KOF earned a negative return of 11.0% in June, while the GPR Dutch Small Cap index was down by 11.4%. In the first six months of this year, KOF’s Net Asset Value (NAV) decreased by 14.2% versus a downturn of 13.0% for the benchmark.

If you bear in mind that interim results are published in mid-July/August, relatively few profit warnings have been issued so far and most of those are in the consumer discretionary sector. This low number of profit warnings may reflect companies’ well-filled order books from previous quarters that continued to affect financial developments positively in the second quarter, while underlying demand has already started to weaken. At the same time, we sense a reluctance among many businesses to instigate a restructuring too soon given the tightness on the job market and the risk of being understaffed if the slowdown in growth proves to be of short duration. Many companies slashed their cost base during the COVID-19 pandemic, making it relatively difficult to cut costs any further. The (enormous) macro-economic and geopolitical uncertainties will lead many businesses to adopt caution. However, following the recent correction on the equity markets even those companies with a leading market position, robust balance sheet, ongoing focus on innovation and experienced management team now have lower valuations and this creates fertile ground for investors with a longer time horizon (3-5 years).

The largest increases to positions in the KOF portfolio in June were to ASR, ASM International and Flow Traders. The biggest sales were of PostNL, Beter Bed and Heijmans. After the offer on Accell by KKR and Teslin was declared unconditional, this month we sold our entire position in Accell on the market for more than the offer price. Other positions were adjusted based on changes to the model portfolio driven by valuations and upward price potential.

Although KKR and Teslin eventually announced on 23 June that 96.9% of the Accell shares had been tendered, minority shareholders (including the managers of the Kempen Orange Fund) made their feelings clear during the acquisition process. Throughout this process we were in touch with other shareholders, Accell’s Board of Management and Supervisory Board, as well as Eumedion and ISS. Being the target of an acquisition is part and parcel of being a listed company. A crucial basic principle here is a thorough and transparent process in which both the Board of Management and the Supervisory Board adopt an independent role. It would seem self-evident that these two bodies work hard to meet their obligations to all stakeholders by conducting a thorough process that involves studying a variety of alternative scenarios in order to reach a carefully thought out decision, but this is apparently not always the case. Although each acquisition is unique, the process surrounding the acquisition of Accell provides enough insight into points for improvement in subsequent cases to avoid unexpected hurdles such as the one that cropped up here. We hope that supervisory board members in the Netherlands will not easily agree to smoking out shareholders when only 80% of them have agreed to an acquisition.

Although Telenet is holding up well operationally in the Belgian telecom market and allocating its financial resources in a rational manner, the 20% drop in its equity price in June could make you think otherwise. Earlier this year, Telenet’s dream acquisition of VOO failed to go ahead because of a higher bid from Orange Belgium, while this party in fact enjoys fewer options for synergy. Telenet also acted rationally at the recent mobile spectrum auction and bid the best price in relation to the spectrum it obtained. Naturally the company will be confronted with higher borrowing costs in light of its high level of debt, but this will only have an impact from 2028. The new market entrant’s (Digi Communications) chances of commercial success would likewise seem to be small given the already competitive pricing of the three existing telecom operators. Although Telenet’s current dividend yield of 14% is an indication of the unsustainability of the present dividend, even at a lower level this will place a floor under the price. Moreover, the low share price could (once again) prompt majority shareholder Liberty (59%) to increase its stake.

In June we paid a visit to BESI in Radfeld, Austria. The company had organised a day to give investors greater insight into the technologies it uses, especially Hybrid Bonding. BESI is seeing interest in this technology at a growing number of customers and this has prompted it to adjust market expectations for Hybrid Bonding upwards for the period up to 2030. The greater accuracy and speed of the current generation of BESI’s Hybrid Bonding machines give it a clear edge over its competitors. Despite the positive long-term outlook, the financial markets are focusing more on the short-term risks, with a slowdown in demand for consumer goods in turn potentially leading to lower demand for BESI’s machines.