UK smaller companies trust Strategic Equity Capital (SEC) is honouring a commitment made three years ago to offer investors a 100% exit.
The £163m UK small-cap fund managed by Ken Wotton at Gresham House said it would hold a tender offer next month allowing shareholders to sell all their shares at a price close to net asset value (NAV).
However, it warned shareholders who decide to sell some or all of their shares may have to wait for up to a year or more to get back all their money.
The tender offer, which could see the company forced to wind up if a substantial redemption leaves it with insufficient assets, was proposed in February 2022 as part of a series of proposals to enhance shareholder value.
Chair William Barlow said the board was not making a recommendation as to whether or not shareholders should tender their shares, but added that the directors and Gresham House, which has recently lifted its stake to 17%, would not sell their shares. Leading value investors City of London and 1607 Capital Partners hold 11.8% and 9.6% respectively.
Barlow said the company had delivered strong performance since the appointment of Gresham House in May 2020 and Wotton taking over the portfolio in September that year. The average share price discount had narrowed from 15.3% to 8.4% in the last 12 months, he said. The shares closed last week at 6.7% below net asset value. Today they jumped 2.6% to 387.7p, further narrowing the discount.
The tender offer requires shareholders to vote for a special resolution allowing the company to buy back its shares at a general meeting on 8 October.
Following the vote, the company’s assets will be divided between a continuing pool and a tender pool, with assets in the latter gradually sold and money returned to shareholders.
Due to the illiquid nature of the smaller company stocks it held, the return of capital will take months and possibly over a year to complete.
“The company’s portfolio will be realised in line with market conditions and the liquidity of the respective investments. Shareholders should therefore be aware that this means tendered shares may be held in escrow for up to 12 months or more,” Barlow said.
Our view
James Carthew, head of investment company research at QuotedData, questioned the performance figures used by SEC but said it was not the right time to exit a strategy that had rebounded around 26% since March.
Carthew said: “I am not sure that I approve of claiming that SEC has outperformed the FTSE Small Cap ex investment companies index since September 2020, given that its 75% growth in net asset value has underperformed the benchmark’s 83.8%. However, the important thing is that returns have been good recently, especially relative to the peer group, and UK small caps are still overdue a re-rating. It does not feel to me as though this is the right point in the cycle to be thinking of cashing out.”
