Synektik – Betting on Polish healthcare


+ Strong core business of radiopharmaceuticals, natural moat where products can only be produced locally.

+ Added an extremely successful leg as exclusive Polish distributor of Da Vinci surgical systems. Sales have exploded on back of pent up demand for these systems.

+ Product for heart disease in pipeline, finalized Phase 2 trials, seeking Phase 3 partner. Similar product by US listed Lantheus brought 60m USD in milestone payments. Synektik MCAP is ~60m USD.

+ Strong Polish Macro backdrop with Europe’s strongest GDP growth as tailwind for Poland to catch-up in terms of medical advancements.

– Covid-19 is as for most Pharmaceuticals hampering sales.

– There has already been some delays in finding a partner for the Phase 3 study.

Company Background

Synektik Group was established back in 2001 and started off servicing different types of medical equipment mainly for Siemens. Fairly early some IT solutions were also developed for archiving and distributing images as well as patient data admin. In 2004 a laboratory was established for medical imagine diagnostics. In 2010 the company acquired IASON and entered the field of radiopharmaceuticals. On this heritage of servicing equipment for large medical equipment companies and radiopharmaceuticals the company has grown together with the Polish economy and delivered strong revenue growth and product innovation.

Today, Synektik is a leading Polish supplier of services and IT solutions for surgery, diagnostic imaging and nuclear medicine. Synektik operates a research laboratory for diagnostics imaging systems and a service center for medical equipment. The company is also the first commercial manufacturer of radiopharmaceuticals used in diagnostics for oncology (PET) in Poland. The Synektik Group operates three radiopharmaceutical manufacturing plants. Moreover, Synektik operates its own Research and Development Centre working on radioactive tracers for oncology, cardiology and neurology.


The two largest shareholders are Mariusz Wojciech Książek, a Polish businessman (26%) who acquired his stake in the company late 2017 and the company CEO Cezary Kozanecki (25%).

Business Segments

The company is standing on two main legs in terms of cash flow generation:

  1. Radiopharmaceuticals
  2. Distribution and service of medical equipment

The third important leg is the cardiotracer product where they are looking for a Phase 3 partner.

1. Nuclear medicine / Radiopharmaceuticals

Nuclear medicine is a medical speciality that uses targeted radioactive compounds, called radiopharmaceuticals, to diagnose, stage, treat and monitor diseases. Nuclear medicine can be divided into two categories: diagnostic nuclear medicine (or molecular imaging) and therapeutic nuclear medicine (or theranostics). The nuclear medicine market is predicted to reach $30 billion by 2030 worldwide.

Positron-emission tomography (PET) is a special form of medical imaging which enables doctors to visualize specific function inside the body in 3D. This is done with the use of a radiopharmaceutical, which is a special molecule combined with very small amount of radioactivity, and a special scanner. The images obtained can provide physicians with information to help them to diagnose, monitor and treat disease. The most frequently used PET imaging radiotracer is fluorodeoxyglucose (18F) (FDG), a compound made from a simple sugar and a small amount of radioactive fluorine (18F). This radiotracer accumulates in the body’s tissues and organs where there are increased levels of activity, such as in tumors. FDG is used in cancer imaging to search for tumors, metastases or to monitor response to certain therapies. However, it does not work well in some anatomical areas such as the prostate and the brain.

Synektik group produces a number of these basic radiopharmaceuticals and some special radiotracers. One example of a special radiotracer is produced under an agreement with Blue Earth Diagnostics. Fluciclovine (18F), a compound that is formed from a synthetic amino acid and includes a small amount of the radioisotope fluorine (18F). Fluciclovine (18F) accumulates in the body’s tissues and organs where there is an increased uptake of amino acids, as can occur in certain tumors. A PET/CT scanner is used to detect the distribution of the fluciclovine (18F). The images obtained from the fluciclovine (18F) PET scan give doctors information which can assist in the management of the patient. Fluciclovine (18F) is approved in the USA and Europe for PET imaging of biochemically recurrent prostate cancer.

The key point to understand with radiotracers are that they have to be produced locally. The whole idea of the compound is to have a very short half-life or radioactivity, to harm the patient as little as possible. So the product is made in a nearby cyclotrone the same morning. This creates a wide moat for the product, since a production facility in another country is too far away. There are 4 public cyclotrons, but they don’t have the license, they can only produce for their own hospitals. On top of that, Synektik is the only Polish company that can produce special radiopharmaceuticals, which translates to a 30-35% EBITDA margin. From this base of stable cashflow Synektik has been able to build up and scale its operations, organically and through acquisitions.

PET Tracer sector is hot

In recent years larges players have been snapping up assets in this space. Blue Earth Diagnostics that Synektik co-operates with was acquired by Bracco for 475m USD: Link

Novartis invested $6 billion to acquire Endocyte to expand expertise in radiopharmaceuticals: Link

This is from a global perspective, as interesting to Synektik is how the market has developed locally in Poland. As you can see below there is plenty of room for growth.

This is also translated into stable sales for Synektik with very stable EBIT margins:

Cardiotracer – the gamechanger

What is most hot in this sector is of course not old technology that has been around for years, but new innovative tracers. Synektik has for a number of years been working on an improved tracer formula for heart disease. This project has been sponsored by EU Getting to the heart of diagnosis for imminent coronary artery disease.

The benefits of this new type of tracer is summarized by the following points:

  • high quality of image, strong sensitivity and adaptivity of the scan.
  • the same image quality for small and large patients, people with breast implants and those unable to lift up their hands.
  • four times less radiation (of significance to children and people with chronic coronary heart disease).
  • faster imaging protocols, leading to shorter test times

This cardiotracer product is Synektik’s major research pipeline item and is a potential gamechanger for the company. The company has finalized Phase 1/2 studies and is now seeking a partner to take the product through stage 3 and to the market. Synektik have been dragging their feet a bit on finding a partner which has disappointed some investors.

Some comments around this topic from a recent investor chat with Synektik management:

We assume that 2021 will be the optimal time for concluding a contract with a partner. Of course, we DO NOT judge that it will happen. Why the frequent changes in schedules and delays in this area. I would like to ask for a more detailed explanation of
this problem, as you have already failed to meet your declared deadline several times. You are talking about 2021 now, but you DON’T SEE it. So it may be later or not at all. This is very disturbing
Dariusz Korecki: We would like to emphasize – we believe that concluding a contract next year would be optimal. But we are not going to make a deal at any cost under time pressure. Kardiagnnik is a one-of-a-kind project, and we will conclude a partnering contract for it only once.
I assume that we all want this to be the best possible deal that will allow Synektik to become a global player. The game is at stake for our company. It would also be irresponsible on our part to ignore the impact of COVID on the course of the project in our plans.

The market speculates that the partner with whom the company will complete the third phase of clinical trials of the cardiac marker will be Astra Zeneca or Blue Earth. Can the company relate to these speculations?
Dariusz Korecki: We cannot, by nature, comment on such speculations. In terms of direction, our partners may include drug manufacturers, manufacturers of medical equipment, who are also the largest producers of radiopharmaceuticals in the world. At this stage, we can reveal that we are in dialogue with the leading players in the global medical industry.

Do you have knowledge of the work on competitive markers for the tested cardiac marker?
Cezary Kozanecki: We monitor the market, we have the fullest possible and current knowledge about it. The potential sales market is very large and competition is invariably limited.

Dariusz in the investor chat also points to Lantheus Medical one of few listed players in this space which made a deal with GE Healtcare, which provided for an upfront fee and success fee of approximately USD 60 million. This payment with potential good royalties for Lantheus was for more or less the same type of product: Phase III development and worldwide commercialization of flurpiridaz F 18, an investigational positron emission tomography (PET) myocardial perfusion imaging (MPI) agent that may improve the diagnosis of coronary artery disease (CAD), the most common form of heart disease. Link to press release.

Just to be clear, up-front and milestone payment during Phase 3 to Lantheus is 60m USD, which translates into 223m PLN and current MCAP of Synektik is 232m PLN. This 60m USD does not include future royalties if the product is launched. Synektik does not even need to land a deal half as good as Lantheus and this would still be massively accreditive to share price of Synektik.

2. Distribution and service of medical equipment

Synektik has a number of products they distribute and do maintenance on in Poland. But the main driver of this sales is from the Da Vinci surgical machines.

Synektik is the exclusive distributor of da Vinci robotic systems in Poland. Under the agreement concluded with Intuitive Surgical, Synektik is responsible, for the sale and service of robots, instruments and equipment accessories, as well as training of operator doctors. Selling these machines gives firstly a nice one off cashflow (profit sharing with IS) but long term more importantly it builds up a base of service income of the surgery systems. Although Covid-19 has been very bad in Poland, Synektik has still managed to land a few sales during 2020:

  • November 2, 2020 the Company concluded an agreement with Międzyleski Szpital Specjalistyczny in Warsaw (Hospital). The contract was concluded as a result of the public procurement procedure conducted under the open tender procedure for the total net value of PLN 9,050,885. The system will be delivered by November 30, 2020.
  • April 21, 2020 the Company signed an agreement between the Company and the Independent Public Clinical Hospital No. 2 PUM in Szczecin. The contract was concluded as a result of the public procurement procedure conducted under the open tender procedure. Its value is PLN 12,496,500 net.

As you can see the agreement with Intuitive Surgical in July 2018 has been a game changer for this segment. My expectation is that sales of Da Vinci systems will increase further again after the pandemic. Synektik has made the estimate that approximately 40 Da Vinci systems will deployed in Poland until 2025. And very importantly create a new steady stream of service income. Synektik estimates by 2025 that service revenue will be more than yearly sales of Da Vinci systems (4 in past year and 5 estimated for 2021).

Other products

There are also other products where Synektik co-operates with various companies to access the Polish market. For example ZAP-X a new innovative system for stereotactic radiosurgery (SRS). The company has also continued to develop its IT platform for storing images. Called the company has ambitions to expand the platform to more centers with a wider set of functionality.

Another example is that Synektik obtained exclusivity in Poland for the distribution of Genomtec’s two-gene tests (Genomtec® SARS-CoV-2 EvaGreen® RT-LAMP CE-IVD Duo Kit) for the diagnosis of SARS-CoV-2 infection.


Although some larger Da Vinci sales in past years makes the EBIT quarterly data a bit lumpy, it’s clear from the above picture that Synektik has established a new higher level of EBIT. And this is during Covid-19 when hospitals and the country is in partial lockdown. With Covid (hopefully) gone in 2022, I see possibilities for a very bullish growth scenario.

With a discount rate of 9% (Stable industry in Emerging Market) this gives me the following range of valuations:

Bull Case: 49 PLN per share – Assigned 30% probability

Bear Case: 14.6 PLN per share – Assigned 10% probability

Base Case: 35.5 PLN per share – Assigned 60% probability

Gives a weighted target price of 37.5 PLN per share versus its current price of 27.3 PLN. A decent 37% upside, but perhaps nothing to write home about. For the ones of you who read my post from top to bottom you know what I will say know. This does not account for the value for the cardio tracer product. Given that the company seems to have struggled somewhat to find the right partner I will be conservative and assign a third of the value of what Lantheus would get from only milestone payments. That is another 20m USD in pipeline value which translates into 8.8 PLN per share.

So my target price for Synektik with a conservatives pipeline valuation is 46 PLN per share or 68% upside to current share price. 

If the company continues to execute as well as the past years and with a partner found in 2021 on good terms, I see much more upside than this over the coming 2-3 years.

Key metrics to follow in the future

  • Margin development – Valuation is fairly sensitive to changes in margin
  • Continued sales of Da Vinci machines and that nothing happens to the sales agreement (which currently lasts to 2022)
  • Further growth of radiopharmaceuticals expected, confirm that trajectory is intact
  • Partnering for Phase 3 of cardiotracer.


Portfolio walkthrough – short comments

It’s high time to review my holdings and if anything changed in their investment thesis. This will be a monster post, for me it’s a great way to review all my holdings and make sure I stay up to date. For you, if you hold or are interested in one of these stocks you will get a quick “what’s the latest” with some sprinkles of why this is a great company (or not anymore). As a bonus there is a short elevator pitch of my two new holdings.

I stopped posting updates for every portfolio change (instead found under Trade History tab), so I have some changes to comment on: MIX Telematics left the portfolio and Lvji entered and exited without comment from my side. MIX Telematics was a case of having too high exposure to the oil industry in the US, I don’t see that coming back at all in the same way as in the past. This was something I did not understand when I invested, properly hidden oil exposure and a mistake on my side. Lvji was a tech play on travel guides for Chinese, but soon after taking a position some twitter friends alerted me of doubtful accounting. I looked at it myself and couldn’t really feel comfortable, better safe than sorry I then sold at almost the same price I bought.

Now on to comments on all my current holdings from top to bottom in the table below.

Press “read more” and enjoy!

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Guest Post – A bullish scenario for global equities

We have had many good discussions around Macro lately, so I requested another guest post, enjoy!

It’s well known that one of the biggest drivers of strong performance for global equities since the bottom in March is lower real yields, which has driven Price/Earnings ratios to historically high levels. Real yields, which effectively is nominal yields minus inflation (or inflation expectations), latest peaked in the end of 2018 and has since moved far into negative territory. You remember the volatile Q4 for equities in 2018 which was finally saved by the FED’s U-turn in its hawkish communication.

Chart 1. MSCI World P/E vs US 10y Real yield

Nominal US yields have barely moved since end of March this year despite inflation expectations coming up, reflecting money printing and potentially better growth ahead. Some strategists argue the low nominal yields reflect weak growth expectations but given FED’s new inflation target US Treasury traders are most likely expecting FED to introduce a yield cap in case nominal yields move higher, which gives them a positive risk/reward to own US Treasury.

Chart 2. US 10y Nominal Yield vs 10y Inflation expectations

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Smartphone usage – ticking time bomb – Part 1


A time bomb is currently ticking in most of our bodies, maybe you are aware of it. But very few of us do anything about it, especially for our kids. This post is the backdrop to a series of post which will involve investment ideas related to this theme. But even if you are not interested at all to listen to my investment ideas, you should probably read this post just for your own well being.

Since modern computer technology entered our lives a lot has changed in terms of how we use our bodies. We can see the effects of this in increased cases of back pain, carpal tunnel pain in the hand and much more. But something has happened in the past 10 years which is currently having much more drastic effects on our bodies. I’m talking about how smartphones quickly entered our lives and become the number one tool we spend our time on. This series of posts will explore how heavy smartphone usage damages our bodies, particularly young people, what this means for the future and what companies are positioned to leverage this rather bleak outlook.

How much do we use our phones?

Let’s start with setting the backdrop. We all know that we spend a lot of time on our phones but how much? The below pictures puts this into perspective.

As we can see there is first of all a large group (47%) which are very heavy smartphone users (more than 5 hours per day). And the second picture gives some insight into that this is mainly concentrated for the people below 30 years of age. Keep in mind that this is 2017 data, since then smartphone usage has worldwide become even more widespread and latest data suggests average time spent has increased even further.

How is the body damaged?

There are many issues with heavy smartphone usage, everything from damaging the hands and fingers from excessive pressing, strange angles of holding the phone etc. But from the research I have done, two main issues of heavy smartphone usage emerge.

  • Bad posture damaging the cervical spine (neck) and drastically accelerating spine degeneration.
  • From a young age staring at close objects causing myopia (nearsightedness).

Both these two areas are turning into such a widespread issues that its very concerning that we do not hear more about it. Especially myopia is already a global epidemic among kids. In 2010, an estimated 1.9 billion people (27% of the world’s population) were myopic, and 70 million of them (2.8%) had high myopia. These numbers are projected to rise to 52% and 10%, respectively, by 2050. This is especially an issue in East Asian countries, where the condition affects 80% to 90% of high school graduates. Of these individuals, 10% to 20% have sight-threatening pathologic myopia.

Neck damages has so far not seen such alarming figures but in my view this is a ticking time bomb to be unleash over the coming 10-20 years. There are of course very strong powers in the world with vested interest to keep our bent necks staring down at our phones as many hours as possible. More and more addicting apps are created each day to keep us entertained through our small screens, TikTok being the latest example among young people.

In this part 1 we will dive deeper into understanding the damages we set up for our neck by bad posture. Future posts will dive deeper into Myopia.

How we stress our necks

An academic study presented results on how much stress we put on our neck depending on the angle we are looking down at (see below picture). This is at the core of the problem, many smartphone users stay in the 30-45-60 degree angle for very long periods of time. Day after day the effects of such extreme pressures on the neck will compound and create damage. Since looking down at the smartphone is such a new habit, we of course do not fully understand the long term effects of this habit. I tried with the latest academic research combined with talking to spine surgeons paint a picture of what is going on in the world.

Nerve pain is the end-game

My understanding of this topic is a combination of talking to chiropractors, spine surgeons and academic research. I’m not a medical professional myself so some parts of this might not be explained properly.

When our head tilts down, our muscles in our upper back, connecting to the neck will do their best to pull back on that forward bent head. The muscles will over time get very tired and tight. A spasmed upper back with general stiffness and muscle pain are going to be common early onsets of heavy smartphone usage. Probably something most of you readers have yourself experienced at least once or twice. This type of pain is still manageable and not anything that needs more than a bit of rest, a warm pillow on your neck and perhaps some massage. Long term what is much more damaging (and irreversible) is the damage we do the cervical spine in our back. With age everyone’s cervical spine will degenerate, the key component being the soft nucleus disc which sits between each bone segment. These discs will naturally over time decrease in height, from classical wear and tear. But obviously how much wear and tear we experience depends on our habits. Looking down at a smartphone for 5 hours per day, year in and year out is not doing wonders to the discs.


The symptoms from damaging the cervical spine will at early onsets still be mostly muscular, with similar muscle spasm and cramps that just occurs more frequently than before. The body is so to say warning us. The next stage of damage is when one starts to experience nerve pain. This can be caused from a multitude of issues, the below pictures try to depict some of the reasons for nerve pain. The nucleus of the disc can become compromised and start to either push on the main spinal cord or one of the spinal nerves going out to one of the arms. Bone spurs will normally also start to build up with age and poor posture. These spurs can also over time pinch the nerve. Nerve pain is a state which is much more acute and if not resolved the person will be on heavy medication to reduce the experienced pain and inflammation on the nerve. The very depressing news with the state of bone spurs or intervertebral disc height is that best case is status quo. A disc will never grow thicker and healthier again, a bone spur will never go away. We can compensate by building our muscles stronger around the area, but it will only help to a point. A so called slipped or bulging disc where the nucleus has been compromised can also heal. The body recognizes that the liquid has leaked out to where it should not be and in most cases a slipped or bulging disc heals with time. But with poor posture the risk of later in life have a bulging or slipped disc increases and even if many heal, some do not.

To summarize, this intricate system of muscle, bones and nerves degenerate over time, just as everything else in our body. What studies now are showing is that with our extremely poor posture, created by a new habit – our smartphones, we accelerate this degeneration drastically. Nerve pain which one would expect in people who are 60-70 years old are starting to be more common among much younger people. We are only 10 years into using smartphones, most of us have not been heavy users for that long. What will happen in the future when we have been using phones with a front tilted head for another 10 years? This is the ticking time bomb I started this post with. Why are not more people talking about this? In my view it is because it is still early days. But go and talk to a neck surgeon and he will tell you that he now sees patients that are 20-30 years old which have necks that degenerated to such a degree that one would think they are 60-70 years old.

What does academia say?

Almost all older studies are studying correlation between perceived neck pain/issues versus smartphone usage. The most interesting study is less than a year old, where scientist in China confirm versus MRI scans the state of the neck and link it to smartphone usage. Below are brief summaries of some of the studies I read:

China study in 2019 on young smartphone use and cervical disc degeneration through MRI checks

All patients in study had neck pain. The study invented a measure to scale how much “degeneration” was seen along the spine. This was as classified per disc segment from the MRI scans. The scale was called Cervical Discs Degeneration Scale (CDDS) from a scale of 5 to 25. CDDS of all patients was 15.80 ± 2.68 (range from 9 to 21). Another scale was then created to rank users in terms of smartphone usage: Smartphone Addiction Scale (SAS) 33-item self-rating scale. Score from 33 to 198. average SAS score was 76.67 ± 22.58 median 70. Above 70 were classified as excessive users and below as non-excessive.

Example of questions: My life would be empty without my smartphone, Feeling impatient and fretful when I am not holding my smartphone. 1= strongly disagree, 6= strongly agree.

As a side not the study confirmed previous data that patients in excessive smartphone use group were younger than those in non-excessive smartphone use group (p < 0.001).

Conclusion of study: This current study presents evidence linking excessive smartphone use to cervical disc degeneration. The results of this study indicated that excessive smartphone use might accelerate cervical disc degeneration. In other words, excessive smartphone use is a risk factor for cervical disc degeneration

Swedish study – 7000 participants with a 1 year and 5 year follow-up.

There were clear associations between the highest category of text messaging and pain in the neck/upper back. In the group with symptoms, almost all individuals had the neck flexed forward and did not support their arms. This causes static muscular load in the neck and shoulders. Furthermore, they held the phone with one hand and used only one thumb, implying increased repetitive movements in hand and fingers. This distinguished them from the group without symptoms, in which it was more common to sit with a straight neck, to support the forearm, to hold the phone with two hands and to use both thumbs.

Meta-study of 12 studies between 2012 and 2016:

The findings of this review suggest that using smartphone may induce musculoskeletal symptoms in the neck. This systematic review revealed that the use of smartphones may contribute to the occurrence of clinical and subclinical musculoskeletal changes as well as associated factors in the head–neck, shoulder– arm, and hand–thumb areas.

Academic articles referenced:

  • Journal of Orthopaedic Science – Association between excessive smartphone use and cervical disc degeneration in young patients suffering from chronic neck pain
  • Applied Ergonomics – Texting on mobile phones and musculoskeletal disorders in young adults: A five-year cohort study
  • Hong Kong Physiotherapy Journal – Musculoskeletal disorder and pain associated with smartphone use: A systematic review of biomechanical evidence

End part 1

This was a pretty bleak but I think important post. The good news is that medical neck surgery has moved forward tremendously in the past 20 years. The recovery rates after surgery are very good nowadays, it’s just a very costly procedure which unfortunately not everyone has access to.

This investment theme is something that I will keep with me for many years. My expectation is that this topic will just grow in importance for at least the coming 10 years. As I identified earlier investment themes, half of the job is understanding how the world is going to change, the other half is how to express that through investments and make money from it. It’s particularly cruel being correct on a theme (early) but losing out by betting on the wrong horses. In 2016 I was convinced that EVs would take over the car market (most people at the time were not convinced of this). I then wrote this post contemplating on how to best invest: Investments in EV value chain. It’s easy now to say that I should just have put all my money in Tesla, but I took a different approach which was quite successful but not of course nearly as good as betting on the “winning horse”. In coming post we will explore some ways to invest for a future with many more people requiring neck surgery.


Breaking 100% Return & Trading disclosure

I can today proudly and happily announce that I reached over 100% return since I started this blog in March 2016. To be exact a 104.9% return vs MSCI World at 60.1%. This has been done with a volatility (16.2%) lower than MSCI World (17.1%) and a 0.77 correlation, all measured on weekly returns since inception.

Even more pleased am I with the return characteristics. I outperformed when it mattered the most, both the sell off end-2018 and recent Covid-19 sell off.

Further if you consider:

  1. That my portfolio has been severely underweight USA, which is the top-performing market during this period.
  2. At many times half of my portfolio has been in “value” stocks, again stocks that severely under performed the market.
  3. Mega caps and tech have been driving much of the performance and I have at most been equal weight on tech and always underweight mega caps.

So I had the chips stacked against me from several perspectives. Anyhow I delivered out-performance and especially when it mattered the most! When I set out on this journey some 5 years ago, to prove if I could deliver alpha, I had no idea if I could do it. I think you need a good 10 year track record to truly tell that you are not just lucky, but this half way point is worth some celebration! Yay to me!

Trading disclosure change

Almost all other good blogs I follow do not fully disclose their holdings and portfolio changes. That was something that always annoyed me, why not just be transparent? From the start of this blog I decided to disclose each and every portfolio change through a post to you readers. From today there will be no posts on each portfolio change, instead these disclosures will be moved to a separate page. All the portfolio changes will from now on only be available on the Trade History page. Here you can find my latest portfolio changes and below that I provide full disclosure of all my trades since inception.

The reason for this is two-fold:

  1. Too much of my blog posts goes to updating about portfolio changes. My blog posts will instead focus more on my thoughts of companies, strategies, themes and most of all stock picks.
  2. It’s going to be more time efficient for me, instead of providing a full blog post for each portfolio change.

Speculation is back

I introduced my three buckets of investing about 2 years ago it was a major step forward for refining my investment strategy. I have stuck to it since, focusing mainly on my long term holdings and from time to time jump into Opportunistic or Speculative holdings. Overall the Opportunistic investments have done very well, whereas the Speculative ones have not added any value. I will now make another stab at introducing a number of speculative holdings to the portfolio.

This goes for all my investments, do your own due diligence, do not see this as investment advice. But for these investments I want to be extra clear, these are high risk illiquid companies. As of Friday close I take the following positions

Irisity – 2% holding

This was something I previously held as a sizable speculative position. My patients ended when the company didn’t deliver and I sold. Now G4S has signed an intention to roll out their product in multiple markets. Although no larger orders have been made, this is the breakthrough the company has been looking for. If things progress as Irisity hopes over the coming 5 years, this is stock is a 10 bagger.

See my previous post where I commented on Irisity: Link

McEwen Mining – 2% holding

Gold is almost touching on 2000 USD per ounce. This is a ugly duckling gold producer with insanely high production costs which is attempting a bit of a “turn around”. That is exactly what I’m looking for. The stock is a cheap call option if gold price continues higher or stays around these levels, as long as they don’t mess up production further. Bonus upside if they actually manage a turn around in their production. What I do like is the founder and large shareholder Rob McEwen who the company is named after. Most mining companies are filled with crooks, with the poor performance of McEwen’s operations I’m sure there a lot of rotten apples in it’s organisation as well. But I do believe my and McEwen’s interest are aligned.

If golds goes up another 20% from here this stock should at lest double, if not triple given it’s leverage to the gold price.

Neonode – 1% holding

This is a company with a long history, recently reviewed by new management and with a new massive tailwind from Corona virus. They enable a touch technology which is used in several automotive applications. The big upside though is to expand into other areas like elevators, where the technology can be used in combination with holographic technology.

Spark Networks – 1% holding

With Match Group stock flying high I do think this dating network competitor is also a very cheap competitor. As with most social platforms network effects are important in one sense, since more users means more dating matches. But many users also get bored with the same old platforms and often try something else, which might be more niche and suit them better.

For example Spark has a page called SilverSingles for 50+ dating. They also acquired Zoosk about a year ago which has a larger userbase. The stock has bottomed after a significant draw-down and momentum looks much better now to enter into a position.

Portfolio re-balancing & some thoughts

Some thoughts…

I have been thinking and discussing a lot over the past few months, what is actually going on in the world? I think most investors have been taken by surprise by size of the disconnect between the stock market and the underlying economy. I try to stay clear of taking too much notice of this, just stick to my stock picking process, but it’s damn hard not to. In my view central banks after the financial crisis distorted the Fixed Income markets and to some extend with that also the property market in many places around the world. I think equity markets were fairly free from such distortions previously, but it’s becoming more and more clear to me that is no longer the case. We are reaching bubble territory in some sub-segments of the stock market, probably to a large extend due to central bank and political interventions.

Mr Market seems to believe a few things right now:

1. Interest rates will stay close to zero for the coming 10-20 years. This gives large incentives to own growth stocks, instead of value stocks. Growth stocks have their profits further out in the future and are therefore gaining more on a lowered interest rate.

2. “New economy” tech stocks that can show large growth today, will continue to grow in the same fashion for a very long time.

3. These new economy stocks will so to say eat the old world and nobody will be able to out-compete them or destroy their margins, rather the opposite, with scale they grow even stronger. There are many examples, better cars (Tesla), new ways of shopping (Amazon), new ways of watching TV (Netflix), new ways of providing software services (A huge number of SaaS companies). These are the champions of the market right now and every company that has a look and feel anything like these champions are bid up in a similar fashion.

4. Lastly, momentum feeds momentum, when liquidity is ample (again thanks to CBs), people tend to pile into what is already rallying. I see clear tendencies that when a stock starts to move and establishes an uptrend, it moves a lot.

So this is where we are, maybe the market is rights, maybe not. This has anyhow created a divide in the market, with a sub-set of the market rallying like there was no tomorrow. One can also describe this as the growth/value spread being at extreme levels compared to history etc.

My portfolio is not immune

Obviously my portfolio is not immune to the above points, my holdings like LiveChat, Swedish Match, Vinda, JOYY and a few other I already sold have rallied like there is no tomorrow since the rebound started. This is great news and has helped me have a fantastic performance this year, the portfolio now up some 16% on the year. But it has also pulled the valuation of a few of these companies slightly out of wack. So what do I do? Well I want to invest for the long term, but I also have to stay true to my approach of allocating my money where I see the most value. Not just momentum riding something that quite frankly short term starts to look expensive. So just like in previous stocks I sold I run the risk of selling too early. But this time I’m not selling my full holdings I just trim them a bit and re-allocate some capital to stocks that haven’t followed up in this stock market crazy, but still are solid companies, valued very conservatively.

Portfolio before re-balance

This is my portfolio as of last Friday, all re-balancing happens on today’s close:

LiveChat Software – Reduce to 8% position

My analysis from 1 year ago: Link

The company is doing a lot of things right. The company recently spent quite a fair sum of money to acquire the web-address which I think is important (previously they had They have also spent money on creating a new Logo and revamping the look and feel of their brand. The launched a brave mission statement of how they want to develop the company going forward. Read it yourself: Living Constitution

“I don’t want to build a company that only has 100,000 clients and billions in revenue. I want us to go down in history as the company that revolutionized internet communication. We need an ambitious goal and the courage to achieve it.”

Everything I read about the company speaks of leaders that have vision and are still hungry to be even better. As you can see the stock is on a phenomenal run and it’s turning into one of the better stocks picks I made since the blog started, especially considering the short holding period. I’m happy to keep holding this long term, but valuation is for sure much more stretched now, therefore, to keep my investing discipline I reduce the size here.

Nagacorp – Increase to 10% position

Another company that I thought a lot about lately. The casino has been closed for months and recently reopened. Cambodia does not have that many covid-19 cases but there are troublesome restrictions to travel there. They will for sure be hurting until this virus is over. Early bull case would be travel bubble towards China (not unlikely). But they are in a good cash position anyhow, I don’t have the slightest worry that Naga will end up in cash-flow trouble. I will save a longer write-up here for later, but at these valuation levels this is a very nice holding to have as my high conviction position. Maybe it will be even cheaper during the autumn, but I’m happy buying at these levels.

TGS Nopec – Reduce to 2% position

A put this is a long term holding when I bought it, but to be honest this was a bit of oil punt. I still believe the oil price will recover long term and this is a high quality company in the sector. The only issue is that I haven’t done a deep due diligence on this company. The position is a bit too large, given that. That’s my only reason for reducing the position. Either I will do a deeper DD and decide to take up the position size again, or it will sooner or later leave the portfolio.

PAX Global – Increase to 6% position

This is a holding that has been growing on me. The valuation is suspiciously low, meaning one starts to think in terms of fraud. I have been discussing both on Twitter and emailing with investor relations. I’m not as confident as I can be that it’s not a fraud. There is for sure a lot of competitors that can create a payment point of sales devices. But they seem to a fit a very nice niche of being cheaper than the best solutions and better than all the other cheap options. With card payments being on an extreme uptrend worldwide before Corona, this is actually a real Corona-theme play for the coming years. I just have to increase my position here and hope the market will agree with me at some point. Shout out to Gabriel Castro with twitter handle @gabcasla for good discussions!

Essex Biotech – Increase to 7% position

My analysis from April this year: Link

I will give you a sneak peak into my next theme, which is partly related to eye sight. With the analysis I have done of the “eye sector”, my conviction on this holding has also grown. Another fast growing company, doing a lot of things right, but the market has yet to revalue it. I increase and I’m ready for re-valuation!

Kirkland Lake Gold – Increase to 5% position

Markets are as stated slightly crazy right now, in my view there is a decent probability that we get a total rocket lift-off in gold price (remember the market love momentum trades right now and gold momentum looks fantastic). Money printing should create inflation, this is my hedge (also a company with track record of creating shareholder value).


All in all this reduced my cash balance from 12.4% to about 7.7%. Comments as always welcome!

Short Dairy Farm update

Dairy Farm is one of two holdings I held more than 2 years, which still has a negative return. Previous poor management combined with Hong Kong protest and Coronavirus has made this (normally) defensive company perform very poorly over the past two years. In the more recent sell-off I even decided to add to my investment. This is so far been a fairly poor choice since the stock rebounded less than the market has. If you read all my post on the company I contemplated multiple times if I should give up on the company or stay the course. My very long term thesis is that the company is in a very strong position to capitalize on the growth of the Asian middle class. I decided to continue to stay the course long term. The reasons being is that I see plenty of signs that the CEO Ian McLeod is doing the right things. Ian took over as CEO in Dairy Farm around the time I invested for the first time. The outside world of protest and Corona is hard to control (and hopefully something that will pass) but what Dairy Farm can affect seems to be going in the right direction.

Dairy Farm’s supermarket division is a very large part of total revenue. Given that it’s groceries, the margins are much thinner than for example IKEA or Health & Beauty sales, producing less bottom line than the other areas. My thesis all along has been that Dairy Farm would be able to significantly increase margins for it’s grocery segment. So far it has not happened but I really think things will improve from here on on wards. The biggest reason for that is spelled Meadows.


The trend that big grocery chains use own branded products has been particularly strong in large parts of Europe, as can be seen in the graph below:


The idea is pretty obvious, take control of the products sold and get a better margin. The reasons why a grocery chain would be hesitant to do so, would be that there are a number of branded products we consumers really want to buy. For example myself I really don’t want any other ketchup than Heinz. British grocery chains have been extremely successful in selling own brand products, take for example Tesco which has a very wide variety of Tesco branded products. Now Dairy Farm is going in the same direction, pretty much with a big bang launch of a huge set of products under the Meadows brand. Below is just an example of the economics of it, not necessarily exactly how it would play out for Dairy Farm.

Now getting to the above increase in margin is really a volume game. You need to be of a certain scale to be able to pull it off. Tesco for example has 56bn GBP of sales, so its not hard for them to have the scale to build a strong own brand portfolio. Dairy Farms grocery sales is not nearly as large, but how large it is depends a bit on how far they plan to roll out the concept. If it’s only to its fully owned supermarkets, the total sales is only some 5.2bn USD, if it also is to its Welcome stores its another 2.2bn of total sales there. Then we have the associates as Yonghui Superstores which has another 12bn USD in sales. I have not been able to find any info that the Meadows brand has been rolled out at Yonghui, perhaps someone in Mainland China is able to confirm this for me? This would be a big benefit if Yonghui would share in the Meadows brand but I don’t think that is the case. If we look at other smaller listed grocery companies, Swedish listed Axfood has revenue of 5bn USD and has managed to build a own private brand called Eldorado. Eldorado started as a ultra low price brand but is now complemented with multiple private brand products in higher price segments. So it is possible to build a private brand portfolio also within a smaller grocery network as Axfood.

My feeling here with the Meadows brand is that they for sure try to be a low cost option, but still with a little bit better quality than the cheapest stuff. The brand itself feels quite premium when you buy the products, but after trying a variety of products I would say only a few of the products actually are of equal quality as the branded examples. They do come with a big discount though and clearly the cheapest option, which I think matters to many.

Notice the pricing point of the Meadows peanut butter compared to Skippy (20 vs 27 HKD), also some blueberry jam to the left from Meadows and a cheaper price point than Smuckers. So to sum it up, I’m very happy with this development, the private brand trend has barely even started in Hong Kong and China in general. Now Dairy Farm is off to a strong start with the Meadows brand. It’s going to be interesting to evaluate over the coming 1-2 years if Dairy Farm can lift it’s grocery chain margins.

Greatview Aseptic kicker

I have equally large holding in Greatview Aseptic Packing listed in Hong Kong, where Dairy Farm is a large owner. Some milk products sold under the Meadows brand are using Greatview packaging which of course is a positive development for 468 HK. Although Dairy Farm’s milk sales is probably too small to make a big difference in Greaviews revenue, it’s still nice to see.




Selling LG Chem – My last holding from my first investment theme

Over the years as I have become more confident in my investment style and invested less and less through themes. A theme can still be a good backdrop for the investment case, but I want to pick a specific company, not get exposure towards the overall theme. When I started the blog in 2016 I still bought companies to get exposure to a theme, without having very high conviction on the specific companies. In 2015 I identified the Electric Vehicle theme as an exciting change in the industry and I wanted to profit from being early investing into companies that would benefit from this shift. Today the great champion of EVs – Tesla, is trading close to 1000 USD. The best option for sure would have been to just invest in the most obvious choice back in 2016, but seldom has my investment path been such. I have always tried to find the overlooked and hidden companies. I’m not sure if LG Chem qualifies for being hidden, but many other of my investments in this space definitely were. Nevertheless LG Chem was the company I held onto the longest, almost 4 years. After a very strong re-rating recently I think its time for holding to finally leave my portfolio. There are of course many positives with the company, but here are the reasons I sell:

  1. The EV hype is currently very strong and not very healthy. I think Elon is a super cool guy, I even read the book about him back in 2017, but Tesla at 1000 USD per share is in my view ridiculous. Some of that hype must have rubbed off on LG Chem.
  2. Like many other markets, Airlines, Solar-panels etc, competition often eats away at margins. Looking at sell side research which aggregates the available battery cell supply, it looks like a fairly oversupplied market for quite some time. I’m afraid the EV market is important to the Chinese to champion that they will subsidize away healthy margins for battery cell producers, like LG Chem. China’s aim is to be a leader in production of Electric Car’s. I think for example Geely will be one of the players in this space.
  3. We now have fairly good visibility of EV models coming out for the big European carmakers. Back in 2015 it looked like 2020 would be the “big bang” year for EVs. There will probably never be a big bang event, but I would today put that date at 2022 perhaps. I think the positive market sentiment has been discounted quite heavily into the shareprice of LG Chem.
  4. LG Chem has taken on a lot of debt to finance their big battery cell production expansion, I’m wary of owning companies with high debt, especially given the Corona market we are in.
  5. LG Chem is still mostly a Chemicals company and it’s a beneficiary of the low oil price, I see this a cyclical upswing which wont last (although hard to time).

As of Friday I sell my full holding in LG Chem.

This is what my portfolio looked like just before selling, sorted after Holding period (in years):

I’m happy to announce my portfolio now has taken new all time highs, but maybe even more importantly significantly outperformed the market. My out-performance against MSCI World is a total of 39.2% over this 4+ years. This means my alpha compounded at about 8% per year, an incredible figure which I don’t expect to keep over time. After all I run a diversified portfolio of some 20 holdings. We are indeed living in strange times when the portfolio can perform so well, when in the real economy people are losing jobs and struggling.

New holding PAX Global, Selling Tianneng, BBI Buyout finalized

Tianneng Power (819 HK) – Sell full holding (2.3% weight)

As you probably have understood if you read my previous post, the short thesis released was for Tianneng Power (819 HK). I did my best trying to take the material they had written seriously, but like I already implied in my previous post it did not feel like a quality report. The market has so far neither taken the report to heart and the stock is up significantly since the short report was released. I have followed this company since I started this blog, on the back of my EV theme and owning small cap competitor Coslight Technology. Before I invested I scratched my head a lot about the extremely low valuation, I too asked myself could it be a fraud of some sorts? One has to be skeptical why the market puts such a low multiple on the company. But from all research I was able to do, I did not believe it was a fraud. That said its clear its not a company which is run with shareholders best interest at heart (Chinese companies seldom are) at all times. The cash hoarding for example has been extreme. My conclusion for the low valuation at the time is the shift to Lithium Ion batteries, where Tianneng is not competitive. The short report brings this up and I think its a very valid point. My opportunistic investment case though is that the market has misunderstood the timing of how quickly Lithium Ion batteries will be price competitive and challenge Tianneng’s lead battery sales. That was basically my whole investment case – it will still take some years before that happens.

It is a fact that the company is a market leader in lead acid batteries where the big market driver has been for cheap electric scooters sold mostly in China and rest of South East Asia. I initiated a position in the stock at the beginning of the year, as an opportunistic trade, on extremely low valuation which would re-rate thanks to a IPO spin-off. I think this short report brought up some doubts I already had. The stock has now has re-rated (although it’s still not an expensive stock by a mile) and I’m willing to let it go. Reviewing how the holding fared unfortunately looks so so, thanks to poor timing in reducing my holding. The Corona market crash got me to sell at the same day the market bottomed – 23rd of March. I reduced this holding to add more into other holdings. Some of the holdings I added has done OK, but none of them has generated such a performance as if I would have held on to this holding. I bought 9000 shares for 5.93 HKD and sold off 6000 shares at 4.45 at market bottom and now I sell my remaining 3000 shares for 10.46 HKD + a dividend of 0.39 HKD per share. It nets me a 10% return on my initial investment but almost a 100% return on my remaining 3000 shares.

Read my post about Tianneng here: Tianneng Power posts

BBI Life Science – Buyout finalized – 5.4% return in 4 months

I was so exited about this company which I had researched and was ready to pull the trigger on, then the founding family released a LBO offer. I believe with Corona happening this could have been a multi-bagger if it was not bought out. Instead I bought into this just when the buy-out offer was announced and I netted a small 5.4% return, my first actual buy-out risk arb trade since the blog started. The stock market has since I put on the trade in January been on a proper rollercoaster ride, but MSCI World is actually down -7% in this time period, whereas this trade as stated netted 5.4%, so I’m very happy. This then also releases some significant amounts of cash for me – 6.1% to be more exact. Together with the Tianneng sales and some dividends that have dropped in over the past months I have in total almost 8% cash to deploy. And 4% of that is going to PAX Global.

PAX Global – New holding with 4% weight

This company is one of the world leaders is selling the equipment we come across every day when we pay something with our credit card. Back in the days I used to swipe my card, later I put my chip into a reader and now I tap my card on top of the machine. All these machines are produced by a few companies, where PAX is one of the large players.

This company first appeared to me, through a Hong Kong market screen I did a few years back. After doing quite a lot of research I was very close to pulling the trigger and investing in the company. In the end I found some issues with management, where an analyst was thrown out from the AGM for asking “uncomfortable” questions. Also the majority shareholder in PAX is another listed entity which seems to be even less well run than PAX. So even though fundamentals looked good, it felt like management had zero interest in unlocking the value of the company to shareholders, so I passed on it. With the help of some twitter friends I have from their information understood that maybe I shouldn’t have made this into a deal breaker. Anyhow, a few years has passed, the stock price has actually done nothing since then and is actually down a bit. Meanwhile the company has continued to deliver good solid results and Mr Market has not as often is the case on the Hong Kong exchange not rewarded the company at all. What also has changed is that management has to a degree changed it’s attitude towards the market. The hired an IR and are now holding investor calls – a good start! On top of that they raised dividends significantly (although the company is still hoarding cash). But what really got me to pull the trigger and invest was this fantastically well written investment thesis on PAX by Gabriel Castro and Neeraj Mohandas (who can be found on twitter). I have been allowed to link to their investment thesis and I again thank theme here for sharing such a deep analysis for free with all of us. I highly recommend you to read it: PAX Global Investment thesis

So with my own research, following this company for a few years and the excellent analysis linked above I feel confident to initiate a position with a 4% weight as of today. The holding goes into the opportunistic bucket to begin with, it will still take me some time to see that the management are continuing on the track of doing the right things before I move this over to something I want to own long term. Currently I think the company is in an industry with a strong tailwind (card payments) and the valuation is like in Tianneng’s case (before its revaluation) ridiculously low. So risk/reward is very skewed upwards and well worth taking a position here.