Chelverton Growth posts significant outperformance – Over the year to 31 August 2017, Chelverton Growth Trust’s net asset value per share increased by 36.9% to 85.63p. This represents a significant outperformance over the benchmark index, the MSCI Small Cap UK Index which rose by 13.7%.
Within the portfolio:
The biggest change in the year to the portfolio was the sale of Transflex Vehicle Rental Limited for 335p per share. The company backed Transflex from start-up in January 2012 with a modest investment of GBP100,000 and then added a further GBP225,000 over the next two years to fund the rapid growth of the business. The sales price represented a cash return of 2.86 times, and whilst being very satisfactory, was probably a bit less than the management had been hoping for.
A further investment was made as part of a placing by CEPS plc, and this investment coupled with the disposal of Transflex has meant that CEPS has become the largest holding in the Company. CEPS has multiple subsidiary trading companies and has just announced its interim results for the six months ended 30 June 2017 which were very positive and their view is that there will be further progress in the second half of 2017 and on into 2018.
The Board has chosen to recognise in these accounts the full amount of the Company’s share of the earn-out in respect of the sale of Parmenion Capital Partners two years ago to Aberdeen Asset Management plc.
This year they have sold the balance of the shareholdings in LPA Group plc, Alliance Pharma plc and Northbridge Industrial Services plc at what now appear to be advantageous prices. The holding in Petards plc was reduced as the share price moved up very sharply and then towards the end of the year the holding was modestly added to at much lower prices despite very positive interim results. Petards plc supplies sophisticated products to the rail industry and is building a very large order book to be delivered over the next two to three years.
Plutus Powergen plc has continued its rapid development of the past few years and is broadening its business to help mitigate the impact of political risk on energy policy.
The holding in Chelverton Asset Management Holdings Limited, the investment manager, was again revalued upwards reflecting the continued success of their funds which has led to a growth in their funds under management.
Security Research plc announced that it was self-liquidating and will be returning funds to shareholders over the next period.
The holding in Anaxsys Technology was written down to nil to reflect the disappointing take up in their product by the market place. The product rights have been sold to a third party from whom royalty payments will become due in the event of future sales.
Future of the company
The effect of the multiple tender offers and the occasional buy-back of shares over the last 11 years has reduced the share capital by almost 70%, from 18.1 million to the current 5.6 million shares. The Board remains committed to the annual tender process as a means of offering shareholders the ability to realise some of their shareholding at a modest discount to the net asset value. It remains the Board’s intention to carry out another tender of up to 15% of the outstanding shares in 2018.
The chairman says: “As the number of shares in issue continues to decline, (as a direct result of the multiple tender offers) and, at the same time, the number of investment holdings reduces, the ongoing viability of Chelverton Growth Trust must logically be in question. Over the period of the tender offers, the fund has grown by a larger percentage than the percentage reduction in the share capital. Indeed, it is worth pointing out that five years ago the net assets were some GBP4.2 million against the current value of GBP5.5 million and over the same period, the share capital has been reduced by more than 50% by the acquisition of 6.2 million shares.
The Board is mindful of the ongoing cost of running a Company in which only the investment management fee is designed to flex with the size of the Company. The Board continues to review options for the future which maximise shareholder value, whilst the investment manager continues to effectively manage the reducing portfolio.”
CGW : Chelverton Growth posts significant outperformance