Gresham House Strategic (LON: GHS) has this morning announced its unaudited half year results for the period ended 30th September 2019.
Financial highlights
- Strong share price performance, with share price rising 10.3% in the period
- Discount narrowing from 22.9% to 14.4% in the period
- 15% increase in the proposed interim dividend
- NAV Total Return of 40.0% since inception[1] – outperforming comparator indices
Investment Management highlights
- Consolidation of the strong NAV performance of FY19 against volatile market conditions, NAV Total Return 0.3% vs 0.2% FTSE Small Cap Total Return, and NAV up a further 5.8% post-period end to 15 November 2019
- Further significantly profitable realisation of 1.3m IMImobile shares, generating a 21.7% IRR and 1.98x Money Multiple
- Two new strategic investments in H1 – £2.3m equity investment into Pressure Technologies and £2.1m Convertible Loan Note (CLN) into Lakes Distillery
- Further portfolio re-balancing progress within the period with five investments partially or fully exited, including three underperformers
- Development of the team capacity and capability through the hire of Richard Staveley, an experienced specialist small-cap manager
- Operational support and turnaround efforts in a number of under-performing investments
Post-period end highlights
- Share price rising a further 11.7%2, with discount narrowing to 9.8%[2]
- Strong performance from Augean in particular, has helped grow NAV; NAV per share rising 5.8% between 30 September and 15 November
David Potter, Chairman of Gresham House Strategic plc, commented:
“I am pleased to report a satisfactory start to the year, despite the rising uncertainty around Brexit during the period. Our Investment Manager continues to believe the UK markets and many smaller companies in particular are undervalued and this market segment stands to benefit from a meaningful re-rating if and when the Brexit uncertainty is resolved.”
Graham Bird, Fund Manager and Managing Director of Strategic Public Equity, Gresham House, said:
“NAV has held steady during the first half of the year amidst an uncertain market, political and weakening economic backdrop. Nevertheless, we believe there are a number of factors which make the outlook for SPE investing and the near-term opportunities within the portfolio attractive. We therefore continue to view the opportunity set and outlook for GHS with cautious optimism.”
Richard Staveley, Fund Manager and Managing Director of Strategic Public Equity, Gresham House, said:
“The opportunity to invest in over-looked and unloved UK small companies has rarely been greater. Structural factors combined with the current market backdrop have created a uniquely exciting time for dedicated, longer-term investors. Gresham House’s Strategic Public Equity strategy is a truly active approach, delivering a clear concentration of best ideas, a passion for value and the platform to follow through on this opportunity.”
The full version of the GHS interim report will be available on its website shortly at www.ghsplc.com.
Chairman’s statement for the half year to 30 September 2019
I am pleased to report a satisfactory start to the year, despite the rising uncertainty around Brexit during the period. As a Board, we hope that 2020 will bring greater stability for UK stock markets generally, and specifically the small-cap sector in which GHS invests. Our Investment Manager continues to believe both are undervalued and stand to benefit from a meaningful re-rating if and when the Brexit uncertainty is resolved.
The NAV fell modestly in the six months from 1258.6p to 1251.4p, with a strong performance in the quarter to the end of June being reversed in the second quarter of the financial year. Together with the 11.1p dividend paid in the period, NAV Total Return was marginally positive, up 0.3%. The share price rose 10% from 970p to 1070p, with the discount narrowing from 22.9% to 14.4% and since the year end the discount has fallen further to 9.8%[3].
The FTSE Small Cap Index fell 2.4% during the period, reflecting both political and economic uncertainty, impacting a number of smaller company funds’ performance. The publicity surrounding Neil Woodford undoubtedly also had a wider impact on the smaller end of the market as attention focused on liquidity. In this context, the performance was therefore reassuring.
The Board remains of the opinion that if the discount is substantially diminished, this will be a key facilitating factor to raising new funds and will enable us to start building the Company to a more significant size. This will then have two key benefits. Firstly, it will widen the range and size of companies in which we can invest and secondly it will help to lower our cost ratios. A major building block for this was the announcement of a joint venture with Aberdeen Standard Investors (ASI) to promote the Strategic Public Equity (SPE) strategy. This endorsement of our investment strategy from such a large institution is extremely encouraging. Our aim is to position SPE as an asset class that all institutions, wealth managers and individuals should consider as part of the asset allocation in their portfolios.
In line with our previous guidance to increase dividends for the next two years by 15% per annum, the Board proposes to pay an interim dividend of 10.1p per share to shareholders (payable on 3 January 2020 to shareholders on the register on 6 December 2019). This signifies our confidence in the SPE strategy and its ability to produce sustainable outperformance.
The Investment Management industry has been in the spotlight as negative headlines have surrounded the funds managed by Woodford Investment Management. Our structure, as a closed-end investment company with weekly valuations of our public company holdings, should give our shareholders transparency. We have 17.4% of the Company invested in unquoted, convertible debt instruments with a weighted average cash yield of 7.8% and an average remaining maturity of 26 months. It is inherent in our investment strategy that our major positions, typically representing 5-15% of the voting rights in a quoted company, are only taken after detailed due diligence and review by the Investment Manager, the Investment Committee and the Board. The latter two bodies have members acting in a non-executive or advisory capacity with very extensive experience. All members of the Board are independent from the Investment Manager. We believe that this close and experienced review of possible investments offers a degree of protection to shareholders.
Our focus on smaller and higher risk companies means things can sometimes go wrong. In these circumstances, the Investment Manager will generally engage closely with the company, in an effort to recover value, but in some cases will conclude that it is better to exit. In the period we exited from three under-performing investments (Quarto, Prophotonix and Hydrodec).
Our Investment Manager, Gresham House has continued to grow its assets under management. Its acquisition of the Livingbridge VC LLP funds 12 months ago substantially expanded the Investment Manager’s internal resource and expertise in smaller companies and complemented its portfolio management resources. In that context, we are also delighted that Richard Staveley has recently joined Gresham House’s SPE management team. Richard, a former founding partner of River & Mercantile and former Majedie fund manager, has over 20 years’ investment management experience. We are pleased that he will take an increasingly central role in managing the GHS portfolio, working with the rest of the team.
I would like to thank the rest of the Board and the team at Gresham House for their collaborative work in the last six months and for the ongoing support of all our other stakeholders.
David Potter – Chairman, Gresham House Strategic plc
25 November 2019
Notes:
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 interim financial statements for the periods ended 30 September 2019 and 30 September 2018 does not constitute statutory accounts as defined in section 435 of Companies Act 2006. Comparative figures for 31 March 2019 are derived from the financial statements for that year. The financial statements for the year ended 31 March 2019 have been delivered to the Registrar of Companies and contain an unqualified audit report and did not contain a statement under emphasis of matter or statements under section 498(2) or (3) of the Companies Act 2006. These unaudited condensed interim financial statements have been prepared in accordance with the AIM rules.
2 – Basis of accounting
The 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 interim financial statements are unchanged from those used in the Company’s financial statements for the year ended 31 March 2019 and are consistent with those that the Company expects to apply in its financial statements for the year ended 31 March 2020. These unaudited condensed interim financial statements have been prepared based on IFRSs in issue that are effective at the Company’s annual reporting date as at 31 March 2019, except as noted below.
These unaudited condensed interim financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the European Union. They do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 March 2019.
New standards effective in the Period
IFRS 16 “Leases” is effective for accounting periods beginning on or after 1 January 2019.
The adoption of the above standard will have no impact on the Company’s reported net assets as the Company does not have any leases.
Changes to the International Private Equity and Venture Capital Valuation (IPEV) guidelines
The IPEV guidelines which are effective for reporting periods on or after 1 January 2019 has been adopted by the Company as described in note 5.
3 – Estimates
The preparation of the unaudited condensed 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. The valuation of unquoted investments represents the key estimate. Actual results may differ from these estimates.
In preparing these unaudited condensed interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation were the same as those that applied to the Company financial statements as at and for the year ended 31 March 2019. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the unaudited condensed interim financial statements are disclosed in note 5 in relation to the valuation of unquoted investments.
