SEK bargains

The Swedish Krona (SEK) is plummeting further after the Riksbanks latest communication of a lower for longer scenario. In a fairly short period of time the Krona has gone from fairly strong to weak, particurlary to the USD which strengthen against more or less everything. In a perfect world a stock denominated in SEK, with earnings in EUR/USD should correct its stockprice to reflect the now weaker SEK. But we do not live in a perfect world, and potential bargains could exist out there.


Winners on the weak SEK

A company which is a obvious winner on the weak SEK, has its costs in Sweden but sells all its products abroad. Good examples of such companies are Swedish pulp and paper companies. They usually source their timber/wood locally, use electricity from Sweden and has its labour costs in Sweden. Whereas the pulp is sold on the world market, with prices set in USD.

Most such companies are currently trading at high multiples at a point in time when pulp prices are at high historical levels, but i think i found an exception in the small cap lists in Sweden. The company is called Rottneros and has a somewhat troubled history ending in a rights issue in 2009. Since then they have shaped up considerably and the stock is in a nice uptrend and still trading at attractive multiples. Given the SEK plunge the operating margins are looking very nice indeed. On top of that the electricity cost is hedged, and they are rolling into lower and lower locked prices.

Risks are obviously if pulp prices on the world market plummet, I have no edge at all to predict those, but i can note that they are high from a long historic perspective.

Since Im sitting on the beach writing this i will do a more proper write up at a later time. As of close yesterday I have taken a position in Rottneros of 5% of my fund.


One word about Ericsson as well, the share price has continued to fall sharply and this is also a company benefiting from a weak SEK, as well as from an US investors perspective 44 SEK per share is a lot cheaper today than it was a few months ago. Im willing to continue my Value bet here and take another 2% of my fund to double up the position in Ericsson.

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