As one of the UK’s most widely followed fund managers, Mark Slater’s regular speaking slot at the UK Investor Show is usually a packed out affair, and this year was no different. Apart from his opinions on the current state of the market, the chief investment officer of Slater Investments also spent time discussing IPOs and corporate governance. In particular, he covered the recent boardroom wrangles at construction and support services group, Lakehouse, where his fund took a major stake in the 2015 IPO. Here’s some of what he had to say…
Themes from last year
First of all, Slater gave an update on three broad areas from last year’s presentation. The first of them was technology investing. He said his firm’s growth process meant that it did occasionally come across interesting technology companies that met his criteria. But it’s an area he’s relatively wary of. He said that often these companies are hard to understand, the valuations are sky high and often they’re early-stage or pre-profit. There are also other issues, including lumpy contracts and that they’re dependent on one or two large customers. Plus there is a great deal of scope for creative accounting, particularly in software businesses.
Having said that, they do occasionally come up, and they fall into two categories, he said. One is made up of tech companies that are easy to understand, have a good record of profit growth, in established markets, are cash generative and on a reasonable rating. The second category has an element of blue sky but they normally have the other factors as well. So you can occasionally find companies which have within them straightforward businesses and you get a bit of blue sky upside thrown in for nothing.
Two companies that meet that second description are Hutchison China Meditech and First Derivatives. These two have “done okay” together since last year. Hutchison was up nearly 70% at one point last year but has come back more recently. First Derivatives has performed strongly and Slater remains very keen on it. He says First Derivatives has an easy to understand consultancy business with a fantastic record of top line growth. They’ve also got a software business which is developing a nice record, and it’s here where the blue sky potential sits. If that kicks in, the upside is extremely significant from here, he adds.
The second…
