Strategic Equity Capital plc · LSE:SEC
Strategic Equity Capital — Q1 2017 Earnings Presentation
33 slides from Strategic Equity Capital's earnings presentation, 2017
Slide 1: Strategic Equity Capital plc Q1 Update 2017
STRATEGIC EQUITY CAPITAL PLC Q1 Update 2017
Slide 2: Notice to recipients
Notice to recipients This document is given to the recipient on condition that the recipient accepts that it is not a client of GVQ Investment Management Limited (“GVQIM”) and that hence, none of the client protections applicable to GVQIM’s clients are in fact in force or available, and GVQIM is not
Slide 3: Contents
Contents Q1 update 2017 • Executive Summary 5 • Performance 6 • Detailed portfolio analysis 8 Outlook 15 Appendix 24 3
Slide 4: Q1 Update 2017
Q1 UPDATE 2017
Slide 5: Executive summary
Executive summary • Trust delivered a strong headline performance in Q1 with a NAV total return of 5.3%, marginally behind the FTSE Smaller Companies ex Investment Trusts Index which delivered a total return of 5.8% • Discount closed the period at 11.9%, compared with the Small Cap peer group averag
Slide 6: Fund performance
Fund performance SEC NAV performance against comparator index1 Annualised Total return % 25 19.7 20 18.6 16.8 15 13.8 10.7 10 8.6 5.3 5.8 5 0 3 months 1 year 3 years 5 years SEC NAV Total Return FTSE Small Cap x IT Total Return¹ Average 11.9% 12.4% 10.7% 10.2% Net Cash Strong medium and long term an
Slide 7: Q1 Attribution analysis
Q1 Attribution analysis Positive attribution (top five) bps GVQIM Comment Tribal Group 284 Final results demonstrate significant operational progress and return of contract momentum Oversubscribed healthcare tech-enabled services IPO. SEC received good allocation. Positive initial Medica Group 160 s
Slide 8: Changes to top 10 holdings
Changes to top 10 holdings Top 10 Q4 2016 Top 10 Q1 2017 Company % of portfolio Company % of portfolio Equiniti Group 10.2 Equiniti Group 9.9 e2v technologies 10.0 Servelec Group 9.7 Servelec Group 9.8 Tribal Group 9.2 Clinigen Group 8.5 Clinigen Group 7.6 Wilmington 7.8 Wilmington 7.1 Tribal Group
Slide 9: New investment: Medica Group
New investment: Medica Group Medica Group – the UK’s leading teleradiology provider • Revenue growth of 27%pa since 2012; • High growth, predictable revenue forecast growth of 20%pa over next streams and low capital intensity are three years coveted by financial buyers • This growth is supported by
Slide 10: Top 10 holdings
Top 10 holdings1 GVQIM GVQIM Net debt/ Funds % Return Progress CF Market Company Vintage Sector EBITDA 12 month catalysts of potential2 vs thesis yield3 leader2 NTM4 company NTM4 Delivery of organic growth and cashflow. Equiniti Group 2016 Support Services >5% High In line 9.8% 2.3x Yes – niches Bec
Slide 11: Portfolio company updates (1 of 2)
Portfolio company updates (1 of 2) • Equiniti – In-line final results with strong organic growth from cross sell to customer base and market share gains – Increasing software mix improves quality of earnings and margin – Cash conversion remains strong and small bolt-ons improve ‘RegTech’ offering –
Slide 12: Portfolio company updates (2 of 2)
Portfolio company updates (2 of 2) • Wilmington – Interim results in line with expectations – Solid growth in risk and compliance markets and sensible recent acquisition of HSJ from Ascential – Remains inexpensive and potential to re-rate on return to organic growth • IFG Group – Final results disap
Slide 13: Highly concentrated and unconstrained portfolio
Highly concentrated and unconstrained portfolio 11 Sector exposure by value Value by market cap band 8 1 2 10 1 1 Technology – software & services 26.6% 1 <£50m 0.1% 9 7 8 2 Support Services 15.6% 2 £50m - £100m 5.3% 3 7 3 Healthcare 13.4% 3 £100m - £200m 25.7% 6 4 Financials 8.7% 4 £200m - £300m 14
Slide 14: Portfolio valuation
Portfolio valuation1 SEC SEC FTSE UK Small Cap ex investment trusts, oils, weighted average weighted median mining and financials* Number of securities 15 15 101 Market cap (£m) 394 304 325 Consensus EV/EBITDA FY1 10.7x 8.2x 7.2x Consensus price earnings FY1 15.8x 15.7x 12.7x* Consensus FY1 earnings
Slide 15: Outlook
OUTLOOK
Slide 16: Earnings growth, cashflow and M&A to drive returns
Earnings growth, cashflow and M&A to drive returns SEC portfolio • Low double digit aggregate earnings • M&A has picked up since the EU growth for the portfolio referendum. Potential for more activity given FX and niche market • Portfolio growth exceeds the market, leading positions. Negligible pois
Slide 17: Investment pipeline considerations
Investment pipeline considerations • Valuations seem polarised in the small cap market – Quality growth with momentum mostly expensive, or very expensive. De-ratings severe when news disappoints – Many “value” stocks cheap for a reason (e.g. contingent liabilities/non-earnings cash leakage) – Many s
Slide 18: The investment cycle – where are markets now?
The investment cycle – where are markets now? Market Phase Bottom Early Stage Recovery Mid-Stage Bull Market Peak of Bull Market Bear Market General vertical direction (but not horizontal direction) of asset price movements ? Investment Style Growth/Momentum Balance Sheet Value 20% 30% 40% 20% 30% F
Slide 19: Bear market checklist
Bear market checklist Start of Proper Bear Markets February 2016 Market Mar-00 Oct-07 Trough Now Global Equity Valuations Trailing PE 33 17 16 21 Fwd PE 24 14 14 16 DY 1.3 2.1 2.9 2.4 CAPE 48 30 18 22 Global Equity Risk Premium 1.0% 3.3% 5.5% 4.1% US Yield Curve (10Y minus 2Y) -0.5 0.0 1.0 1.2 Senti
Slide 20: 12-month forward EPS growth projections
12-month forward EPS1 growth projections 12m forward EPS growth by FTSE index ex investment trusts March 2008 to date2 30 20 10 0 -10 -20 -30 Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 FTSE 100 Mid 250 Small Ca
Slide 21: UK profit warnings
UK profit warnings UK profit warnings per quarter # Q1 1999 – Q4 2016 160 140 120 100 80 60 40 20 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 saw the lowest total annual profit warnings in three years potentially benefiting from FX moves. Retain c
Slide 22: FTSE Small Cap liquidity remains low
FTSE Small Cap liquidity remains low % of free float traded / month – FTSE 250 % of free float traded / month – FTSE Small Cap 20% 8% 18% 7% 16% 6% 14% 'Dark' + 'Lit' 5% 12% 10% 4% 8% 'Lit' trades 'Dark' + 'Lit' 3% 6% 'Lit' trades 2% 4% 2% 1% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20
Slide 23: UK Smaller Companies OEIC flows
UK Smaller Companies OEIC flows Monthly net flows of UK smaller companies Cumulative net flows of UK smaller £m £m funds Feb-03 to Feb-17 companies funds Feb-03 to Feb-17 400 0 300 200 -500 100 -1,000 0 -100 -1,500 -200 -300 -2,000 Feb 03 Feb 04 Feb 05 Feb 06 Feb 07 Feb 08 Feb 09 Feb 10 Feb 11 Feb 1
Slide 24: Appendix
APPENDIX
Slide 25: How we identify value in potential investments
How we identify value in potential investments Main focus of most Main focus of most PUBLIC EQUITY INVESTORS PRIVATE EQUITY INVESTORS All investments undergo All investments are valued in-house, prospective using an in house cash-flow and historic leveraged buy-out model modelling Focus on recent re
Slide 26: Asset quality
There are strict criteria for inclusion in our funds Speculative Fair valued GARP* Under valued Recovery Turnaround Distress growth A A Investment Asset quality Asset quality focus B Avoid Avoid B C Avoid C GVQIM’s research process aims to identify high quality coveted assets with attractive cash fl
Slide 27: How we identify coveted assets
How we identify coveted assets We look for characteristics which GVQIM believes potential acquirers value highly Qualitative Quantitative • Niche market leaders • High and/or improving ROCE • Orderly end markets, with some growth • Strong cash conversion • Sustainable business model/franchise/unique
Slide 28: Our Black List screens out companies with fundamental business risks
Our Black List screens out companies with fundamental business risks Operational • Excessive reliance on a single product, customer, supplier or distributor • The primary driver of profitability cannot be influenced by management (e.g. resources) • Inherently low margins • Structurally declining mar
Slide 29: Research Committee ensures consistency of approach
Research Committee ensures consistency of approach Preliminary Investment Final Investment Monitoring Idea generation Investment Memorandum Recommendation & review Recommendation Materials • Watch list • Company description • Company meeting • Counterparty analysis • Progress against • M&A transacti
Slide 30: Types of market purchases we consider
Types of market purchases we consider Self help Broken growth Quality GARP Share price Target buying point Target buying point Target buying point Time • Typically low growth businesses • Momentum stocks, which have gone • Quality, growing, high margin “value • Some element of engagement wrong. Over
Slide 31: Long term track record
Long term track record Cumulative rebased total returns1 260 CAGR2 240 SEC NAV 23.1% 220 200 180 FTSE 250 ex IT 16.5% 160 IA UK Smaller Companies 16.3% FTSE Small Cap ex IT 16.1% 140 120 100 80 60 40 Jun 09 Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Strong cumulative performance since process
Slide 32: Performance
Performance Calendar Year Annual performance1 2017 YTD 2016 2015 2014 2013 2012 Share Price Total Return 4.8% -1.6% 14.2% 32.6% 61.4% 25.6% NAV Total Return 5.3% 6.3% 12.1% 18.0% 46.0% 21.3% FTSE Small Cap ex Investment Trusts Total Return 5.8% 12.5% 13.0% -2.7% 43.9% 36.3% IA UK Smaller Companies 7
Slide 33: Contact details
Contact details For further information regarding the SEC please contact the GVQ Investment Management marketing team below, or visit the Company’s website: www.strategicequitycapital.com For general enquiries, please contact: GVQ Investment Management Limited 12-13 St. James’s Place, London, SW1A 1
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