Gresham House Strategic PLC (LON:GHS) Fund Manager and Managing Director Graham Bird caught up with DirectorsTalk for an exclusive interview to discuss their final results for year ended 31 March 2017 detailing their portfolio: IMImobile PLC, Miton Group PLC, Northbridge Industrial Services Plc, SpaceandPeople Plc, Escape Hunt PLC & Be Heard Group PLC
Q1: Now Graham, a good set of results this morning, can you run me through the performance?
A1: Yes, we’re very pleased with the way the portfolio’s been performing and particularly since the beginning of the year, net asset value has increased 14% since the beginning of January.
Really the drivers of that have been through a number of different stocks but actually I think the ones to call out, clearly, we’ve spoken before about IMImobile PLC (LON:IMO), which is our big holding. That has performed very well since the beginning of the year rally on the back of some positive announcements in January and then an acquisition announced in March which has given them a very strong position amongst UK banks. Fundamentally, they’re producing strong cash flows and demonstrating organic growth so that has really been reflected in the share price and has been a big driver in the performance of the portfolio.
The other ones to call out, I think, are Miton Group PLC (LON:MGR), where again, strong asset growth and assets under management growth have found their way through to support the share price. I think importantly too, what we saw in Miton, was the growth in assets under management, very significant evidence of operational gearing in the business. They produced their results for the end of the year, which came out at the end of March, showing 70% growth in profit before tax so again that strong operational gearing coming through and that led to a rise in the share price so again, another driver of performance.
Northbridge Industrial Services Plc (LON:NBI) has also performed well since the beginning of the year which has been a driver, we’ve spoken about that before.
One that has bounced back, having fallen, was SpaceandPeople Plc (LON:SAL) where historically it hadn’t been a good performer for us. We topped up in January, got very engaged with the management and they announced that the business is operating now very well, in fact their trading update in May said that they’re ahead of plan so that’s also been a strong performer.
So, across the piece, generally these re running to what we expected and we expect further upside from the portfolio.
Q2: So, what will drive performance moving forward?
A2: We’ve made a couple of investments, recently announced an investment in Escape Hunt PLC (LON:ESC) which was an IPO which came to market in May and that’s a very interesting business, they’re rolling out a network of escape rooms which is a new leisure activity which is gaining traction. Very high return on capital characteristics in this business and good cash flow dynamics so we expect to see them roll that business out into the UK and also other parts of the world so I think there’s a lot of opportunity for growth in that.
Be Heard Group PLC (LON:BHRD) is a big holding of ours as well, they’ve done very well, this is the digital marketing network which is being pulled together through acquisition by Peter Scott and his team. The operational performance, certainly when their first full results came through, was demonstrating very good performance, strong organic growth and importantly driving synergies between the businesses that he’s acquired and that’s really how value is created in there.
So, I think those are two to call out, of course as I mentioned, some of the other ones which I’d spoken about I think have further upside to go so we see that driving performance. I’ve got quite a nice pipeline, we had made a few toe hold investments where we’re building positions in smaller companies and as we build those I expect those to contribute to the performance going forward too.
Q3: You’ve announced a maiden dividend, should we expect good and growing dividends to be a key feature of this fund?
A3: It’s certainly our ambition, this year, as you point out, there is a maiden dividend, 15p per share that’s been declared. The policy is that we would return 50% of realised profits to shareholders through dividends or share buy-backs and the origin of this dividend was exactly that, we sold some IMImobile shares back in August last year and that generated a nice profit, we’ve also had a couple of realisations which contributed to that and that gave us the fire power to declare that dividend. As the portfolio matures and we see a recycling of investments, we certainly anticipate driving good return from that and therefore generating that pool of money which we would use to pay dividends so definitely an ambition to continue a dividend, definitely an ambition to see that dividend grow over time.
Q4: Now, you mentioned that you were taking holdings in smaller stocks, what’s you view on the market and why do you focus on the smaller and value end of the spectrum?
A4: Certainly, I think our philosophy, as you point out, is very much value-oriented. If you can buy well and buy when stocks are cheap on the number of metrics, we often see that as providing a stable base and a lower downside risk with much higher upside potential, historically, over a period, value stocks have outperformed and that is very much part of our philosophy. You point out what’s happening in the markets, certainly at the smaller end of the market, whilst markets overall have been relatively highly valued, certainly on an overall PE basis etc, that is true for the market as a whole but certainly at the smaller end we see much greater anomalies and we see a lot of inefficiency in that market. By doing a lot of research, looking for the hidden gems, one can find fantastic opportunities and then by engaging with those companies and working with them, we can often create the catalyst which, I suppose, regenerate the interest and ultimately drive value for shareholders. So, I’m still optimistic about our strategy, we have and will have a concentrated portfolio so we’re not looking to buy the market, we’re looking to find those hidden gems and drive value through that.