Strategic Equity Capital plc · LSE:SEC
Strategic Equity Capital — Q3 2020 Earnings Presentation
32 slides from Strategic Equity Capital's earnings presentation, October 2020
Slide 1: Strategic Equity Capital plc Q3 2020
Strategic Equity Capital plc (SEC.LN) Q3 2020 October 2020
Slide 2: Disclaimer
DISCLAIMER This presentation (the Presentation) is issued by Gresham House Asset Prospective investors are reminded that the actual performance realised will depend Management Ltd (GHAM), Investment Manager for Strategic Equity Capital plc on numerous factors and circumstances some of which will be
Slide 3: Strategic Equity Capital plc (SEC)
STRATEGIC EQUITY CAPITAL PLC (SEC) Application of private equity techniques to public small companies ▪ Differentiated strategy with highly concentrated portfolio, deep research focus and engaged approach ▪ Genuine small cap - a structurally overlooked part of the market ▪ Quality company focus with
Slide 4: Our Team
OUR TEAM Investment team led by Ken Wotton Resource platform Portfolio Data Ken Wotton talent analytics Managing Director, Public Equity Powerful Deal ▪ Over 20 years’ experience in AIM and other listed investments network execution ▪ Fund Manager for Gresham House UK Micro and Multi Cap funds Opera
Slide 5: Executive Summary
EXECUTIVE SUMMARY ▪ Resilient performance Q3 and YTD in challenging and volatile environment ‒ Q3 NAV/share increased by 0.4%¹; the FTSE Small Cap ex IT index (“the index”) decreased by 1.7%¹ ‒ YTD NAV/share is -15.9% vs -22.2% for the index ▪ Portfolio holdings largely resilient; valuations remain
Slide 6: Gresham House Review Process & Changes
GRESHAM HOUSE REVIEW PROCESS & CHANGES ▪ Review complete - Gresham House has concluded a detailed review of all aspects of the portfolio and investment process since March ▪ Portfolio changes - will be repositioned over 6-12 months: ‒ Smaller average market capitalisation ‒ Higher average equity sta
Slide 7: Performance
PERFORMANCE Annualised 10 7.9 5.0 5 2.8 2.8 0.4 1.1 0 -5 -1.7 -2.5 -10 -7.7 -6.8 -11.3 -15 -12.7 -15.9 -20 -25 -22.2 Q3 YTD 1 yr 7 Feb 17* 3 yr 5 yr 7 yr SEC NAV Total Return FTSE Small Cap x IT Total Return ▪ Strong relative performance YTD in weak and volatile market environment ▪ New investment i
Slide 8: Q3 Attribution Analysis
Q3 ATTRIBUTION ANALYSIS Positive attribution Negative attribution Company % pts Comment Company % pts Comment ▪ Strong interim results with organic ▪ Weak interim results, albeit in line with post- growth +18% and order book +22% COVID downgraded expectations; cost in the period; further upgrades to
Slide 9: Top Holdings - Investment Theses
TOP 10 HOLDINGS1 - INVESTMENT THESES Company % of NAV Investment thesis ▪ Leading positions in unlicensed medicines and territories without access to healthcare treatments; an acyclical structurally growing market 11.8% ▪ High barriers to entry built through M&A and organic investment ▪ Attractive g
Slide 10: Top Holdings - Investment Theses
TOP 10 HOLDINGS1 - INVESTMENT THESES Company % of NAV Investment thesis ▪ A niche market leader in the UK teleradiology sector which is acyclical and is growing rapidly driven by increasing healthcare requirements and a structural shortage of radiologists 6.8% ▪ Above market organic growth and under
Slide 11: Highly Concentrated & Unconstrained Portfolio
HIGHLY CONCENTRATED & UNCONSTRAINED PORTFOLIO Sector exposure by value Value by market cap band Net Cash <£50m £50m-£100m 11.2% 1.2% Property Net cash 3.1% 2.2% Healthcare 11.2% 29.6% £100m-£200m Industrial >£500m 24.7% 10.8% 14.8% Financials 6.9% Software Business £200m-£300m 12.1% services £300m-£
Slide 12: Portfolio Characteristics
PORTFOLIO CHARACTERISTICS Portfolio vs Small Cap Index Valuation vs Historic Trading Range 40.0 ▪ High quality companies trading at discount to historic valuation range and precedent M&A 35.0 ▪ Targeting profit recovery & accelerating earnings growth 30.0 ▪ Opportunity for rating expansion 25.0 ▪ Ac
Slide 13: Morningstar Small Cap Investment Trust Overlap Analysis
MORNINGSTAR SMALL CAP INVESTMENT TRUST OVERLAP ANALYSIS ASL BRSC THRG GHS HSL IPU JMI MINI MTU OIT SLS SEC ASL 9% 4% 0% 15% 15% 10% 2% 3% 4% 3% 2% BRSC 9% 62% 0% 30% 21% 32% 2% 22% 0% 24% 2% THRG 4% 62% 0% 38% 20% 39% 0% 27% 0% 35% 2% GHS 0% 0% 0% 0% 0% 1% 0% 0% 0% 0% 0% HSL 15% 30% 38% 0% 32% 28% 1
Slide 14: Small-Cap Discount
SMALL-CAP DISCOUNT 2x 1x 0x Median PE-discount -1x -2x -3x -4x -5x -6x -7x '96 '96 '97 '98 '98 '99 '00 '00 '01 '02 '02 '03 '04 '04 '05 '06 '06 '07 '08 '08 '09 '10 '10 '11 '12 '12 '13 '14 '14 '15 '16 '16 '17 '18 '18 '19 '20 '20 Small Cap vs. FTSE 250 median Average Small cap expensive Small cap cheap
Slide 15: The Market Opportunity
THE MARKET OPPORTUNITY Market Volatility Creates Opportunity Portfolio and Pipeline Themes Quarterly Change in Share Price - FTSE Healthcare and Pharmaceutical Services Small Cap Constituents ▪ Structural growth in global healthcare spend 50 ▪ Trend to outsource non-core service provision / support
Slide 16: Conclusion & Outlook
CONCLUSION & OUTLOOK ▪ COVID-19 uncertainty - likely to drive continued market volatility in the short term ▪ Macroeconomic environment - economic conditions are fragile and vulnerable to shocks ▪ UK small and micro-cap valuations are attractive - focus on fundamentals and corporate liquidity ▪ Oppo
Slide 17: Appendix
APPENDIX
Slide 18: Fund Overview
FUND OVERVIEW Strategic Equity Capital plc 1 Shares in issue 63,296,844 Governance London Stock Exchange listed, UK domiciled investment trust, independent Board Corporate broker Investec Discount control Authorisation to purchase 14.99% of own shares for cancellation or to be held in treasury Conti
Slide 19: Introducing Strategic Public Equity
INTRODUCING STRATEGIC PUBLIC EQUITY An alternative investment strategy that applies private equity investment processes to public companies Highly engaged strategy driving strategic, operational or Influential minority stakes management initiatives Focus on intrinsically undervalued, Targeting ineff
Slide 20: Process Modelled on Private Equity
PROCESS MODELLED ON PRIVATE EQUITY Four stage investment process, with multiple touchpoints and Investment Committee input Idea generation Gresham House Investor Advisers network Community Team discussion Investment Committee Due Equity Management Sourcing diligence Value plan and exit Preliminary I
Slide 21: Focus on Long Term Drivers of Value
FOCUS ON LONG TERM DRIVERS OF VALUE Identifying multiple drivers of returns gives a stronger likelihood of achieving target investment returns Precedent transactions, Rating historic rating through cycle, quality analysis (see Assessment of ‘Fair overleaf), LBO/PE Value’ today and in Through this ta
Slide 22: Outputs of Investment Process
OUTPUTS OF INVESTMENT PROCESS Applying a private equity approach to public markets What do we look at? Market Characteristics Avoid Increasing value-add of engagement Structural growth, sizeable and attractive niches, rational competitive dynamics ▪ Speculative growth Quality matrix Strategic Value
Slide 23: Engagement Strategy
ENGAGEMENT STRATEGY Concentrated portfolio enables a deep understanding of the High engagement with Objective is to drive company and its potential Management and Boards enhanced returns for to communicate our views shareholders on company strategy, capital allocation, remuneration structures and IR
Slide 24: ESG Implementation: Public Equity
ESG IMPLEMENTATION: PUBLIC EQUITY Initial Assessment Due Diligence Investment Appraisal Holding Period Investment One Final Investment Shareholder Research Pager Report Responsibilities Meetings with Detailed risk ESG Framework management mitigation used to agree factors requirements Active stewards
Slide 25: Ergomed Existing Investment
ERGOMED EXISTING INVESTMENT Background Investment thesis ▪ Ergomed is a specialist pharmaceuticals company. It has two services On a SoTP basis, the two services business are businesses; Clinical Research Services and Pharmacovigilance (drug safety worth mid-teens EBITDA multiples monitoring). It al
Slide 26: IFG Group Takeover Case Study
IFG GROUP TAKEOVER CASE STUDY Background Investment thesis ▪ On 25 March 2019, a recommended cash offer was made by Epiris Funds at Severe dislocation to SoTP valuation based on 193p, a 46% premium to the closing share price, a trailing PE valuation of precedent M&A and peer analysis Rating 21.4x. S
Slide 27: Oxford Metrics Group Portfolio Realisation Case Study
OXFORD METRICS GROUP PORTFOLIO REALISATION CASE STUDY Background Investment thesis ▪ Oxford Metrics plc (ticker: OMG-LN) focuses on developing and commercialising image processing and location data technologies Underappreciated IP and quality of earnings. Rating Headline valuation and financials mis
Slide 28: Long-Term Track Record
LONG-TERM TRACK RECORD Cumulative rebased total returns 320 CAGR¹ 300 SEC NAV 15.5% 280 260 FTSE Small Cap ex IT 9.4% 240 220 200 180 160 140 120 100 80 60 40 Jun 09 Mar 10 Dec 10 Sep 11 Jun 12 Mar 13 Dec 13 Sep 14 Jun 15 Mar 16 Dec 16 Sep 17 Jun 18 Mar 19 Dec 19 Sep 20 Strong cumulative performance
Slide 29: Specialists in Alternatives
SPECIALISTS IN ALTERNATIVES Gresham House is a fast growing specialist alternative asset management group, quoted on the London Stock Exchange (GHE.LN), providing funds, direct investments and tailored investment solutions, including co-investment. → Specialists in five areas of alternative investme
Slide 30: Investment Committee
INVESTMENT COMMITTEE Anthony Dalwood Graham Bird Investment Committee Chairman ▪ Over 25 years’ experience in public and ▪ Started Gresham House Asset Management in 2015 private equity fund management and advisory ▪ CEO of Gresham House plc ▪ CFO at Escape Hunt ▪ 25 years’ experience in public and p
Slide 31: Ken Wotton: Track Record
KEN WOTTON: TRACK RECORD Consistent long standing track record Performance & ratings ▪ Experienced investor Performance return 1 year 3 year 5 year 10 year ‒ 20 years in financial markets LF Gresham House UK Micro 4.63% 15.83% 54.03% 305.36% ‒ 13+ years as a fund manager Cap Fund ‒ 11+ years within
Slide 32: Tony Dalwood - SPE Track Record
TONY DALWOOD – SPE TRACK RECORD Twenty years of investment experience, over 15 focused on ‘Strategic Public Equity’ (SPE) investing Five consecutive funds following the SPE strategy have outperformed by an average of 11.5% per annum1 Fund Years Track Record Gresham House Strategic plc 2 2015 - prese
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