§ Strong NAV recovery, with NAV Total Return of 15.1% in the period versus the FTSE All Share Total Return of 7.3% and in line with the FTSE Small Cap Index Total Return of 15.2%
§ £9.1m of new investments during the period
§ 20% increase in the proposed interim dividend
§ NAV Total Return of 29.9% since inception – outperforming comparator indices such as the FTSE Small Cap Index ex-Investment Trusts by 28.1%
Investment Management highlights
§ Four significant investments – £2.4m equity investment into Flowtech Fluidpower plc, £2.6m into RPS Group plc, £2.1m into Van Elle Holdings plc and a significant upweighting of Fulcrum Utility Services plc. Three further new initial investments
§ Full exit of IMImobile plc shares, generating a +23.8% IRR and 1.85x Money Multiple – £14.6m realised profit
§ Further portfolio re-balancing progress within the period with three other investments fully exited, including receiving a premium on the Convertible Loan Note held in Be Heard Group plc which was subject to a takeover
§ Re-negotiation of Convertible Loan Note at Northbridge Industrial Services plc, reducing conversion price
§ Material engagement across the portfolio supporting the unlocking and driving of shareholder value
§ Positive share price performances from recent new investments Fulcrum Utility Services plc, Van Elle Holdings plc and ULS Technology plc and resilient financial results from Augean plc
David Potter, Chairman of Gresham House Strategic, commented:
“In difficult times for markets and the economy, we have full confidence in the investment team, strategy and portfolio. We look forward to further NAV growth, while narrowing the share price discount and are pleased to continue growing our dividends ahead of the market.”
Richard Staveley, Fund Manager and Managing Director of Strategic Public Equity, Gresham House, said:
“It has rarely been more important for investors to have a strong investment philosophy and process to tackle the challenges presented in 2020, fortunately we have one in the Strategic Public Equity strategy. This means we are able to cut through the market noise and focus on business fundamentals, the medium-term outlook for companies, not only the immediate issues, and spend focused time on severely undervalued and under researched small companies. UK Equities have rarely been cheaper compared to history, other international markets and different asset classes. We have grasped this rare opportunity with both hands and deployed capital to drive material NAV growth in the years ahead.”
Chairman’s statement for the half year to 30 September 2020
The six months since the depths of the “COVID crash” in March have seen two major trends. Firstly, share prices have in general recovered although the sectors most affected by COVID-19 driven restrictions (such as travel and hospitality) have continued to be depressed. As mentioned in March, GHS is invested in only one company exposed to these sectors. As is so often the case after a market sell-off, share prices of smaller companies take longer to rebound. Secondly, there is often an abundance of investment opportunities created, especially in under researched smaller companies which is our area of focus.
After the initial COVID panic in March, the willingness of the UK Government to support individuals and companies undoubtedly stabilised both markets and future expectations. Whether the optimism created will be maintained throughout a long winter of discontent, is not clear.
Against this background GHS made three new investments as described in the Investment Managers’ Report. At the end of the period the Company had £3.9m in cash.
Whilst the performance of the Company has continued to exceed many benchmarks and indices, it was disappointing to see the discount to NAV widen to 18% as at 2 October 2020 but pleasing since to see this narrow again to 8.35% (as at 6 November 2020). The biggest problem this creates is that it inhibits our ability to raise new funds, which under City conventions, can only be done at a premium to, or at NAV. The Investment Managers, who have rarely seen so many attractive investment possibilities, have investment capacity and a well-resourced team in place and so we will have to continue to be highly selective in choosing which opportunities to pursue.
The small size of the Company can also be an inhibitor to some larger wealth managers and institutional investors. We have devoted much effort to widening and increasing the shareholder base through marketing, roadshows, the coverage of Edison Research, direct advertising and PR. The Board expects that these efforts will, in conjunction with continued good performance, eventually narrow the discount sufficiently to be able to increase our size via fundraisings. We are also constantly alert to opportunities to grow by acquisition and merger although such transactions occur infrequently in the investment trust world.
The success of the Company depends on the investment decisions made by the Manager. Recent investments have been made during a period of significant market volatility and temporary economic stress, usually an opportunity for the patient and careful investor. Over the last three years GHS’s outperformance can be measured by NAV growth of 17.7% vs the FTSE Small Cap ex-Investment Trusts which has fallen 19%.
The Board remains confident that the Company will continue to prosper and provide above average returns, given its focused investment strategy. This confidence was demonstrated by raising the dividend target for next year by a further 5%. Over the last four years, since dividends have been initiated, the annual dividends have increased from 15p to 22.9p.
During the period, the Board has observed the transition to largely ‘virtual’ operations of both the Investment Manager and investee companies which happened rapidly and largely seamlessly. The longer-term ramifications of remote working remain unclear. While Board members and longer-serving staff at listed companies “know everybody on the zoom calls”, how those newer to the firm develop their networks, learnings, experience, information feeds and social and cultural interactions will be a challenge.
The Board have reviewed all the Company’s operations and the operations of the Company’s investee companies from an ESG perspective and will continue to strive for the best levels of corporate governance. These are set out on the website in our updated statements, and we encourage active discussion regarding ESG best practice in our investee companies.
I would also like to congratulate the Investment Managers for navigating an incredibly difficult and unprecedented six months. I would like to thank my Board colleagues and all our stakeholders for their continued support.
Chairman, Gresham House Strategic plc
10 November 2020