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Monthly Report 06/2023

The KEN European Growth Champions Fund closed at +3.12% in June. The average net exposure was 69.93%. The long positions gained +3.90%, while the short positions cost -0.50%.

Market review: June was a positive month for the markets, with a focus on the Consumer Price Index (CPI) and the Producer and Import Price Index (PPI), and thus, inflation expectations. The US central bank temporarily paused its interest rate hike and kept the rate at 5.0-5.25%. The European Central Bank (ECB) raised its interest rate by 0.25% to 4.0% as expected and signaled another increase in July. In the US, the debt ceiling was raised at the last moment, ensuring the country’s continued solvency.

Portfolio review: Aixtron, Knorr-Bremse, Puma, and TUI were among the strongest positions in the portfolio. Aixtron saw an increase of +7.17% in the current month. During their roadshow in Zurich, the company reported a sustained strong demand for SiC Tools and identified it as a multi-year demand phenomenon. This is driven by the use of Silicon Carbide (SiC)-based products in electric vehicles (around 67% in 2022) and renewable energy (around 13%). The annual growth rate is estimated at 38% for the years up to 2026 (Source: TrendForce). In the short term, the focus is on Aixtron’s guidance, with consensus expectations that the set goals will be achieved. An important factor in this is the issuance of export licenses for dual-use goods. If Aixtron receives these licenses in a timely manner, it is likely to lead to an upward revision of the guidance.

Knorr-Bremse (MTD +9.38%) will announce its strategy update on July 18th. We met with CFO Frank Weber in mid-May and understood that the rail business can withstand challenging macroeconomic scenarios and deliver solid results. The cyclical truck business, benefiting from the opening of the Chinese market, could further contribute to an increase in profit targets. Therefore, we expect further recovery in the stock.

Consumer stocks like Puma were in demand (MTD +23.81%). Puma has performed well since our entry, and we see significant potential: The stock is trading relatively close to its lowest level of 7.7x EBITDA, now at 8.9x. This compares to a historical average of 12x EV/EBITDA, implying a stock price of EUR 77.52 or further upside potential of 40%.

The CEO transition of Björn Gulden to the helm of Adidas after 10 years is understandable, but in our opinion, it does not explain the 40% outperformance of the latter stock compared to Puma this year. Puma’s management is known for being cautious in their communication with the stock market. If the guidance for this year is achieved, it could further drive Puma’s stock price upward.

TUI continues to be part of our portfolio and experienced a growth of over +10% last month. Based on historical metrics, TUI is clearly undervalued with a P/E ratio of 7x for the year 2024. The debt accumulated in recent years due to the impact of Covid-19 has been successfully reduced from 4.9 billion euros to 3.1 billion euros. Despite implemented price increases, the desire to travel among TUI’s customer base remains strong. We anticipate that this positive trend will continue, indicating a sustained recovery.

Investment decisions: We have recently increased our exposure and added 5 new long ideas and two short ideas, slightly raising our net exposure. We currently see interesting opportunities in the real estate sector and technology firms.

Outlook: Economic development remains uncertain. The question of whether and when a severe recession will occur is still not definitively answered, at least in comparison to the bond market. However, investors now exhibit a more relaxed attitude towards inflation, and central banks are not acting as vigorously. In this environment, we will continue our search for stocks with potential for revaluation.