At the end of July, 18 of our 26 portfolio companies had reported quarterly results. Eleven of the reports came in particularly strong, four were neutral and three were rather weak. The reports from Lennar, Goldman Sachs, Microsoft, Abbot, ÅF and Reckitt Benckiser were positive highlights.
Unfortunately, software company Playtech issued a press release stating that revenue from licenses in Asia was considerably reduced due to increased competition. However, revenues increased in Europe due to the football world championship.
In sum, July turned out to be a good month for Pareto Global, with an increase of close to 2.5 per cent. The portfolio companies continue to be low priced, and the P/E multiple for expected earnings in 2019 is a modest 13.7.
The diversified American health care company Abbott reported organic sales growth of eight per cent in the second quarter, after all four divisions reported better figures than expected. The growth was strongest for generic drugs in emerging markets, especially in India and China, and for medical supplies for cardiovascular diseases. Abbots innovative system for measuring blood sugar for diabetics, FreeStyle Libre, is currently in a strong growth phase and has passed 800.000 users globally. The long-term objective of the company is a double-digit yearly growth in earnings. The share increased close to seven per cent in July, and has delivered a total return of over 70 per cent since we invested in the company in December 2016.
As we wrote in our last monthly report, we sold all of our holdings in Ryanair in June. The airline entered the portfolio just after Brexit in June 2016, and the share increased 54 per cent in Norwegian kroner during our investment period. On July 23 the company released a rather weak quarterly report and the share fell by more than six per cent. We took advantage of the share price drop and bought Ryanair shares, which currently hold a weight of about five per cent of the Pareto Global portfolio.
We have been clear on why we believe Ryanair is a long-term winner in the aviation industry for a long time, but we have also been of the opinion that the market has too high expectations as to revenue. The company has had operating margins of 23 per cent the last years, but due to i.a. increased personnel costs, fuel costs and potential costs related to strikes, we believe these margins will come down considerably in the years to come. After the drop in the share price over the last few weeks, we believe the market has priced in lower expectations and the weighted outcomes are tilting upwards.
Pareto Global A had a return of 2.2 % in July and 12.3 % on average for the past 5 years as per 07/31/2018.
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager's skill, the fund's risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments.
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Portfolio management team
Andreas Sørbye
Lead portfolio manager
