Good year for North Atlantic Smaller Companies despite high liquidity
Good year for North Atlantic Smaller Companies despite high liquidity – North Atlantic Smaller Companies says that, for the year ended 31 January 2018, its net asset value rose by 16.5%, to an all-time high of 3,458p. This compares with a rise in the sterling adjusted Standard & Poor’s Composite Index of 9.8%. There is no dividend. The chairman said that “In retrospect, our cautious liquidity position mainly held in the US dollars proved wrong as equity markets continued their upward trajectory despite valuations reaching levels where it is difficult to see little, if any, fundamental value. It is a truism that all bull markets are based on “it will be different this time.” In my experience it never is, and preserving capital is critical to securing long term performance.”
The manager said that ” It was a good year for the UK portfolio of the company with significant rises in nearly all of our major holdings, including the recent purchase of Polar Capital Holdings plc. Of particular note, was the IPO and subsequent good market performance of Ten Entertainment Group plc. This transaction was completed approximately three years ago. During that period the value of our equity rose from GBP13.3m to GBP51.6m at the end of January 2018.
- MJ Gleeson Group plc also performed very well during the twelve month period, rising by 34%. Advantage was taken of this strength to reduce our holding, although we believe the long term prospects for the business are good.
- EKF Diagnostics Holdings plc also performed notably well rising by 60% following 3 profit upgrades.
- Bioquell PLC rose by nearly 120% as the new management reduced costs and focussed the business to take full advantage of its unique solution to eliminate bacteria in the pharma industry. The company recently announced that profits would exceed market expectations.
- Quantum Pharma PLC was sold at a 75% premium to the 31 January 2017 valuation following a takeover bid from Clinigen.
- Oryx International Growth Fund Limited also performed well, comfortably outperforming its benchmark index.
- The principal disappointment during the period was Goals Soccer Centres plc. The company is in the first year of a three year turnaround. Results from the sites, where there have been upgrades, have been most encouraging but the other sites have diluted the effects of these improvements. As the process is rolled out over the next two years, I would anticipate a good improvement in operating performance. It is difficult to turn around a company in a stock market where fund managers focus on short term results.
Taken as a whole, the US bank portfolio (consisting of Mountain Commerce and Metropolitan Bank Group) performed very well during the twelve month period. All the original unquoted banks have now been taken over at significant premiums to cost, with the exception of Mountain Commerce which remains publicly listed and rose substantially during the period following better than anticipated operating results. The principal disappointment was Ambac Financial Group Inc. which fell over the period due to exposure to Puerto Rico which suffered catastrophic structural damage following Hurricane Maria.
- Industrial Properties Limited and Hampton Investment Properties Limited (“HIP”) are both in the course of being liquidated. Industrial Properties Limited was written up during the year following the successful sale of all its assets. HIP however, had to be written down following disappointing offers for one of its properties.
- Indoor Bowling Equity Limited went public.
- Viking Investments LP was refinanced on favourable terms during the year, although its operating performance remains solid but hardly exciting.
- The majority of the UK portfolio is now concentrated in the two private equity funds, Trident Private Equity Fund III LP (“TPE3”) and Harwood Private Equity Fund IV LP (“HPE4”). TPE3 is now in liquidation with its largest holding, Curtis Gilmour Holding Company under offer (see below) and its last investment is likely to be sold in fiscal year 2019.
- In the US, Curtis Gilmour Holding Company is currently in an auction process following a further year of significant improvement in profitability.
- Jaguar Holdings Limited continues to perform very well and has won substantial new business from American Airlines. This required significant new investment in facilities which resulted in an equity raise and the repayment of the majority of our mezzanine debt. The Trust participated in the equity raise. We are hopeful that this investment held indirectly through HPE4 and now directly will prove highly successful over the next two to three years.”
NAS : Good year for North Atlantic Smaller Companies despite high liquidity