Portfolio Update July 2023

Mediqon AGM, Opera sale, Datalab, Supreme plc and more

Nothing on here is investment advice. Do your own due dilligence.

A lot has happened over the past month.

Mediqon Group

I visited the Mediqon Group AG (soon to be renamed Chapters Group AG) annual meeting in Hamburg on June 29th. It was a very nice event. Pace of acquisitions continues to be high with now about 30 businesses being part of the group. All four acquisition platforms presented some interesting case studies from their operations, most notably their vertical market software platform Ookam Software and their platform for successions in the German “Mittelstand” NGC Nachfolgekapital. There was a lot of room for Q&A and informal chats with the people involved.

Mediqon has adopted many lessons from the likes of Constellation Software (CSI):

1) Buy and hold for the long-term

2) Disciplined buyer (don’t go chasing acquisitions if your valuation criterias are not met)

3) Extreme decentralisation (4 people in the HQ for a EUR ~70m revenue group)

4) Culture of cultures (businesses are not integrated but rather keep their own individual culture)

5) Peer learning (preferably promoting people from within the organisation and developing them rather than parachuting in people from the outside

But there are also some notable differences to e.g. CSI:

1) Mediqon is not focussed solely on a specific industry. While vertical market software is definitely a core, they now have 4 platforms investing in very different industries and going forward this is likely to increase to even more industries.

2) They are willing to do minority investments.

3) They have a public equities portfolio.

4) They are willing to do capital increases.

5) Opportunistically, Mediqon funds starting new companies of people they know, trust and have a successful entrepreneurial history.

6) The platform management / deal team usually gets a 20% stake in the businesses they acquire with Mediqon holding the other 80%. I am not entirely sure if I understood it correctly, but from what I recollect the money for the 20% stake is lent to them by Mediqon at 6% interest. Therefore, downside risk for Mediqon is reduced but at the same time the deal team is incentivized to do smart acquisitions.

7) Last but not least, there are probably few companies out there with such a high quality shareholder base. To name one, their largest shareholder is Sator Grove Holdings, whose founders used to manage the Notre Dame endowment and have Mitch Rales (Founder of Danaher) as an investor.

I am very confident the company will continue to thrive going forward but the valuation is not cheap. Personally, I am also happy to see such an interesting business headquartered in the city I live in, Hamburg.

Datalab Tehnologije

Datalab’s CEO/largest shareholder together with a Luxemburg-based investment firm have announced their intention to present an offer for 100% of the outstanding shares of Datalab Tehnologije and delist the company. According to the Slovenian laws, they have to submit their offer within a month of the LOI. So it should be 6th August at the latest. No indication of the price yet. I suspect it won’t be great but should still be a nice premium on my cost basis hopefully.

Sold Opera

The stock has had crazy momentum over the past months. I have been invested in the company for less than a year and boy how much has happened since then:

• Accelerating, profitable growth + a ton of new (feature) releases

• Divesting their minority stakes and investments (except for Opay which is still held for sale)

• Buying back >30% of the outstanding shares

• Paying out a special dividend of ~20% (on my cost basis)

• Introducing a regular dividend of ~18% (on my cost basis)

Consequently, the stock has run up >300%. It is always difficult to decide when to sell. But in light of other very promising ideas I have now decided to sell out of Opera entirely (of course, probably too early). Opera might still be an attractive investment from these levels but it is definitely not a deep value opportunity anymore.

Supreme plc

The proceeds from the Opera sale went entirely into Supreme plc. I already bought my first shares a month ago. However, I promised a friend to not disclose it up until now. You can find some info on his Twitter @FinSkeptic. In short, Supreme is a very attractively valued UK business selling fast-moving consumer goods like batteries, light bulbs, sports nutrition and vaping products. Especially vaping is growing like crazy and very profitably so. Sports nutrition is also developing nicely, while batteries and light bulbs are more saturated markets and had some temporary troubles. The CEO and largest shareholder took over the business from his father and grew it into a GBP >100m business. With regard to capital allocation, they have continuously proven to do really smart M&A, show really good ROICs and also pay out a dividend. I really recommend watching their investor presentations, which are very insightful.

Some reshuffleling

Sold PSI Software after a nice run up. Might rebuy into it when it comes down again. Still, I believe, one of the most interesting larger M&A targets among publicly listed European software companies. Really nice vertical solutions with a lot of potential to improve operations/profitability. The proceeds also went into Supreme.

Sold my small positions in Tiny, Radcom and RCI Hospitaliy to use these funds to further increase my position in SUTL Enterprise. SUTL just held the opening ceremony for their new marina on Nirup Island, Indonesia, well-located close to Singapore. The company should grow nicely this year making the valuation evermore absurd.

Bought tiny stakes in the three following companies:

Flexion Mobile: You can find some info about this one at Alta Fox Capital / Connor Haley.

EROAD: Volaris, a CSI operating group, acquired a 17.7% stake with the last shares bought at NZD 1.30. They are also offering NZD 1.30 for the remainder of the shares, which was rejected by the company board as siginifcantly undervaluing the business. EROAD modernises road charging, tax compliance as well as health and safety compliance for road transport by replacing paper-based systems with electronic systems. Sounds to me like a nice vertical market software company - perfect fit for a CSI OpCo. After the trading halt was lifted, I bought some shares slightly below the offer price. I doubt that Volaris will be able to acquire a ton of shares at the price that they are offering considering only two years ago they were trading at NZD > 6. So the business will likely stay listed with Volaris as the largest shareholder. The company is trading at a valuation of roughly 1.3x EV/Revenues but is unprofitable and indebted. I believe as Volaris starts to exert more influence over the business, we will likely see profitability improve rapidly.

MobilityOne provides e-commerce infrastructure payment solutions and platforms in Malaysia. I don’t know anything about Malaysia. But the valuation seems so absurd that I decided to buy a very small stake.

Dividends

Last but not least, received some nice dividends from Petrotal and SUTL.

Current portfolio overview:

Supreme plc 18,3%

Sygnity SA 16,0%

SUTL Enterprise 9,8%

Neurosoft Software Production 7,7%

RCS MediaGroup 7,3%

NZME 6,6%

Datalab Tehnologije 6,2%

PetroTal Corp 5,9%

Seachange International 4,6%

Mediqon Group (soon: Chapters Group) 4,5%

itim Group plc 3,9%

Onlineformapro SA 2,3%

4Mass SA 1,8%

iEnergizer (delisted) 1,6%

Flexion Mobile 1,2%

EROAD 1,1%

MobilityOne 1,1%