Strategic Equity Capital (SEC), a UK smaller companies fund managed by Ken Wotton at Gresham House, has avoided a damaging exodus by investors but will have to soldier on with a diminished portfolio after 22%, or 9.5m, of its shares were tendered in this month’s 100% tender offer.
That leaves the investment company with £142.8m of assets with which to continue, well above the £100m minimum set by the board.
Shareholders who opted to sell in the exit opportunity promised by the company three years ago will receive their money in tranches as assets from a realisation pool are sold over the next year.
“With nearly 80% of shareholders not tendering their shares, the board believes this is a strong vote of confidence in SEC’s investment strategy and its portfolio management team,” said chair William Barlow.
He also announced the company would use 50% of profits from disposals for share buy backs, targeting a 5% discount. Its shares currently stand 12% below net asset value (NAV). Shareholders will be offered another 100% exit in 2030.
Ahead of the tender offer the two Baronsmead venture capital trusts that Wotton also runs both invested £5m in Strategic Equity Capital, lifting Gresham House’s stake to 17%.
Our view
Matthew Read, senior analyst at QuotedData, said: “While there has been an improvement of late, it is little secret that UK small cap stocks have been unloved as an asset class for quite a long time now and, when set against this backdrop, we think SEC’s tender result is a good outcome.
“However, it is a sign of the times that an investment company that has returned 20.8%, 52.8% and 81.4% in underlying total returns over one, three and five-years respectively – in each case outperforming its peer group by some margin – has received a tender request for 22% of its issued share capital.
SEC has a differentiated investment approach whereby its managers look at its investments from the perspective of a private equity investor – taking into account the value of its holdings to a strategic or trade buyer – which has delivered over the longer term. We think that with UK small cap stocks still unloved and cheap valuations attracting M&A from a number of quarters, SEC could have further to go.”
