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Odyssean outperforms during tough year while board highlights a ‘missed opportunity’ following failed merger talks

Odyssean beats Index since IPO

Odyssean outperforms during tough year while board highlights a ‘missed opportunity’ following failed merger talks – Odyssean Investment Trust (OIT) has posted its results for the year to 31 March 2022. During the period, the net assets of the Company increased by £35.2m to £157.8m and represented a strong increase in net asset value per share of 17.7%. Over the same period, the trust’s benchmark, the NSCI ex IT plus AIM Total Return Index fell by 2.1%. 

The top five positive contributors to performance were Xaar, Vectura, Flowtech, Chemring and Spire.

Of particular note is that in the first three months of calendar 2022, the NAV grew moderately, during which time the comparator index fell by more than 10%. This continues the trend of the investment approach tending to deliver a resilient performance during difficult markets.

Despite an average cash position of around 20%, OIT’s NAV per share has grown by around 14% per annum since inception. 

On 23 December 2021, OIT and Strategic Equity Capital, another closed ended investment company in the same sector, announced that they were in merger discussions. On 9 February 2022, SEC announced that it had withdrawn from talks alongside various proposals to address its discount. The board of OIT believes that this represented a missed opportunity to create a leading and growing, premium investment trust of greater scale differentiated from the wider UK small cap sector.

Statement from the chair:

There are an unusual number of material uncertainties impacting investor sentiment at present. The real world impact of inflation, the potential for stagflation, the prospect of a recession in 2023, the pace that interest rates will rise, allied with geopolitical risk from the Russian incursion into Ukraine. In addition, current reports of material backlogs in port operations in China driven by Covid-19 lockdowns may lead to a prolonging of supply chain challenges.

In such times, it gives the Board great comfort that the Company’s assets are being looked after by a Portfolio Manager with experience and focus. Stuart and Ed have combined almost 40 years of relevant investment experience, but many of the macroeconomic features of the current market have not been seen for several decades.

As a result of this, the Board is reassured that Stuart Widdowson and Ed Wielechowski can seek for input and advice from both the Non-Executives of the Portfolio Manager, as well as the three-strong Panel of Industry Advisors that they have retained. This input is crucial in helping to understand the potential impact on existing and potential portfolio companies of the convergent factors influencing demand, cost bases, competition and financing.

Never before has it been so important for companies to be able to improve themselves to create value. The scope for operational and strategic improvement amongst portfolio companies provides the Board with comfort that NAV per share progression is not solely reliant upon market re-rating and benign trading conditions. The Board also notes that the revenues of the portfolio, in aggregate, are much more geographically balanced than the UK Smaller Companies market. Balance sheets are typically strong too, with 40% of the portfolio having net cash balance sheets as at the end of March.

My statement from the interim report in November 2021 described how the Board shared the Portfolio Manager’s concern that inflation will be more persistent than many expect. That has proven to be the case so far. The Portfolio Manager’s actions in April 2021 to consider the potential impact of rising inflation on the portfolio companies has proven to be extremely timely. The Portfolio Manager’s focus on niche market leaders with strong positions in their supply chains should provide overall insulation against the worst impacts of inflation. Moreover the Portfolio has negligible exposure to the UK consumer, where leisure and retail companies are likely to see demand under pressure from rising prices as well as the cost of living increasing.

The Board shares the views of the Portfolio Manager of the considerable medium to long term upside in the valuations of the portfolio as a whole.

OIT : Odyssean outperforms during tough year while board highlights a ‘missed opportunity’ following failed merger talks

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