REG - Majedie Invs.PLC - Annual Financial Report
23/12/2024 07:00
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RNS Number : 0215R Majedie Investments PLC 23 December 2024
23 December 2024
Majedie Investments PLC
Annual Financial Report
Majedie Investments PLC ("Majedie" or "the Company") announces its full year
results for the 12 months ended 30 September 2024.
Highlights:
· Strong performance for the year, comprising a Net Asset Value
("NAV") total return (including dividends) of +21.5%.
· Declared dividend payments totalled 8.0 pence per share for the
year.
· The discount to NAV narrowed from -18.7% to -17.4% at the end of
September, averaging 12.2% over the year.
· At 30 September 2024, as a percentage of total assets, External
Managers comprised 63.7%, Direct Investments 23.7%, Special Investments 17.0%,
UK Gilts 5.3%, Cash 2.3% with other net current assets and debenture of
-12.0%.
· The Board is negotiating the terms of a Revolving Credit Facility
of up to £15 million. The outstanding Debenture of £20.7m with a coupon of
7.25% is repayable in March 2025 and will not be replaced.
Christopher Getley, Chairman of Majedie Investments, said: "The year has been
successful for Majedie with a NAV total return of 21.5% and where each of the
three core strategies added meaningfully to the overall returns. The low
correlation of performance between the forty-two holdings in the portfolio has
been retained, underpinning the Board's confidence in the strategy that was
approved by Shareholders in January 2023.
The Board has reclassified four Special Investments from Level 3 to Level 2
in the Fair Value Hierarchy. While the instruments have restricted liquidity,
the underlying investments are active listed securities with observable prices
on active quoted markets. The Board believes that this is the correct
classification both from a technical accounting position and to align with the
Liquid Endowment Strategy. As a result of this decision, the assets in Level 3
are now less than 1%.
Although global equity markets are close to all-time highs, bond markets more
subdued and geopolitical stability appears to be no closer, we believe this
presents opportunities as well as risks for Majedie. The Liquid Endowment
Strategy will continue to focus on investment ideas where the Manager's
analysis has determined the greatest conviction of strong returns, together
with resilience to unforeseen events and low correlation between portfolio
positions."
For further information please contact:
Marylebone Partners LLP +44 (0)7880 528774
William Barlow
J.P. Morgan Cazenove +44 (0)20 7742 4000
William Simmonds
Rupert Budge
Cardew Group (PR Adviser to Majedie Investments) +44 (0)20 7930 0777
Tania Wild +44 (0)7425 536903
Luke Bramwell +44 (0)7467 992924
About Majedie Investments (https://www.majedieinvestments.com/) :
Majedie Investments PLC is an investment trust whose objective is to deliver
long-term capital growth whilst preserving shareholders' capital and paying a
regular dividend. The performance target is to achieve net annualised total
returns (in GBP) of at least 4 per cent. above the UK CPI, over rolling
five-year periods.
The Majedie Investments PLC portfolio features a combination of hard-to-access
special investments, allocations to funds managed by boutique third-party
managers, and direct investments in public equities.
LEI: 2138007QEY9DYONC2723
About Marylebone Partners (https://www.marylebonepartners.com/) :
Marylebone Partners LLP ("Marylebone") is an independent investment manager,
owned by its principals. It helps families, charities, endowments, trusts and
private investors to protect and grow their wealth in real terms.
Marylebone's defining characteristic is its ability to access differentiated
fundamental investments, many of which never come onto the radar screen of
other allocators. This capability is the key to delivering superior
performance outcomes over the years ahead.
The partnership was founded in 2013 with the vision of bringing a distinctive
investment approach to clients who sought a relationship based on trust and
transparency. This remains Marylebone's sole purpose today.
Marylebone Partners LLP is authorised and regulated by the Financial Conduct
Authority.
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2024
Investment Objective
The Company's investment objective is to deliver long-term capital growth
whilst preserving shareholders' capital, and to pay a regular dividend.
Performance Target
The performance target is to achieve net annualised total returns (in GBP) of
at least 4% above the UK Consumer Prices Index over rolling five-year
periods.
Financial Highlights
2024 2023
Share price total return (including dividends)† 24.1% 26.2%
Net asset value total return (debt at fair value including dividends)† 21.5% 14.1%
Total dividends (per share)† 8.0p 7.2p*
†Alternative Performance Measures
Please refer to the Annual Report for definitions and a reconciliation of the
Alternative Performance Measures to the financial statements
* Dividends disclosed represent dividends that relate to the Company's
financial year.
Year's Summary
Note 2023 %
(see below) 2024
As at 30 September
Equity Shareholders' Funds £151.5m £128.1m +18.3
Total returns (capital growth plus dividends)
Net asset value per share total return (debt at fair value) † 21.5% 14.1% -
Share price total return † 24.1% 26.2% -
Capital returns
Net asset value per share (debt at fair value) 285.8p 241.6p +18.3
Share price 236.0p 196.5p +20.1
Discount
Discount of share price to net asset value per share (debt at fair value) † 17.4% 18.7% -
Gearing
Gearing † 9.8% 9.2% -
Potential gearing † 13.7% 16.2% -
Revenue and dividends
Net revenue available to Equity Shareholders £0.0m £0.9m -100.0
Net revenue return per share 0.0p 1.6p -100.0
Total dividends per share 8.0p 7.2p* +11.1
Ongoing Charges Figure †^§ 1.4% 1.6% -
† Alternative Performance Measures
Please refer to the Annual Report for definitions and a reconciliation of the
Alternative Performance Measures to the financial statements.
^ Excludes performance fee where payable.
§ Excluding charges of underlying funds which account for approximately 1.0%
of the Company's portfolio.
* Dividends disclosed represent dividends that relate to the Company's
financial year.
Year's High/Low
2024 2023
Share price high 254.0p 223.0p
low 192.0p 158.0p
Net asset value - debt at fair value high 285.8p 257.6p
low 236.3p 219.9p
Discount - debt at fair value high 17.4% 30.8%
low 7.6% 8.0%
Ten Year Record
to 30 September 2024
Year End Total Assets(++) £000 Equity share-holders' Funds NAV Per Share (Debt at par value) Share Discount(†) Earnings Pence Total Dividend(**) Pence Gearing(Φ†) Potential Gearing(Φ†) Ongoing Charges Figure
Price
£000 Pence
Pence % % % %(^†)
2015 183,708 149,807 281.9 257.3 8.74 9.42 8.00 21.25 22.63 1.88
2016 203,917 169,986 318.1 257.1 19.18 9.25 8.75 18.46 19.96 1.58
2017 216,507 182,544 341.6 281.5 17.59 11.14 9.75 17.09 18.61 1.54
2018 199,151 178,626 334.3 277.5 16.99 12.47 11.00 10.01 11.49 1.33
2019 175,621 155,074 292.3 256.0 12.42 12.92 11.40 11.50 13.25 1.34
2020 152,153 131,333 247.7 176.5 28.74 9.11 11.40 10.97 15.85 1.34
2021 172,951 152,153 287.1 230.0 19.89 9.41 11.40 12.26 13.67 1.25
2022 137,647 116,887 220.6 163.5 25.80 5.20 8.60 12.65 17.80 1.34
2023 148,794 128,073 241.7 196.5 18.70 1.62 7.20 9.16 16.23 1.98
2024 151,490 151,490 285.8 236.0 17.40 (0.05) 8.00 9.83 13.70 1.38
Notes:
++ Total Assets are defined as total assets less current liabilities. Prior to
2024 the Company's 2025 debenture was classed as a non-current liability.
** Dividends disclosed represent dividends that relate to the Company's
financial year. Under UK adopted International Accounting Standards dividends
are not accrued until paid or approved. Total dividends include special
dividends paid, if any.
Φ Calculated in accordance with AIC guidance.
^ Excludes performance fee where payable and includes ongoing charge figure of
underlying funds.
† Alternative performance measures - please refer to the Annual Report for
definitions and a reconciliation of the Alternative Performance Measures to
the financial statements.
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
The financial year ending September 2024 has been a successful one for your
Company's Liquid Endowment Strategy with the Net Asset Value ("NAV") with debt
at fair value growing by 18.3%. The declared quarterly dividend payments
totalled 8.0 pence per share during the year resulting in a NAV total return
to shareholders of 21.5%. The share price traded at an average discount to NAV
of 12.2% during the year and at the end of September the discount was 17.4%.
Each of the three core strategies within the Liquid Endowment Strategy, namely
External Managers, Direct Investments and Special Investments, added
meaningfully to the overall returns. The low correlation of performance
between the forty-two holdings in the portfolio has been retained through the
year, giving the Board confidence in the strategy that was approved by the
Shareholders in January 2023.
Markets remained volatile during the Company's financial year which began with
a strong upward move in global equity indices led by an expansion in the
valuation multiple of a small group of US mega-cap growth stocks. Towards the
end of the year, there were sharp declines in equity prices during early
August led by the Bank of Japan's decision to raise interest rates to ease the
pressure on the Japanese Yen. This was followed by a rapid recovery in many
markets during September following the Chinese Government 's intervention to
stimulate their economy.
Whilst disparate in nature and geography, these significant market events
during the year typify the dramatic change, as your Board sees it, to the
market environment which the Company must address. For over twenty years a key
driver has been the downward trend in interest rates which have been below
inflation for much of the time since the 2008 financial crash. During this
period of relatively inexpensive capital, Governments have run substantial
fiscal deficits and companies have developed long, low-cost supply chains that
proved to be susceptible to geopolitical risk.
These trends appear at least to be in question and financial market reaction
has been volatile and often driven more by decisions focused on domestic
issues in individual countries than by international consensus. Greater
inflationary pressure and higher cost of capital seem likely consequences of
this dislocation. Whilst both offer opportunities in financial markets, they
may not be consistent with the mean reversion approach that has been the core
of many successful investment strategies for some time.
A flexible approach that focusses in detail on specific opportunities which
are sufficiently liquid both to exploit identified situations and to minimise
risk of extended exposure when conditions change for the worse, is consistent
with such a dislocation. At the time of the manager review in late 2022 the
Board focused on identifying an endowment style strategy that would enable the
Company to grow over time through strong performance, developing the Company's
culture and clear differentiation that uses the benefits of the investment
trust structure. The results to date give the Board confidence that the
decision to appoint Marylebone Partners was the correct one for the current
market environment and to deliver on the target of 4% above UK CPI over
five-year periods.
As previously mentioned, the investment approach includes three complementary
strategies comprising, as a percentage of total assets, at September 2024:
External Managers (63.7%), Direct Investments (23.7%) and Special Investments
(17.0%). The Company also held UK Gilts (5.3%), Cash (2.3%) and other net
current assets and debenture of -12.0%. Whilst remaining equity‑centric, the
drivers of the investments are fundamental, idiosyncratic and generally not
macro‑predicated.
During the year four Special Investments, where the underlying assets are
co-investments in the securities of substantial public companies, have been
reclassified from Level 3 to Level 2 in the Fair Value Hierarchy set out in
Note 23 of this report. Whilst the instruments in which Majedie is invested
have restricted liquidity, the individual investments underlying each of these
Projects are single active listed securities with observable prices on active
quoted markets. The Board has decided that this is the correct classification
of these assets both from a technical accounting position and to align with
the Liquid Endowment Strategy.
The Investment Manager's report covers the detail of the investment portfolio
and the drivers of performance. The Board has been encouraged by the relative
consistency of results through the year and by the extent of research made
available on each investment thesis. The relationship with Marylebone Partners
has developed well through this year in both of its roles as Manager and those
under the AIFMD.
It is a core function of an investment trust Board to bear down on costs where
possible. The Company's Ongoing Charges Figure ("OCF") measured solely on the
costs of running the Company fell from 1.6% in 2023 to 1.4% in 2024. The OCF
including the cost of investing in External Managers was 2.4% in 2024. The
Board understands that the skills in those specialist areas in which the
External Managers invest requires substantial original research work which
inevitably incurs additional cost. Additionally the Board notes that the costs
associated with the External Managers is expected to fall over time as the
exposure to Special Investments grows, as they typically have lower management
fees.
The Company has an outstanding Debenture of £20.7m with a coupon of 7.25%
that is repayable in March 2025. Following discussion with Marylebone the
Board has concluded that it will not replace this structural gearing. Instead
the Board is negotiating a smaller Revolving Credit Facility to allow a more
flexible approach to employing leverage within the Company's operations.
Juniper Partners has taken on the roles of Administrator and Company Secretary
seamlessly and the new Auditors from Johnston Carmichael have ensured an
efficient and timely process to the audit.
Heinrich Merz joined the Board in March 2024. His deep experience as a leading
practitioner in the absolute return and alternative investment industry has
already made a substantial contribution to the Majedie Board. Otherwise the
Board has enjoyed a year of stability and I am grateful for the commitment and
wise counsel of my colleagues.
Considerable focus has been placed through the year on the development of the
shareholder base to enable expansion in the future, which was one of the key
aims of the Manager Review in 2022. Significant additions to the shareholder
list have occurred during the year and the Company remains fortunate in having
a supportive Barlow family shareholder group. The Marylebone team responsible
for this activity has grown and the results from the Investor Day in June
2024, greater presence on social media and increased marketing through trade
press and retail platforms have been helpful in developing this important step
towards growth.
Whilst equity markets globally are generally close to all-time highs, bond
markets are more subdued due to the persistence of inflationary pressure.
Following the super‑election year of 2024 in which over 60 countries will
have had polls, geopolitical stability appears no closer. Against this
background there are both significant risks and opportunities facing financial
markets. Majedie's Liquid Endowment strategy will continue to focus on those
investment ideas where the Manager's analysis has determined the greatest
conviction of strong returns, together with resilience to unforeseen events
and low correlation between portfolio positions.
This year's AGM will be held at The City of London Club, 19 Old Broad Street,
London EC2N 1DS at 12.00 noon on Wednesday 19th February 2025. The Investment
Manager will present the details of the portfolio, its strategy and outlook.
My colleagues and I look forward to welcoming shareholders to that meeting.
Following the AGM the Investment Manager's presentation will be available on
the Company's website for those who cannot attend.
In the meantime, I thank you for both trusting and supporting Majedie
Investments.
Christopher D Getley
Chairman
20 December 2024
INVESTMENT MANAGER'S REPORT
Investment Strategy
As fundamental active investors, we believe that markets are not always
efficient at discounting the value of future cash flows that accrue to the
long-term owner of an asset. However, dislocations can sometimes arise as the
result of macro influences, behavioural biases, or because participants
struggle to process new information in real time.
These dislocations create opportunities for us to add value. Our process is
designed to identify assets that are mispriced relative to their intrinsic
value and take advantage through our team's fundamental analysis and
subjective judgment.
Majedie's investment trust structure is well suited to an unconstrained,
benchmark agnostic mandate. When we feel strongly about the risk-adjusted
return potential of a situation, we will pursue it with conviction.
Our discipline about what not to invest in is just as important. We will not
allocate to areas or strategies outside our sphere of competence, nor to
situations where outcomes are predicated on unknowable extraneous variables
such as moves in currencies or interest rates. We do not allocate to exotic
markets, macro-driven situations, quantitative strategies or complex
instruments.
The Liquid Endowment Strategy is designed to emulate the long-term fundamental
mindset that has driven the success of the elite university endowments in the
United States. With equities at their heart, and minimal exposure to assets
where the return expectations are lower, , these programmes have harnessed
differentiated performance from long-term fundamental strategies. However,
where we differ for Majedie is by choosing not to allocate to deeply illiquid
strategies such as private equity, venture capital or real estate. We believe
it is possible to achieve superior returns without locking up capital for
multi-year periods or investing in assets where pricing is subjective.
The closed ended nature of the investment trust structure enables us to invest
for the long-term, in the knowledge that we will not be forced to monetise
invested positions before they have reached our expectation of fair value.
We believe in the power of an actively managed portfolio that combines three
strategies, each fighting for capital.
Grossed up net equity exposure as of 30 September 2024
Regional Exposure
North America 53.6%
Europe 35.1%
Emerging Markets (inc Asia) 6.5%
Asia Pacific 3.5%
Japan 1.3%
Sector Exposure >5%
Industrials 20.7%
Information Technology 19.7%
Materials 18.9%
Health Care 13.3%
Consumer Discretionary 9.4%
Cash & Equivalents 5.9%
Other 12.1%
Performance Highlights
The portfolio's net asset value (NAV) per share total return for the financial
year ending 30th September 2024 was +21.5%.
External Managers led the way, with the equity-centric component
(approximately half of the total) contributing over +1000bps. The Helikon
Long/Short Equity Fund made the biggest contribution to performance at
+369bps. The Praesidium Strategic Software Opportunities Fund and Paradigm
BioCapital Partners Fund both contributed over +150bps.
These returns were supplemented by absolute-return managers, who made a
largely uncorrelated contribution of over 450bps. Each of the six specialist
credit funds within this part of the portfolio performed well, in particular
the Millstreet Credit Offshore Fund and the Silver Point Capital Offshore
Fund. While the Contrarian Emerging Markets Offshore Fund was the
best-performing absolute-return manager, contributing over +185bps as various
positive catalysts played out in Latin American positions.
Although Direct Investments achieved positive absolute returns, the
performance of this part of the portfolio lagged the markets because we chose
not to own any of the mega-cap growth stocks that led the indices, in our
opinion it makes our current investments even more attractive on a
risk-adjusted basis. Looking forward, we believe many of the most compelling
equity investments lie in quality stocks that have been largely ignored by the
market.
The main contributors were Westinghouse Air Brake Technologies Corp at
+100bps, Global X Copper Miners ETF at +72bps and SS&C Technologies
Holdings Inc, which added +59bps. Evolent Health Inc, Basic-Fit NV, Alight Inc
and United Health Group detracted from performance.
The contribution from Special Investments was positive, despite the fact we
have yet to reach our initial target allocation of 20% of the total portfolio.
Partly, this is because some investments appreciated towards fair value sooner
than expected, so cash came back to us faster than anticipated. More
significantly, we have been - and will remain - highly selective when making
special investments. We turn down five ideas for every one that makes the
grade.
In recent months we monetised our investment in a co-investment in the public
equity of Shack Shake Inc for an internal rate of return (IRR) of 50% and a
1.5x multiple of invested capital (MOIC) over 18 months. We exited a
co-investment in Metro Bank Plc Senior Non-Preferred MREL-eligible Bonds for
an IRR of 19.8% and a MOIC of 1.3x. An investment in the public equity of
Alkami Inc. was also realised for a strong gain. A co-investment in the public
equity of Concentrix Corp. was the only meaningful detractor.
The Portfolio
External Managers
We have been identifying and evaluating funds managed by exceptional
fundamental investors for over two decades. Each manager we select for the
Majedie portfolio has undergone a rigorous quantitative and qualitative
selection process and is a specialist in a sector, region or style category
that we consider structurally inefficient and, therefore, opportunity rich. We
do not invest in managers who pursue a generalist approach. Most of our
managers pursue equities strategies, but the portfolio also has a significant
allocation to specialist credit strategies.
We believe alignment of interests and motivation are important and we tend to
favour managers who operate within boutique, owner-operated firms. As they are
investment led, their strategies are sometimes capacity constrained and
Majedie can therefore be a way to access otherwise closed funds. The managers
that feature in the Majedie portfolio rarely feature in the portfolios managed
by our peers.
External Managers
Allocation Range 30%-60%
Portfolio Allocation GBP 96.6m
Current Allocation 63.7%
Number of Holdings 14
Distinguishing Features
Global Network of leading specialist funds
Owner operated boutiques, no products
Capitalising on structural inefficiencies
Fundamental strategies, skill-based returns
Absolute Return
Specialist Credit(1) 29.1%
Equity Centric
Regional Specialists(2) 12.8%
Sector Specialists(3) 9.4%
Style Specialists(4) 5.9%
1. Specialist Credit: an investment strategy that focuses on
specific segments of the credit market, utilising specialist knowledge and
expertise in specific credit sectors with the aim of achieving higher returns
than traditional fixed income investments.
2. Regional Specialists: an Investment Manager who focuses on
investment opportunities within a specific geographical area or region.
3. Sector Specialists: an Investment Manager that focuses on
investment opportunities within a specific industry or sector of the economy.
4. Style Specialist: an Investment Manager who focuses a
particular style of investing. Examples include a focus on market
capitalisation (small-cap. mid-cap or large-cap), or a growth versus value
orientation.
Source: Marylebone Partners LLP, as of September 2024
The Portfolio held 18 funds managed by leading investors in their respective
niches over the year. At the year end the Portfolio held 14 funds.
External Managers with an equity-centric profile have added value through
their stock picking in areas that include mid-cap Biotechnology (Paradigm
BioCapital Partners) and Software (Praesidium Strategic Software Opportunities
Fund). It is notable that the Perseverance DXF Value Feeder Fund - a
specialist in Greater China - performed well in what were wildly diverging
conditions for local markets over the course of the year.
Largest Five Equity Centric External Manager Holdings as of 30 September 2024
Security Position Size Expertise Geography Style
Helikon Long Short Equity Fund 6.2% Special Situations Europe Long bias
Praesidium Strategic Software Opportunities Offshore Fund 5.5% Software United States Long bias
Paradigm BioCapital Partners Fund 5.4% Bio Tech U.S. - centric Long bias
Castleknight Offshore Fund 4.9% Special Situations U.S. - centric Long bias
Perserverance DXF Value Feeder Fund 4.7% Greater China Asia Long only
Alongside the equity-centric managers, we have allocated 50% of the External
Manager sub-portfolio to specialist credit funds, with an emphasis on
process-driven stressed and distressed debt. Not only do we believe the
potential returns are greater here than from passive credit strategies, but
the managers can drive outcomes through their actions, making this a higher
quality and lower risk way of investing in the current credit environment.
Despite much tighter spreads on corporate credit than this time a year ago, we
continue to see positive risk adjusted return potential from our managers in
this area.
Largest Five Specialist Credit External Managers as of 30 September 2024
Security Position Size Expertise Geography Style
Silver Point Capital Offshore Fund 6.5% Stressed/Distressed Global Absolute Return
Millstreet Credit Offshore Fund 6.4% High Yield U.S. Absolute Return
Contrarian Emerging Markets Offshore Fund 6.4% Emerging Market Credit Emerging Markets Absolute Return
CQS Credit Multi-Asset Fund 4.5% Liquid Credit Global Absolute Return
Eicos Fund 4.3% High Yield Europe Absolute Return
We added three new managers last year, exiting other lower conviction
positions to make room. Strategic Capital's Japan-Up Fund was the most recent
addition, the culmination of a year-long search for an exceptional country
specialist manager. Strategic Capital is regarded as a pioneer of shareholder
activism in Japan. We believe they have the tools and resolve to unlock value
from a handful of entrenched small and midcap companies. They have been doing
so to great effect since 2012, regardless of the direction in which Japan's
macro winds are blowing. In addition, we added two specialist credit funds:
CQS Credit Multi-Asset Fund and Context Partners Offshore Fund.
Case Study: The Helikon Long/Short Equity Fund
Fund Launch 2020
Firm AUM Euro 3.6bn
Strategy AUM Euro 3.6bn
Helikon Investments manages a European 'special situations' fund, launched in
2020. The firm is London-based with a research office in Milan. Under CIO
Federico Riggio, the same team ran a successful strategy when at Kairos, a
part of Julius Baer. The team has been together since 2008.
Helikon's investment philosophy is consistent with our own. Riggio and his
team will look through the short-term noise and volatility created by other
market participants and seek to take advantage of it. Their competitive
advantage comes from investing with a business owner's mindset in high-quality
businesses, at what they see as a significant discount to intrinsic value. The
fact that European markets are characterised by ongoing dislocations between
price and fundamentals creates an enduring opportunity for an investor like
Helikon.
Each of the fund's investments can be described as a 'special situation', with
idiosyncratic drivers and an identifiable reason for the mispricing. The fund
invests across the market capitalisation spectrum, with a focus on some of the
less glamorous sectors such as Financials, Utilities, Materials, Real Estate
and Energy. The strategy is long-biased (with targeted shorting of bad
businesses that do not need to exist), and capital is concentrated on 'best
ideas' only.
Performance
Annualised since inception 46.5%
Standard deviation 27.8%
Beta (ACWI MSCI) 1.1
Correlation (Euro Stoxx 600) 0.8
Source: Marylebone Partners LLP
Direct Investments
We are long-term direct investors in a small number of rigorously researched
stocks, with attractive growth, profitability, and quality characteristics.
Our team seeks situations where a company's earnings potential, positive
change or strategic value is not appreciated by the markets and valuation
plays an important part of our assessment. Once again, the composition of our
Direct Investments book looks very different to major indices, or the
portfolios managed by our peers.
There is no structural or style or factor bias to our direct investments,
although companies must exhibit attractive growth, profitability and quality
characteristics. We seek nonconsensual situations representing unappreciated
earnings potential, misunderstood change or strategic value.
Direct Investments
Allocation Range 10%-30%
Portfolio Allocation GBP 35.9m
Current Allocation 23.7%
Number of holdings 12
Our research focuses on evaluating four building blocks:
Four building blocks
Revenue Growth
Economic Profitability
Valuation
Business Quality
Our direct investments in public equities exhibit the characteristics we
believe drive outperformance, namely good top-line growth prospects, excellent
levels of business profitability, and strong management teams with a history
of accretive capital allocation. We also pay close attention to valuation,
which has led us towards an eclectic group of stocks that look very different
in profile to the main components of the market indices.
When investing in equities - whether directly or through external managers -
our main purpose is not to outperform an index, but to deliver high-quality
absolute returns that exceed inflation. We are confident that if they fulfil
their potential, the return outcomes will look very favourable when compared
to other options.
A lot has been written about the highly concentrated stock market rally of the
past 18-24 months, led by the impact of generative Artificial Intelligence
("AI") and the growth expectations accompanying it. The development of AI is
still in its early stages, and, at this stage, there is little comprehension
of the ultimate shape it will take, or who will monetise it. We believe the
investment decisions made by the datacentre/cloud computing 'hyper-scaler'
companies are based not so much on a conventional "return on capital" calculus
but on their leaders' vision of the future.
Given that (a) one recognises that the AI phenomenon is 'for real' but (b)
there is tremendous uncertainty about how it will play out, we believe the
most responsible approach is to seek out opportunities that are attractive on
their own merits but have an underappreciated AI kicker. Selectively, we also
want to invest in compelling yet unfashionable fundamental situations that
have either been left behind by the popular recent narrative or are unfairly
seen as having their business models compromised by AI. After the recent
frenzy, many of the best opportunities may be found outside the mega-cap
hyper-scalers.
The valuations of our direct investments are undemanding, on a
weighted-average basis, they have a 2025 Free Cash Flow yield of >6% and a
forward P/E ratio of 16x (a modest 1.2x our projected earnings growth rate).
Largest Five Direct Investment Holdings as of 30 September 2024
Security Position Size Sector Price/Earnings (2025e)
Global X Copper Miners ETF 4.6% Commodities 12.8x
KBR Inc 2.5% Industrial 14.8x
Computacenter plc 2.2% Business Services 11.6x
Weir Group plc 2.2% Industrial 16.9x
SS&C Technologies Holdings Inc 2.0% Software 13.2x
Source: Marylebone Partners LLP September 2024, Factset
Case Study: Westinghouse Air Brake Technology Corporation ("Wabtec")
Wabtec represents an opportunity to invest in a high-quality business
undergoing positive change at a valuation discount to its industry peers. The
company is a leading global provider of parts, components, equipment, and
services to the Rail industry. Its Freight division manufactures locomotives,
components and parts for freight cars, whilst its Transit division provides
parts and equipment for passenger rail services, e.g. local city metros. Both
divisions also provide after-market services.
Company Information
Stock price US$ 188.8
Market capitalisation US$ 32.5bn
Enterprise value US$ 26.6bn
Thesis points
Wabtec represents an under-appreciated transition story as rail companies
shift away from cost-cutting, towards greater efficiency. Consensus does not
recognise the company's secular growth potential. As transport continues to
decarbonise, Wabtec provides the technology and software solutions to minimise
fuel usage and improve efficiency. Wabtec is the first to develop a fully
electric battery line-haul locomotive. Near-term cyclical growth as rail
freight volumes improve along with demand for components, equipment, repairs,
upgrades and (high margin) services.
What we like
An opportunity to invest in a high-quality business undergoing positive
change, at a valuation discount to its industry peers.
The potential for upward revisions to consensus earnings estimates, driven by
margin improvements and top line growth.
On a forward price-to-earnings multiple of 20x, Wabtec trades at a discount to
railroad operators and we model over 20% upside to our base-case estimate of
fair value.
Revenue US$ 10.5bn
Net profit margin 14.2%
Net Income US$ 1.5bn
Earnings per share US$c 7.9
Special Investments
Special Investments are an opportunity to participate alongside some of the
world's best investors, in their highest conviction ideas. Sourced through our
global ideas network, they comprise co-investments, special-purpose vehicles
and thematic situations. Because they can be somewhat volatile over shorter
periods and require a degree of patience, we have ambitious return targets for
Special Investments.
Special Investments
Allocation Range 10%-40%
Initial Target 20%
Current Allocation 17.0%
Portfolio Allocation GBP 25.8m
Number of holdings 16
Co-investments
Thematic Funds
Special Purpose Vehicles
One degree of separation
12-36-month time horizon
Priced at least quarterly
Over the financial year, we made ten new Special Investments, which took the
portfolio weighting from 9% to 17%.
Amongst the most recent is a co-investment in the public equity of Orizon
Valorizacao de Residuos SA, a leading waste-management business in Brazil. Hix
Capital, the idea's sponsor, believes the company's EBITDA can double by 2030
as assets mature and new revenue sources are monetised, alongside the benefits
of an accretive bolt-on M&A strategy. Within the same investment tranche
is a co-investment in the public equity of CVS Health Corporation, a U.S.
healthcare company with significant turnaround potential. Glenview Capital,
the idea sponsor, points to a more disciplined pricing within the insurance
business, substantial cost-cutting and end of value-destructive M&A.
Glenview sees potential for 2-3x return over the next three years.
A co-investment in the public equity of VF Corporation, is an investment in
the turnaround potential of some iconic brands, including Timberland, The
North Face and Vans. Although the extent of underinvestment and profligacy
under a previous management team was greater than Engaged Capital (the idea's
sponsor) had originally appreciated, they are encouraged by progress towards
their plan and the shares have risen on the announcement of impressive
executive appointments and the sale of Supreme Brands, a non-core asset, for
US$1.5bn.
Engaged Capital also brought us a co-investment in the public equity of
Portillo's Inc, a Chicago-based fast-food restaurant. Here, Engaged sees
tremendous upside potential from an improvement in operational execution,
better new-store economics and operating leverage.
Thebes Capital also brought us two Special Investments. The first was a
co-investment in the public equity and debt of Frontier Inc., a communications
company. The company was the subject of a takeover bid by Verizon Inc and the
position has been largely monetised. The second, an investment in the public
equity of FTAI Infrastructure Inc. FTAI is a diversified business that was
spun-out of Fortress Transportation in August 2022, comprising several
attractive transport and infrastructure assets. Thebes sees multiple catalysts
for value creation from new contracts, potential disposals and cost
efficiencies.
Largest Five Special Investment Holdings as of 30 September 2024
Security Position Size Sector Geography Style
Sachem Cove Special Opportunities Fund (0.8%) and Global X Uranium ETF (2.0%) 2.8% Commodities Global Thematic
FTAI Infrastructure Inc (Qena Capital LP Class T) 2.0% Infrastructure United States Co-invest
Portillos Inc (Engaged Capital Co-invest XVII) 1.9% Consumer United States Co-invest
Frontier Communications (Qena Capital LP Class S) 1.8% Technology United States Co-invest
VF Corporation (Engaged Capital Co-invest XVI) 1.6% Consumer United States Co-invest
Scalar Gauge a Dallas based manager brought us Zuora Inc. whose software
products enable pricing, billing, payments and revenue accounting tools for
over 1,000 businesses globally. The company was the subject of a takeover
approach, which was made after Majedie's year-end; we await the outcome of
that process.
During the year we received a significant return of capital from a tax credit
factoring strategy, for a modest overall gain. Meanwhile, we are very upbeat
about the prospects for our thematic investment in Sachem Cove Special
Opportunities Fund, a fund that invests in smaller Uranium Companies, having
rotated our mode of expression of this idea out of the public equity of Cameco
Inc. The theme is also expressed through the Uranium ETF.
A co-investment in the public equity of Concentrix Corporation, a 'customer
service and customer experience' business was brought to us by Impactive
Ballantine. Prior to our decision to invest, Concentrix's shares had already
sold off heavily, reflecting concerns that AI will disrupt its core
operations. Impactive Ballantine believes these concerns are misplaced,
however the market is in no mood to give the benefit of the doubt to a
perceived AI 'disruptee'. The stock stands on a single-digit PE multiple and a
20% free cash flow yield.
Case Study: Metro Bank PLC
Senior Non-Preferred MREL-eligible Bonds Idea Sponsor
The opportunity to invest in Metro Bank was brought to us in late 2022 by
Caius Capital, a London-based firm specialising in stressed and distressed
credit situations. Led by Antonio Batista - whom we have known since his days
at Och Ziff - Caius has considerable expertise in the Financial Services
sector.
The Opportunity
The thesis behind the investment in Metro Bank's October 2025, 9.5% Senior
Non-Preferred MREL-eligible bonds centred on a belief the bank was on a path
back to profitability, with improving capital ratios.
Caius believed that - under a base case scenario - the bonds could deliver an
IRR of >20% through the 9.5% coupon and some pull-to-par. A much higher
return was possible if the company called the bonds early, most probably by
October 2024, when the instruments would otherwise have lost their beneficial
regulatory capital status. Since these bonds stood at the top of the company's
capital structure, Caius believed the downside was limited, even if the bank
was forced to recapitalise.
The Outcome
Despite strong operating performance, the last of these scenarios transpired
when - in September - the regulator decided not to approve a modelling change
that would have eased the bank's capital ratio constraints. Caius was deeply
involved in subsequent negotiations with other stakeholders, which resulted in
swapping our securities for higher paying 12% coupon bonds with an extended
maturity to April 2029. Whereas more junior parts of the capital structure
were subject to write-downs, our bonds were unimpaired largely thanks to
Caius' actions.
The bonds have subsequently rallied strongly, helped by the announcement of
the divestment of the mortgage book, which improved its capital position.
Having bought the bonds at just over 80c, we recently exited the position at
close to par.
Notional outstanding GBP 525m
Annual coupon rate 12%
Maturity date 30/04/2029
Current price GBP 98.8
Yield to maturity 12.2%
Market Outlook
With inflation seemingly under control, the Federal Reserve is mindful of a
softening labour market and has implied that further cuts will follow if the
unemployment rate rises to 4.5%. This, in turn, could pave the way for lower
policy rates in Europe and the U.K. With the notable exception of Japan, the
world's major central banks have commenced an easing cycle.
It is received wisdom that, when central banks loosen simultaneously, the
implications for risk assets are bullish. However, the current environment for
investors is more nuanced than in previous cycles because (a) U.S. markets
have already risen in anticipation of monetary easing, and (b) the rally has
been concentrated in a small number of mega-cap tech companies. As
long-duration investments, growth stocks are not usually considered the
greatest beneficiaries of lower policy rates and steeper yield curves.
Allocators also need to evaluate the implications of a Trump presidency on
their portfolios. Although we do not have exposure to any of the obvious Trump
trades (such as bitcoin, shale stocks or Tesla), we see a considerable upside
and a margin of safety in our underlying portfolio investments. As interest
rates fall, we expect some of the trillions of dollars that have been earning
attractive income from short-dated government bonds and money-market funds to
flow back into riskier assets. Given the divergence in valuations while this
capital has been on the sidelines, it would not surprise us to see it come
into smaller-cap stocks, value plays and international equities.
Our central case for the year ahead is that GDP in the developed world will
grow, albeit at a modest pace. The fixed-income bond market warrants careful
monitoring, as rising yields on long-dated Treasuries could present the
greatest threat to equity markets.
In late September, Chinese stocks surged when Beijing sent an unmistakable
message it would prioritise economic and social stability over ideology. These
announcements should be taken seriously. With some RMB 120 trillion (US$ 17
trillion) locked in household savings, a recovery in consumer confidence is
essential if China's economic fortunes are to turn. Hence, the PBOC released
RMB 1 trillion (US$ 140 billion) of liquidity by cutting its Reserve
Requirement Ratio by 50 bps, the short-term repo rate for banks by 20 bps,
lowering mortgage rates, and injecting Tier-1 capital into the state banks to
provide more liquidity for lending. While this does not quite constitute an
open-ended commitment, it is clear the authorities have changed course.
Approximately 4% of Majedie's portfolio is invested in China-related equities,
through the Perseverance DXF Value Fund, a specialist manager who has
navigated the recent volatility extremely well. Whilst structurally bullish,
the fund's manager is tactically very cautious. We also have a positive view
on copper, underpinned by a projected imbalance between demand and supply. The
next few years will see new appetite from the adoption of electric vehicles,
the electrification of industry, and related transmission and distribution
power-grid investment. Meanwhile, supply will be constrained by mine
disruptions, decreasing ore grades, and the impact that environmental
considerations have on the timelines for bringing new mines onstream.
Concluding Thoughts
Many markets, however, stand close to all-time highs, buoyed by heavy
concentration in a few AI-related mega cap names and we see better return
potential and less risk outside of these areas. Although the uncertainty of
the U.S. presidential election has passed, we should expect a degree of
unpredictability in policy and personnel in the months and years ahead. This,
alongside uncertainty about the effectiveness of monetary policy on slowing
economies and troubling geopolitical developments, gives us plenty of concern
as 2024 draws to a close. We will balance opportunity and risk by focusing on
our highest conviction and most resilient ideas, ensuring they are varied by
profile and return drivers.
Portfolio as at 30 September 2024
Market Value (£000) % of Total Assets less Current Liabilities
Direct Investments
Global X Copper Miners ETF 7,034 4.6%
KBR Inc. 3,813 2.5%
Computacenter plc 3,276 2.2%
Weir Group plc 3,267 2.2%
SS&C Technologies Holdings Inc. 3,084 2.0%
Breedon Group plc 2,951 2.0%
Evolent Health Inc. 2,550 1.7%
IMI plc 2,504 1.7%
Heineken NV 2,175 1.4%
Basic-Fit NV 1,867 1.2%
Westinghouse Air Brake Technology Corp. 1,765 1.2%
Cancom SE 1,564 1.0%
35,850 23.7%
External Managers
Silver Point Capital Offshore Fund Ltd 9,802 6.5%
Millstreet Credit Offshore Fund Ltd 9,680 6.4%
Contrarian Emerging Markets Offshore Fund Ltd 9,668 6.4%
Helikon Long/Short Equity Fund ICAV 9,367 6.2%
Praesidium Strategic Software Opportunities Offshore Fund LP 8,294 5.5%
Paradigm BioCapital Partners Fund Ltd 8,202 5.4%
CastleKnight Offshore Fund Ltd 7,452 4.9%
Perseverance DXF Value Feeder Fund Ltd 7,048 4.7%
CQS Credit Multi-Asset Fund 6,866 4.5%
Eicos Fund SA SICAV-RAIF 6,571 4.3%
Context Partners Offshore Fund Ltd 4,871 3.2%
Briarwood Capital (Offshore) Ltd 4,806 3.1%
Engaged Capital Flagship Fund Ltd 2,920 1.9%
Other External Managers 1,093 0.7%
96,640 63.7%
Special Investments
Qena Capital LP Class T 2,988 2.0%
Global X Uranium ETF 2,985 2.0%
Engaged Capital Co-invest XVII LP 2,833 1.9%
Qena Capital LP Class S 2,761 1.8%
Engaged Capital Co-invest XVI LP 2,370 1.6%
Orizon Valorizacao de Residuos SA Warrants 2,361 1.6%
SG SPV IV LP 2,296 1.5%
GCM Suggestivist I Offshore Partners LP 2,086 1.4%
Metro Bank 12% 30/04/29 1,702 1.0%
Other Special Investments 3,449 2.2%
25,831 17.0%
Fixed Interest
United Kingdom Gilt 5.00% 07/03/25 8,012 5.3%
Other Investments (including current assets investments) 246 0.2%
Total Investments 166,579 109.9%
Cash and Cash Equivalents 3,555 2.3%
Net Current Liabilities (excluding current assets investments) (18,644) (12.2%)
Total Assets less Current Liabilities 151,490 100.0%
Dan Higgins
Marylebone Partners LLP
20 December 2024
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on Wednesday 19 February
2025 at City of London Club, 19 Old Broad Street, London EC2N 1DS at 12 noon.
FURTHER INFORMATION
The Annual Report and Accounts for the year ended 30 September 2024 can be
obtained from the Company's website at www.majedieinvestments.com
(http://www.majedieinvestments.com) .
A copy of the Annual Report and Accounts will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) , in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
END
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
LEI: 2138007QEY9DYONC2723
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