The Danish Watchlist

Today is Annandag Påsk, Easter Monday in Danish. Therefore, today is the day when the Easter Bunny gives out colorful eggs and sweets to the kids. Following the popular Easter egg tradition - on a newsletter which would be different to what I usually write - I am sharing with you the ten Danish companies I follow as my little Easter egg present.

During the last year I have been uncovering Novo Nordisk’s and Pandora’s business and unit economics. However, they are not the only Danish stocks I follow. In today’s newsletter I will try to give you a little grasp on the other 8 Danish companies which constitute - with Novo Nordisk and Pandora - are part of my top 10 Danish companies in my watchlist.

DISCLAIMER: I don’t own shares of any of the companies presented. This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

1. Novonesis A/S (Ticker: NSIS-B)

Novonesis is the name of the company resulting from Danish companies Novozymes A/S and Chr. Hansen A/S merger. The deal was structured as a stock merger, resulting in Chr. Hansen is valued at approximately $12.3 billion. This means Chr. Hansen shareholders received shares in the newly formed company instead of cash. The merger was effective on the 1^st February of 2024.

Why is it an interesting stock?

Largest enzymes conglomerate of the world with approximately 45-48% enzymes market share (33% of Novozymes and 12-15% of Chr. Hansen). Dupont is the 2^nd largest player with 20% market share.

Attractive market, forecasted to grow at 6-7% CAGR until 2028.

Enzymes are a key raw material for customers processes but they don’t represent a remarkable cost.

Solid moat based on intellectual property, economies of scale and switching costs sustained by regulatory constraints.

Potential risks

Cyclical industry: commoditized product impacted by macroeconomic headwinds.

Large M&A operations rare ever develop and establish the initially forecasted synergies.

Capital intensive business meaning high utilization rate is key in unit economics. Moreover, it is more difficult to repurpose equipment than workers under changing conditions.

2. Chemometec A/S (Ticker: CHEMM)

ChemoMetec A/S is a leader in the design, development, and production instruments for various applications in cell counting and evaluation (20-25% market share). Its products remove manual errors in cell counting and serve as the foundation for nearly all genetic/cell research.

Chemometec leverages a three-pronged business model centered on instruments, consumables, and services. This approach mirrors the classic "razor and razor blade" model for the instruments and consumables segment. Here, instruments are offered with a lower initial profit margin, while consumables and software services generate higher recurring revenue streams. Chemometec further expands its offerings through a comprehensive service portfolio. This includes software licenses, test kits, essential reagents and excipients, assay licenses, and service contracts for their instruments.

Why is it an interesting stock?

Backed by a strong macro-trend in the biopharmaceutical industry. Global cell counting market is expected to grow at 7% CAGR until 2027.

Switching costs due to strict regulatory requirements.

Intellectual property, ecosystem of products and services and learning curve as main competitive advantages.

Potential risks

Attractive industry which is attracting more competition.

Disruption risk as it operates in an emerging industry with new competitors.

3. Genmab (Ticker: GMAB)

Genmab is a leader in the development of next-generation monoclonal antibodies (mAbs), which are the most popular biologics category. These engineered molecules target specific proteins involved in diseases.

Genmab's success stems from their cutting-edge platform technologies. These include proprietary technologies like DuoBody, HexaBody, DuoHexaBody, and HexElect. These platforms allow Genmab to design superior antibodies with advantages over traditional mAbs. This provides healthcare providers with more versatile and effective options for patient treatment.

Currently, Genmab's primary revenue stream comes from collaborations and partnerships. They receive upfront payments and royalties for their contributions to discovering some of the most crucial antibodies on the market. Genmab boasts partnerships with industry giants like Johnson & Johnson, Novartis, Seagen, AbbVie, and Bristol Myers Squibb.

Why is it an interesting stock?

Industry growth supported by a series of macrotrends.

Extense pipeline and proprietary technology.

Potential risks

AI disruption: AI has proved to facilitate viable biomolecules discovery in the last months. Genmab platform technology edge is then at risk

Increasing costs of clinical trials to bring new drugs to the market.

Revenue stream dependent on discovered drug success: business model makes part of the revenue stream dependent on royalties.

4. Coloplast A/S (Ticker: COLO-B)

Coloplast is a leading multinational medical device company. They develop, manufacture, and market a comprehensive range of products and services across for individuals with very personal and private medical conditions. They are the main player in some of the segments they operate such as ostomy care and continence care (market share: 40-45%).

Why is it an interesting stock?

Scarce comparable competitor. Apart from Convatec, the other competitors might have a segment related to the type of medical devices Coloplast manufactures but their activity is focused in other segments.

Recurring revenue business model. Customers will have to use their products during the following 10 - 30 years.

Switching costs: for users (habits & convenience) and regulatory ones.

Economies of scale and know-how.

Potential risks

Management: Atos Medical acquisition was executed at the peak of last bull market, paying a demanding price and increasing leverage remarkably.

Disruption risks in a highly innovative industry.

5. Rockwool A/S (Ticker: ROCK-B)

Rockwool A/S is a leading producer of stone wool insulation. This core business makes up 77% of their revenue. Rockwool also has a smaller segment (23% of revenue) focused on soundproofing systems for offices under the Rockfon brand. These stone wool acoustic tiles represent a niche market also exposed to cyclical revenue fluctuation.

Why is it an interesting stock?

Tailwinds related to green transition due to energy savings related to high performance insulation products of Rockwool.

Know-how and brand reputation.

Conservative balance: net cash position.

Potential risks

Cyclicality in line with the housing market.

Inflation and rising energy costs.

6. Broedrene A&O Johansen A/S (Ticker: AOJ-B)

Brødrene A. & O. Johansen is a leading building materials one-stop wholesaler in Denmark, offering a vast selection of plumbing, electrical supplies, tools, and water solutions. They have a vast network of 57 stores across Denmark (1 store per 100000 people) and 5 stores in Sweden. They serve professionals and DIY (90-10% revenue split) customers providing more than 600000 different products.employing over 800 people.

Why is it an interesting stock?

Large market share: 25% in sanitary ware products & 15% in technical installation components.

Ownership of brick & mortar: 50% of own stores and 100% of warehouses.

Scandinavian housing market tailwinds.

Possibility to grow thr DIY segment: home improvement and maintenance services in the Nordics are remarkably expensive so an increasing amount of people choose DIY alternatives.

High dividend yield: 5.0% at current price.

Potential risks

Growth slowdown due to macro headwinds.

Supply chain uncertainty: lower heat pumps demand, inventories normalization.

High level of debt.

7. DSV A/S (Ticker: DSV)

DSV is the 3^rd largest freight forwarder in the world. They provide a comprehensive suite of services to manage the movement of goods around the world. DSV's extensive geographic coverage and diverse service portfolio, encompassing warehousing, road, air, and sea freight, make them a one-stop shop for all your logistics needs.

Why is it an interesting stock?

History of strong M&A execution.

Great capital allocation by management through dividends, buybacks, etc.

Potential risks

Industry with low entry barriers.

Macroeconomics headwinds impacting discretionary spending.

Normalization of the logistics market.

Near-shoring macrotrend could be a headwind.

8. Carlsberg A/S (Ticker: CARL-B)

Carlsberg is one of the world's leading brewing groups. With a strategic focus on Europe and Asia, the company boasts a strong presence in the Chinese market, accounting for 20% of sales and 30% of group profits. The company has a varied beer, craft beer and premium beer portfolio, headed by Carlsberg and Tuborg. It is further complemented by ciders and non-alcoholic beers.

During July 2023, Carlsberg reported the Russian government seizure of their Russian subsidiary, falling share price 20% from that moment until the end of the year.

Why is it an interesting stock?

Operates in a mature non-cyclical industry and it is well positioned to take advantage of growing Asian beer markets.

CEO proven track record of creating shareholders value. Jacob Aarup-Andersen, former CEO of ISS, was appointed as CEO in September 2023 after working with the former CEO for months.

Conservative balance sheet.

Potential risks

In-house manufacturing business model. In the beverage industry, a business model based on licensing agreement while the company focuses on marketing and achieving a brand that is appealing have proven to be superior.

No strong competitive advantage apart from brand recognition and positioning.

DISCLAIMER: I don’t own shares of any of the companies presented. This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

Hope you enjoyed this newsletter, different to what I usually write about, so please let me know in the comments if you like every since in a while a post like this. And, if you enjoyed the read, don’t forget to give it a like and share!

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