TIDMGHS
RNS Number : 9067U
Gresham House Strategic PLC
09 April 2021
Gresham House Strategic plc
("GHS" or "the Company")
Pre-close trading update
GHS expects to publish its full-year results in June. The latest
factsheet for the period 1 January 2021 to 31 March 2021 is
available at: www.ghsplc.c om
FY21 Summary, for the period ended 31 March 2021
-- The Board's confidence in the strategy, the team and the
portfolio, after a unique year for UK stock markets and significant
portfolio evolution, is reflected in the decision to raise the
dividend by 20% for the third year running.
-- GHS Total Shareholder Return (TSR) was 59.3% in the year to
31 March 2021.(1)
-- Unaudited NAV Total Return performance of 44.3% to
1,515.4p/share vs FTSE All Share Index and the FTSE Small Cap
(ex-ITs) Index total returns of 27.1% and 75.0% respectively in the
year to 31 March 2021.(1)
-- Three-year TSR to 31 March 2021 of 81.6%(1) , placed GHS
2/25(2) in the AIC UK Smaller Companies' sector, outperforming the
FTSE All Share Index total return by +71.7%.(1)
-- Share price discount to unaudited NAV reduced from 15.0% on
31 March 2020 to 6.3% on 31 March 2021.(1)
-- As a result of both the discount narrowing and NAV growth,
the five-year total return to GHS shareholders has been 99.6%, an
approximate compound annual growth rate of 15%.(1)
-- GBP14.9m was deployed into seven new holdings which have
since driven material NAV growth. This was funded from net
realisations of GBP11.2m, a starting level of GBP7.3m cash and
income received of GBP335k.
-- We have an exciting pipeline of potential investments in the
under-researched UK smaller companies' universe where value
opportunities exist.
-- The Board will continue to consider all opportunities to grow
GHS.
Portfolio Overview
The portfolio entered the year with a cash weighting of c.19%
and ended with c.3%, gross of performance fees due (approximately
GBP2.3m (unaudited)). One of the most dynamic market environments
in history unfolded, a FTSE UK All Share drawdown of 36% (1)
troughing in March just prior to the period, followed by a
significant rally of 42% after monetary and fiscal authorities
launched historic rounds of stimuli. Waning market confidence over
the summer, peppered by on-going equity fundraising requirements
was abruptly ended with vaccine announcements in November. Since
this point, a significant rotation of equity investor style has
emerged from 'growth' into a long-overdue reconsideration of
'value', which has been underpinned by rising inflation
expectations, rising bond yields and confidence in economic
recovery.
- The Company is invested in 16 companies; the top ten represent
c.82% of the portfolio, with unlisted exposure at 11% via three
convertible bonds.
- The portfolio holdings have robust balance sheets: we entered
the period with 12 holdings having net cash.
- All companies have recently updated on trading or announced
results which demonstrate excellent operational control, adjusted
cost bases and, in the context of Covid-19 related uncertainty,
encouraging outlook statements. We expect all holdings to deliver
material profit recovery in 2021.
- The portfolio is exposed to a range of end industries and
markets, both domestically and overseas, with a large weighting to
services.
- We remain heavily engaged across the portfolio and have
achieved progress on several initiatives during the year which
should help to drive shareholder value.
Investment highlights
- We were delighted with Augean's recent results, our largest
holding at c.23%. The company reported adjusted operating margins
of 22%, Return on Capital Employed (ROCE) of 35%, excellent cash
generation, net cash on the balance sheet, an imminent return to
dividends and demonstrated ongoing highly profitable growth in its
fly-ash activities dealing with hazardous waste. We believe the
shares are materially undervalued.
- ULS Technology's sale of a non-core operation for GBP27m in
November 2020 was transformative. We first invested in December
2019 when the market capitalisation for the whole business was
GBP29m; its value has since risen to GBP54m. The company has hired
a high calibre CEO for its exciting next phase of digitally
transforming the conveyancing process for UK property
transactions.
- One of our first investment decisions of the year was to
re-capitalise Bonhill plc, in which we acquired 10% of the
company's equity capital. This was a classic recovery situation
where talented management faced the collapse of their physically
attended media events activities due to lockdown. We bought our
holding at 5p, which is now valued at 13p (+160%). We see
significant further upside as the economy re-opens.
- We also established a material holding in Flowtech Fluidpower
(+30%), whose excellent cash generation, scope to improve returns
and growth outlook appear undervalued. We also took advantage of
depressed share prices, given clear evidence of operational and
strategic improvements in each case, and increased our
shareholdings in Centaur Media, Pressure Technologies, Northbridge
Industrial Services, Universe Group and Van Elle Holdings. We are
engaged with all these companies on further initiatives to unlock,
create and accelerate the realisation of shareholder value
realisation: we saw progress on several of these holdings during
the period. The largest deployment of capital in the period was the
purchase of shares in RPS plc, another company in need of
additional financial support. A new Board and management team had
started a root-and-branch operational modernisation prior to the
pandemic but were still saddled with too much debt inherited from
prior acquisitions when lockdown hit. As a global leader in
environmental, planning, water and energy consultancy, a huge
profit recovery potential now exists. We invested GBP2.6m at an
average of 44.7p in September 2020; the shares are now 95p
(+116%).
- The most recent significant investment has been GBP2.8m into
M&C Saatchi at an average of 87.5p. Due to poor financial
controls, governance, accounting irregularities and poorly designed
acquisition terms, material change was required at this iconic
global advertising agency group. This is underway with the
retirement of all four founders, a refreshed Board, a new
organisational structure and leadership team. Ambitious medium-term
financial targets have been shared with investors and the shares
have reached 145p (+66%).
Team
We are delighted to announce that Laurence Hulse, who joined
Gresham House Asset Management in 2015 and has contributed
significantly to Gresham House Strategic in recent years is being
named Deputy Fund Manager for the strategy.
Outlook
Richard Staveley, GHS Fund Manager, commented:
"With regards to Covid-19 compared to our initial expectations,
we have been surprised by the severity and length of the lockdowns
but not by the ability of the motivated and innovative
pharmaceutical industry to develop vaccines rapidly. Whilst the UK
now appears on track for re-opening, Europe and many other
countries continue to face challenges. The scale of both huge
monetary support and fiscal stimulus cannot be ignored though and,
quite rightly, concerns over the medium-term inflationary outlook
have surfaced. This development is very new to many market
participants weaned on deflationary forces and ever lower bond
yields. This dynamic has already been positive for shares
considered to be 'value' and may become a healthy 'following wind'
for the portfolio.
Laurence Hulse, GHS Deputy Fund Manager, added:
"The recent crisis demonstrates that often we have an inaccurate
sense of certainty or confidence in what the future holds. This is
why it is so important to have an understanding of value at all
times. With careful analysis, a conservative approach to financial
leverage and deep insight into a company's value drivers, a
material margin of safety can be created to enable investments into
stocks with significant medium-term returns. We believe strongly
that our concentrated, engaged, Strategic Public Equity (SPE)
approach and portfolio is well positioned for the re-opening of
economies and the market environment ahead."
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
For further information, please contact:
Gresham House Strategic 07711 450
plc Chairman David Potter 391
Gresham House Asset Management
Ltd Fund Manager Anthony Dalwood 020 383 7627
07864 802
Fund Manager Richard Staveley 532
Deputy Fund 07841 032
Manager Laurence Hulse 009
William Marle / Matt 0207 220
finnCap Nominated Adviser Goode 0500
Joint Broker Mark Whitfeld
Tom Scrivens / Michael 02078 862
Panmure Gordon (UK) Limited Joint Broker Bateman 500
Charles Gorman / Camilla 020 3995
KL Communications PR Esmund / Saurav Karia 6673
Notes to editors
GHS invests in UK smaller public companies, applying private
equity techniques and due diligence alongside a value investment
philosophy to construct a portfolio focused in 10-15 companies.
The Investment Manager, Gresham House Asset Management Ltd
(Gresham House, GHAM, or Investment Manager), aims for a high level
of engagement with investee company stakeholders, including
management, shareholders, customers, suppliers and competitors,
with the aim of identifying market pricing inefficiencies and
supporting a clear equity value creation plan and targeting above
market returns over the longer term.
[1] Source: Bloomberg, 31 March 2021
[2] AIC Interactive Statistics as at 6 April 2021 -
https://www.theaic.co.uk/aic/find-compare-investment-companies/interactive-statistics
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