Half-year Report
14/03/2024 07:00
14 March 2024
Strategic Equity Capital plc (‘SEC’)
Half Year Report and Financial Statements for the six months ended 31 December
2023
The Board of Strategic Equity Capital plc, the specialist alternative equity
investment trust investing in high-quality, dynamic, UK smaller companies, is
pleased to announce the Company’s results for the half-year ended 31
December 2023.
Highlights for the six months ended 31 December 2023
* NAV per share up 1.7%, despite challenging UK equity market conditions
* Portfolio remains highly focused with 18 holdings and top 10 accounting for
84% of NAV
* Fully invested, with around 1% of NAV held in cash at period end
* 2022 measures to address share price discount now well established and
successful: * Discount has tightened from 8.3% (before measures announced), to
7.3% at period end, versus average sector1 discount which stands at 12.7%
* Ongoing commitment to share buyback from divestment proceeds, including
£15.4 million contribution from takeover of Medica Group plc in July 2023
* Over 2.6 million shares repurchased during 2023 calendar year
* Gresham House commitment to invest £5 million in SEC shares now complete
investment manager now has an 11.1% equity stake
* Successful co-ordinated bookbuild in September 2023 to diversify SEC’s
shareholder register
* Ongoing investment manager fee reinvestment where share price discount
exceeds 5%
* Performance contributors during the period include:
* XPS Pensions Group, which delivered expectation-beating results and divested
a non-core business at a significantly accretive valuation multiple to the
wider group
* Fintel, a regulatory technology service provider, which has made several
strategic acquisitions to increase capabilities and scale
* Education service provider Tribal delivered strong performance and bid
interest at a 42% premium from a US-based, private equity-owned, education
business, although this takeover offer subsequently lapsed
* Ten Entertainment, a leading UK tenpin bowling operator, received a
recommended cash offer from Trive Capital at a 33% premium to share price,
completing post period end
* Wilmington, the business information and training provider, delivered strong
results and signalled expectations of continued strong organic growth
William Barlow, SEC’s Chairman, commented:
“Macroeconomic uncertainty, geopolitical volatility and weak equity fund
flow dynamics have continued to act as a drag on UK equity market performance,
with over 30 consecutive months of outflows. Against this backdrop, the Board
is pleased with SEC’s performance as we approach the fourth anniversary of
Gresham House’s appointment.
A benefit of these weaker equity markets, particularly in UK smaller
companies, is that private equity and trade buyers are seeking to take
advantage of the valuation discount at which publicly listed companies
trade. We have seen this advantage manifest itself in SEC’s concentrated
portfolio benefiting from several takeover approaches over the period.
UK Smaller Company Investment Trust sector
SEC’s resilient positioning should enable it to continue to outperform in
the current challenging environment and deliver attractive long-term capital
growth when markets stabilise. The enhanced marketing programme and ongoing
share buybacks should support the Company’s ability to maintain a
structurally narrower share price discount to NAV over the coming years.”
Ken Wotton, MD of Public Equity at Gresham House and SEC’s Fund Manager,
said:
“Although SEC lagged its peer group during the reporting period this
followed a strong period of outperformance in the prior year. Absolute returns
remained comfortably positive with the majority of portfolio companies seeing
values increase during the period, despite volatile market conditions. The
portfolio remains high-conviction and highly concentrated, invested in quality
businesses which trade on attractive valuations that have the potential to be
strategically valuable.
Takeover bids for portfolio companies are evidence to support our valuation
thesis. We saw this with the successful bid for Medica in the first half of
2023 and continue to see it with recommended bids for Tribal and Ten
Entertainment in the second half. As we saw with Tribal, even bids at a
significant premium recommended by company boards won’t always lead to a
takeover being supported by all shareholders. This reinforces the wide
disparity between public and private investors’ views of appropriate
valuations.
Across SEC’s small cap universe, valuations remain significantly undervalued
relative to history, global equity indices and private M&A transaction
multiples. However, the challenging macroeconomic backdrop further fuels the
need for careful assessment of the bottom-up characteristics of each company.
In the long run, we expect that disparity to narrow. In the meantime, in
conjunction with strong underlying fundamentals across the portfolio, this
valuation dynamic adds to the margin of safety around prospective equity
returns.”
FINANCIAL SUMMARY
Capital Return As at 31 Dec 2023 As at 30 June 2023 As at 31 Dec 2022 Six months % change to 31 Dec 2023
Net asset value (“NAV”) per share ǂ 345.83p 342.47p 293.08p 1.0%
Ordinary share price 320.50p 309.00p 275.00p 3.7%
Comparative index* 5,353.66 4,970.43 5,026.45 7.7%
Discount 1 of Ordinary share price to NAV (7.3)% (9.8)% (6.2)%
Average discount of Ordinary share price to NAV for the period 1 (8.0)% (7.4)% (7.8)%
Total assets (£’000) 169,447 170,784 151,033 (0.8)%
Equity shareholders’ funds (£’000) 168,512 170,223 150,550 (1.0)%
Ordinary shares in issue with voting rights 48,726,211 49,704,711 51,368,273
ǂ Net asset value or NAV, the value of total assets less current liabilities.
The net asset value divided by the number of shares in issue produces the net
asset value per share.
* FTSE SmallCap (ex Investment Trusts) Index.
Performance Six month period to 31 Dec 2023 Year ended 30 June 2023 Six month period to 31 Dec 2022
NAV total return for the period 1 1.7% 9.2% (6.7)%
Share price total return for the period 1 4.6% 11.2% (1.0)%
Comparative index * total return for the period 9.6% (0.4)% (1.1)%
Ongoing charges 1 - annualised 1.19% 1.22% 1.21%
Ongoing charges 1 (including performance fee) - annualised 1.43% 1.22% 1.21%
Revenue return per Ordinary share 2.74p 3.53p 2.16p
Dividend yield n/a 0.81% n/a
Proposed final dividend for the period n/a 2.50p n/a
Alternative Performance Measures
1 Please refer to pages 25 and 26 of the Half-Year Report for definitions and
reconciliations of the Alternative Performance Measures for the Half-Year
results.
Interim period’s Highs/Lows High Low
NAV per Ordinary share 346.8p 317.9p
Ordinary share price 323.5p 290.0p
The full Half Yearly Report and Financial Statements can be accessed via the
Company’s website at: www.strategicequitycapital.com or by contacting the
Company Secretary as below.
Copies of the announcement, annual reports, quarterly update presentations and
other corporate information can be found on the Company’s website at:
www.strategicequitycapital.com
For further information, please contact:
Strategic Equity Capital plc William Barlow (Chairman) (via Juniper Partners) +44 (0)131 378 0500
Liberum Capital Limited (Corporate Broker) Chris Clarke Darren Vickers Owen Matthews +44 (0)20 3100 2000
Juniper Partners Limited (Company Secretary) Steven Davidson +44 (0)131 378 0500
KL Communications (PR Adviser) gh@kl-communications.com +44 (0)20 3995 6673
Charles Gorman
Adam Westall Charlotte Francis
About Strategic Equity Capital plc
SEC is a specialist alternative equity trust.
Actively managed, it maintains a highly-concentrated portfolio of 15-25
high-quality, dynamic, UK smaller companies, each operating in a niche market
offering structural growth opportunities.
SEC aims to achieve investment growth over a medium-term period, principally
through capital growth. The team looks to find companies with the potential to
double shareholder value every five years.
SEC’s investment manager is Gresham House Asset Management.
About Gresham House Asset Management
Gresham House Asset Management is the FCA authorised operating business of
Gresham House Ltd, a specialist alternative asset manager. Gresham House is
committed to operating responsibly and sustainably, taking the long view in
delivering sustainable investment solutions.
Further information on SEC plc is available at www.strategicequitycapital.com,
and further information on Gresham House is available at www.greshamhouse.com
CHAIRMAN’S STATEMENT
The six-month period to the end of December followed similar themes to the
prior period, namely macroeconomic uncertainty, geopolitical volatility and
weak equity fund flow dynamics, all of which acted as a drag on equity market
performance. Ongoing uncertainty will continue to throw up more challenges as
the current financial year progresses, but will also present opportunities for
your Manager to uncover attractive long term investment opportunities.
The Company’s investment portfolio remains highly concentrated with almost
84% of the Company’s Net Asset Value (“NAV”) made up of the top ten
holdings as at the end of December 2023. The Manager has undertaken a detailed
review of the valuations of these key assets including benchmarking them
against the valuations applied to private market transactions for comparable
businesses. This analysis indicates a substantial margin of safety currently
underpinning the potential for long term investment returns which provides the
Board with confidence notwithstanding the uncertain environment.
Weaker equity markets, particularly in the area of UK smaller companies, have
increasingly been attracting the attention of private equity and trade buyers
seeking to take advantage of the relative valuation discount being applied to
publicly listed companies compared to prevailing private market transaction
valuation multiples. The Company’s portfolio has been a beneficiary with
takeover approaches for a number of companies over the period, most recently
involving Ten Entertainment Group, which received a recommended cash takeover
offer from US private equity firm Trive Capital (the transaction completed
post period end in February 2024); and Tribal Group1, which received a
recommended cash takeover offer from Ellucian (a trade competitor backed by
Blackstone and Vista Equity Partners).
The Company is positioned as a high conviction concentrated portfolio of high
quality businesses on attractive valuations that have the potential to be
strategically valuable. As such it remains susceptible to further approaches
while valuation multiples remain depressed. This, together with the underlying
financial health of the portfolio, provides the Board with confidence that our
investment management team will be able to generate good long term returns for
shareholders in the Company.
Performance
During the six months to 31 December 2023, the Company’s NAV per share (on a
total return basis) increased by 1.7%. The FTSE Small Cap (ex Investment
Trusts) Total Return Index (“FTSE Small Cap Index”), which we use for
comparison purposes only, increased by 9.6%. Over the same period, the share
price of the Company increased by 4.6% on a total return basis. It is
worthwhile to remind shareholders that the Manager’s strategy includes the
avoidance of certain more cyclical sectors, instead focussing the portfolio on
relatively defensive businesses with compelling structural tailwinds. In
particular, consumer discretionary stocks were large positive contributors to
benchmark performance over this period, and represent a materially greater
weight in the index relative to the Company. Whilst these sectors often
demonstrate short periods of outperformance when sentiment inflects
positively, they are similarly prone to periods of sharp drawdown when
macroeconomic conditions and/or sentiment weaken. The Manager and Board
believe that over the long term, the avoidance of these areas of the market
will not be detrimental to performance but will rather reduce volatility and
improve the consistency of investment returns.
1 The recommended offer for Tribal Group lapsed following certain shareholder
feedback, notwithstanding the 42% spot premium implied by the offer price.
Whilst positive, NAV performance during the period lagged the relevant index,
although remains significantly ahead of the benchmark index over the three
year period to 31 December 2023. Encouragingly, the total return of the
Company’s shares over the six month period tracked relatively closer to the
index than the NAV performance, reflecting the discount reduction mechanisms
put in place by the Board in recent years, including most recently a
co-ordinated bookbuild to diversify the Company’s shareholder register. With
regards to portfolio construction, the Manager believes that continuing to
prioritise companies with resilient business fundamentals and strong balance
sheets should enable the Company to outperform over the medium to long term.
Performance is discussed more fully in the Investment Manager’s Report on
page 7 of the Half-Year Report.
Development of the Company
Ken Wotton (Managing Director, Public Equity at Gresham House) has been Lead
Manager of the Company since September 2020. Since then Ken and his team have
gradually repositioned the portfolio into a high conviction set of businesses,
in many of which the Company now holds strategic and influential equity stakes
which form a platform to implement the Manager’s highly differentiated and
engaged Strategic Public Equity strategy (summarised in the Investment
Manager’s Report on page 7 of the Half-Year Report).
Gresham House plc purchased 123,166 shares in the Company during the period
ended 31 December 2023, resulting in a combined direct and indirect equity
stake of 11.1% in the Company.
The Board is pleased with the progress made by Gresham House since September
2020, and notes the strong outperformance against the benchmark over that
period. Whilst performance in the six months ended 31 December 2023 lagged the
benchmark index, the Board believes that the Manager’s investment approach
should continue to deliver outperformance over the medium to longer term. The
Board also notes that Gresham House has undergone a change in ownership during
the period, pursuant to the Recommended Cash Offer from Searchlight Capital
(“Searchlight”) which completed in December 2023. As such, Gresham House
is no longer a publicly quoted company, but a portfolio company of
Searchlight, a leading transatlantic private equity investor. The valuation
multiple implied by this transaction was at a significant premium to the
valuation ascribed to Gresham House by the public markets, which is part of a
wider theme of public vs private market undervaluation that this Company seeks
to capitalise on in its investment approach (with several recent examples
within the Company’s investment portfolio). The Board sought and received
assurances that Searchlight is supportive of Gresham House’s incumbent
strategy, and is comfortable that there are no direct implications for the
investment team managing this Company.
Discount and Discount Management
The average discount to NAV of the Company’s shares during the period was
8.0%, compared to the equivalent 7.5% figure from the prior year. The discount
range was 11.6% to 4.6%.
Many of the measures implemented in Q1 2022 to address the persistent share
price discount to NAV are now complete. These included a 10 per cent. tender
offer; the implementation of a share buyback programme with 2,642,062 shares
repurchased during the 2023 calendar year; and a commitment by Gresham House
to use £5 million of its cash resources to purchase shares in the Company.
Gresham House now has a 11.1% equity stake in the Company. These have been
successful, resulting in the discount narrowing from 9.8% at the beginning of
the period to 7.3% at the end of the period. For comparison, over the same
period the average UK Smaller Company Investment Trust discount decreased from
12.7% to 10.0%.
Other measures, also implemented in Q1 2022, remain ongoing. These include: a
buy back policy to return 50 per cent. of proceeds from profitable
realisations, at greater than a 5 per cent. discount on an ongoing basis, in
each financial year; an ongoing commitment by Gresham House Asset Management
to reinvest 50 per cent. of its management fee per quarter in shares if the
Company’s shares trade at an average discount of greater than 5 per cent.
for the quarter; and the deferral of an annual continuation resolution and
cancellation of the 2024 contingent tender offer in favour of the
implementation of a 100 per cent. realisation opportunity for shareholders in
2025.
Gearing and Cash Management
The Company has maintained its policy of operating without a banking loan
facility. This policy is periodically reviewed by the Board in conjunction
with the Manager and remains under review.
Dividend
The Directors continue to expect that returns for shareholders will derive
primarily from the capital appreciation of the shares rather than from
dividends. In line with previous years, the Board does not intend to propose
an interim dividend.
Outlook
The global macroeconomic and geopolitical environment continues to drive
uncertainty, although evidence of disinflation and growing consumer confidence
should support both corporate earnings and equity valuations.
UK equity markets, particularly across the small cap universe, remain
significantly undervalued relative to history, global equity indices, and
private M&A transaction multiples. In conjunction with strong underlying
fundamentals across the portfolio, this valuation dynamic adds to the margin
of safety around prospective equity returns.
The resilient positioning of the Company’s portfolio should enable it to
outperform in the current challenging environment and deliver attractive
long-term capital growth when markets stabilise. The enhanced marketing
programme and ongoing share buybacks should support the Company’s ability to
maintain a structurally narrower share price discount to NAV over the coming
year.
The Board, once again, thanks you for your continued support.
William Barlow
Chairman
13 March 2024
INvestment Manager’s report
Investment Strategy
In the following section, we remind shareholders of our strategy and
investment process.
Our Strategic Public Equity strategy
The appointment of Gresham House as Manager in May 2020 and the subsequent
appointment of Ken Wotton as Lead Fund Manager in September 2020 resulted in a
refocus of the investment strategy, ensuring that it is strictly applied and
is able to effectively leverage the experienced resource of the Gresham House
Strategic Equity team, the wider Group platform and its extensive network. We
set out this strategy in detail in the Company’s 2023 Annual Report which we
summarise again below.
Investment focus
Our investment focus is to invest into high quality, publicly listed companies
which we believe can materially increase their value over the medium to long
term through strategic, operational or management change. To select suitable
investments and to assist in this process we apply our proprietary Strategic
Public Equity (“SPE”) investment strategy. This includes a much higher
level of engagement with management than most investment managers adopt and is
closer, in this respect, to a private equity approach to investing in public
markets companies. Our path to achieving this involves constructing a high
conviction, concentrated portfolio; focusing on quality business fundamentals;
undertaking deep due diligence including engaging our proprietary network of
experts and assessing ESG risks and opportunities through the completion of
the ESG decision tool; and maintaining active stewardship of our investments.
Through constructive, active engagement with the management teams and boards
of directors, we seek to ensure alignment with shareholder objectives and to
provide support and access to other resource and expertise to augment a
company’s value creation strategy.
We are long-term investors and typically aim to hold companies for
three-to-five years to back a thesis that includes an entry and exit strategy
and a clearly identified route to value creation. We have clear parameters for
what we will invest in and areas which we will deliberately avoid.
Smaller company focus
We believe that UK Smaller Companies represent a structurally attractive part
of the public markets. Academic research demonstrates that smaller companies
in the UK have delivered substantial outperformance over the long term (see
Figure 1 on page 7 of the Half-Year Report). This is partially because there
is a large number of under-researched and under-owned businesses that
typically trade at a valuation discount to larger companies (see Figure 2 on
page 8 of the Half-Year Report) and relative to their prospects. A highly
selective investor with the resources and experience to navigate successfully
this part of the market can find exceptional long-term investment
opportunities.
The key attractions of smaller companies are:
Inefficient markets – Smaller companies remain under-researched and below
the radar for most investors thus creating an opportunity for those willing to
devote time and resource to this area.
A large universe – Most UK listed companies are in the smaller companies
category and are listed on the main market or AIM. Two-thirds of UK listed
companies have a market capitalisation below £500m, offering a large
opportunity set for smaller company specialists.
Valuation discounts – Such discounts, arising for whatever reason, present
attractive entry points at which the intrinsic worth of a company’s
long-term prospects are undervalued.
M&A activity – Smaller companies often offer strategic opportunities within
their niche markets and can become attractive, bolt-on acquisitions to both
trade and private equity buyers. These buyers provide an additional source of
liquidity and realisation of value for smaller company investors.
Portfolio construction
We will maintain a concentrated portfolio of 15-25 high conviction holdings
with prospects for attractive absolute returns over our investment holding
period. The majority of portfolio value is likely to be concentrated in the
top 10-15 holdings with other positions representing potential
“springboard” investments where we are still undertaking due diligence or
awaiting a catalyst to increase our stake to an influential, strategic level.
Bottom-up stock picking determines SEC’s sector weightings which are not
explicitly managed relative to a target benchmark weighting. The absence of
certain sectors such as Oil & Gas, Mining and Banks, as well as limited
exposure to overtly cyclical parts of the market, and the absence of early
stage or pre-profit businesses typically result in a portfolio weighted
towards, but not exclusively, profitable cash generative service sector
businesses particularly in Technology, Healthcare, Financial Services and
Industrial Goods & Services. The underlying value drivers are typically
company specific and exhibit limited correlation even within the same broad
sectors. Figure 3 on page 8 of the Half-Year Report sets out the sector
exposure of the Company as at 31 December 2023.
Our smaller company focus and specialist expertise leads us to prioritise
companies with a market capitalisation between £100m and £300m at the point
of investment. This focus, in combination with the size of the Company and its
concentrated portfolio approach, provides the potential to build a strategic
and influential stake in the highest conviction holdings. In turn this
provides a platform to maximise the likelihood that our constructive active
engagement approach will be effective and ultimately successfully contribute
to shareholder value creation.
Once purchased there is no upper limit restriction on the market
capitalisation of an individual investment. We will run active positions
regardless of market capitalisation provided they continue to deliver the
expected contribution to overall portfolio returns and subject to exposure
limits and portfolio construction considerations.
The weighted average market capitalisation of portfolio holdings increased to
£276m as at 31 December 2023 compared to £252m as at 30 June 2023, largely
reflecting share price growth across the portfolio, particularly in the case
of the largest holding (XPS Pensions Group), which was a top performer
throughout the period with a market capitalisation greater than the portfolio
average as at 31 December 2023. This level of average market capitalisation
supports the Manager’s strategy of focusing on smaller market capitalisation
companies where SEC has the potential to take a meaningful equity stake as a
platform to effectively apply its active engagement strategy.
We set out a description of the Top 10 holdings as at 31 December 2023 on page
11 of the Half-Year Report together with a high level summary of the
investment case and recent developments for each position.
Constructive Active Engagement Approach
As far as possible, SEC aims to build consensus with other stakeholders. We
want to unlock value for shareholders, but also create stronger businesses
over the long term. The objective is to develop a dialogue with management so
that the Gresham House Asset Management (‘GHAM’) team and its network are
seen as trusted advisors.
Operating with a highly-focused portfolio, SEC’s management team can build
and maintain a deep understanding of its portfolio companies and their
potential. The team engages with company management teams and boards in a
number of areas including:
Strategy – Working with boards to ensure that business strategy and
operations are effectively aligned with long term value creation and focused
on building strategic value within a company’s market.
Corporate activity – Support for acquisition and divestment activity through
advice, network introductions and the provision of cornerstone capital.
Capital allocation – Seeking to work with boards to optimise capital
allocation by prioritising the highest return and value added projects and
areas of focus for investment of both capital and resource.
Board composition – Ensuring that boards are appropriately balanced between
executive and non-executive directors and contain the right balance of skills
and experience; we actively use our talent network to introduce high quality
candidates to enhance the quality of investee company boards as appropriate.
Management incentivisation – Ensuring that key management are appropriately
retained and incentivised to deliver long term shareholder value with schemes
that fit with GHAM’s principles and are well aligned to our objectives as
shareholders.
ESG – Leveraging the GHAM sustainable investing framework and central
resource to help to identify, understand and monitor key ESG risks and
opportunities as well as seeking to drive enhancements to a company’s
approach where there are critical material issues with a particular focus on
corporate governance.
Investor Relations – Helping management teams to hone their equity story,
select appropriate advisors and target their investor relations activities in
the most effective way to ensure that value creation activity is understood
and reflected by the market.
Engagement is undertaken privately, as far as possible. The team will also
work to leverage its extensive network to the benefit of portfolio companies.
We seek to make introductions to our network in as collaborative way as
appropriate where we believe there is an opportunity to support initiatives to
create shareholder value.
In summary, we follow a practice of constructive corporate engagement and aim
to work with management teams in order to support and enhance shareholder
value creation. We attempt to build a consensus with other stakeholders and
prefer to work collaboratively alongside like minded co-investors.
Portfolio review for the six months to 31 December 2023
Over the course of the six months to 31 December 2023 we continued to evolve
the portfolio at a more normalised pace than in the previous two financial
years: purchasing 4 new holdings which represented 6.5% of NAV at the end of
the period, and fully exiting 2 positions which represented 20.6% at the start
of the period. As of 31 December 2023, the number of influential equity stakes
where GHAM funds, in aggregate, hold a 5% or more equity stake stood at 14,
and represented 83% of the portfolio by value at 31 December 2023.
Market Background
Over the six months to the end of December, the FTSE Small Cap (ex Investment
Trusts) Index (“the index”) increased by 9.6% on a total return basis
outperforming both the FTSE All Share (+5.1%) and the FTSE AIM (+2.3%). The
first half of the period saw value outperform growth (as evidenced by the
relative performance of the MSCI UK Growth and Value indices), in part as
concerns over persistent inflation (and an additional base rate increase)
fuelled longer term yields. However, the latter three months of the period saw
a reversal of this trend as signs of disinflation (and hopes of rate cuts)
emerged, with the MSCI UK Value Index performing neutrally over the period
versus a notable recovery for its Growth counterpart. Aside from macroeconomic
uncertainty, geopolitical developments continued to drive volatility and weigh
on risk sentiment, resulting in falling share prices particularly in smaller
companies.
The UK equity market continued to be out of favour with asset allocators,
reaching 30 consecutive months of outflows by December 20231. This continued
selling pressure from UK equities has weighed on valuations, with the UK at
multi-decade lows relative to other developed markets, particularly the US,
despite the drawdowns experienced last year.
Whilst this demonstrates the value opportunities in the UK market, we believe
that the challenging macroeconomic backdrop further fuels the need for careful
assessment of the bottom up characteristics of each company. This suits the
private equity approach taken by the Manager to investing on behalf of the
Company.
Source: Peel Hunt UK M&A: accelerating pace of exits – January 2024.
Performance Review
The net asset value (“NAV”) increased 1.7%, on a total return basis, over
the six months to the end of December 2023, closing at 345.83p per share. This
increase in NAV reflected the positive returns delivered by the majority of
portfolio companies throughout the period, despite volatile equity market
conditions as geopolitical and macroeconomic concerns weighed on investor
sentiment.
The Company underperformed its benchmark during the period, as the FTSE Small
Cap (ex Investment Trusts) Index increased by 9.6%. This reflected the
relatively defensive positioning of the portfolio compared to the wider market
– focused on high quality businesses in less cyclical parts of the market
and with resilient business models and robust balance sheets. In particular,
consumer discretionary businesses contributed strongly to index outperformance
in the period, and represent a materially greater weight in the index relative
to the Company.
Despite the market volatility experienced over the year, we remain confident
about the resilient underlying fundamentals of the portfolio companies and
their ability to withstand the macroeconomic headwinds that look set to
persist through the current financial year.
Top Five Absolute Contributors to Performance
The top five absolute contributors to the Company’s NAV performance in the
six months to 31 December 2023 are: XPS Pensions Group a pensions consulting,
advisory and administration services provider, which delivered results in
excess of market expectations, resulting in analyst upgrades, and divested a
non-core business at a significantly accretive valuation multiple to the wider
group; Fintel, a provider of tech-enabled regulatory services, following a
number of strategic acquisitions which will significantly increase the
capabilities, scale and IP of the organisation; Tribal2, a provider of
technology products and services to the education, learning and training
markets, following strong interim results with double digit EBITDA growth and
strong performance from both divisions, along with the announcement of a
recommended offer in early October at a 42% spot premium; Wilmington, a
provider of business information and training solutions, following strong
results and strong early trading in line with expectations of strong continued
organic growth; and Ten Entertainment, a leading UK tenpin bowling operator,
following a recommended cash offer from Trive Capital at a 33% premium to spot
price.
2 The shareholder vote for Tribal Group’s Recommended Cash Offer was
narrowly defeated in December 2023, resulting in the Company no longer being
in an Offer Period. This caused the company’s share price to retreat in
December and January to similar levels as Summer 2023, before the offer had
been announced.
Bottom Five Absolute Contributors to Performance
In challenging equity market conditions certain portfolio holdings suffered
from share price weakness during the period, typically in response to short
term developments that, we believe, do not fundamentally change the long term
values of the holdings. The largest detractors included R&Q Insurance
Holdings, a provider of core services of legacy acquisitions and program
management, following the proposed sale of the company’s Program Management
business at a valuation materially below market expectations; Inspired Energy,
an energy procurement and ESG consultancy, despite strong current trading and
limited newsflow; Ricardo, an engineering, environmental and strategic
consultancy, following the release of an in-line full year 2023 trading
update, which indicated some downward pressure on outer year forecasts due to
higher interest costs; Iomart, a datacentre and cloud services provider, on no
specific news flow; and Brooks Macdonald, a wealth manager, on the back of
broader market concerns around potential sector-wide outflows, despite the
release of FY23 results slightly ahead of consensus expectations.
Portfolio Review
The portfolio remained highly focused with a total of 18 holdings, of which
the top 10 accounted for almost 84% of the NAV at the end of the period.
Around 1% of the NAV was held in cash at period end.
Over the period positions in Medica (IRR 1 (#_ftn1) of 25% / 12%) and
Carr’s Group (IRR 2 (#_ftn2) of 17%) were exited.
The Company currently has a number of key holdings that we believe trade at
material valuation discounts to comparable private market transaction values,
which provides a strong margin of safety underpinning the long term upside
potential of the portfolio.
Changes in sector weightings have seen exposure to Healthcare decrease from
21.6% to 3.5%, with exposure to Financial Services decreasing from 32.6% to
27.0%, and exposure to Technology increasing from 10.9% to 16.7%.
Top 10 Investee Company Review
Company Investment Thesis Developments
XPS Pensions * Leading ‘challenger’ brand in the pensions administration and advice market with organic market share opportunity following industry consolidation * Divested a non-core business at a significantly accretive valuation multiple to the broader group
* Highly defensive – high degree of revenue visibility and largely non-discretionary, regulation driven client activity with inflation protected contracts * Strong visibility of regulatory changes driving sector demand
* Trades at a material discount to comparable M&A transactions despite competitive positioning, operational delivery * Strong pipeline of opportunities as the current yield environment encourages corporates to explore pension risk transfer solutions
* Strong cash generation supporting growing dividend
Fintel * Leading UK provider of technology * New LTIP scheme implemented which strongly aligns to absolute equity value creation
enabled regulatory solutions and services to IFAs, financial institutions and other intermediaries * Strategically valuable technology platform with opportunity to drive material growth in revenues and margins through supporting customers’ digitisation journeys * Execution of several small, strategic bolt-on acquisitions
* Cash generation strong resulting in significant balance sheet de-gearing
Iomart * Datacentre and cloud services provider * HY24 results demonstrating 18% YoY revenue growth
* Structurally growing market with particular demand for hybrid cloud * New CEO with a strong pedigree in IT services (incl. BT, Equiniti)
* Exceptional quality of earnings with >90% recurring revenue
Brooks Macdonald * UK focused wealth management platform; structural growth given continuing transition to self-investment * Improvement in net fund flows despite market weakness
* Opportunity to leverage operational investments to grow margin and continue strong cash flow generation * Strategic technology partnership with SS&C underpins future scalability
* A consolidating market; opportunity for Brooks as both predator and prey * Continued sector M&A activity (e.g. 7IM / September 2023) at significant valuation premia to Brooks Macdonald’s rating
Ricardo * Global strategic, environmental and engineering consultancy * Successfully extended its McLaren relationship (now in its fourth generation) demonstrating the stickiness of Ricardo’s customer relationships
* Ongoing strategic transformation to refocus and prioritise the business towards higher growth, higher margin and less capital intensive activities * Strong FY23 results with a record orderbook and particularly high growth in its Environmental & Energy Transition divisions, in line with the strategic ambition
* Strong market position underpinned by significant sector expertise
Wilmington * International provider of B2B data and training in the compliance, insurance, financial and healthcare sectors * Profit and cash generation ahead of expectations driving forecast upgrades
* New top team have reshaped the strategy and portfolio of businesses * Recovery in live events underpinning growth and margin recovery
* Operational momentum driving revenue and margin growth with potential for a valuation re-rating * Sector consolidation underlines valuation opportunity
Tribal * International provider of student administration software with market leading positions in the UK, Australia and NZ * Recommended Cash Offer announced from Ellucian (Blackstone / Vista backed competitor) at a 42% spot premium – N.B. the offer subsequently lapsed following lack of support from Tribal’s shareholders
* Strong defensive characteristics with high visibility of earnings
* Transition to cloud-based platform has potential to drive growth, margins and rating
* Low valuation relative to software sector averages and sector transaction multiples
Hostelworld * Leading online travel agent serving the global niche segment of hostelling * Revenues have recovered to pre- Covid levels with further volume recovery still to come
* Business rationalised and optimised during Covid with enhanced customer value proposition * Average order value and customer lifetime values improving
* Recovery from Covid market dynamics well advanced with strong margin recovery potential * Technology and app investment starting to deliver a positive impact
LSL Property Services * Leading provider of services to the UK residential property sector with activities spanning mortgage broking, surveying and real estate agencies * Depressed UK residential housing transaction volumes have provided a challenging backdrop, particularly for LSL’s surveying business
* Significant opportunity to reallocate capital to the Financial Services division which is strategically valuable, high growth and underappreciated by the market * Successful transition of LSL’s estate agency business from owned to franchised
* Potential for a material re-rating as business mix shifts to higher quality less cyclical divisions * Significant open market share buying (December 2023) by LSL’s Chair
Inspired Energy * UK B2B corporate energy services and procurement specialist with strong ESG credentials * High energy costs have driven accelerated growth in optimisation services
* Leading player in a fragmented industry; significant opportunity to gain market share through client wins, proposition extension and M&A * ESG revenues accelerating from a low base
* Valued at a substantial discount to comparable private market transaction multiples
Outlook
The Manager’s core planning assumption is that continued geopolitical and
macroeconomic uncertainty will drive market volatility throughout 2024.
However, signs of disinflation and warming consumer confidence provide a
helpful tailwind for business performance entering into 2024. As in prior
periods, it is likely that increasing focus on company fundamentals and
valuation discipline will be required to outperform in this environment, which
plays to the strengths of the Company’s investment strategy and the
Manager’s approach.
The Manager does not seek to make major macroeconomic predictions or to tilt
portfolio construction materially in any direction to mitigate or benefit from
macro trends. Rather the core focus remains building a portfolio bottom up by
investing in high-quality, resilient companies exposed to structural growth,
key competitive advantages or self-help opportunities and maintain valuation
discipline such that they could drive attractive investment returns over the
medium-to-long term regardless of the economic environment and where the
Manager’s constructive active engagement approach can help to support or
unlock that potential.
The Manager continues to believe that stock-level volatility across the
market, while creating some challenges, will provide an attractive environment
for investors to back quality companies with attractive long-term structural
capital growth at reasonable valuations across the market cap spectrum. The
economic environment and market discontinuity will provide agile smaller
businesses with strong management teams the opportunity to take market share
and build strong, enduring franchises.
Continuing the theme from the first half of the calendar year, levels of
takeover activity within the UK equity space continue to play out. 17 firm
offers were announced during the six months ended 31 December 2023, with a
relatively even balance between private equity and strategic bidders. Takeover
activity was disproportionately concentrated in the small cap universe,
reflecting the relative undervaluation against large cap equities, and
comparable M&A transaction multiples; across the 2023 calendar year the
combined equity value of firm offers was £19bn vs. £41bn in 2022, despite
the number of firm offers having risen from 48 to 59 year on year. The
investment process and private equity lens across public markets enables the
identification of investment opportunities with potential strategic value,
that could be attractive acquisitions for both corporate and financial buyers.
We continue to believe that our fundamental focused investment style has the
potential to outperform over the long term. We see significant opportunities
for long term investors to back quality growth companies at attractive
valuations in an environment where agile smaller businesses with strong
management teams can take market share and build strong long-term franchises.
We will maintain our focus on building a high conviction portfolio of less
cyclical, high quality, strategically valuable businesses which we believe can
deliver strong returns through the market cycle regardless of the performance
of the wider economy.
Ken Wotton
Gresham House Asset Management
13 March 2024
Portfolio as at 31 December 2023
Company Sector Classification Date of first investment Cost £’000 Valuation £’000 % of invested portfolio at 31 December 2023 % of invested portfolio at 30 June 2023 % of net assets
XPS Pensions Group Business Services Jul 2019 16,851 33,994 20.4 15.0 20.2
Fintel Financial Services Oct 2020 13,771 18,182 10.9 6.4 10.8
Iomart Technology Mar 2022 16,272 15,226 9.2 5.4 9.0
Brooks Macdonald Financial Services Jun 2016 15,302 14,750 8.9 7.0 8.8
Ricardo Business Serivices Sep 2021 13,579 13,946 8.4 6.8 8.3
Wilmington Media Oct 2010 6,818 11,490 6.9 5.6 6.8
Tribal Technology Dec 2014 11,742 9,110 5.5 3.9 5.4
Hostelworld Travel & Leisure Oct 2019 6,505 8,826 5.3 4.8 5.2
LSL Property Services Financial Services Mar 2021 13,256 7,935 4.8 5.1 4.7
Inspired Energy Business Services Jul 2020 13,754 7,318 4.4 6.1 4.3
Benchmark Healthcare Jun 2019 6,734 5,837 3.5 3.6 3.5
Netcall Technology Mar 2023 4,367 3,848 2.3 1.8 2.3
Ten Entertainment Travel & Leisure Oct 2020 1,592 3,745 2.2 3.3 2.2
Trufin Financial Services Jul 2023 4,111 3,253 2.0 - 1.9
Property Franchise Real Estate Oct 2023 3,000 3,205 1.9 - 1.9
Belvoir Group Real Estate Oct 2023 2,499 2,830 1.7 - 1.7
Team 17 Media Dec 2023 1,487 1,492 0.9 - 0.9
R&Q Insurance Holdings Financial Services Jun 2022 10,308 1,406 0.8 4.3 0.8
Total investments 166,393 98.7
Cash 2,979 1.8
Net current liabilities (860) (0.5)
Total shareholders' equity 168,512 100.0
Statement of Directors’ Responsibilities, Going Concern, Principal Risks and
Uncertainties
Statement of Directors’ Responsibilities
The Directors confirm that to the best of their knowledge:
* the condensed set of financial statements contained within the Half-Yearly
Report has been prepared in accordance with IAS 34, ‘Interim Financial
Reporting’, and give a true and fair view of the assets, liabilities,
financial position and profit of the Company as required by Disclosure
Guidance and Transparency Rules (“DTR”) 4.2.4R;
* the Half-Yearly Report includes a fair review of the information required
by:
(a) DTR 4.2.7 of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8 of the Disclosure Guidance and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the Company during that period; and any changes in
the related party transactions described in the last Annual Report that could
do so.
This Half-Yearly Report was approved by the Board of Directors on 13 March
2024 and the above responsibility statement was signed on its behalf by
William Barlow, Chairman.
Going Concern
The Company has adequate financial resources to meet its investment
commitments and, as a consequence, the Directors believe that the Company is
well placed to manage its business risks. After making appropriate enquiries
and due consideration of the Company’s cash balances, the liquidity of the
Company’s investment portfolio and the cost base of the Company, the
Directors have a reasonable expectation that the Company has adequate
available financial resources to continue in operational existence for the
foreseeable future and accordingly have concluded that it is appropriate to
continue to adopt the going concern basis in preparing the Half-Yearly Report,
consistent with previous periods.
Principal Risks and Uncertainties
The overriding risks and uncertainties to an investor relate to the markets on
which are traded the Company’s shares and the shares of the companies in
which the Company invests.
The principal risks and uncertainties are set out on pages 17 and 18 of the
Annual Report for the year ended 30 June 2023, which is available at
www.strategicequitycapital.com.
The Company’s principal risks and uncertainties have not changed since the
date of the Annual Report and are not expected to change for the remaining six
months of the Company’s financial year.
Statement of Comprehensive Income
for the six month period to 31 December 2023
Six month period ended 31 December 2023 unaudited Year ended 30 June 2023 audited Six month period to 31 December 2022 unaudited
Note Revenue return £'000 Capital return £'000 Total £'000 Revenue return £’000 Capital return £’000 Total £’000 Revenue return £'000 Capital return £'000 Total £'000
Investments
Gains/(losses) on investments held at fair value through profit or loss 6 - 1,573 1,573 - 10,602 10,602 - (13,459) (13,459)
- 1,573 1,573 - 10,602 10,602 - (13,459) (13,459)
Income
Dividends 2 2,344 - 2,344 3,782 - 3,782 2,124 - 2,124
Interest 2 31 - 31 78 - 78 35 - 35
Total income 2,375 - 2,375 3,860 - 3,860 2,159 - 2,159
Expenses
Investment Manager’s fee 8 (616) - (616) (1,228) - (1,228) (603) - (603)
Performance fee 9 - (369) (369) - - - - - -
Other expenses 3 (408) - (408) (803) - (803) (397) - (397)
Total expenses (1,024) (369) (1,393) (2,031) - (2,031) (1,000) - (1,000)
Net return before taxation 1,351 1,204 2,555 (1,829) 10,602 12,431 1,159 (13,459) (12,300)
Taxation - - - - - - - - -
Net return and total comprehensive income for the period 1,351 1,204 2,555 (1,829) 10,602 12,431 1,159 (13,459) (12,300)
pence pence pence pence pence pence pence pence pence
Return per Ordinary share 5 2.74 2.44 5.18 3.53 20.44 23.97 2.16 (25.08) (22.92)
The total column of this statement represents the Statement of Comprehensive
Income. The supplementary revenue and capital columns are both prepared under
guidance published by the AIC.
All items in the above statement derive from continuing operations. No
operations were acquired or discontinued in the period.
The notes form an integral part of these Half-Yearly financial statements.
Statement of Changes in Equity
for the six month period to 31 December 2023
Note Share capital £'000 Share premium account £'000 Special reserve £'000 Capital reserve £'000 Capital redemption reserve £’000 Revenue reserve £'000 Total £'000
For the six month period to 31 December 2023 unaudited
1 July 2023 6,353 11,300 3,590 142,952 2,897 3,131 170,223
Net return and total comprehensive income for the period - - - 1,204 - 1,351 2,555
Dividend paid 4 - - - - - (1,231) (1,231)
Share buy-backs - - (3,035) - - - (3,035)
31 December 2023 6,353 11,300 555 144,156 2,897 3,251 168,512
For the year to 30 June 2023 audited
1 July 2022 6,353 11,300 19,767 132,350 2,897 2,363 175,030
Net return and total comprehensive income for the year - - - 10,602 - 1,829 12,431
Dividend paid 4 - - - - - (1,061) (1,061)
Share buy-backs - - (16,177) - - - (16,177)
30 June 2023 6,353 11,300 3,590 142,952 2,897 3,131 170,223
For the six month period to 31 December 2022 unaudited
1 July 2022 6,353 11,300 19,767 132,350 2,897 2,363 175,030
Net return and total comprehensive income for the period - - - (13,459) - 1,159 (12,300)
Dividend paid 4 - - - - - (1,061) (1,061)
Share buy-backs - - (11,119) - - - (11,119)
31 December 2022 6,353 11,300 8,648 118,891 2,897 2,461 150,550
The notes form an integral part of these Half-Yearly financial statements.
Balance Sheet
as at 31 December 2023
Note As at 31 December 2023 unaudited £'000 As at 30 June 2023 audited £'000 As at 31 December 2022 unaudited £'000
Non-current assets
Investments held at fair value through profit or loss 6 166,393 169,274 140,283
Current assets
Trade and other receivables 75 268 27
Cash and cash equivalents 2,979 1,242 10,723
3,054 1,510 10,750
Total assets 169,447 170,784 151,033
Current liabilities
Trade and other payables (935) (561) (483)
Net assets 168,512 170,223 150,550
Capital and reserves
Share capital 7 6,353 6,353 6,353
Share premium account 11,300 11,300 11,300
Special reserve 555 3,590 8,648
Capital reserve 144,156 142,952 118,891
Capital redemption reserve 2,897 2,897 2,897
Revenue reserve 3,251 3,131 2,461
Total shareholders’ equity 168,512 170,223 150,550
pence pence pence
Net asset value per share 345.83 342.47 293.08
number number number
Ordinary shares in issue 7 48,726,211 49,704,711 51,368,273
The notes form an integral part of these Half-Yearly financial statements.
Statement of Cash Flows
for the six month period to 31 December 2023
Six month period to 31 December 2023 unaudited £'000 Year ended 30 June 2023 audited £’000 Six month period to 31 December 2022 unaudited £'000
Operating activities
Net return before taxation 2,555 12,431 (12,300)
Adjustment for (gains)/losses on investments (1,573) (10,602) 13,459
Operating cash flows before movements in working capital 982 1,829 1,159
Decrease in receivables 321 374 615
Increase/(decrease) in payables 209 22 (101)
Purchases of portfolio investments (32,988) (30,473) (8,264)
Sales of portfolio investments 37,479 30,463 13,229
Net cash flow from operating activities 6,003 2,215 6,638
Financing activities
Equity dividend paid (1,231) (1,061) (1,061)
Shares bought back in the period (3,035) (16,275) (11,217)
Net cash flow from financing activities (4,266) (17,336) (12,278)
Increase/(decrease) in cash and cash equivalents for period 1,737 (15,121) (5,640)
Cash and cash equivalents at start of period 1,242 16,363 16,363
Cash and cash equivalents at 31 December 2,979 1,242 10,723
The notes form an integral part of these Half-Yearly financial statements.
Notes to the Financial Statements
1.1 Corporate information
Strategic Equity Capital plc is a public limited company incorporated and
domiciled in the United Kingdom, registered in England and Wales under the
Companies Act 2006 whose shares are publicly traded. The Company is an
investment company as defined by Section 833 of the Companies Act 2006.
The Company carries on business as an investment trust within the meaning of
Sections 1158/1159 of the Corporation Tax Act 2010.
1.2 Basis of preparation/statement of compliance
The condensed Half-Yearly financial statements of the Company have been
prepared on a going concern basis and in accordance with international
accounting standards in conformity with the requirements of the Companies Act
2006. They do not include all the information required for a full report and
financial statements and should be read in conjunction with the report and
financial statements of the Company for the year ended 30 June 2023, which
have been prepared in accordance with IFRS. Where presentational guidance set
out in the Statement of Recommended Practice (“SORP”) for investment trust
companies and venture capital trusts issued by the AIC is consistent with the
requirements of IFRS, the Directors have sought to prepare financial
statements on a basis compliant with the recommendations of the SORP.
The condensed Half-Yearly financial statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act 2006. The
financial statements for the six month periods to 31 December 2023 and 31
December 2022 have not been either audited or reviewed by the Company’s
Auditor. Information for the year ended 30 June 2023 has been extracted from
the latest published Annual Report and financial statements, which have been
filed with the Registrar of Companies. The report of the Auditor on those
financial statements was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under Section 498 of the Companies
Act 2006.
Convention
The financial statements are presented in Sterling, being the currency of the
Primary Economic Environment in which the Company operates, rounded to the
nearest thousand.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business.
1.3 Accounting policies
The accounting policies, presentation and method of computation used in these
condensed financial statements are consistent with those used in the
preparation of the financial statements for the year ended 30 June 2023.
1.4 New standards and interpretations not applied
Implementation of changes and accounting standards in the financial period, as
outlined in the financial statements for the year ended 30 June 2023, had no
significant effect on the accounting or reporting of the Company.
2. Income
Six month period to 31 December 2023 unaudited Year ended 30 June 2023 audited Six month period to 31 December 2022 unaudited
£'000 £'000 £'000
Income from investments
UK dividend income 2,344 3,782 2,124
Other operating income
Liquidity interest 31 78 35
Total income 2,375 3,860 2,159
3. Other expenses
Six month period to 31 December 2023 unaudited Year ended 30 June 2023 audited Six month period to 31 December 2022 unaudited
£'000 £'000 £'000
Secretarial services 92 171 85
Auditor’s remuneration for:
Audit services 39 65 36
Directors’ remuneration 92 161 74
Other expenses 185 406 202
405 803 397
4. Dividend
The Company paid a final dividend of 2.50p in respect of the year ended 30
June 2023 (30 June 2022: 2.00p) per Ordinary share on 49,233,260 (30 June
2022: 53,027,547) shares, amounting to £1,230,832 (30 June 2022:
£1,060,551). The dividend was paid on 10 November 2023 to Shareholders on the
register at 13 October 2023. In line with previous years, the Board does not
intend to propose an interim dividend.
5. Return per Ordinary share
Six month period to 31 December 2023 Year ended 30 June 2023 Six month period to 31 December 2022
Revenue return pence Capital return pence Total pence Revenue return pence Capital return pence Total pence Revenue return pence Capital return pence Total pence
Return per Ordinary share 2.74 2.44 5.18 3.53 20.44 23.97 2.16 (25.08) (22.92)
Returns per Ordinary share are calculated based on 49,290,313 (30 June 2023:
51,853,838 and 31 December 2022: 53,653,477) being the weighted average number
of Ordinary shares, excluding shares held in treasury, in issue throughout the
period.
6. Investments
31 December 2023 £’000
Quoted investments at fair value through profit or loss 166,393
The Company is required to classify its investments using a fair value
hierarchy that reflects the subjectivity of the inputs used in measuring the
fair value of each asset. The fair value hierarchy has the following levels:
Investments whose values are based on quoted market prices in active markets
are classified within level 1 and include active listed equities. The Company
does not adjust the quoted price for these instruments.
The definition of level 1 inputs refers to ‘active market’ which is a
market in which transactions take place with sufficient frequency and volume
for pricing information to be provided on an ongoing basis. Due to the
liquidity levels of the markets in which the Company trades, whether
transactions take place with sufficient frequency and volume is a matter of
judgement, and depends on the specific facts and circumstances. The Investment
Manager has analysed trading volumes and frequency of the Company’s
portfolio and has determined these investments as level 1 of the hierarchy.
Financial instruments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer quotations or
alternative pricing sources supported by observable inputs are classified
within level 2. As level 2 investments include positions that are not traded
in active markets and/or are subject to transfer restrictions, valuations may
be adjusted to reflect illiquidity and/or non-transferability, which are
generally based on available market information.
Level 3 instruments include private equity, as observable prices are not
available for these securities the Company has used valuation techniques to
derive the fair value. In respect of unquoted instruments, or where the market
for a financial instrument is not active, fair value is established by using
recognised valuation methodologies, in accordance with International Private
Equity and Venture Capital (“IPEV”) Valuation Guidelines.
The level in the fair value hierarchy within which the fair value measurement
is categorised is determined on the basis of the lowest level input that is
significant to the fair value of the investment.
Financial instruments at fair value through profit or loss as at 31 December
2023
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Equity investments 166,393 - - 166,393
Liquidity funds - 1 - 1
Total 166,393 1 - 166,394
A list of the portfolio holdings is given in the Investment Manager’s report
above.
31 December 2023 Total £’000
Analysis of capital gains(losses):
Gains on sale of investments 12,901
Movement in investment holding gains (11,328)
1,573
7. Share capital
Number 31 December 2023 £’000
Allotted, called up and fully paid Ordinary shares of 10p each:
Ordinary shares in circulation at 30 June 2023 63,529,206 6,353
Shares held in treasury at 30 June 2023 (13,824,495) (818)
Ordinary shares in issue per Balance Sheet at 30 June 2023 49,704,711 5,535
Shares bought back during the period to be held in treasury (978,500) (98)
Ordinary shares in issue per Balance Sheet at 31 December 2023 48,726,211 5,437
Shares held in treasury at 31 December 2023 14,802,995 916
Ordinary shares in circulation at 31 December 2023 63,529,206 6,353
8. Investment Manager’s fee
A basic management fee is payable to the Investment Manager at the annual rate
of 0.75% of the NAV of the Company. The basic management fee accrues daily and
is payable quarterly in arrears.
The Investment Manager is also entitled to a performance fee, details of which
are set out below.
9. Performance fee arrangements
The Company’s performance is measured over rolling three-year periods ending
on 30 June each year, by comparing the NAV total return per share over a
performance period against the total return performance of the FTSE Small Cap
(ex Investment Companies) Index. A performance fee is payable if the NAV total
return per share (calculated before any accrual for any performance fee to be
paid in respect of the relevant performance period) at the end of the relevant
performance period exceeds both:
(i) the NAV per share at the beginning of the relevant performance period as
adjusted by the aggregate amount of (a) the total return on the FTSE Small Cap
(ex Investment Companies) Index (expressed as a percentage) and (b) 2.0% per
annum over the relevant performance period (“Benchmark NAV”); and
(ii) the high watermark (which is the highest NAV per share by reference to
which a performance fee was previously paid).
The Investment Manager is entitled to 10% of any excess of the NAV total
return over the higher of the Benchmark NAV per share and the high watermark.
The aggregate amount of the Management Fee and the Performance Fee in respect
of each financial year of the Company shall not exceed an amount equal to 1.4%
per annum of the NAV of the Company as at the end of the relevant financial
period.
A performance fee of £369,000 has been accrued in respect of the six months
ended 31 December 2023 (30 June 2023: £nil; 31 December 2022: £nil).
10. Taxation
The tax charge for the half year is £nil (30 June 2023: £nil; 31 December
2022: £nil). The estimated effective corporation tax rate for the year ended
30 June 2024 is 0%. This is because investment gains are exempt from tax owing
to the Company’s status as an investment company and there is expected to be
an excess of management expenses over taxable income.
Alternative Performance Measures
Alternative Performance Measures are numerical measures of the Company’s
current, historical or future performance, financial position or cash flows,
other than financial measures defined or specified in the applicable financial
framework. The Company’s applicable financial framework includes IFRS and
the AIC SORP. The Directors assess the Company’s performance against a range
of criteria which are viewed as particularly relevant for closed-end
investment companies. The Alternative Performance Measures chosen are widely
used in the investment trust sector and thus provide information for users of
the accounts to compare the results with other closed-end investment
companies.
Discount
The amount by which the Ordinary share price is lower than the NAV per
Ordinary share. The discount is normally expressed as a percentage of the NAV
per share.
Six month Six month
period to Year ended period to
31 December 30 June 31 December
2023 2023 2022
NAV per Ordinary share a 345.83p 342.47p 293.08p
Share price b 320.50p 309.00p 275.00p
Discount c c=(b-a)/a 7.3% 9.8% 6.2%
Average discount
The average discount is calculated by taking the average of each day’s share
price discount to NAV over the course of the period. The discount range during
the six month period to 31 December 2023 was 4.6% to 11.6% (six month period
to 31 December 2022: 3.3% to 12.5% and year to 30 June 2023: 3.3% to 12.5%)
and the average discount was 8.0% (six month period to 31 December 2022: 7.8%
and year to 30 June 2023: 7.4%).
NAV Total return
NAV Total return is the increase/(decrease) in NAV per Ordinary share plus
dividends paid, which are assumed to be reinvested at the time the share price
is quoted ex-dividend.
Six month Six month
period to Year ended period to
31 December 30 June 31 December
2023 2023 2022
Opening NAV 342.47p 316.21p 316.21p
Increase/(decrease) in NAV 3.36p 26.26p (23.13)p
per Ordinary share
Closing NAV 345.83p 342.47p 293.08p
% Increase/(decrease) in NAV 1.0% 8.3% (7.3)%
Impact of dividends reinvested 0.7% 0.9% 0.6%
NAV total return 1.7% 9.2% (6.7)%
Share price total return
Share price total return is the increase/(decrease) in share price plus
dividends paid, which are assumed to be reinvested at the time the share price
is quoted ex-dividend.
Six month Six month
period to Year ended period to
31 December 30 June 31 December
2023 2023 2022
Opening share price 309.00p 280.00p 280.00p
Increase/(decrease) in share price 11.50p 29.00p (5.00)p
Closing share price 320.50p 309.00p 275.00p
% Increase/(decrease) in share price 3.7% 10.4% (1.8)%
Impact of dividends reinvested 0.9% 0.8% 0.8%
Share price total return 4.6% 11.2% (1.0)%
Ongoing charges - annualised
Ratio of expenses as a percentage of average daily shareholders’ funds
calculated as per the Association of Investment Companies industry standard
method.
Six month period to Year ended Six month period to
31 December 30 June 31 December
2023 2023 2022
Investment management fee 1,225 1,228 1,186
Administrative expenses 731 803 793
Non recurring costs in
relation to the recruitment
of Directors - (48) (48)
Ongoing charges a 1,956 1,983 1,931
Average net assets b 164,971 162,849 159,587
Ongoing charges ratio (%) c c=a/b 1.19% 1.22% 1.21%
Ongoing charges (including performance fee) - annualised
As per above, with the addition of the performance fee.
Six month Six month
period to Year ended period to
31 December 30 June 31 December
2023 2023 2022
Investment management fee 1,225 1,228 1,186
Administrative expenses 762 803 793
Non recurring costs in
relation to the recruitment
of Directors - (48) (48)
Performance fee 369 - -
Ongoing charges (including
performance fee) a 2,356 1,983 1,931
Average net assets b 164,971 162,849 159,587
Ongoing charges
ratio (including
performance fee) (%) c c=a/b 1.43% 1.22% 1.21%
Directors and Advisors
Directors
William Barlow (Chairman)
Richard Locke (Deputy Chairman)
Annie Coleman
Brigid Sutcliffe
Howard Williams
Auditor
Johnston Carmichael LLP
7 - 11 Melville Street
Edinburgh EH3 7PE
Broker
Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Custodian
J.P. Morgan Chase Bank N.A.
25 Bank Street
Canary Wharf
London E14 5JP
Depositary
J.P. Morgan Europe Limited
25 Bank Street
Canary Wharf
London E14 5JP
Investment Manager
Gresham House Asset Management Limited
80 Cheapside
London EC2V 6EE
Tel: 020 3837 6270
Registrar
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
Tel: 0370 707 1285
Website: www.computershare.com
Solicitor
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Company Secretary and Administrator
Juniper Partners Limited
28 Walker Street
Edinburgh EH3 7HR
Tel: 0131 378 0500
Registered Office
c/o Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Shareholder Information
Investment Policy
The Company invests primarily in equities quoted on markets operated by the
London Stock Exchange where the Investment Manager believes the securities are
undervalued and could benefit from strategic, operational or management
initiatives. The Company also has the flexibility to invest up to 20% of the
Company’s gross assets at the time of investment in securities quoted on
other recognised exchanges.
The Company may invest up to 20% of its gross assets at the time of investment
in unquoted securities, provided that, for the purpose of calculating this
limit, any undrawn commitments which may still be called shall be deemed to be
an unquoted security.
The maximum investment in any single investee company will be no more than 15%
of the Company’s investments at the time of investment.
The Company will not invest more than 10%, in aggregate, of the value of its
total assets at the time the investment is made in other listed closed-end
investment funds.
Other than as set out above, there are no specific restrictions on
concentration and diversification. The Board does expect the portfolio to be
relatively concentrated, with the majority of the value of investments
typically in the securities of 10 to 15 issuers across a range of industries.
There is also no specific restriction on the market capitalisation of
securities into which the Company will invest, although it is expected that
the majority of the investments by value will be invested in companies too
small to be considered for inclusion in the FTSE 250 Index.
The Company’s Articles of Association permit the Board to take on borrowings
of up to 25% of the NAV at the time the borrowings are incurred for investment
purposes.
Financial calendar
Company’s year-end 30 June
Annual results announced September
Annual General Meeting November
Company’s half-year 31 December
Half-yearly results announced February/March
Share price
The Company’s Ordinary shares are premium listed on the main market of the
London Stock Exchange plc (the “London Stock Exchange”). The share price
is quoted daily in the Financial Times under ‘Investment Companies’.
Share dealing
Shares can be traded through your usual stockbroker.
Share register enquiries
The register for the Ordinary shares is maintained by Computershare Investor
Services plc (“Registrar”). In the event of queries regarding your
holding, please contact the Registrar, on 0370 707 1285. Changes of name
and/or address must be notified in writing to the Registrar, whose address is
shown above.
NAV
The Company’s NAV is announced daily to the London Stock Exchange.
Website
Further information on the Company can be accessed via the Company’s
website: www.strategicequitycapital.com
An investment company as defined under Sections 833 of the Companies Act 2006
REGISTERED IN ENGLAND AND WALES No 5448627
A member of the Association of Investment Companies
The Half Yearly Report will be posted to shareholders shortly. The Report will
also be available for download from the following website:
www.strategicequitycapital.com or on request from the Company Secretary.
National Storage Mechanism
A copy of the Half Yearly Report will be submitted shortly to the National
Storage Mechanism and will be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of this announcement.
1 (#_ftnref1) 12% reflects the IRR from the Company’s initial investment
in Medica in 2017. 25% reflects the IRR since Ken Wotton became Manager of the
Company in September 2020, and actively decided to upweight the Company’s
holding in Medica.
2 (#_ftnref2) Annualised figure based on c.6 month holding period.
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