Marwyn Value Investors Ltd (LON:MVI) Managing Partner Mark Brangstrup Watts caught up with DirectorsTalk for an exclusive interview to discuss group strategy, current portfolio, the Zegona deal, NAV, dividends and key areas for investors.
Marwyn Value Investors is an active long-term equity investment firm focusing on building, managing, and growing mid-cap companies with global operations. Joining me today to tell us more about the company is Managing Partner, Mark Brangstrup Watts.
Q1: First off Mark, can you tell us a bit about the company and the group strategy?
A1: The company has been investing since 2005, we followed a consistent strategy throughout that period, backing experienced management teams with very deep sector knowledge, typically would have worked in their sector for 20 or 30 years, would have run numerous businesses, will typically have PLC experience having run one or more public companies.
What we’re doing with them is working through and across a broad range of sectors to effect consolidations so we find a platform company that we feel has the opportunity to grow, we then will add a number of businesses, on average six companies per consolidation, which will expand the opportunity for that business, either territorially or into new products and service areas, and often both. We’ll typically do that over a 5-7 year period, and then either create a sustainable long-term growing PLC or seek an exit for the company to a trade or financial buyer that can take it onto its next stage.
We’ve done that successfully now with eleven listed companies, having seen significant growth in the top line of those businesses. That’s down to the quality of the management we’ve been able to bring to bear, the relationships that they can add to the company, the work that they can do with the incumbent management in those businesses to maximize the growth of the company and see the underlying company and previous profitability.
Q2: Quite a significant discount and a very attractive yield, but before we discuss that further, can you just provide us some details on the current portfolio?
A2: So, we’re at a point of transition in the portfolio at the moment, we’re in the process of exiting our largest position which will deliver back roughly for £45 million of cash to the fund, which we’d expect to redeploy behind the new vehicles that we’ve established.
We set up three new vehicles in December and the capital that we get back from the sale of the Euskaltel asset that was held within Zegona, where we backed previous team from Virgin Media to do a consolidation in the Spanish telecoms market, will sit behind the vehicles that we established with Vin Murria, who joined us in the early part of the year to do a consolidation in the software space behind AdvancedAdvT, having worked with us previously on Advanced Computer Software, which was a very successful investment that we had a few years back.
Two new vehicles with exactly the same standard listed structure where we’ll be looking at assets across insurance, FinTech, mobility and automotive, healthcare, some areas of technology, as well as some of the areas in business and support services that we previously had some success in.
We would hope to bring management teams into those vehicles in the near future, and then seek to consummate some platform acquisitions into those vehicles and execute behind those management teams, the consolidations in line with what we’ve done in the past.
In addition to those vehicles, and we have the three vehicles that we set up at the beginning of the year, plus an AIM-listed vehicle, which would look at slightly smaller transactions and particularly ones where the owner or vendor of the asset was looking to try and benefit from the significant tax benefits that AIM provides.
We also have a business Le Chameau which, about 18 months ago, merged with a business with Bradshaw Taylor to bring in new management talent and that business has gone from strength to strength since we merged the businesses together. We think it’s in a very interesting trajectory now, having grown its top line significantly and consolidated its position in the market and expanded into new territories such as the US and Northern Europe. We expect great things in that over the coming years and believe that’s very well positioned for growth.
Q3: Just picking back up on the return of cash, the £45 million from the Zegona deal, what do you expect to do with the cash?
A3: That capital we will earmark for supporting the acquisitions that come into those new vehicles, we’ve invested some of that capital already to establish those vehicles and we would expect to support them on the point of a transaction. We typically seek to be one of the larger investors in those vehicles, we obviously sit on the Board of those companies and we’d expect to deploy that capital behind those vehicles as those deals come to the fore.
Q4: Now, just going back to the discount to NAV, am I right in saying that your NAV is £1.84 and of this, £1.72 relates to shells looking to do deals or unallocated cash, assuming of course that the Zegona return completes?
A4: Yes, and I think we don’t have much doubt the Zegona return will complete now by mid-October, as has been announced by them and we would continue to pay the dividend in line with where we’ve been over the last few years at just over 9p a share. Obviously, as we grow the NAV, the yield may decrease somewhat, but we think that there’s a real opportunity there for investors to come into what we think is a very attractive, relatively early stage portfolio.
Q5: The dividend at 9.06p per year, I made that a yield of 7.1 at the current £1.255, I take it that is right?
A5: Yes, correct and obviously, as we increase the underlying NAV of the fund, and or close the discount of the fund, that yield may decrease, but we are committed to maintaining the 9p a share payment to shareholders, and we think that’s an important discipline.
Over time, we would expect some of that to be covered by underlying dividends from the companies that are acquired into the various vehicles and that has historically been the case most recently with Zegona and BCA having paid and covered roughly 50% of that dividend.
Q6: How sustainable is that yield? Once you deployed all the cash, how will you be able to just still pay?
A6: As I say, we would expect some of those companies to cover a proportion of that and obviously we will earmark cash in the meantime to sustain that dividend through that period and we have managed to do that, either paying in part or in full through capital and we’ll ensure that we have adequate funds to be able to do that.
Q7: Is there anything else that we’ve missed to flag to investors?
A7: No, I think we’ve covered off the key areas. The key thing from Marwyn Value Investors perspective is we think there’s a very significant opportunity going forward, we think the interest in public markets from experienced managers is probably at a point where we haven’t seen it for a number of years.
We have some very interesting management teams that we’re talking to at the moment, that we would hope to bring back to market and see the reverse to what’s been happening over the last few years, where we think good public market management teams have been drifting towards private equity and doing things on a private basis.
We think that has changed particularly over the last couple of years and the quality of people that we’re talking to today we think is really exceptional.