Strategic Equity Capital plc · LSE:SEC
Strategic Equity Capital — Q1 2010 Earnings Presentation
30 slides from Strategic Equity Capital's earnings presentation, May 2010
Slide 1: Strategic Equity Capital plc 1Q 2010 Update
Strategic Equity Capital plc 1Q 2010 Update May 2010
Slide 2: Disclaimer
Disclaimer 2 The information in this presentation is issued by SVG Investment Managers Limited (“SVGIM”), whose registered office is at 61 Aldwych, London, WC2B 4AE. SVGIM is registered in England: No. 4493500 and is authorised and regulated by the UK Financial Services Authority. The information co
Slide 3: Contents
Contents 3 Page number Part 1 Introduction to Strategic Equity Capital (“SEC”) 5 Case studies 10 Part 2 Overview 17 Performance highlights 18 Peer group analysis 19 Portfolio analysis 22 Outlook 26 Conclusion 30
Slide 4: Part 1: Introduction and case studies
Part 1 Introduction and case studies
Slide 5: Introduction to Strategic Equity Capital
Introduction to Strategic Equity Capital Investment trust objectives 5 • SEC is a London-listed fund that seeks to deliver attractive absolute returns to investors using private equity appraisal techniques and a philosophy of constructive corporate engagement • Strategic Equity Capital invests predo
Slide 6: How does SVGIM use private equity appraisal techniques?
Introduction to SEC How does SVGIM use private equity appraisal techniques? 6 • Valuation – quantitative based screening – LBO analysis – focus on cash flows and potential asset realisations – price targets based on recent transactions not quoted multiples • Due diligence – based on extensive primar
Slide 7: What is constructive corporate engagement?
Introduction to SEC What is constructive corporate engagement? 7 • SVGIM can provide a method of value creation that does not require going private – full operational control is not required – hostile situations not necessary – pension fund/contingent liability issues are not deal blockers • Our val
Slide 8: How we make investment decisions
Introduction to SVG Investment Managers How we make investment decisions 8 Idea Evaluation Due Approval Investment generation diligence Responsibility Analyst Research Committee Analyst Research Committee Investment Managers Process Desk note Preliminary Research Supplement Final Customised Investme
Slide 9: The Industry Advisory Panel
Introduction to SEC The Industry Advisory Panel 9 Stewart Binnie Alan MacKay Ken Minton Sir Clive Thompson - currently Chairman of - Group Partner at 3i Group plc - has led successful - Chairman of Rentokil Aurora Fashions with strategic responsibilities turnarounds within a Initial plc until 2004,
Slide 10: Case study: Spirent
Case study Spirent - share price performance during & after shareholder engagement 10 140 CEO leaves. Positive FY results – World market leading technology business, Chairman becomes H1 2008 results Executive. Initiates ahead on earnings under managed, suffering from delayed new Stake building Posit
Slide 11: Case study: Statpro
Case study Statpro – building a supportive relationship 11 8th October – SVG calls FD to offer support if Kaupthing, the 140 company’s bank defaults. Company tries to draw on revolver. Positive full year Kaupthing defaults update – Quality growth business with aligned management SVG purchases (own 1
Slide 12: Case study: Intec Telecom Systems
Case study Intec Telecom Systems – management change driving operational turnaround 12 140 SVGIM sells 75% of stake Record FY results – Strategically valuable asset, under managed announced – Disappointed investors – major profits warning 120 Profit saw share price fall from c.65p to 30p in August S
Slide 13: Investment Team
Additional information Investment Team - >70 years direct investment experience 13 Tony Dalwood Adam Steiner Stuart Widdowson Jonathan Morgan Chairman, CEO, Strategic Investment Committee SVGIM SVGIM Investment Manager, member & Director, SVGIM SVGIM Previous Experience – Previous Experience – Previ
Slide 14: Trust details & Investment restrictions
Additional information Trust details & Investment restrictions 14 Portfolio construction • Majority of value in 10 to 15 UK quoted companies of less than £300m market capitalisation • Long-term investment horizon of typically two to five years for each investment • Aims to restrict sector exposure t
Slide 15: What does Strategic Equity Capital offer to investors?
Conclusion What does Strategic Equity Capital offer to investors? 15 • Cash flow yield driven exposure to UK Smaller companies • An established track record of disciplined and responsible activist investing • A team of specialist investors and an extensive private equity based network • Exposure to
Slide 16: Part 2: Performance, Portfolio analysis and Outlook
Part 2 Performance, Portfolio analysis and Outlook
Slide 17: Q1 2010 highlights
Overview Q1 2010 highlights 17 Investment highlights: • Net assets per share increased by 4.6%, outperforming the smaller companies index by 2.8% • Top holdings continued to perform well; reporting strong annual results • Exuberant markets allowed for exits of mature investments at attractive valuat
Slide 18: Performance highlights - unaudited
Performance highlights - unaudited Improving relative trend during 2009/2010 18 SEC Performance (NAV) total return vs Indices 80 69.2 68.7 60 Performance (NAV) %% 40 20 9.7 4.5 1.8 0 3 months 6 months-6 1 year 2 years 3 years -6.6 -20 -15.9 -40 -34.4 -33.7 -60 SEC FTSE Small Cap (Ex IT) Total Return
Slide 19: Peer Group analysis: Performance vs. Peers
Peer Group analysis Performance Vs. Peers 19 SEC Performance (NAV) total return vs Peers 80 69.2 61.1 60 Performance (NAV) % 40 24 26 20.7 20 13.6 9.3 6.9 9.7 9.5 4.5 2.1 2.6 0 3 months 6 months 1 year 2 years 3 years -6.5 -20 -14.3 -13.7 -15.9 -5.9 -10.4 -13.3 -40 -34.4 -60 -61.4 -63.1 SEC North At
Slide 20: Performance attribution – Q1 2010
Recent performance analysis Performance attribution – Q1 2010 20 Total return Since 31 Contribution to Company Comment December 2009 return (b.p) (%) Positive attribution above 75 basis points Strong final results. Continued de-gearing. Non-core asset StatPro 23.4% +181 disposal Spirent 22.2% +179 S
Slide 21: Portfolio summary & monitoring
Portfolio summary & monitoring* Typically market leaders with a high SVG FCF yield; generally in good health 21 Company Vintage Sector SVGIM % of Upside to share Progress vs SVGIM 12 month catalyst Market leader** company price thesis FCF yield SRFII 2009 Unlisted High In line End of investment peri
Slide 22: Portfolio analysis: Sector and size exposures
Portfolio analysis Sector and size exposures as at 31 March 2010 22 Sector 1 Technology 24.1% Size analysis 2 Unlisted investments 16.4% 1 > £500m 6.0% 3 Support services 15.4% 2 £300m - £500m 8.5% 4 Manufacturing 13.3% 3 £100m - £300m 30.5% 5 Media 9.8% 4 < £100m 55.4% 6 Telecoms 9.0% 5 Net cash 0.
Slide 23: Key valuation and risk metrics
Portfolio analysis Key valuation and risk metrics as at 31 March 2010 23 Weighted average Weighted median Number of securities 21 21 Market Capitalisation (£m) 172.4 107.8 Consensus EV/EBITDA FY1 5.2X 5.8X Consensus Price Earnings FY1 12.5X 10.7X Consensus Price Earnings FY2 10.1X 9.9X Consensus div
Slide 24: New Investments & Disposals
Portfolio analysis New Investments & Disposals 24 New Investments: • Gooch & Housego – institutional block purchase. Recovery and GARP investment. Well-invested niche market leader. Coveted asset Disposals: Mainly small legacy holdings: • Communisis – Unexpected departure of turnaround CEO. Poor cas
Slide 25: SRF II Transaction
Portfolio analysis SRF II Transaction 25 • At 30th June 2009 SRF II stake valued at £5.9m, undrawn commitment of £5.1m • SRF II interest purchased from 3i Plc in August 2009 for £3.9m in new SEC shares • By 31st March 2010 distributions of £2.1m received, £7.4m remaining value, undrawn commitment re
Slide 26: Portfolio Outlook: Investment Focus
Portfolio Outlook Investment Focus 26 Market - Market leaders - either Quality of underlying asset -#1 or 2, or #3-5 with M&A prospects A B C - Orderly end market, with some growth - Customers in good health Overvalued growth Avoid Quality - Franchise/business model/position in supply chain -> EBIT
Slide 27: Transaction type focus 2009-10
Portfolio Outlook Transaction type focus 2009-10 for strategic funds 27 Secondary fundraisings Market purchases Primary fundraisings Corporate Growth Recovery engagement IPO Cash shell capital finance campaigns - Strong, - Good - Follow/work with - Forced sellers - Opportunistic getting business, pa
Slide 28: Good scope to potentially grow NAV over next 3-4 years
Portfolio Outlook Good scope to potentially grow NAV of SEC over the next 3-4 years 28 • Potential 2x capital upside on £56m NAV 3-4 year potential NAV growth if target prices reached £m • Key drivers: 120 – E2V – Lavendon 100 – SRF2 – KCOM 80 – RPC 60 – Mecom 40 • Excludes any upside from – Vintage
Slide 29: Outlook for UK Market
Portfolio Outlook Outlook for UK Market 29 All four drivers of equity returns present in 2010: • Earnings being upgraded at fastest rate in 5 years • Low growth environment leads to enforced degearing • Cash flow yield of fund implies significant room for re-rating and degearing • Weak Sterling and
Slide 30: Conclusion
Conclusion 30 • Q1 shows continuing performance trend, significant outperformance • Net assets per share increased by 4.6%, outperforming the smaller companies index by 2.8%. • Top holdings continued to perform well; reporting strong annual results. • Exuberant markets allowed for exits of mature in
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