QuotedData’s morning briefing 7 October 2022

In QuotedData’s morning briefing 7 October 2022:

• Following its merger with Pollen Street Capital Holdings, Honeycomb Investment Trust has announced that it has changed its name to Pollen Street Plc. Honeycomb’s shares will trade under the new name on the London Stock Exchange from 8.00am on Monday 10 October 2022. The trust’s ticker will also change from HONY to POLN at the same time, although the ISIN and SEDOL numbers will remain unchanged. With immediate effect, the trust’s website address has been amended to https://www.pollenstreetgroup.com/.  

• Dunedin Enterprise (DNE) has announced that regulatory approval has now been granted for the sale of RED Global (www.redglobal.com), a provider of SAP contract and permanent staff. At 30 June 2022 the investment in RED was valued at £23.7m and DNE has received proceeds from the transaction amounting to £24.1m, consisting of capital of £20.1m and income of £4.0m. DNE’s Board intends to announce a distribution to shareholders during October 2022. DNE’s investment in RED is held via DNE’s interest in Duingnedin Buyout Fund II LP.

• Invesco Perpetual UK Smaller Companies (IPU) has announced its interim results for the six months ended 31 July 2022. During the period, IPU provided an NAV total return of -11.3%, which is fractionally ahead of the total return of its benchmark, which returned -12.0%. [Note: For the year to 31 January 2022, the Benchmark Index of the Company was the Numis Smaller Companies (excluding Investment Companies) Index with dividends reinvested (that is, a total return index). From 1 February 2022, the Benchmark Index of the Company changed to the Numis Smaller Companies + AIM (excluding Investment Companies) Index with dividends reinvested.] During the half year, IPU’s share price fell from 570p to 471p, a decrease of 17.4% (a 14.8% decrease on a total return basis), and the discount to net asset value ended the period wider at 16.5%, having been 12.7% as at 31 January 2022. Between IPU’s 31 July 2022 and 5 October 2022, the latest practical date before publication of its interim report, IPU’s NAV total return was -15.0%, the share price total return was -15.3%, whilst the benchmark total return was -9.4%. As at 5 October 2022, the discount was 16.8%. IPU’s managers say that the best performing stocks over the period included: Outsourcing business, Serco (+41%), which continued to win a significant volume of new contracts, particularly in the US. They say that the company’s defensive characteristics and good earnings visibility led to a re-rating in the stock as investors sought safe havens. 4imprint (+14%) which sells promotional products in the US, benefitted from clients increasing marketing spend in the wake of the pandemic. The business emerged from the pandemic in a much stronger competitive position after management continued investing whilst competitors were cutting costs. Chemring (+27%), a defence business with world leading positions in countermeasures and cyber security, continued to trade well and benefitted from improved sentiment towards the sector following the war in Ukraine. Oil & Gas business, Energean (+21%), which has a significant gas discovery in the Mediterranean, took a step closer to production when its new production vessel was installed on site. The company also had success with its drilling campaign, resulting in a substantial discovery adjacent to its main field.
• Independent Investment Trust (IIT) has announced that, in connection with the proposed combination of IIT with The Monks Investment Trust (MNKS), IIT’s board is proposing a pre-liquidation interim dividend of 9.0p per share which, subject to the resolution to be proposed at the General Meeting convened for 31 October 2022 being passed, will be paid to shareholders on 4 November 2022. The ex-dividend date for the pre-liquidation interim dividend is 13 October 2022, with the record date being 14 October 2022.
• Rockwood Strategic (RKW) has published a trading update ahead of the publication of its unaudited results for the six months ended 30 September 2022. The update includes the following financial and portfolio highlights

Financial highlights

• • Net Asset Value (NAV) Total Return in the Period of -10.4% to 1446.7p/share which compares to the FTSE Small Cap (ex-ITs) of -20.3% and FTSE AIM All Share of -22.6%.
  • Total Shareholder Return in the Period was -0.35%. At Period end the Company traded at a discount of 2.2% to NAV.
  • No. 2 ranked fund by Total Shareholder Return in the AIC UK Small Companies sector over the last 6 and 12 months, achieving 0.9% positive performance whilst the FTSE Small Cap Index (ex-ITs) fell 26.6% and the AIM All-share even more, down 35.2% (LTM).
  • NAV Total Return performance in the three years to 30 September 2022 of 44.3% which compares to the FTSE Small Cap (ex-ITs) of 6%.
  • The Total Shareholder Return in the same three year period was 65%, No.1 rank in the AIC UK Small Companies sector.
  • Investment gains realised in the Lakes Distillery Bond delivered a 21.6% IRR and £3.1m cash.
  • Net cash of £2.4m at the end of the Period (representing 6.6% of NAV). We are anticipating a number of H2 investee dividends alongside an announced return of capital from Smoove.

Portfolio highlights

• • Seven new investments were made across a range of industry sectors such as City Pub Group Plc within consumer, Argentex Group Plc in FX services, Galliford Try Holdings Plc in construction, RM Plc in educational services and Finsbury Food Group Plc in food manufacturing. All trade at a deep discount to our assessment of intrinsic value; all have material upside to historic or industry profit margins; and all are highly cash generative. We have identified catalysts to unlock, create or realise shareholder value in each.
  • Significantly positive share price performance from Crestchic Plc (up 63.6% during the Period, finishing at 28.7% of NAV) which, following our engagement in 2020-21 led to the company’s ‘transformation plan’, divisional disposal and Board/management evolution. At the end of September the company released another material increase to profit expectations from its record order book. We maintain a positive outlook on the investment.
  • Across the portfolio, there were strong results announced from a range of other holdings, despite the challenging macro-economic environment, including Centaur Media, MC Saatchi, Van Elle and Smoove:
    • • Centaur Media Plc: Sales up 8%, Ebitda up 55%, net cash £14.2m (Interim results)
      • M&C Saatchi Plc: Sales up 10%, PBT up 52%, net cash £39.7m (Interim results)
      • Van Elle Holdings Plc: Sales up 48%, Ebitda up 133%, net cash £5.9m (Final results)
      • Smoove Plc : Sales up 13%, net cash £20m (Final results)
  • Pressure Technologies Plc released a disappointing update at the very end of the Period and we are actively engaged with management.
  • The Investment Manager is comfortable that overall the portfolio is well financed. In summary 9 holdings have a net cash position, 4 are lowly leveraged and 2 have elevated debt.
  • The Investment Manager has highlighted that due to the weak market conditions experienced in 2022, the valuation of UK smaller companies have become very depressed. Their pipeline of potential investments has grown as multiple opportunities emerge to deploy capital in the period ahead.
• EPE Special Opportunities (ESO) has announce that ESO Investments 1 Limited (an undertaking of ESO, in which it is the sole investor) has completed a £2.0m growth capital investment into Denzel’s Limited, a fast-growing, healthy and sustainable premium dog snacks brand. Denzel’s products are made in the UK and Ireland using entirely natural ingredients and 100% plastic-free eco-friendly packaging. Denzel’s operates an omni-channel distribution strategy, underpinned by listings in some of the UK’s leading retailers including Tesco, Sainsbury’s, Asda, Wilko, SPAR and, most recently, Waitrose, which launched the Denzel’s range in October. Denzel’s launched its new website in late August (www.denzels.co.uk), which is the flagship of its online channel, complemented by listings on both Amazon and Ocado, allowing for direct-to-home delivery of its products as well as subscriptions. In addition, Denzel’s products are available in a range of hospitality locations, notably dog-friendly pubs and hotels across the UK, providing dog owners with access to Denzel’s for their dogs when they are out and about. Denzel’s products are currently stocked in over two thousand locations in the UK. Denzel’s is part of the current cohort of the Tesco Incubator Programme, which helps to accelerate best-in-class brands using Tesco’s retail infrastructure. Alumni brands include the premium mixers brand Fever-Tree, performance nutrition brand Grenade and the healthy food brand Deliciously Ella. ESO 1’s £2.0m investment was part of a £3.0m growth capital raise by Denzel’s, in which ESO 1 was the lead investor. ESO 1’s investment in Denzel’s was funded by cash reserves advanced from ESO. Following the investment, ESO has available cash of £21.8m. The investment in Denzel’s has no impact on the Company’s net asset value.

We also have:

• Annual results from Fidelity Emerging Markets (it suffered a double whammy from the invasion of Ukraine)