TIDMGHS
RNS Number : 4108X
Gresham House Strategic PLC
24 November 2017
GRESHAM HOUSE STRATEGIC PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2017
Gresham House Strategic plc ("GHS" or "the Company") is pleased
to announce its unaudited half year results for the period ended 30
September 2017.
GHS invests primarily in UK and European smaller public
companies, applying private equity techniques alongside a value
investment philosophy to construct a focused portfolio expected to
be comprised of 10-15 companies.
The investment manager aims for a considerably higher level of
engagement with investee company stakeholders, including:
management, shareholders, customers, suppliers and competitors, in
order to identify market pricing inefficiencies and support a clear
equity value creation plan, targeting above market returns over a
longer-term investment horizon.
Highlights
-- GBP7.3 million cash invested into new and existing investment
opportunities, portfolio approaching fully invested - 12
investments now representing 75% of NAV
-- Maiden dividend of 15p per share
-- NAV growth of 0.2% over the period
-- Strong operating and strategic progress within majority of the portfolio
Financial Highlights
-- Realisations from profitable investments of GBP3.0 million
provide potential to grow dividend
-- GBP0.8m returned to shareholders through dividend and share buyback
-- Portfolio valuation (including cash and other net assets) of
GBP39.3 million (30 September 2016: GBP39.9 million), GBP40.6
million as at 31 October 2017
-- Profit before tax of GBP0.6 million (30 September 2016: GBP3.2 million)
Post-Period End Highlights
-- Further GBP2.2 million invested and an additional GBP2.0
million committed post period-end, bringing net cash below 11% of
NAV
-- IMImobile announced strong results and an earnings enhancing
acquisition with continued double digit organic growth
The full version of the GHS interim report will be available on
its website later today at www.ghsplc.com.
For further information, please contact:
Gresham House Strategic
plc David Potter 07711 450 391
Chairman
Gresham House plc/ Graham Bird 020 3757 5613
Gresham House Asset Investment Manager
Management Ltd
FinnCap Matt Goode/ 020 7220 0500
Nominated Adviser Emily Watts
and Broker
Attila Consultants Charles Cook 020 7947 4489
Sorrel Davies 07710 910563
Liberum Peter Tracey/ 020 3100 2000
Joint Broker Neil Elliot
CHAIRMAN'S STATEMENT
I am writing to report on the first six months of our financial
year to 30 September 2017. The period under review exhibited many
of the factors I mentioned in my report in May 2017; a continuation
of historically high market valuations coupled with continued
political uncertainty especially surrounding Brexit and the status
of the process created a challenging environment. Nevertheless, the
manager has made substantial progress towards full investment,
whilst markets continued to edge upwards, potentially increasing
the risk of a correction at some point.
The period has also seen high levels of activity in M&A,
which is often a characteristic of late bull cycle activity.
Encouragingly, there have been several cases in the period where an
existing holding or a pipeline opportunity which the manager had
been evaluating at the time has received an approach from either
private equity or a trade buyer. Whilst in some cases, we were
unable to benefit from the uplift as no investment had been made or
a bid did not ultimately materialize, the public identification of
interested buyers at significantly higher prices lends credibility
to the manager's approach.
In the circumstances, and in order to provide some insurance
against the share price moving up before our due diligence is
completed, we have been more active in taking small "toe hold"
investments whilst further engagement is undertaken prior to a
possible, more substantial, capital allocation. In the last six
months we made 8 investments on this basis, one of which
subsequently received a bid from a private equity buyer and two of
which have since become larger investments. We have also evaluated
a number of IPO's as an attractive means of acquiring a stake in
companies where early engagement and dialogue is clearly available.
In a limited number of cases we have sold these positions in a
short time period as our target price had been reached; examples
were Warpaint and AlphaFX. In other situations, we have built on
our initial engagement and investment with further investment.
Escape Hunt is an example from the period under review.
During the period the NAV rose modestly from 1072p per share to
1074p per share and the discount of the share price to NAV averaged
22%. We remain confident this discount should narrow on the basis
of long-term performance, and with the benefit of being more fully
invested and the portfolio being diversified. We also believe that
the Company will continue to benefit from the significant holding
in IMI which continues to perform well both operationally and
strategically.
I hope that shareholders valued the maiden dividend since the
change of investment strategy which was paid on 21 July 2017 and we
continue to review the merits or otherwise of splitting returns
between dividends and share buy backs. Our policy is to return 50%
of realised profits from sales of investments and over time we
believe this will enable us to pay a progressive and sustainable
dividend. The manager continues to work toward a close of the
Strategic Public Equity Fund LP, enabling additional investors to
access the strategic public equity portfolio. The impact on the
Company's investments is outlined in note 8 to the interim
accounts, and a further update will be given to shareholders once
closing has been reached.
Our investment strategy is highly differentiated and reflects a
distinct focus on the long-term with stock picking at its core. We
have a manager with a long-term track record of superior
performance and with substantial alignment through personal
shareholdings. The team has made good progress and further
investments and commitments made since period end have resulted in
net free cash reducing to below 11% of NAV. We therefore remain
confident in the long-term prospects for the Company.
As always I appreciate the support of the Board, manager, our
business partners and our shareholders.
David Potter, Chairman, 24 November 2017
Portfolio holdings as at 30 September 2017
Holdings Deal type & investment thesis % ownership % of total Value
of the portfolio
company
Secondary - growth, re-rating
IMI mobile and reinvestment of cashflow 12.1% 34.9% GBP13.7m
Northbridge
Industrial
Services Recovery and growth capital 11.4% 8.1% GBP3.2m
Growth capital supporting
Be Heard buy & build strategy 10.6% 6.6% GBP2.6m
Secondary - operational gearing
Miton Group and AUM growth 2.7% 5.1% GBP2.0m
MJ Hudson Pre-IPO growth capital n/a 5.1% GBP1.6m/GBP0.4m
Convertible Loan Note and
equity
Tax Systems Secondary - Operational initiatives,
Plc organic growth and acquisitions 2.1% 3.6% GBP1.4m
Primary - Growth through
site rollout with attractive
cash generation and return
Escape Hunt on capital dynamics 4.6% 3.3% GBP1.3m
Revolution Secondary - Growth Capital
Bars at distressed valuation 1.2% 3.3% GBP1.3m
Secondary; cash generation
to reduce debt; potential
growth capital to support
Quarto Group future acquisitions 4.4% 2.8% GBP1.1m
Secondary - Margin recovery
Spaceandpeople and growth 16.2% 2.5% GBP1.0m
Centaur Media Secondary - Strategic refocus,
Plc operational initiatives 1.1% 2.0% GBP0.8m
Private &
Commercial Primary - New Equity issue
Finance Group to support growth following
Plc shift in business model 1.4% 2.0% GBP0.8m
Other investments 5.6% GBP2.2m
Cash (GBP) and other working capital 15.0% GBP5.9m
items
Net asset value GBP39.3m
======================================================== ============ =========== ================
Table includes all companies in the portfolio above 2% of NAV.
Data as of 30 September 2017 month-end NAV announcement
Post-period saw the increase of Augean and Prophotonix holdings
to be >2% of the total portfolio and the reduction of the
Revolution Bars holding to below 2%.
INVESTMENT MANAGER'S REPORT
INTRODUCTION AND OVERVIEW
We are pleased to present our interim results for the period 31
March to 30 September 2017.
NAV performance in the period reflected a small uplift of 0.2%,
rising from 1072p per share to 1074p per share. This masked
significant movements within the period with a strong first quarter
during which NAV rose by 7.5%, which was subsequently reversed in
the second quarter. In the month post period end, stronger
performance resumed, helped primarily by an improvement in the
IMImobile share price.
The key drivers in the first quarter were IMImobile and
Northbridge, with NAV peaking in May and tracking ahead of both the
FTSE Small Cap and All-Share since we took on the mandate, despite
significant cash holdings during that period. Performance was
weaker in the second quarter as a downgrade of expectations in
Quarto coupled with general weakness in the share prices in
particular of Be Heard and IMImobile both of which were impacted by
selling shareholders creating an overhang notwithstanding strong
operational performance in both cases. This brought the portfolio
back almost to where it started at the end of March. More
positively in the second quarter we saw a recovery in Northbridge's
share price and strong performance in the Revolution Bars' share
price which rose materially on the announcement of a bid from
Stonegate Pubs. This contributed positively to performance. Post
period-end resumed strength in the share prices of IMImobile and
some of our smaller positions (Augean, PCF Group, Prophotonix)
helped drive the NAV performance forward in October to
GBP40.6m/1097.9p leaving the NAV +3.1% year to date (to end
October).
Notwithstanding the short-lived resurgence of 'value' stocks at
the end of 2016 and into early 2017, market movements have
continued to be dominated by 'momentum' stocks with 'value' stocks
again underperforming. This has been particularly evident at the
smaller end of the market, with a number of examples of share
prices being harshly punished for what have seemed to be minor
disappointments. We believe this highlights the need to take a
longer-term investment view; it is important to keep in mind that
the investment horizon for the fund is 3-5 years and that this
timeframe should be considered rather than shorter-term performance
and the manager remains consistent in its process and approach.
Emphasis on thorough due diligence into the company's fundamentals
to form a conviction view on its intrinsic value and engaging with
companies continues to be our thesis for delivering value; we
continue to see a limited but potentially attractive number of
investment opportunities to exploit. History has shown that by
taking a longer-term view and investing in businesses with
attractive value characteristics, strong outperformance can be
achieved.
The operational performance of the portfolio has remained on
track with only one significant exception, being Quarto. This is
explained in more detail below. Four significant investment
opportunities during the period were subject to takeover offers at
significant premia to the share price whilst we were in the process
of our due diligence. We believe this demonstrates the ability of
our process to identify businesses that are under-valued and
regarded differently by trade or private equity buyers. In the case
of Revolution Bars, we had begun to build a stake prior to when the
takeover was announced, with a resulting benefit to our NAV. In the
other cases, we had been insiders and/or unable to buy for other
reasons so did not directly benefit from the ensuing takeovers. We
also had two of our existing holdings receive approaches during the
period (Quarto and Redstone Connect), although in both cases an
offer did not ultimately materialise. Whilst this has contributed
to a lag in performance over the- second quarter, the activity
underpins our confidence in the approach and the need to remain
patient.
The operational performance of our largest holding, IMImobile,
has continued to track our thesis and expectations. We remain firm
supporters of the IMImobile executive team as well as the strategy
being implemented. We continue to see IMImobile as a positive
investment that will drive NAV growth and have outlined its
performance and that of all our larger holdings later in this
report.
Whilst markets overall have continued to trade near record
levels, several companies have experienced significant share price
falls which, in our view, highlights a level of underlying market
uncertainty. This is providing opportunities to deploy capital and
during the period we have made good progress in reducing our cash
holdings by investing GBP7.3m into new and existing opportunities.
Post period end, further investments and commitments have resulted
in net free cash reducing below 11% of NAV. With a strong,
developed pipeline that has been work in progress for up to a year,
the remaining cash is expected to be almost fully deployed in the
short-term.
Confidence in the strategy was reinforced by the Board's
decision to pay a maiden dividend of 15p per share and return a
further GBP0.3m through a share buy-back, in line with the stated
strategy. The period also saw further investment in shares by
members of the investment team.
MARKET COMMENTARY
The reporting period has experienced mixed sentiment for markets
as domestic politics and data in the UK contrast the gradual return
to 'normality' on the global stage (in economic terms at least)
that we cited in our Q3 Factsheet.
The reporting period started with increasing uncertainty in the
UK with a snap election held in May, resulting in a coalition
government and the commencement of Brexit talks. The period also
brought negative UK consumer data, including record consumer debt
and slowing retail figures. Construction data too has been weak,
highlighting the problems Brexit is causing for business investment
decisions.
Nevertheless, inflationary pressures from a weak Sterling
continued to build in the latter half of the period, leading the
Bank of England to increase base rates by 0.25% in November.
However, the medium-term rhetoric remains dovish given the
tentative UK economic backdrop.
Perhaps counter-intuitively, earlier in the year we subscribed
to the argument that the weakening economic outlook and Theresa
May's diluted mandate may be a blessing in disguise. We argued that
a softer Brexit could be deemed a positive outcome for the UK in
the short to medium term, as trade ties with the Single Market
seemed likely to remain deeper than would be the case in the 'hard'
Brexit model.
Throughout all of this, UK markets have been resilient, with
investors shrugging off concerns at home and focussing on the
global picture. The FTSE All Share and Small-Cap Indices reached
highs in May 2017 and held around the 4,050 and 5,600 levels
respectively, before advancing further to all-time highs at the end
of the summer. We feel that equities have been buoyed by a
strengthening global picture, driven by a return to growth in
Europe and tax reform hopes as well as the 'Trump reflation trade'
in the US.
This positive signalling from the global economy is demonstrated
neatly by indicators such as the gold to copper price ratio, which
has been falling over the past 6 months, indicating bullish
sentiment and economic activity; rising prices of copper indicate a
pick-up in industrial production, while falling or stable gold
prices show that investors have been less concerned about hedging
against economic uncertainty. The US10yr yield recently breaking
through 2017's key resistance level of 2.4% paints a similar
picture.
In summary, UK equities as a whole have performed well in-spite
of weaker domestic economic and business investment data over the
past 12-months and it appears investors feel that this short-term
weakness can be offset by the delay and potential softening of
Brexit together with a more supportive global economic
environment.
This positivity should be seen in context. Valuations remain
close to all-time highs, corporate profit margins are towards the
upper end of historic ranges and M&A activity, notably in the
'mega deal' arena has been buoyant. Historically, these indicators
have presaged the closing stages of a bull market. We see these
factors playing together; the gradual return to normality in the
world economy together with slowing momentum in markets as a whole,
and that this will drive a renaissance in 'stock picking',
vindicating the case we have made for the return to active
management last year. The ongoing collapse in inter-stock
correlations as evidenced this year highlights this change and
demonstrates the importance of understanding the fundamentals in
our investments.
The consequence of all of this leads us to reinforce the
advantages of our approach: to find attractively valued companies,
with clear paths to creating value and to invest in them over the
longer term to realise the inherent value. We also see these
factors as a boon for the Strategic Public Equity strategy and some
of our existing investments, where we believe intrinsic value will
be recognised as investors turn their focus again to companies with
value characteristics.
This improving backdrop for active management and our investment
pipeline leaves us well positioned for the second half of the year,
with opportunities for both existing and new holdings in the next 6
months currently in due diligence. These, as well as significant
news from some of our holdings, are outlined below.
ACTIVITY
At the end of a busy 6 months for the Company, we now have 18
investments in the portfolio plus an advanced pipeline of
prospective investments. Twelve of our investments represent a
>2% weighting in the Fund and collectively represented 75% of
NAV at 30 September.
Between 31 March and 30 September 2017, we invested a total of
GBP7.3m into new and existing investments, with a further GBP2.3m
invested in October. We also realised a total of GBP3.0m from sales
of investments in the period and a further GBP1.1m in October
creating a net cash reduction of GBP5.4m to GBP5.8m or 14% of the
portfolio. Taking into account further commitments which will
settle in November, the net cash position is below 11% of NAV. The
investments made are consistent with our medium-term target of a
portfolio of 10-15 investments comprising c.80% of the NAV of the
portfolio.
The performance of and significant news from our largest
holdings are discussed below.
PORTFOLIO REVIEW
Be Heard
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period -20%
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NAV Attribution -1.5%
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Share price vs average cost price -9%
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Over the last 6 months, BeHeard has shown strong performance on
commercial and operational fronts, however this hasn't yet been
reflected in the share price which traded down from highs of c.4p
to c.3p. The period started well for Be Heard with a strong set of
full-year results at the end of March. Of greatest importance was
the early evidence of cross-selling between the group's divisions,
a key driver of our investment thesis and the company's stated
strategy. The numbers too were positive, with the EBITDA margins at
divisional level maintained at industry leading levels.
Throughout the summer we remained proactively engaged with the
company, providing corporate and strategic support in several
areas. We introduced David Morrison, who was subsequently invited
to join the Board as a Non-Executive Director. David has been known
to us for many years and we believe he will be a strong addition to
the Board, bringing a wealth of experience of both fast growing and
more mature companies, both in private and public markets.
September brought shareholders another encouraging set of
interim results which evidenced the acceleration of cross-selling
and integration of the group's marketing divisions as well as
revenue growth ahead of expectations, to over GBP8.3m and the group
moved into profitability. MMT and Agenda21 were particular bright
spots with net revenue growth +44% and +21% respectively. Eight
clients now use 2 or more of BeHeard's 4 digital marketing
divisions and there is significant visibility on revenues for the
full year, accompanied by encouraging prospects for further
cross-selling. This strong performance was dovetailed, with some
significant contract wins with blue-chip clients announced in
October.
Since the period end Gresham House Strategic, together with
other funds managed by Gresham House Asset Management, acted as
corner-stone investor in an equity and convertible bond issue to
fund the acquisition of The Corner. This is a positive development
from which we see a substantial value creation opportunity in the
near to medium term.
IMImobile
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period +6%
----------------------------------- --------------
NAV Attribution +2.6%
----------------------------------- --------------
Share price vs average cost price +19%
----------------------------------- --------------
IMImobile has traded in line with expectations throughout the
period with no major surprises either way. The company started off
with a positive trading update in April signalling that trading was
marginally ahead of expectations. The company flagged double digit
organic growth and notable contract wins with Telenor, BT and an
important renewal with MTN - all providing scope for additional
significant growth. These results were supplemented with the
earnings enhancing acquisition of Infracast in April that was well
received by the market. The positive news flow combined with
continued strong operational performance of the business helped
drive the share price to a high of c.215p. The company published
strong final results on 28 June, demonstrating that it continues to
benefit from structural growth trends (digitalisation, engagement
via mobile devices) and is performing well financially and
operationally. IMImobile continues to generate strong organic
growth with high recurring revenues, consistent high margins, and
strong cash generation.
The management team is complementing organic growth with
earnings enhancing acquisitions and so far, the track record is
very good with a proven ability to integrate and create value,
drive synergies and deliver cross-selling across products and
geographies. Recent contracts with Telenor and partnerships with
large call centre operators, as well as the recent acquisition of
Infracast, all provide potential to accelerate growth in the near
term. The company now has a significant market share in the UK
across a number of verticals, including banks, mobile operators,
utilities and logistics. In early November, the company announced a
further acquisition of Sumotext in the US. This could be
strategically significant as it provides a platform to accelerate
growth into the largest market for IMImobile's services.
With the above considered and relative to its peers the business
remains attractively valued at forward EV/EBIDTA multiple of
c.8.7x. A further boost for investors came with the results as the
company flagged it is taking steps to enable it to consider a
dividend and/or buy-back in the future. The recent IPO of Boku is
expected to add further interest to the sector. We remain firm
supporters of the company and believe there is significant further
value creation potential to come.
Miton Group
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period +4%
----------------------------------- --------------
NAV Attribution +0.2%
----------------------------------- --------------
Share price vs average cost price +54%
----------------------------------- --------------
It was a quiet but positive 6 months for Miton with the company
tracking in line/slightly ahead of expectations.
The period started with Miton announcing that Ian Dighe would
stand down as executive chairman and the company would be entering
a process to find a new Non-Executive Chairman. The executive roles
were also clarified, with David Barron stepping up to CEO,
supported by Gervais Williams as Executive Director and Piers
Harrison as Chief Operating Officer. The new Chairman was announced
in September with the appointment of Jim Pettigrew (former CEO of
CMC Markets).
Operationally the company has performed strongly over the past 6
months with the trading update in July flagging continued AUM
growth and strong fund performance. We believe this has continued
into the Autumn with further growth in AUM to 30 September.
Northbridge
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period +25%
----------------------------------- --------------
NAV Attribution +1.6%
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Share price vs average cost price +36%
----------------------------------- --------------
It has been a mixed 6 months for Northbridge and the share price
has reflected this, trading in a range between 93p and 120p. It
ended the period right in the middle of that spread.
The interim results were slightly weaker than expected and it is
clear that the realisation of our thesis has been delayed by the
longer than anticipated slowdown in the Oil & Gas sector. This
has had an impact on the rate of recovery, cash generation and
deleveraging within the company. Activity in the Oil & Gas
sector is staying 'lower for longer' and major capital projects
continue to be pushed back or frozen. Revenues were more or less
flat YoY as was EBITDA. More encouragingly, the company cited
gradually improving conditions within elements of both divisions of
the business. Crude's stability above US$50 supports this
moderately improving sentiment at Northbridge and in the industry.
The new oil tool rental Joint Venture in Malaysia has now commenced
and has got off to a quicker start than expected, offering a new
revenue stream for the business in the Far East.
We remain confident in the investment, which has a solid asset
backing and historically attractive return on capital
characteristics. The business is well positioned for a modest
return of activity in the sector.
Private & Commercial Finance (PCF Group)
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period +6%
----------------------------------- --------------
NAV Attribution Negl.
----------------------------------- --------------
Share price vs average cost price +10%
----------------------------------- --------------
Private and Commercial Finance currently represents an
early-stage investment in the portfolio to which we have added as
we build our relationship and engage more with the business. PCF's
share price has been hampered by the industry-wide uncertainty and
concerns around Personal Contract Plans ('PCP') that have been
growing in tandem with ballooning consumer debt. Whilst PCF is a
motor leasing business they do not and never have offered PCPs to
customers. The broader market concerns therefore offer an
interesting valuation opportunity.
The share price performed strongly through the period as
concerns were eased following a strong trading update. The company
announced that it expects to beat market expectations for FY2017,
leading brokers to increase PBT and EPS forecasts for the year by
10%. Strong momentum in gaining new deposits following the
successful roll of its first retail deposit offering under the new
banking licence for which full approval was granted in early July
further catalysed the share price. We moderately increased our
holding around the news as this was seen as a key catalyst for
growth and verified an aspect of our longer-term thesis.
Quarto Group
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period -49%
----------------------------------- --------------
NAV Attribution -2.8%
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Share price vs average cost price -47%
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It has been a challenging 6 months for Quarto. The results
announced at the end of March set the tone for the next 6 months
with the resignation of the CFO Michael Connole. The share price
then weakened significantly from c.250p to c.130p in July following
downward revisions to forecasts after it became clear that a change
in accounting policies and the disposal of two non-core businesses
would have a significantly dilutive effect on future earnings. This
was accompanied by a shift in the seasonality of the business
towards H2, unexpectedly weak H1 trading and a cautious outlook for
consumers in both the US and the UK. Amongst these difficulties,
the company was able to dispose of it is last non-core
(non-publishing) division; Gifts and Books Direct New Zealand. This
leaves the group as a pure publishing play. 2017 is proving a
challenging year for the group, but we believe the foundations have
been set for a strong children's publishing business to complement
the more mature international and adult illustrated businesses.
The share price weakness and distressed valuation has drawn the
attention of other corporates and would-be suitors. The company
released an RNS in August that it had been approached with an
attractive offer to purchase the business, however shortly
thereafter announced that "the regulatory approvals required by the
bidder to complete the proposed acquisition were increasingly less
likely to be granted on the timeline first indicated" and thus
discussions were curtailed.
In September, a Hong Kong based customer of Quarto's acquired a
7.3% stake. The share price rose thereafter.
Gresham House has had significant constructive engagement with
the Board around options for the company following the challenges
faced in 2017. We are working with the company to help them find
the best route to recover and build value for shareholders using
what we believe remains a proven strategy to generate value through
Quarto's effective distribution platform.
SpaceandPeople
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period +55%
----------------------------------- --------------
NAV Attribution +1.0%
----------------------------------- --------------
Share price vs average cost price -33%
----------------------------------- --------------
SpaceandPeople had a strong recovery in Q2, providing a positive
update to investors in May that saw the share price double off its
52-week low. This was a welcome reprieve for shareholders after the
preceding 6 months and vindication of our decision to increase our
position on weakness in January. The share price has since settled
in the mid 30's and has found support at that level.
We have engaged with the management team extensively through the
business' recent difficulties, focussing on recovery and growth in
the UK, and the management team's efforts drove a significant
upgrade to analyst forecasts for the year to December 2017. The
business has restructured its cost base and refocussed on the core
strategy and growth in experiential marketing in the UK and this
initiative was complemented with some significant contract wins
including 6 major UK airports. The key drivers over the next 12-18
months are; continued scaling back of non-core activities, cost
reductions and growth of the core business.
MJ Hudson (Convertible Bond Instrument and Private Equity)
Performance
31 March to
30 September
---------------------------------- --------------
Share price in the period N/A
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NAV Attribution Negl.
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Share price vs average cost price N/A
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MJ Hudson is establishing itself as an outsourced platform for
alternative asset managers, providing advisory, asset management
and infrastructure services. The business operates through five
functional units. The Law division offers specialist legal services
for alternative asset management, including private equity, hedge
funds, infrastructure funds and others, focusing on M&A and
investment funds. The Investment Advisory division offers
investment advice, asset allocation and manager selection as well
as alternative investment due diligence and fund rating services
for institutional investors, wealth managers and family offices.
The IR & Marketing division provides fundraising strategy,
communications and marketing services to fund managers, corporates,
advisers and service providers to alternative assets. The Fund
Management division is a fully regulated multi-funds and
multi-advisory platform providing risk management, portfolio
management and regulatory cover for asset managers and advisers.
International Fiduciary offers administration and domiciliary
services for asset managers, corporates, family offices and private
individuals.
The business continues to perform in line with our expectations,
delivering strong year on year growth in both revenue and profit
and completing the year to June ahead of our expectations. Q3 has
seen a continuation of growth. Recent developments include
establishing a new office in Luxembourg, which is benefitting from
Brexit-related uncertainty. We recently increased our investment by
investing a further GBP0.9m in a further convertible bond and
equity issue to fund future, planned acquisitions.
Our investment has been made as a pre-IPO investment. The
majority of the investment is through a convertible loan note which
is structured to deliver a 20% per annum return through a 7% cash
yield and a redemption premium / conversion discount. The bond is
expected to convert on an IPO. We are engaged with management and
other investors as the business works towards this goal.
Centaur Media
Performance
31 March to
30 September
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Share price in the period N/A*
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NAV Attribution Negl.
---------------------------------- --------------
Share price vs average cost price N/A
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* New investment made within the period
We began engaging with Centaur's management approximately 6
months ago with the view to building a closer relationship and
investment. Our investment thesis has centred around the
transformation from a traditional print media group reliant on
advertising to a digital content and corporate services group,
targeting higher margin service and digital content revenues. The
company has a strong management team with proven ability to execute
the current strategic change at Centaur.
As our thesis and due diligence has developed, we have gradually
built a moderate position in Centaur whilst remaining disciplined
on price.
In our view, the key catalysts for the company in the near term
are; consolidation into a pure digital services & media play,
margin expansion through cost adjustment and growth in higher
margin activities while traditional print-based divisions contract.
We have built a strong relationship with management and are engaged
with them on these initiatives.
Escape Hunt
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period N/A*
----------------------------------- --------------
NAV Attribution +0.1%
----------------------------------- --------------
Share price vs average cost price +4%
----------------------------------- --------------
* IPO was 3 May 2017
We made an initial investment in Escape Hunt in at the start of
the period in May, seeking to capitalise on an area of the leisure
market benefiting from a significant growth trend as UK consumers
shift spending toward experiences and activities.
The first Escape Hunt branch was opened in 2013 in Bangkok,
Thailand. Since then, the business has grown quickly, and now has a
franchised global network of sites in 19 countries. The growth
strategy now centres on increasing exposure to the UK market
through the roll-out of owned sites with scope for significantly
higher earnings versus the franchise model. This roll-out is now
underway and we remain in close contact with the company on
progress and any strategic support required.
We are backing a highly credible management team with strong
track records of delivering a similar model of growth at well-known
consumer brands in the UK and overseas. The business model has
attractive cash flow characteristics and return on capital
dynamics.
Revolution Bars
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period N/A*
----------------------------------- --------------
NAV Attribution +1.3%
----------------------------------- --------------
Share price vs average cost price +71%
----------------------------------- --------------
* New investment made within the period
Revolution Bars was bid for by Stonegate Pubs at the end of July
following the share price halving earlier in the year - a time when
GHS began to buy shares on weakness as it engaged the company with
a view to making a strategic recovery investment, recognising the
underlying value of the brand and the geographic footprint of the
business operations. Perhaps unfortunately, Stonegate Pubs
recognised this inherent value too and made a bid of 203p. Whilst
we had hoped to build a strategic stake, we are pleased with the
quick uplift on our 122p entry level and the vindication of our
'toehold' policy during the DD phase of our investing activity.
As the bid process dragged out, with a counter offer (cash &
shares) from Deltic plc we opted to book some profits and sold the
majority of our position at 206p. This had a +1.3% impact on the
NAV performance in the 6 months to the end of September.
Tax Systems
Performance
31 March to
30 September
----------------------------------- --------------
Share price in the period N/A*
----------------------------------- --------------
NAV Attribution +0.2%
----------------------------------- --------------
Share price vs average cost price +5%
----------------------------------- --------------
* New investment made within the period
We built a stake in Tax Systems during Q2 2017. To date we have
invested a total of GBP1.3m. Our thesis has been based around the
corporate customer base, which is large and the software has been
adopted by the 'Big Four' accountancy firms. The software
references well and is easily adaptable to account for different
tax jurisdictions and changes in tax rules.
Furthermore, the company's operational performance is strong -
over 89% of revenues are recurring with clear visibility of
earnings and the business generates EBITDA margins in excess of
50%. The management team impressed us.
The share price traded strongly in the 6 months to 29 September,
rallying as high as 86p following a tip in the press before
settling around the 80p region. Post period end the share price has
drifted a little on the back of retail profit taking.
Looking forward, growth drivers include expansion into
mid-market corporates, regulatory changes expected to require
businesses to complete quarterly tax returns, cross selling
additional tax related software to its existing customer base, and
expansion into new territories with room for complementary
acquisitions.
Other <2% NAV Investments
We hold a small number of other investments in the portfolio
which represent 'toehold' positions while further work is conducted
or where fundamentally sound companies trade at attractive
discounts and we plan to engage with management teams with a view
to increasing our stake.
OUTLOOK
We remain confident in the prospects for our strategy and with
markets presenting an increasing need for active stock picking, and
taking a longer-term view. Consequently, we believe the outlook for
the Company is positive. The changes that will take place with the
implementation of MiFID II in January 2018 will undoubtedly also
have an impact, notably on research coverage, particularly at the
smaller end of the market and we believe this will give rise to new
opportunities for investors prepared to engage with companies and
conduct more thorough due diligence before investing. Our pipeline
is healthy and we continue to see attractively priced opportunities
to underpin the future performance of the strategy. Whilst it is
always likely that one or two companies in the portfolio will
experience some difficulties, we have generally been pleased with
the operational performance across the portfolio as a whole.
We therefore continue to believe we have an attractively valued
portfolio of companies which can be accessed through investing in
Gresham House Strategic plc and which will deliver strong returns
in future.
UNAUDITED CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME FOR
THE SIX MONTHSED 30 SEPTEMBER 2017
Six months Six months Year to
to to
30-Sep 30-Sep 31-Mar
2017 2016 2017
Notes GBP '000 GBP '000 GBP '000
Unaudited Unaudited Audited
---------------------------------------------------- ------ ----------- ----------- ---------
Continuing operations
Gains on investments at fair value
through profit or loss
Realised gains 816 1,067 1,614
Unrealised gains 5 212 2,666 2,314
---------------------------------------------------- ------ ----------- ----------- ---------
1,028 3,733 3,928
Revenue
Bank interest income - 21 28
Loan note interest income 117 - 81
Portfolio dividends and interest 128 137 173
Other income - 13 13
---------------------------------------------------- ------ ----------- ----------- ---------
245 171 295
Administrative expenses
Salaries and other staff costs (67) (67) (138)
Investment management fees (371) (341) (697)
Other costs (including fundraising/reorganisation) (255) (296) (555)
---------------------------------------------------- ------ ----------- ---------
Total administrative expenses (693) (704) (1,390)
---------------------------------------------------- ------ ----------- ----------- ---------
Profit before taxation 580 3,200 2,833
Withholding tax expense (8) (17) (28)
Profit and total comprehensive income
for the financial period 572 3,183 2,805
------------------------------------------------------------ ----------- ----------- ---------
Attributable to:
- Equity shareholders of the
parent 572 3,183 2,805
Basic and Diluted earnings per
ordinary share for profit from
continuing operations and for
profit for the period 7 15.64p 86.33p 76.07p
---------------------------------------------------- ------ ----------- ----------- ---------
There are no components of other comprehensive incomes for the
current period (Sep 2016: GBPNil, Mar 2017: GBPNil)
UNAUDITED CONDENSED GROUP STATEMENT OF FINANCIAL POSITION AS AT
30 SEPTEMBER 2017
30-Sep 30-Sep 31-Mar
2017 2016 2017
GBP '000 GBP '000 GBP '000
Notes Unaudited Unaudited Audited
------------------------------------------- ------ ---------- ---------- ----------
Non-current assets
Investments at fair value through
profit or loss 5 33,570 25,233 27,055
------------------------------------------- ------ ---------- ---------- ----------
33,570 25,233 27,055
Current assets
Trade and other receivables 5 35 4,574 197
Cash and cash equivalents 6,693 10,312 12,987
------------------------------------------- ------ ---------- ---------- ----------
6,728 14,886 13,184
------------------------------------------- ------ ---------- ---------- ----------
Total assets 40,298 40,119 40,239
------------------------------------------- ------ ---------- ---------- ----------
Current liabilities
Trade and other payables (1,039) (224) (722)
------------------------------------------- ------ ---------- ---------- ----------
Total liabilities (1,039) (224) (722)
------------------------------------------- ------ ---------- ---------- ----------
Net current assets 5,689 14,662 12,462
------------------------------------------- ------ ---------- ---------- ----------
Net assets 39,259 39,895 39,517
------------------------------------------- ------ ---------- ---------- ----------
Equity attributable to the shareholders
of the parent
Issued capital 1,915 1,932 1,932
Share premium 13,060 13,063 13,063
Revenue reserve 13,574 14,207 13,829
Capital redemption reserve 10,710 10,693 10,693
------------------------------------------- ------ ---------- ---------- ----------
Total equity due to Ordinary shareholders 39,259 39,895 39,517
------------------------------------------- ------ ---------- ---------- ----------
Net asset value per ordinary share 1,074.41p 1,082.05p 1,071.79p
Number Number Number
'000 '000 '000
------------------------------------------- ------ ---------- ---------- ----------
Ordinary shares in issue 3,810 3,843 3,843
Shares held in Treasury (156) (156) (156)
------------------------------------------- ------ ---------- ---------- ----------
Shares in issue for net asset value per
share calculation 3,654 3,687 3,687
--------------------------------------------------- ---------- ---------- ----------
These financial statements were approved and authorised for
issue by the Board of Directors on 23 November 2017. Signed on
behalf of the Board of Directors.
David Potter Charles Berry
Chairman Director
UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS FOR THE SIX
MONTHSED 30 SEPTEMBER 2017
Six months Six months Year to
to to
30-Sep 30-Sep 31-Mar
2017 2016 2017
Notes GBP '000 GBP '000 GBP '000
Unaudited Unaudited Audited
--------------------------------------- ------- ----------- ----------- ---------
Cash flows from operating activities
Cash flow from operations a (97) (739) (1,239)
--------------------------------------- ------- ----------- ----------- ---------
Net cash outflow from operating
activities (97) (739) (1,239)
Cash flows from investing activities
Purchase of financial investments (8,501) (5,624) (8,099)
Sale of financial investments 3,015 - 5,770
Dividends received 120 120 -
------------------------------------------------ ----------- ----------- ---------
Net cash outflow from investing
activities (5,366) (5,504) (2,329)
Cash flows from financing activities
Dividend paid (C shares) (548) - -
Share buy backs (B shares) (283) - -
Net cash outflow from financing (831) - -
activities
Change in cash and cash equivalents (6,294) (6,243) (3,568)
Opening cash and cash equivalents 12,987 16,555 16,555
------------------------------------------------ ----------- ----------- ---------
Closing cash and cash equivalents 6,693 10,312 12,987
------------------------------------------------ ----------- ----------- ---------
Note
a) Reconciliation of profit for the period to net cash
outflow from operations
GBP'000 GBP'000 GBP'000
--------------------------------------- ------- ----------- ----------- ---------
Profit before tax 580 3,200 2,805
Gains on investments (1,028) (3,733) (3,928)
Portfolio dividends and interest (128) (137) -
------------------------------------------------ ----------- ----------- ---------
Operating results (576) (670) (1,123)
Change in trade and other receivables 162 34 (20)
Change in trade and other payables 317 (103) (96)
------------------------------------------------ ----------- ----------- ---------
Net cash outflow from operations (97) (739) (1,239)
------------------------------------------------ ----------- ----------- ---------
UNAUDITED CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 SEPTEMBER 2017
D Shares Ordinary Share Revenue Capital Total
Share Premium Reserve Redemption Equity
Capital Reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- --------- --------- --------- ------------ --------
Balance at 31 March 2016
(audited) 10 1,922 13,063 11,024 10,693 36,712
Profit and total comprehensive
income for the period - - - 3,183 - 3,183
Balance at 30 September
2016 (unaudited) 10 1,922 13,063 14,207 10,693 39,895
-------------------------------- --------- --------- --------- --------- ------------ --------
Balance at 31 March 2016
(audited) 10 1,922 13,063 11,024 10,693 36,712
Profit and total comprehensive
income for the year - - - 2,805 - 2,805
Balance at 31 March 2017
(audited) 10 1,922 13,063 13,829 10,693 39,517
-------------------------------- --------- --------- --------- --------- ------------ --------
Profit and total comprehensive
income for the period - - - 572 - 572
Share buy back - (17) (3) (280) 17 (283)
Dividends paid - - - (547) - (547)
Balance at 30 September
2017 (unaudited) 10 1,905 13,060 13,574 10,710 39,259
-------------------------------- --------- --------- --------- --------- ------------ --------
NOTES TO THE UNAUDITED CONDENSED GROUP INTERIM FINANCIAL
STATEMENTS
1 - General information
Gresham House Strategic plc (the "Company") is a company
incorporated in the UK and registered in England and Wales
(registration number: 3813450). The information set out in these
unaudited condensed group interim financial statements for the
periods ended 30 September 2017 and 30 September 2016 does not
constitute statutory accounts as defined in section 435 of
Companies Act 2006. Comparative figures for 31 March 2017 are
derived from the financial statements for that year. The financial
statements for the year ended 31 March 2017 have been delivered to
the Registrar of Companies and contain an unqualified audit report,
did not contain a statement under emphasis of matter or statements
under section 498(2) or (3) of the Companies Act 2006. The
unaudited condensed group interim financial statements as at and
for the six months ended 30 September 2017 comprise the Company and
its subsidiary undertakings (together referred to as the "Group").
All intra-group transactions, balances, income and expenses are
eliminated on consolidation. These unaudited condensed group
interim financial statements have been prepared in accordance with
the AIM rules. As at 30 September 2017 the Company has liquidated
all of its subsidiaries and as a result the condensed group interim
financial statements as at period end are equivalent with company
stand-alone financial statements.
2 - Basis of accounting
The group annual financial statements are prepared under
International Financial Reporting Standards (IFRS) as adopted by
the European Union. The principal accounting policies adopted in
the preparation of the financial information in these unaudited
condensed group interim financial statements are unchanged from
those used in the Company's financial statements for the year ended
31 March 2017, with the exception being the classification of
interest receivable on MJH Convertible Bond detailed in note 5, and
are consistent with those that the Company expects to apply in its
financial statements for the year ended 31 March 2018. This report
does not itself contain sufficient information to comply with IFRS.
These unaudited condensed group interim financial statements have
been prepared on the basis of IFRSs in issue that are effective at
the Group's annual reporting date as at 31 March 2018.
3 - Estimates
The preparation of the unaudited condensed group interim
financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income
and expenses. Actual results may differ from these estimates.
In preparing these unaudited condensed group interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation were the same as those that applied to the group
financial statements as at and for the year ended 31 March
2017.
4 - Financial risk management
The Group's financial risk management objectives and policies
are consistent with those disclosed in the group financial
statements as at and for the year ended 31 March 2016.
5 - Investments at fair value through profit of loss
Value Value at Value at
at
31 March 30 September 30 September
2017 Additions Disposals Revaluations 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- ---------- ---------- ------------- ---------------- ----------------
Investments in
quoted companies 25,966 7,324 (2,161) 217 31,346 25,190
Other unquoted
investments 1,089 1,177 (37) (5) 2,224 43
Total investments at
fair value through
profit or loss 27,055 8,501 (2,198) 212 33,570 25,233
------------------------- --------- ---------- ---------- ------------- ---------------- ----------------
Investments in quoted companies have been valued according to
the quoted share price as at 30 September 2017. Investments in
other unquoted investments represent the investments in MJH
Convertible Bond which were purchased on the 4(th) November 2016
and 8(th) of August 2017, which are valued at cost and accrued
premium interest, shares in MJH Group Holdings Limited, which are
valued at cost, and an investment with Hanover Active Equity
Partners II LP which has been initially recognised at cost and
revalued based on the monthly NAV statement as at 30(th) September
2017.
GBP76k of interest receivable on the MJH Convertible bond has
been included as part of investment in current period, and prior
year's comparative has also been restated by GBP52k as management
thinks that this would provide more relevant information about the
investment portfolio. The reclassification has had no impact on net
asset value or earnings per share.
Notes to the Unaudited Condensed Group Interim Financial
Statements (continued)
The revaluations above are shown on the face of the statement of
comprehensive income as realised and unrealised gains or losses on
investments at fair value through profit or loss.
6 - Dividends
The Company paid a final cash dividend to the Company's
shareholders for the year ended 31 March 2017 at a rate of 15.0p
per share on the 21/07/2017 totalling GBP0.5m. No interim dividend
has been proposed for the period ending 30 September 2017 (Sep
2016: GBPNil, Mar 2017: GBPNil)
7 - Earnings per share
Six months Six months Year to
to to
30 Sep 2017 30 Sep 31 Mar 2017
2016
GBP'000 GBP'000 GBP'000
------------------------------------- ------------ ----------- ------------
Earnings
------------------------------------- ------------ ----------- ------------
Profit for the period 572 3,183 2,805
------------------------------------- ------------ ----------- ------------
Number of shares ('000)
Weighted average number of ordinary
shares in issue for basic and
diluted EPS 3,658 3,688 3,688
------------------------------------- ------------ ----------- ------------
Earnings per share
------------------------------------- ------------ ----------- ------------
Basic and diluted EPS 15.64p 86.33p 76.07p
------------------------------------- ------------ ----------- ------------
Between April and May 2017 Gresham House Strategic PLC underwent
a share buy back exercise during which the Company bought 33,000 of
its own shares and then cancelled them. This decreased the
Company's total number of shares from 3,843,275 to 3,810,275 with
the shares held in treasury remaining constant at 155,771 across
the period to 30 September 2017.
8 - Related party transactions
The Company has a signed co-investment agreement with Gresham
House Strategic Public Equity Fund LP ("SPE Fund LP"), a sister
fund to the Company launched by Gresham House Asset Management Ltd
("GHAM") on 15 August 2016. Under the agreement, the Company has
co-invested GBP7.5m with the SPE Fund LP. The Company has satisfied
the commitment by transferring 3,875,969 of IMImobile plc ("IMO")
shares at 193.5p per shares into the co-investment structure.
The Company has transferred in aggregate 2,345,981 IMO shares
into the co-investment structure of which 305,998 ordinary shares
in IMO were sold to Gresham House plc ("GHE") co-investment account
and 2,068,433 ordinary shares were sold to the SPE Fund LP at a
price of 193.5p per share (being the closing mid-market price on 15
August 2016). Up to a further 1,113,941 ordinary shares in IMO are
expected to be automatically sold to the SPE Fund LP at a price of
193.5p per share, subject to a rebalancing exercise which will
depend on the final level of commitment received by the SPE Fund LP
at its final close, leaving 387,597 IMO ordinary shares held in its
co-investment account. GHS's commitment under the co-investment
agreement will remain at GBP7.5m irrespective of the total size of
the SPE Fund LP at final close.
The entering into the co-investment agreement and the sale of
IMO shares to GHE and the SPE Fund LP are both deemed to be related
party transaction under Rule 13 of the AIM Rules for Companies. The
directors of the Company consider, having consulted with the
Company's nominated adviser, finnCap Ltd, that the terms of the
co-investment agreement and the sale of IMO shares are fair and
reasonable insofar as its shareholders are concerned.
9 - Subsequent events note
There were no material events after the statement of financial
position date that have a bearing on the understanding of these
unaudited condensed interim group financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KXLFLDFFBFBF
(END) Dow Jones Newswires
November 24, 2017 02:00 ET (07:00 GMT)
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