Atea (OSL:ATEA, Financial) (Norway), a market leader in IT infrastructure and solutions for businesses and public-sector organizations in Europe’s Nordic and Baltic regions, was a top detractor to the Fund’s performance for the quarter. Atea delivered a mixed set of first-quarter earnings results as currency headwinds pressured revenue results. Supply chain constraints are also weighing on the business, with Atea building security stocks in some equipment and experiencing additional transit times for the inventory on its balance sheet. At the same time, a shortage of higher margin networking equipment hurt sales, particularly in Denmark. Despite this, sales and EBIT still grew in the first quarter compared to the first quarter of the prior year. These supply chain headwinds should prove temporary rather than structural, and we are encouraged that management is not yet seeing any signs of waning demand. We spoke to CEO Steinar Sonsteby following the release, and he indicated that private customer demand remains robust and public customer demand is accelerating due to investments in areas like defense and information security. Although the company committed a few unforced errors in the first quarter, including hiring too aggressively in Norway and the inability to invoice some new managed service contracts in Denmark, management believes current headwinds will abate and that Atea is well-positioned for strong growth and improving profitability. Despite the near-term pressures facing the company, we appreciate Atea’s position as a dominant player in the Nordic infrastructure reselling and service market, holding around 20% market share—far ahead of its next largest competitor. We also admire the company’s ability to generate free cash flow through its absence of working capital on an operating basis and limited fixed asset investment. As such, we believe Atea remains an attractive investment.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund second-quarter 2022 commentary.
