Karnell is crushing it

If you haven’t been following this newsletter, I don’t blame you.

Watching a guy go more and more niche. Into Sweden, small caps, serial acquirers etc.

Probably not for everyone.

But if you’ve stuck around, I think it’s paid off.

Because you’d have heard about Karnell.

Karnell (KARNEL-B.ST) might be that under-the-radar gem we’re all looking for.

And the exact reason to read newsletters from random Americans in Sweden who may or may not know what they’re talking about.

Karnell’s a Swedish midcap serial acquirer that’s up some 50% since I started buying in mid-February.

And last Friday, it posted Q2 numbers that were easily the best I’ve seen from any Swedish compounder this season.

What’s even better? They’re just getting started.

Some nice things to take in about Karnell:

• Size: market cap still under $500m, so loads of room to grow

• Incentives: long-term owners, and management with skin in the game

• Lineage: part of a new wave of compounders following the blueprint from giants like Lifco, Indutrade, Addtech and Lagercrantz

• Pedigree: with a veteran Lagercrantz alum as CEO

These are important.

But maybe most important — Karnell seems to have a knack for this stuff.

Because I don’t think this serial acquirer thing is easy.

The playbook seems simple enough in theory. But executing may be an art.

You have to do three things right:

1. Find the right companies

2. Buy them at the right prices

3. Keep them growing (forever)

And I wonder if the third step isn’t the hardest.

Getting the culture and incentives right.

So that each subsidiary stays hungry, happy, and sending cash back to the mothership to fund the next deal.

Some compounders can show mixed results.

But Karnell seems to be doing well across the board.

Case in point — that Q2 report:

• 36% sales growth (17% of that organic)

• 60% EBITA growth

• 17% EBITA margin (up from 14.6%)

• Operating cash flow up 3x to SEK 60m

• Decent debt level at 1.9x/ebita

I watch Swedish compounders pretty closely.

Karnell’s figures are some of the strongest I’ve seen this season.

The market was also impressed (up nearly 15% on the news).

Of course, the question then becomes: have they run too far?

After a 50% surge, is Karnell too pricey?

Maybe a bit.

You’re no longer getting a steal.

And I didn’t buy more. It’s not my style to add after a big jump.

But I’m watching, and ready to pounce if the market gets distracted.

And for once, I’d like to think I’ve done you a solid.

Drawing attention to this winner.

Given something back to everyone who suffers through this newsletter.

Not all my holdings are acting as wanted (looking at you, Novo Nordisk).

But reviewing the year so far, I’d like to believe I’ve helped you a bit with:

• Pandora, which has now come storming back (+80% since winter)

• these emerging acquirers in Sweden in general

• and Karnell in particular

Starting from zero in January, I now have a significant portion of my holdings in Swedish compounders.

And Pandora and Karnell are my best performers YTD.

Now to my favorite thing about Europe:

• The sacred, preordained right to a month-long summer holiday.

For the next few weeks, this newsletter is officially closed.

On holiday.

Sign outside the door: gone fishing.

Have a nice, relaxing August. Try not to check the markets. Too much.

Talk to you in a few weeks.

Thank you for reading.

Hi, I’m Joel Sherwood.

I invest each week and write about it here. Building a fund in public and sharing my analysis and performance.

Focused on the Nordics, where I live.

I’m a former financial journalist and current bank employee. I started the Sherwood Investment Letter in January 2025.

Purchases are not recommendations.