out before, a potential profit warning season for software.

Traditionally, up to half of all software contracts are signed during the last week of each quarter. It is probably no coincidence that Sectra was able to announce its major deal in Canada right now. This industry behavior gives many software companies a clear picture of the quarter’s results in real time, allowing them to quickly issue warnings if they fail to meet their budget targets or forecasts. Upsales usually pre-announces its recurring revenues (ARR) on the first day of each new quarter, and for Q3, they reported a small growth. In the beginning of a quarter where we have seen many profit warnings from other sectors, continued silence from companies would be a relatively strong signal.

TIN Ny Teknik

The holdings that contributed the most to returns during the month were Paradox Interactive, Sectra, and Embracer. Among the holdings that negatively impacted the month were Novo Nordisk, Nordic Semiconductor, and Evolution.

The three largest holdings in the fund at the end of the month were Evolution, Novo Nordisk, and Surgical Science. The fund's largest segment is Software, which accounts for 42% of managed capital, followed by Health at 36% and Digital Brands at 10%. For a list of the top ten holdings, see tinfonder.se/tin-new-technology.

TIN World Tech

The holdings that contributed the most to returns during the month were Straumann, Xero, and Salesforce. Among the holdings that had a negative impact were Adobe, Novo Nordisk, and Nordic Semiconductor.

The three largest holdings in the fund at the end of the month were Microsoft, Alphabet, and Xero. The fund's largest segment is Software, which accounts for 58% of managed capital, followed by Health at 21% and Digital Brands at 8%. For a list of the top ten holdings, see tinfonder.se/tin-world-tech.