Nordic Market Happenings: H&M Has Become A Falling Knife

by: Jussi Hiltunen


H&M published dismal sales figures for last February.

Genmab is on the path to higher-than-expected royalties.

Kesko and Oriola-KD are lobbying to make drug sales legislation in Finland more loose.

The Nordic market was very quiet last week, but below are a couple of headlines that caught my attention.


Johan Molin, who is the CEO of ASSA Abloy (OTCPK:ASAZY), sold his 32,100 shares in SKF in February, which were worth around SEK 5.5 million. He had been building this position up gradually at least since 2007. The only time he sold during this period was the same time last year, but that was only a minor transaction compared to the overall position.

You should always be cautious when someone who has deep roots in a business sells his stake in a company.


Swedish activist fund Cevian has bought over 1 million A shares of Volvo and continues to actively increase this position in the near future. The A shares have more voting power than the B shares. At the moment, Cevian owns roughly 8 percent of total capital and 15 percent of the total votes in Volvo.

Cevian has usually tried to split the companies it has a major stake in, in order to create more shareholder value.

Net Entertainment

Pontus Lindvall, who is the chairman of the board in Betsson (OTCPK:BTSNF) and a member of the board in Net Entertainment, has sold shares in both of the gaming companies for nearly SEK 20 million due to an ongoing divorce. According to news agency Direkt, he stated that: "I have sold these shares to finance a home for my wife during a divorce. My confidence in these companies is unshaken''. Pontus Lindvall had sold 60,000 B shares in Betsson March 6, according to the insider registers, making the transaction worth around SEK 5 million. The transaction volume in Net Entertainment was therefore SEK 15 million.

Divorce ruins your finances. Remember that.


H&M published its monthly sales figures for February last week, and they were a shocker, outlining the mess the company is in. Total sales fell one percent in local currencies compared to 10 percent growth last year. As the market expected 5.1 percent growth, H&M tumbled, taking the Stockholm Stock Exchange with it due to its heavy weight in the index. Even though the company tried to patch up the bad news by stating that negative calendar effects decreased sales by four percent, it still outlines the problems the company is facing. Inditex, which is H&M's main rival, was able to grow 13 percent during the same period. Analysts are starting to get more and more cautious about H&M, and one analyst stated that, "This (weak sales growth) can be a particular problem for H&M, and it is alarming".

The company is already struggling in e-commerce and losing market share because of it. At the same time, heavy investments in brick-and-mortar stores are weighing strongly on profitability.


SAS has one again been issued fines by the EU Commission for illegitimate price fixing. The fine amounts to roughly DKK 520 million. Apart from SAS, Air France-KLM (OTCPK:AFRAF), British Airways and Qantas were also punished. Lufthansa (OTCQX:DLAKF) and its subsidiary Swiss were the ones who made the original appeal to the EU commission. The biggest fine was given to France-KLM - €310 million.

The price cartel took place between 1999 and 2006, when airlines made illegal agreements on the level of fuel and security surcharges. The EU Commission's first decision in 2010 had to be rejected, as it contradicted with several other EU laws, and because it went too far in relation to the evidence that was actually found. In the latest fine, all procedural errors have been corrected.

SAS has already set aside the required sum during the fiscal years 2015-16, but informed that it will appeal the antitrust decision.

The company earned roughly DKK 1 billion last fiscal year, so the fine will have a massive effect on EPS going forward.


The Danish pharmaceutical company, Genmab, has received much stronger-than-expected sales starts for its cancer drug, Darzalex, and according to several research groups, the company is expected to earn much higher royalties in the near future. Genmab has, together with Johnson & Johnson (NYSE:JNJ), agreed on a royalty-staircase plan, where Genmab will receive royalties based on sales volume. Currently, the royalty is at 12 percent, but it would increase to 20 percent when a $3 billion mark is reached.

J.P. Morgan estimates that sales of Darzalex will grow five-fold by 2020, and that royalties to Genmab thereby would grow from DKK 1,286 million in 2017 to DKK 6,438 million in 2020.

The company currently generates sales of DKK 1,816 million, so the strong start will have a massive effect on both top and bottom line, but since P/E is already around 75 level, all of this is already priced in.


The second-largest Finnish retail chain, Kesko, and the largest Finnish pharmaceutical wholesaler, Oriola-KD (OTC:ORIOY), have decided to jointly set up a new store chain focusing on the sale of health, beauty and wellness products. If legislation is to change in the near future, the same stores could also include medicines. The companies have recently signed a joint venture agreement in order to make this happen. The establishment of the joint venture is subject to antitrust regulatory approvals. The first aim is to establish a chain of 100 new physical stores and an online store covering the whole of Finland. The first stores will be opened in the autumn of 2017, and during this year, the goal is to open a total of 15 stores.

Each of the companies owns 50 percent of the new, jointly owned company. The initial investment of the joint venture is estimated to be approximately €25 million and to create new jobs for roughly 1000 people. The jointly owned store chains could later on be run by individual K-entrepreneurs in a franchise manner.

Analysts believe this chain investment to be profitable, even if the pharmacy market is not completely free. Kesko and Oriola-KD are still in discussion with the Finnish government regarding legislation for medicine sales.

This joint agreement could create pressure on politicians to decontrol the sales of medicines in Finland from a legislation point of view, especially since this investment is creating a lot of new jobs. As the market for this segment is not especially efficient, a lot of efficiency improvements could be achieved.

Happy investing!

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