Market responds favourably to EPE Special Opportunities results – The private equity trust, EPE Special Opportunities (ESO), which invests in small and medium-sized companies in the UK mainly, has reported total return declines of 12.5% and 7.1% in its NAV and shares over the year to January 31, 2019. Investors have responded favourable to the report, with ESO’s shares up 6.25% at the time of writing.
Chairman of ESO, Geoffrey Vero, attributed the NAV decline mainly to one holding. He said: “The performance of the company in the period has been mixed; a significant number of positive developments and good financial performance across the majority of the portfolio were set against a drop in the market value of the company’s largest asset, Luceco. I would like to extend my thanks to the company’s shareholders for their confidence and support and look forward to reporting further improvements at the half year point and beyond.”
Luceco, a global LED lighting brand, is the fund’s largest holding (about 31% of gross assets). Luceco’s shed 27.7% of its value over the reporting year following announcements made in the first half of 2018 reducing trading expectations due to margin pressure and headwinds in the retail division. Its outlook has brightened in the period since.
In February 2018, Luceco appointed a new CFO, Matt Webb and in the past few months has reduced its net debt, ahead of market expectations while also significantly improving its margin. More recently, its shares have been pairing back the declines from early 2018. Given the positive market response to the results, investors may be fairly encouraged by Luceco’s improving outlook and the rest of the performance of much of the rest of the ESO portfolio.
Other portfolio highlights
- Whittard of Chelsea achieved robust sales growth in 2018, with the UK retail estate achieving like for like sales growth despite the headwinds felt in the wider UK retail sector and domestic and international e-commerce platforms trading well, to be aided in the coming period by the recent launch of a new domestic platform. The brand opened its first store in Taiwan in January 2019.
- Pharmacy2U has achieved strong growth, underpinned by pleasing momentum in new customer acquisitions. In March 2018, Pharmacy2U completed the raise of £40m new growth capital from G Square Capital, a European healthcare focussed private equity investor, to support the continuation of this high growth trajectory.
- On the exit side, ESO completed the sale of Process Components to Schenck Process in September 2018, returning £13.6m to ESO Investments (PC) LLP at the exit date and a total of £18.2m since acquisition. Process Components delivered a 20.7% IRR since its acquisition in March 2005
- ESO sees its portfolio as being conservatively valued with a weighted average enterprise value equating to an EBITDA multiple of 5.1x for mature assets and equating to a sales multiple of 0.2x for assets investing for growth. The underlying portfolio is relatively unleveraged with 0.9x third party net debt to EBITDA
ESO makes investments between £2m and £20m in the growth capital, buyout, distressed and private investment in public equity (PIPE) areas of the market. The company targets most industries including consumer and retail, financial services, manufacturing and the wider services sector (including education, healthcare and business services).
It targets companies with strong fundamentals, including defensible competitive positioning and high levels of cash generation, and seeks to partner with outstanding management teams to combine operational and financial expertise in each investment. ESO’s portfolio may be concentrated in order to focus on a small number of high-quality assets, generally between two and ten at any one time. The trust is 25% owned by the employees of its parent company, EPIC Private Equity.
ESO: Market responds favourably to EPE Special Opportunities results