Stock ‘fest’ with fund manager Christopher Mills of Harwood Capital

6th Jun '23 by Paul Hill

7 comments 2183 reads

Outlook for equities. Start
M&A trend. 02:30
Dowlais Group plc, Ascential & Chemring. 05:15
NAV upside potential of holding privately owned, as well as publicly listed stocks. 06:55
EKF Diagnostics. 12:55
NIOX®. 17:10
Renalytix & Verici Dx. 20:35
Benchmark Holdings plc 22:50
Avingtrans. 27:10
Hargreaves Services plc. 30:20
FLOWTECH FLUIDPOWER PLC. 32:55
Maintel. 36:55
Housing market outlook & MJ Gleeson PLC. 39:50
OnTheMarket. 46:15
Tribal Group. 49:15
Ten Entertainment Group Plc. 52:40
Frenkel Topping Group. 55:25
Polar Capital. 59:05
TP ICAP. 60:25
Conduit Holdings. 62:30
REACT. 68:25
Spire Healthcare Group plc. 71:45
WANdisco. 66:25
REITs & Real Estate Investors 68:05
Palace Capital plc. 80:15
How to invest in Harwood Capital's funds. 81:15

Please use this link :

or this one
https://www.voxmarkets.co.uk/a...

Disclosure: I was paid by Vox Markets to record this interview

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Anthony127

8th Jun '23

I think it is always helpful and interesting to get the views of renowned and experienced investor Christopher Mills.

I was particularly interested in his views on MJ GLEESON (LON:GLE) and housebuilder prospects. I was unaware that local authority planning budgets had been reduced and that planning approvals are now taking two years as compared to the previous average of a few months. This change presumably gives an advantage to those builders with large and approved landbanks, however I do wander about the impact on MJ Gleeson given that it manages approvals for other housebuilders in the south of England.

I am somewhat concerned about the present Government's abandonment of housing targets , it's apparent support of nimbyism and note that Mr Mills suggests Labour may be good for housing.

The recent PMI reading for Construction was 51.6; however the reading for Housing was languishing at 42.7. Given that readings over 50 represent growth it may be that Infrastructure, Civil Engineering or Brick Manufacturers are better places to be at the moment.

Crest Nicholson Holdings (LON:CRST) results were out this morning and were 8.5% down, but the other housebuilders appear fairly steady and are not showing any reflected misery.

On the basis of current evidence I think it may be slightly too early to invest in housebuilders.

Good to see you back in business Paul.

Paul Hill

Many thanks Antony for the kind words.

Christopher Mills' long term track record as a smallcap stock picker & active investor is almost second to none.

Personally I'm really interested in the turnaround opportunity taking shape at EKF Diagnostics. Its right at the top of my GARP watchlist.

jonno

9th Jun '23

Fabulous interview Paul. Always interested in what Christopher Mills and his colleagues Richard Staveley and Stuart Widdowson have got to say. I fully admit to plagiarism and hold several stocks that Harwood hold. Follow the money as is often said.

gari en desti

10th Jun '23

Paul, thanks for posting this. Found it very helpful on a number of sectors.

ShoeShineBoy

Thanks Paul, good interview. I like the model that CM has followed for 40 years: find companies that are fundamentally undervalued (ie: their private equity valuation) and then try to secure a catalyst to unlock the value for shareholders & Harwood Capital. And Peter Spiller of Capital Gearing is a fan of the model which is quite a compliment given his record!

But I don't see myself buying any of the individual stocks that CM discusses in his interviews, many of them are too illiquid. From a previous interview, I think it was OTMP that CM said Harwood Capital was constantly on the 'buy' but because it was so illiquid it was difficult to pick up many shares.

And he did previously say that WAND was high risk. He was right on that one!

I would look to buy one of the investments trusts, both of which are essentially investing in small cap UK companies: NAS and OIG. I think CM owns 32% of NAS and does not operate a discount control policy so I don't see the 20%+ discount disappearing anytime soon. Odd for a small cap trust the largest holding is US Treasury Bills! (Peter Spiller influence ?!).

OIG is a smaller mkt cap but also trades on 20%+ discount. Very different model to the other UK small cap trusts with the top 10 holdings accounting for approx 55%.

The appeal of both trusts is the activist mgt. But I have found the NAS annual report & interim report to be poorly written and lacking any real substance; I find this odd given CM's success and his ability to articulate investment cases so well in interviews.

The discounts on both trusts will make me look again, maybe I will think about picking up a half trade in OIG rather than AUSC or BRSC.

SSB
--------------
The MoneyWeek interview with Christopher Mills & Peter Spiller last year is high quality and still worth a listen even though it is now 11 months old.

https://tinyurl.com/nz7wdez2

I will include my rubbish notes even though they are almost a year old :-)
PS: don’t forecast, waste of time. He is a value investor. US market overvalued. Earnings forecasts are too high. Difficult to find a Wall St analyst who is not forecasting upgrades.

PS: don’t think we’ve seen maximum pessimism yet (Mark Slater said the same thing re: no Lehman moment yet).

CM: damage will start in this next earnings season. CM looking for income in USD but expense in GBP as the dollar is too high.

CM: lots of people have left the workforce because of a.) sickness (covid) and b.) lifestyle change.

PS: the balance of GDP going to workers will probably increase at the expense of profits.

PS: deflation from China is going away. Expect globalisation impact to be less going forward.

PS: public sector pay rise demands near 10%.

CM: sone companies will see delayed cost increases because they are able to agree fixed contract costs for energy & food 12 months in advance.

PS: US government stimulus was 13% during covid versus 2% during the GFC! Staggering numbers. People’s reaction to this type of spending is that they think governments can simply spend their way out of trouble.

CM (19 minutes): been buying TP ICAP because the data analytics business is worth more than the entire mkt cap. 60% of revenues in USD but only 40% of costs in USD so good tailwind. Competitor (BGC Partners ?) came out with good numbers recently.

CM: value appearing in the UK market. No rush to buy the US market.

PS: oil companies “get it” re: ESG. Demand will continue to outstrip supply. Fundamentals are good but valuations depressed. If the Ukraine/Russia war stops tomorrow, many producers will still be profitable at USD 70 per barrel. SSB: Mike, buy BP ?

CM: many oil companies are buying their own shares back. And no one trusts Biden because he has been so anti-oil.

CM: costs of listing are too high.... NEDs, Chairmen, investment banks etc.

PS (35 minutes): value emerging in some areas of the market. US 10 year TIPS are yielding 70 basis points with the possibility of capital gains. Better value than gold.

PS: Japanese Yen is 50% cheaper than historical rates because interest rates have not gone up in Japan like they have elsewhere hence the currency is cheaper than the USD or GBP or EUR.

PS: MSW asks whether PS would buy Japanese equities. Answer is yes (although this wasn't his point on the JPY currency). Also, the UK market is cheap.

CM (39 minutes): Harwood Capital investment philosophy is to find companies that are fundamentally undervalued (ie: their private equity valuation) and then try to secure a catalyst to unlock the value for shareholders & HC. Been successful doing this for 40 years. NAS NAV was 34 pence in 1982, it’s now £52 so the process works even though it goes in & out of favour. One thing is important: make sure potential targets have decent balance sheets with preferably some cash. SSB: reminds me of what Terry Smith says every year!

PS: CGT has been invested in NAS for most of the last 40 years & backs the model.

CM: MSW asks if they could hold one stock for the next 10 years ? Answer: OTMP because they charge less than RMV and the majority of the shares are owned by estate agents. Revenues are expected to increase because they can increase their pricing with no additional advertising spend. CM comments that the housing market is unlikely to go down because house builders are not increasing their production levels.

PS: same question, hold one stock for the next 10 years ? 2045 TIPs which is on a real yield of 1.25% because he thinks it will increase in value. Also, GRI because rents will keep pace with wages.

PS: worries about arbitrary taxation from populist governments.

CM: also good to look at companies that are earning interest income on client balances eg - APP, CBP, HL. Another potential tax target ?

Many thanks SSB for all the comments

Rusty2

12th Jun '23

OnTheMarket (LON:OTMP) is really falling back recently, now only 55p.

Stock ‘fest’ with fund manager Christopher Mills of Harwood Capital

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Paul Hill

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