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Strategic Equity Capital’s interim figures, covering the six months ended 31 December 2015, show the NAV per share and the NAV total return per share decreased by 2.3% and 2.0% respectively. The Chairman’s statement says that aside from the exceptionally disappointing returns from one investment, Tribal Group, the vast majority of the remaining portfolio performed well. By comparison the FTSE 100, fell by 2.5%; AIM fell 1.6%, both on a total return basis. Both indices have considerable exposure to the resources sector, which will have had a significantly negative impact on index performance. This is highlighted in the FTSE 350 Oil & Gas and FTSE 350 Mining sectors, which delivered negative returns of 11.7% and 40.3% respectively over the period. In comparison, the FTSE 250 and FTSE SmallCap indices, both ex-investment trusts, delivered total returns of 0.6% and 1.0%.
The manager’s report says Emis, Servelec, 4imprint, Clinigen and IFG gave the biggest positive contributions to performance over the period, adding 6.3% to the fund between them.
The holding in Tribal Group cost the fund 6.7% however. Tribal Group delivered a brace of profit warnings in October 2015 and late December 2015, following tougher trading in the first part of 2015. The company has experienced a perfect storm during 2015 of slightly lower sales win rates, delayed project implementation at large Australian customers, an inflexible and high cost base, combined with a balance sheet which has been less resilient
than it appeared. In November, Tribal Group announced the simultaneous appointment of a new chairman and senior independent director, both of whom hold the same position at Servelec, the Company’s largest holding. At the same time as the December 2015 profit warning, it announced a fully underwritten standby rights issue of up to £35m to repair balance sheet and improve financial flexibility.
At the beginning of the period, the company was forecast to generate c.£15m profit before tax compared to the current forecast out turn of £3.1m for 2015. The £15m is a level of profitability which we believe should be largely underpinned by the sticky and highly profitable support and maintenance revenues of more than £30m generated by its electronic student record system division. These profits should be supplemented by new business wins and non-Ofsted profits from its Quality Assurance division. GVQ’s primary customer referencing suggests that the company’s products are well regarded and there is considerable ongoing demand. They acknowledge that, to date, this has clearly been an exceptionally disappointing investment. However, with a reconstituted board, and post the recapitalisation of the balance sheet, we believe that there are strong prospects for considerable value recovery over the medium-term.
SEC : Strategic Equity Capital hurt by Tribal holding
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