Two Solid Swedish Companies

This is the third post aimed at you readers that don't live in Sweden or in any of the Nordic countries and for whom many of my holdings might be unfamiliar. In this post I will introduce two stocks that I own which are listed on the Swedish stock exchange (Omx Large Cap). You can view what other stocks I own in the left hand side of the main menu.

Castellum
The fifth largest real estate company in terms of total property value in Sweden and one of Swedens most stable dividend companies. Castellum is conservatively financed compared to industry peers.

The company focuses on commercial properties (office, retail, industrial etc.) in the three major urban regions in Sweden. In the beging of the year Castellum's real estate portfolio consisted of 626 properties with a value of approximately 38 billion SEK ( 5,1 billion dollars ). The properties are owned and managed by six wholly owned subsidiaries.

For the real estate portfolio the occupancy rate is currently about 88%. This isn't great, but not that bad either. Thus far this year the income from property management was up 10% compared to same period last year. The unusually low interest rates will continue to boost the companies earning and share price.

This Is How The Dividend Has Developed During The Period 2004-2013

The dividend growth has been on average 7,5% per year during the period. There are two Swedish companies that I know of that has raised dividends for 17 years in a row, one of those is Castellum. In that respect the company might be the closest Sweden has to an dividend aristocrat. Castellums stock is current dividend yield is 3.8%.

Characteristics That I Associate With The Company:

• Strong and profitable real estate portfolio.
• Strong balance sheet compared to peers. 
• Stable earnings and dividends.
• Swedens closest thing to a dividend aristocrat - has raised the dividend 17 years in a row.

Mekonomen 
Mekonomen is the leading automotive spare parts chain in the Nordic region and comprises the three companies: MECA Scandinavia, Mekonomen Nordic and Sørensen og Balchen. Mekonomen has operations in Sweden, Norway, Denmark and Finland. 

At the end of 2013, Mekonomen Group included around 400 stores and 2 300 affiliated workshops operating under our brands.

Two recent acquisitions (MECA and Sørensen og Balchen) has increased revenue but also intrest baring debt as well as lowered the profit margins. The underlying cash flow is, however, still strong. 

I believe that earnings will improve as the new business is integrated, the debt level is normalized and margins improved by synergy effects. One of the strengths of Mekonomen's business model is that the business modell does not require major investments to generate free cash flow.

This is How EPS and Revenue Have Developed During The Period 2004-2013

EPS and revenues has increased almost 300% and 173% respectively over the whole period, even though profitability has fallen in 2012 and 2013 due to the mayor acquisitions that shrunk margins. For the first three quarters this year EPS has however gone up by 4.4%, so the company is heading in the right direction. Management has confirmed that increased cost efficiency remains an important focus for the remainder of 2014 as well as 2015.

This is How The Dividend Has Developed During The Period 2004-2013

The dividend has increased by 500% over the entire period. The dividend has, however, been stationary for the last two years, but I think earnings improve and I believe that the dividend will follow suit.

Characteristics That I Associate With The Company:

• Strong cash flow from operations.
• Largely insensitive to economic cycles because of it's focus on the used car market
• Competitive advantages through scale and being a low cost provider. 
• Stable earnings and dividend history.

This was a brief introduction of two of my Swedish holdings. My plan is to introduce the rest of my Swedish as well as my Nordic stocks in the coming weeks. If you're interested how fairly valued I think these and my other holdings are, take a look at my Watch List in the upper right hand corner of the blog.