In a bid to take action on its persistent discount, Strategic Equity Capital (SEC) has announced that it will offer shareholders contingent tenders in 2022 and 2024. A 10% tender will be offered in 2022 tender if SEC trades at a wider than average discount of 8 per cent. over the 12 months ending 30 June 2022. A 15% tender will be offered if, over the three-year period ending 30 June 2024, SEC’s NAV total return per ordinary share lags that of the FTSE Small Cap (ex Investment Companies) Index. In both cases, the tender price will be equal to a 3 per cent. discount to NAV (less costs) per ordinary share. If triggered, the tenders will take place shortly after the 2022 and 2024 AGMs respectively.
Background to the contingent tenders
SEC’s board says that it has been actively considering possible actions to address the trust’s discount, which has been a source of frustration for both the Board and shareholders. Whilst the average discount has narrowed from 20.9 per cent. for the 6 months to 31 December 2020 to an average of 15.6 per cent. for the year to date and a current discount of 13.4 per cent. (as at 26 May 2021, the latest available NAV calculation date), in the Board’s view, the discount remains too wide.
In the board’s view, strong portfolio performance and promotion of the trust over the medium and long term will be the key determinants of the trust’s discount or premium and, in this respect, it has been encouraged by the investment performance this year under the management of Ken Wotton and Adam Khanbhai.
Comments from Richard Hills, Chairman of Strategic Equity Capital
“Through the investment management expertise of Ken Wotton and Adam Khanbhai, supported by their team at Gresham House, we believe that SEC is well placed to capitalise on opportunities to invest in high quality, publicly quoted smaller companies, where value can be materially increased over the medium to long term through strategic, operational or management change. With economic growth recovering, and strong M&A activity, we are enthusiastic about the outlook for SEC’s portfolio and the wider investment opportunity. We expect that the actions we have announced today should further enhance shareholder returns.”
[QD comment: In putting these tenders in place, SEC’s board and managers are putting their money where there mouth is. If the discount doesn’t narrow, shareholders will be able to get some of their money back, and if the manager’s don’t perform over the next three years, the same will apply. There has been a vocal minority agitating for something to be done about the discount, and hopefully these measures will address their concerns. The trust now needs to be given a chance to see if it can deliver on its promises.]