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NESTOR Europe - Quarterly Report 1/2022

Russia-Ukraine war shakes markets

NESTOR Europe fund recovers significantly from setback

With a decline of -9.22% (V share class), the NESTOR Europa Fund performed in line with the international indices in the first quarter, while the benchmark index MSCI Europe lost -6.06%. Thus, despite the war in Ukraine, European equities have lost comparatively moderately so far in 2022 and were able to recover significantly from the lows.

The annual return over the 5-year period of the fund is 10.24% compared to 6.67% for the MSCI Europe TR, thus the excess return of the fund is about 3.57% per year.

Time is a friend of good business models - Even in times of crisis
"Even in times of crisis, equities offer opportunities" I wrote in September 2013 in an article for the "Handelsblatt". Since then, the NESTOR Europa Fund (B) has gained over 120% and the "usual" crises and market setbacks have accompanied us almost like the 4 seasons. At that time I planted a cherry tree which, despite some teething troubles and an illness, is in full bloom every mid-April. It will bear beautiful fruit for the next few years - in one year more and in other years a little less. This is also how I see the stock market and our exposures. Superior companies adapt flexibly to adversity and secure their growth and thus jobs, tax revenues for the state and distributions for shareholders. Since we always anticipate serious problems of an economic and political nature, we prefer to invest in companies with high liquidity, a high equity ratio and sustainable competitive advantages.

H+H International - from restructuring case to model boy
The Copenhagen-based construction supplier H+H International continues to be on the road to success, having recovered magnificently since 2016 in the context of the good economic situation in the construction industry. The company again increased its earnings figures and continues to act as a "consolidator", acquiring smaller competitors with succession problems. The 2021 forecast was clearly exceeded and the company is also confident for the current year. We do not believe that the significant rise in interest rates will completely stifle construction activity, as high inflation should continue to lead to a flight to real estate. One or the other financing could prove difficult due to the rise in mortgage rates, but at a P/E ratio of 8.5 (2021e) we consider this risk to be priced in. Moreover, the company buys up its own shares on an almost daily basis.

Hornbach-Baumärkte AG still listed on the stock exchange
Even after Hornbach Holding has completed its delisting offer to its subsidiary Hornbach Baumärkte, the latter will remain listed (Hamburg stock exchange). As we were represented on both sides, we even switched the holding company predominantly to the takeover target and also did not tender. So far, this has been a good move, as Hornbach Baumärkte is currently trading at around €55, which is significantly higher than the settlement offer of €47.50. The situation is likely to improve due to the low valuation of Hornbach Baumärkte. The situation is likely to remain exciting due to the low valuation of Hornbach Baumarkt AG, as the holding company would like to have the "matter" finally off the table and possibly make a new offer.

Russia-Ukraine war hits world population
After the lockdowns already had devastating consequences, the attack of the Russians against Ukraine is now once again hitting the entire world population. In addition to the endless suffering that will primarily affect the inhabitants of Ukraine, it is also the countries of the Third World that will face even greater food problems due to the high prices of energy, raw materials and fertiliser. But also in the industrialised countries, the low-income strata are threatened by a considerable loss of purchasing power and poverty. In this respect, it is to be hoped that the sanctions against Russia will not lead to further escalation.

Outlook
After the initial shock of a war on European soil, the markets have stabilised again. Many companies have been slightly affected by the events, while others will in turn implement price increases. Overall, the market has shown quite high resilience, so we expect a further recovery. In the meantime, however, the bond market is likely to keep exerting a disruptive influence on the equity markets.

Dirk Stöwer, Kontor Stöwer Asset Management GmbH