2018 began with rising stock prices and low volatility, but in February the equity market fell and volatility increased significantly. Catella Hedgefond’s ambition is to create a good risk-adjusted return with a low risk and with a low correlation to the equity and fixed income markets. So far this year, Catella Hedgefond has gained +0.5 percent at a significantly lower risk than the equity market (which generated 0.7 percent). The fund’s return is driven by company-specific picks, not market risk, and these company-specific cases are both long and short positions.
We would like to provide greater insight into two shares that have been a part of the fund for a long time. One cyclical case that often returns as a position in the fund, both long and short, is Maersk. And a more defensive case, Ambea, which we believe has great value potential over a multi-year period.
The fund was short in Maersk stock for much of 2017, and the company was the fund's largest short position in the summer of 2017. We believed the stock market to have unrealistic expectations of rapid market improvement and that the company would continue to cut costs and generate large extraordinary dividends after the sale of its oil operations. The container market performed worse than the stock market had hoped in the autumn, and Maersk also had problems following a cyberattack. The company is careful with its credit rating, which means that no extra dividends will be considered until the money from the sale is banked. The stock market has been disappointed in the quarterly reports and now, most recently, during Tuesday's capital market day.
We have taken profits on our short position and, following the company's capital market day, we have built up a significant long position. We still believe the market is improving, but this is taking longer than the stock market hoped. Several of the industry's top-20 companies have merged into 10-11 even bigger players. From the second half of the year, new vessel deliveries have been falling dramatically and the order backlog is now at a record low as a percentage of the existing fleet. In 2017, the number of idle vessels fell sharply and we find it difficult to see additional capacity being added in 2018. The conditions are good for better market balance by the autumn of 2018 and into 2019. For Maersk specifically, we assume there will not be another cyberattack. We believe the company will be able to obtain synergies from the Hamburg Süd acquisition and from the integration between container shipping, ports and logistics.
The stock is not cheap at P/E 2018, but we believe the conditions are favourable for the company to achieve good profit growth in the second half of 2018 and 2019. Stocks are driven by momentum, and in six months things will look better. In addition, we will at some point receive extra dividends after the sales of the energy assets.
Ambea is a share we participated in as a cornerstone investor at its IPO in late March 2017. The stock was listed at SEK 75 and experienced strong performance, partly buoyed up by a solid report for the first quarter. At present, the share is trading around 10 percent below the listing price at SEK 69, which is explained by subsequent reports being on the weak side.
Our image of the long-term value in Ambea has not changed significantly despite some downward revisions of estimates, as explained below. Ambea has an attractive business mix in which it conducts both contract management and own management in elderly care (Vardaga) and care for the disabled and people with psychosocial problems (Nytida). It is the market leader in this second category.
The problems experienced since the IPO can be boiled down to larger group-wide costs and lost business in contract management. The important thing, however, is that the activities under own management are developing according to plan, with strong profitability and a significant pipeline of new homes. The business has high visibility until 2020-2021 and we estimate the growth potential as very favourable even after this horizon. Mainly driven by drastically altered demographic conditions in Swedish elderly care.
With earnings capacity of just over SEK 6 per share 2020 Ambea should, at a minimum, be traded at a market multiple given the strong growth prospects, which would yield at least 25 percent share price potential per year over the next two-year period.
These are two examples of our equity exposures. Catella Hedgefond today has a total of approximately 80 shares in which we are either long or short.