Introductory Presentation - Gresham House Strategic plc (GHS.LN) Strategic Public Equity Investment Strategy
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Introductory Presentation Gresham House Strategic plc (GHS.LN) Strategic Public Equity Investment Strategy Targeting superior long-term returns through a private equity approach to public markets June 2016 www.ghsplc.com
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Contents
GRESHAM HOUSE O V E RV I E W – T H E O P P O RT U N I T Y 1
S T R AT E G I C P L C ( G H S . L N )
GRESHAM HOUSE
S T R AT E G I C P L C B A C K G R O U N D A N D D E TA I LS 2
S I G N I FI C A N T P O T E N T I A L U P S I D E FR O M E X I S T I N G P O RT FO LI O 3
I M I M O B I LE – I N V E S T M E N T O P P O RT U N I T Y 4
N E W I N V E S T M E N T O P P O RT U N I T I E S – W E LL D E V E LO P E D P I P E LI N E 5
S T R AT E G I C P U B L I C
EQUITY S P E A P P R O A C H – TA R G E T I N G S U P E R I O R LO N G - T E R M R E T U R N S 6
G H S P LC - S P E T R A C K R E C O R D 7
EXPERIENCED GHS INVESTMENT TEAM 8
SPE INVESTMENT PROCESS 9
CONCLUSION
C O N C LU S I O N 10
S U P P L E M E N TA RY
I N F O R M AT I O N 11 - 1 9
BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETS
Gresham House Strategic plc
Overview
The opportunity - Gresham House Strategic plc (GHS.LN)
Strategic Public Equity mandate – Targeting net 15% IRR over the longer term1
Private equity approach to investing in public markets
Focus on inefficient areas of the market - UK smaller companies2
Significantly higher levels of engagement with investee company stakeholders
Focused portfolio – the majority of the portfolio will be invested in 10-15 companies
Attractive entry point trading at a 20% discount to NAV3
Investment appraisal has identified potential for significant upside within existing portfolio
Valuation opportunities presenting themselves as market bifurcates
Diligence and engagement with target companies
Proven investment team with a track record of strong long-term returns
Investment team aligned to performance through significant shareholding
1 Refer to Investing Policy section (p:10) of the GHS circular sent to shareholders 21st July 2015
2 The fund will invest primarily in UK equities but can also invest in smaller European companies
3 Mid price as of 27th May 2016 and applying announced NAV as at 27th May 2016
Page 1 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSGresham House Strategic plc (GHS)
Background & details
Investing company traded on AIM - £36m NAV trading at a 20%1 discount
Investment Manager is Gresham House Asset Management Ltd (GHAM)
GHAM is a division of specialist asset manager Gresham House plc, founded in 1857
Gresham House plc and team own c.20% of GHS
New Strategic Public Equity Investment Mandate – Bridging the divide between public and private markets
Private equity approach - investment appraisal, due diligence and risk management
Disciplined investment process and use of Investment Committee and Advisory Group
Concentrated portfolio of 10-15 smaller, typically UK quoted companies2
Targeting companies that can benefit from strategic, operational or management initiatives
Investment Team – Strong long-term track records at SVG & PDFM (led by Tony Dalwood and Graham Bird)
Fees – 1.5% management charge with 15% performance fee over a 7% hurdle rate
GHAM to reinvest 50% of performance fee into Gresham House Strategic plc shares
1 Mid price as of 27th May 2016 and applying announced NAV as at 27th May 2016
2 Manager has the ability to invest up to 30% of the portfolio in unquoted securities
Page 2 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSGresham House Strategic plc – Existing portfolio
Significant potential upside
IMImobile Poorly understood, lowly valued Earnings growth
£16.3m Cash generation
with strong growth prospects
Potential for re-rating - currently less than 7x EBITDA
Proven management team
Be Heard Group Buy & build, organic growth
Strong track record of value creation
£2.3m* plus strong cash generation Digital media consolidation via enhancing acquisitions
Niche market exposure
Quarto Group Organic and acquisition
£2.1m Grow earnings through enhancing acquisitions and operational efficiencies
growth at attractive valuations Highly cash generative; reducing debt
Northbridge De-leverage - strong cash generation and significant scope to reduce capex
Industrial Services Recovery and growth, investing
Profit growth as margins recover to long-term average
£1.8m alongside management Attractive entry point at a substantial 40% discount to realisable assets
AUM and earnings growth
Miton Group Significant operational gearing Cash generation and cost control
£1.3m
Strong balance sheet
Spaceandpeople Sales growth and recovery of EBIT margin
£1.1m Recovery, margins and growth Highly cash generative
Continued contract wins and renewals
Cash and other net assets
£12.0m
Attractively valued portfolio:
Tax losses
Excluding cash - portfolio trades on a weighted avg EV/EBITDAIMImobile – GHS c.18% shareholding
High growth business benefiting from mobile data growth
www.imimobile.com
Attractions
High recurring revenues and embedded solutions
Strong cash generation and balance sheet, high return on capital and successful acquisition track-record
High gross margins and significant operational gearing
Investment thesis
Significant discount to sector on 7.4x FY17 (March year-end) EV/EBITDA1, falling to 6.7x FY181 vs peer group average of c.13x1
Significant opportunity to simplify business and market messaging and positioning with investors
Strategic initiatives delivering with strong momentum; clear value creation plan
Catalysts – earnings growth; further improvement in quality of earnings; new markets (USA); potential for a PE or trade buyer
Potential risks / threats
Customer concentration - loss of a major contract could have a material short-term impact
Regulatory environment
Responsiveness (product development and deployment) to technological change and innovation
GHAM is engaged with management and shareholders
GHAM team actively engaged with executive management, Board and key teams (tech, finance)
Tom Teichman (GHS IC member) was an original VC backer of IMImobile with invaluable insight and relationships
Shareholder engagement and aligned interests – Tosca 27.6%, Liontrust 12.9%, management 21.2%
1 House broker, Investec Securities research, April 2016 and peer group analysis (Software sector).
Page 4 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSNew investment opportunities
Well developed pipeline of new investment opportunities
Public Private
Private Equity houses
P2P opportunities typically uncomfortable
1478 – Stocks on FTSE All-share and
[1470 – Stocks
AIM All-Share Indexon with public markets
Profitable companies with
FTSE All-share and organic & acquisition
Pre-IPO
AIM
910 –All-Share Index]
Stocks with a Market
growth (not ready for
public markets yet)
Capitalisation below £250m Watchlist Preferred quasi Convertibles, mezzanine
equity positions Preferred instruments
412 – Stocks trading > 50% below
3yr price high Growth / Recovery Strategic &
Acquisition Capital Capital Opportunistic
44 – EV/ 36 – 34 – FCF Improvement
21 – ROCE
EBITDA Gearing > Yield >
> 10%
< 7x 75% 10%
Private: Pre-
Source: Bloomberg, 13th April 2016
M&A Asset Realisation IPO / P2P /
Catalyst quasi equity
Listed Private
Equity
Reject Portfolio
Page 5 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSStrategic Public Equity
SPE approach
Targeting superior long-term returns
Value creation opportunities through a focus on inefficient areas of public markets
Valuation anomalies as a result of temporary market inefficiency
Limited advice / access to growth capital can result in small companies being strategically constrained
Poor research coverage of smaller companies – an average of one live broker recommendation per stock1
Philosophy – Value based approach, longer term holding period
Typically focus on cash generative companies, where ROCE and growth can be improved
Applying disciplined Private Equity techniques in public markets:
Influential, minority block stakes typically 5%-25% of equity
Significant engagement with stakeholders including; Management, shareholders, customers, suppliers and competitors
Support a clear equity value creation plan (Management, capital, strategic and operational support)
Targeting superior long-term investment returns - 15% net IRR over the long-term2
Private Equity - style approach including Investment Committee and extensive due diligence
Small company focus (GHS plc – SPE investment track record
Team and SPE performance track record
SVG Investment Managers / Strategic Equity Capital Investment Trust
Schroder Ventures Ltd (London)
5yr IRR 23%1, 11% IRR since 20071
Tony Dalwood established the
Strategic Public Equity Strategic Recovery Fund I (LP)
Over 130 years’ investment strategy at SVG and
experience of SPE launched two LPs the Strategic 46% net IRR2 (03 Vintage)
Track record of
investment & Recovery Fund I and II and the
strong relative Investment Trust (SEC plc), the Strategic Recovery Fund II (LP)
corporate advisory
returns at SVG and latter two with Graham Bird
within team and
PDFM 6% net IRR2 (06 Vintage).
Investment Graham left SVG in Feb 2009 Remaining equity investments transferred to limited
Committee partners in specie3
Tony left SVG in March 2011 Journey Group plc +67% since fund
realisation
E2V plc +75% since fund realisation
Lavendon Group plc -12% since fund
Breadth of skills: realisation
Investment UK Focus Fund (OEIC)
Corporate Advisory 78% total return 2003–2011, vs 14% for SMXX4
Banking
Private Equity Downing LLP Downing Active Management (OEIC)5
Tony chaired the Investment 98% 3yr total return (vs 90% SMXX)
Gresham House: Committee from July 2011 – 73% total return since inception (vs 55% SMXX)
Dec 2014
• Advisory Group broadens and deepens the appraisal process
and deal sourcing PDFM (UBS Asset Management) Managed UK equity Funds of £1.5bn.
UK Investment Committee member, top quartile
• Network bridges public & private markets Tony was a member of the UK (CAPS data)
Investment Committee Pension Fund of the year 2001 (Pooled Fund) –
• Range of skills and experience enhances due diligence process Team member
1 Gresham House Asset Management Ltd calculations excluding dividends, including period subsequent to the departures of Graham Bird (Feb 2009) and Tony Dalwood who left SVG in March
2011 having stepped down from the SEC plc Investment Committee, moving to non-executive Chairman of SVGIM on 30 Sept 2010.
2 GVQIM website.
3 Bloomberg data (total return since 30 Aug 2013 when SRFII wound up through to 5th Jan 2016) – SEC plc continues to follow an SPE style of investment and demonstrates the success of the
strategy over the investment cycle.
4 Bloomberg data – total return. Tony Dalwood left SVGIM in March 2011 therefore data tracked for UK Focus Fund from Aug 2003 (July inception) - 31 Dec 2010.
5 Tony Dalwood chaired Downing Active Management Fund Investment Committee from July 2011 – Dec 2014. Total return Performance data up to 26th Dec 2014.
Page 7 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSExperienced GHS investment team
Fund Tony Dalwood* Graham Bird* Pardip Khroud
Management Fund Manager Fund Manager Investment Director
Chairman of Investment Committee, Previously Director of strategic Pardip has 13 years experience in
Established SVGIM and launched Strategic investments at SVGIM and a Director audit, private equity transactions
Equity Capital plc and the Strategic within the corporate finance and global tax restructuring at
Recovery Funds. Former CEO of SVG department at JP Morgan Cazenove. KPMG, Senior Manager at Lloyds
Advisers (Schroder Ventures London), Recently held senior positions at Banking Group and most recently
former chair of Downing Active Paypoint plc including strategic as an Investment Manager at
Management Investment Committee and a planning and corporate development Lloyds Development Capital (LDC)
member of the UK Investment Committee director and PayByPhone President & where she managed numerous
at PDFM. Currently NED of JP Morgan executive Chairman. Graham Bird is investments and was also
Private Equity Plc and an adviser to LDC Head of Strategic Investments at appointed to the Board of portfolio
through Gresham House. Tony is also Gresham House plc and a director of companies uSwitch and Bluestone.
Chairman of the Investment Committee GHAM.
and CEO of Gresham House plc
Investment Tom Teichman Rupert Robinson Bruce Carnegie Brown
Committee 30 years’ VC & banking experience. Over 25 years’ experience in Private Bruce is currently chairman of Aon
Founded Spark in 1995. Former Wealth and Asset Management. UK Ltd and of
Investment Committee member at Former CEO and CIO of Schroders Moneysupermarket.com Group plc.
Brandt’s, Credit Suisse, Bank of Montreal Private Bank and was instrumental in He is a non-executive director of
and Mitsubishi Finance London. Start-up driving organic growth in AUM which Santander UK plc. He was
investor/director of lastminute.com, doubled between 2008 and 2012 from previously a managing partner of 3i
mergermarket.com, Chairman of Kobalt £4.5 to more than £9bn. Prior to QPE plc, a managing director of JP
Music, notonthehighstreet.com, ARC, MAID, Schroders, Rupert was Head of UK Morgan and CEO of Marsh Ltd.
amongst others. Investor/director in Wealth Management at Rothschild Bruce is also a member of the
System C Healthcare, Argonaut Games, Asset Management. Rupert is the Gresham House plc Investment
World Telecom. Delivered various disposals Managing Director of GHAM. Committee.
to trade, P-E, and through IPO.
Strategic Advisory Group
Investment Jonathan Dighe
team Public markets and advisory background Gareth Current Chairman of Wolseley, William Hill and DS Smith. Former CEO of Imperial Tobacco
members focused on smaller companies Davis and Senior Executive at Hanson.
Laurence Hulse Alan Former Senior Partner and Head of Healthcare at 3i Group plc, appointed to the board in 1993.
Warwick University graduate. Interned at Mackay Currently Managing Partner at GHO Capital and former CEO of Hermes GPE.
Rothschild and Barclays Capital
Sir Roy Adviser to Credit Suisse, current Non-Executive Chairman of Serco, Senior Independent
Gardner Director of William Hill Plc and Non-Executive Director of Willis Group Holdings Plc. Former
Sanjeev Sarkar (Venture Partner)
Chairman of Compass Group, Manchester United and CEO of Centrica.
Private Equity background and experienced
principal investor
Page 8 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETS
13SPE investment process
Source: Gresham House Asset Management Limited
Page 9 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSConclusion
Attractive entry point - GHS plc is currently trading at a 20% discount to NAV1
Gresham House believes there is significant potential upside from existing strategic investments in the
portfolio over the medium term (valuations plus catalysts)
Attractive pipeline of investment opportunities – engaged with a number of opportunities
Investment team with a track record of delivering strong long-term absolute returns
Investing with a Strategic Public Equity (SPE) approach can deliver superior long-term returns
Investment team aligned to performance – plans to scale and continue to narrow discount to NAV
1 Mid price as of 27th May 2016 and applying announced NAV as at 27th May 2016
Page 10 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSSupplementary Information - Contents
S U P P L E M E N TA RY NEW INVESTMENT CASE STUDIES ( 11 - 1 3 )
I N F O R M AT I O N
Q U A RTO G R O U P I N C 11
B E H E A R D G R O U P P LC 12
N O RT H B R I D G E I N D U S T R I A L S E RV I C E S P LC 13
S P E – U T I LI S I N G P R I VAT E E Q U I T Y LE V E R S FO R E Q U I T Y VA LU E C R E AT I O N 14
VA LU E I N V E S T M E N T P H I LO S O P H Y G E N E R AT E S LO N G - T E R M R E T U R N S 15
S U P E R I O R LO N G - T E R M R E T U R N S FR O M S P E S T Y LE S T R AT E G Y 16
S P E – LO N G - T E R M VA LU E C R E AT I O N FR O M A FO C U S E D P O RT FO LI O 17
AT T R A C T I O N S O F S M A LLE R C O M PA N Y U N I V E R S E 18
LI T T LE C O M P E T I T I O N FR O M O T H E R I N V E S TO R S 19
BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSQuarto Group – c.5% shareholding
“Secondary followed by potential primary growth capital” www.quartoknows.com
Date of investment: January 2016, increasing stake to 5% in March 2016
Deal Type: Secondary with plan for provision of growth capital in support of acquisitions complementing organic growth
Overview: Secondary – Supporting the new management teams organic growth strategy with the agreed potential to provide growth capital to facilitate acquisitions
The story Engagement
The Quarto Group (‘Quarto”) is a leading global illustrated book publishing and Restructuring Phase Growth Phase
distribution group. Quarto creates more than 1,500 adult and children's books a
year, sold into 35 countries and in 25 languages. Subjects range from Art 'How-
To', Graphic Design, and Home Improvement, to Cooking. Quarto specialises in Engagement and due diligence period
producing books that can be better explained with photographs or illustrations.
The business went through a restructure under the new management team and is
now well positioned to grow earnings organically and by acquisition.
260 MAR ‘16 – Increase stake to c.5%
Investment thesis MAR ‘16 – Collaboration with management
240 to provide advisory support on acquisition
Backing management to grow earnings and create value through a combination of: strategy and model
Organic earnings growth Operational improvement and increasing exposure to
higher margin niche publishing areas 220
De-leverage – Strong cash generation enabling debt reduction
MAR ‘16 -
Potential to provide primary growth capital to fund enhancing acquisitions DEC ‘15 – Buy
200 Presentation to
The strategy seeks to acquire smaller publishers for low multiples (4x-5x shares through management on
EBITDA) and integrate them with Quarto trading closer to 7.2x1 fwd secondary opportunities for
EV/EBITDA, driving operational synergies and enhancing group earnings. placing
Pipeline of identified acquisition opportunities exceeds $25m 180 divisional businesses
M&A Track record - IVY press was acquired in 2015 and the team had grown
EBITDA from c.£0.4m at time of acquisition and generated in excess of £1m
within first year of inclusion in the group 160
Trade / PE deal precedents at high relative valuations2
Jan 15 April 16
Source: Bloomberg share price data
1 Stockdale
Securities research note March 2016 140
2 Gresham House calculations using peer group as determined by GHAM
Page 11
BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSBe Heard – c.10% shareholding
“Primary growth capital, supporting buy & build strategy” www.beheardgroup.com
Date of investment: Initial investment November 2015, further investment in April 2016
Deal Type: Growth capital
Overview: Cornerstone capital raise & re-Admission to support a proven management team aiming to build a leading digital marketing network through acquisitive
and organic growth
The Story Engagement
Be Heard's strategy is to create a network of digital marketing businesses spanning
media planning and buying; design, build and UX; creative and content; and
High engagement with management team
5.5
strategy, innovation and data analytics
Growth will be achieved through acquiring smaller, niche complementary
businesses in the UK, US and Europe and organically developing capability. The 5 NOV ‘15 - placing raises £5.5m
strategy is to create a mid-size digital marketing network providing more flexibility for acquisition of Agenda21 + JAN - MAR ‘16 – Active
than holding groups and greater scale than digital specialists can achieve alone name change and re-Admission due diligence of
4.5 to AIM proposed acquisition
Investment thesis OCT ‘15 – Meeting
4 with CEO and FD
Backing a proven management team - Strong track record of value creation in the
sector and highly capable integrators of businesses
3.5
Support a buy and build growth and value creation strategy – Paid c.6x
EBITDA for the initial acquisition of Agenda21 with an earn-out up to 8x and c.5.5x NOV ‘15 –
for the second acquisition of MMT rising to a maximum of 8x MAR ‘16 - Announced proposed
3 Referencing of mgt acquisition of MMT and fund raise
Valuation arbitrage - Larger companies in the sector trade on a range of 9-11x and engage 3rd party
EBITDA1 expert adviser APRIL ‘16 –
2.5
NOV ‘15 – Invest DEC –
Market growth in digital media is evident with spending on internet advertising increase invest £1.6m in
£0.7m of growth
forecast to double 2014-201518 holding at firm placing at
2 capital in primary
Significant revenue and cost synergies available from the buy and build 2.97p 3.25p
issue at 3.25p
strategy
Sep 15 Apr 16
Strong cash flow generation from operations and earnings growth expectation Source: Bloomberg share price data
1 Gresham House calculations. GHAM determined peer group including much larger peers which in time as BHRD executes on its buy and build strategy should become appropriate
comparable companies.
2 Enders Analysis based on GroupM/ZenithOptimedia
Page 12
BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSNorthbridge Industrial Services – c.10%* shareholding
“Recovery and growth capital investing alongside
management” www.northbridgegroup.co.uk
Date of investment: April 2016
Deal Type: Recovery and growth capital
Overview: Cornerstone capital raise to reduce debt and support future growth, including underwriting Open Offer. Collaborative engagement with management with a
view to supporting the execution of the agreed future strategy
The Story Engagement
Northbridge manufactures specialist electrical industrial equipment for sale and
rental and is a leading global supplier of loadbanks. The company also supplies 600 8 months engagement and due diligence period
the oil & gas sector with drilling equipment for rent.
The business has consistently generated ROCE exceeding its cost of capital
backed by its solid loadbank business, which continues to perform strongly. 500
Once the oil and gas sector begins to recover we expect the business to NOV ‘15 – Site visit to Burton on MAR ‘16 – proposals to
strengthen in-line with our investment horizon.
400 Trent management on funding options
Having spent over six months engaging with the management team GHS is
supporting the next phase of the company’s growth plan FEB ‘16 – Engaged 3rd
300 party expert adviser
Investment thesis APR ‘16 - Injection of
SEPT ‘15 -
recovery & growth
De-leveraging – cash generation and significant reduction in capex 200 Meeting with
capital
advisers
Multiple expansion – Entry EV/EBITDA at 4.8x representing a 63% discount
100
to peers and a low point compared to the last 2 years’ trading range1 OCT ‘15 – Initial company
Margin recovery – Profit growth as margins recover to long-term average meeting MAR ‘16 – External independent
0
Free cash flow yield of 20%2 and Recovery P/E ratio of 5.9x3
research report
Liquidation value – Underpinned by realisable assets. Attractive entry point Mar ‘15 Apr ‘16
Source: Bloomberg share price data
at 60% of net asset value4
1 Bloomberg data 2 Free cashflow yield GH 2016 forecasts (operating cashflow after interest & tax, less maintenance capex. EV based on fully diluted number of shares at 75p and forecast net debt).
3 Gresham House forecast 2019 EPS, assuming turnover recovers to 2015 levels and margins return to c.12%, applying entry price of 75p.
4 Stockdale Securities forecasts - note 18 April 2016
Page 13
BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSStrategic Public Equity value creation
Utilising Private Equity levers for equity value creation
The experience of Private Equity demonstrates that it is factors under the influence of management and investors which drive the
majority of value creation
Equity value is delivered through three levers
Profit growth
De-gearing
Multiple expansion
Source: Centre for entrepreneurial and financial studies, technical university of Munich, Capital Dynamics. 241 mainly European enterprises backed
by Private Equity over 17 yr period 1989-2006. Average holding period 3.5yrs. Data published in FTfm October 2009.
Page 14 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSValue investment philosophy generates long-term returns
Lower valuation at time of investment leads to higher returns
10yr Cyclically Adjusted PE & Future Average Real Compound Returns for 32 Countries (1980 – 2011)1
Avg CAPE % 1yr 3yr 5yr 7yr 10yr
by Bucket Occurrence Real CAGR Real CAGR Real CAGR Real CAGR Real CAGR
50 2.0% -4.5% -12.3% -6.4% -1.9% -3.1%
1 Cambria - CQR ISSUE 5 using global financial data, Morningstar.
Page 15 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETS
21Superior long-term returns from SPE style strategy
Year to 31 January
2008 2009 2010 2011 2012 2013 2014 2015
100%
80%
60%
40%
20%
0%
-20%
-40%
-60% SMXX NASCIT Strategic Equity Capital Crystal Amber
Source: Bloomberg data, Annual Report & Accounts. NAV growth vs FTSE small-cap (ex IT)
The SPE strategy delivered an average NAV CAGR of 7.4% vs 4.0% for the SMXX between Jan 2008 – Jan 20151
Gresham House has no relationship with Strategic Equity Capital plc, NASCIT and Crystal Amber. The purpose of this slide is to demonstrate the long-term
aggregate outperformance of the engaged strategic public equity style investment strategy.
1 Gresham House calculations. SPE strategy average NAV CAGR calculated by taking the average NAV growth of NASCIT, Strategic Equity Capital plc
and Crystal Amber over the period vs the CAGR in share price of the FTSE small-cap index excluding Investment Trusts (SMXX) .
Page 16 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSSPE – Long term value creation from focused portfolio
SEC plc demonstrates the long-term investment cycle for SPE style investing
Strategic Equity Capital plc - Top 10 holdings as of 30/6 each yr - % of invested portfolio
2007 2008 2009 2010 2011 2012 2013 2014
Redstone 14.6 Redstone 14.6 Intec 16.4 SRF II 13.9 SRF II 16.6 SRF II 17.2 Tyman (Lupus) 13.1 E2V 12.2
Pinewood 8.4 Pinewood 8.8 RPC 11.5 RPC 9.8 E2V 11.8 Lupus Capital 12.2 E2V 12.7 Tyman 12.1
Melrose 6.7 Spirent 7.8 Spirent 9.1 KCOM 9.0 Lupus Capital 9.2 E2V 10.1 4imprint 10.0 Servelec 10.6
Evolution 5.5 Intec 6.9 StatPro Group 8.7 E2V 8.5 RPC 8.9 Lavendon 8.5 Lavendon 9.1 4imprint 8.6
Spirent 5.5 Thorntons 6.1 Pinewood 8.3 4imprint 7.9 KCOM 8.9 4imprint 8.4 KCOM 8.3 Wilmington 8.5
Cardpoint 5.3 4imprint 5.5 Thorntons 6.8 Lavendon 6.6 Lavendon 8.4 KCOM 7.8 CVC Group 6.1 EMIS 7.9
Mecom 5.3 RPC 5.0 4imprint 6.7 StatPro 5.4 Mecom 7.8 RPC 6.3 Allocate 5.9 Allocate 7.2
Gooch &
Renold 4.5 Renold 4.8 ORA Capital 5.2 Pinewood 5.2 4imprint 7.3 Allocate 5.7 Housego 5.6 Goals 7.1
Gooch &
Intec 4.4 Vintage 1 4.5 KCOM 4.2 Mecom 5.2 Allocate 4.3 Kewill 4.4 Wilmington 5.4 Housego 5.8
Journey
Thorntons 4.3 Mecom 4.5 Group 3.6 Allocate 5.0 Kewill 3.6 CVS Group 4.3 RPC 5.2 RPC 3.9
Top 10 as %
of portfolio 64.5 68.6 80.4 76.9 86.8 84.9 81.4 83.9
Private Equity 2010 or earlier investment
Highlighted stocks reflect initial investment decisions made in or prior to 2010
Engage, influence, value creation plan and then the market re-rates on execution /delivery (not a short-term strategy)
Unquoted – significant drivers of performance – SRF II (IRR 36.8%, 2.8x1), Vintage (46.0% IRR 5.7x1)
1 SEC plc Annual Report 30 June 2013, net of fees and since purchase in Aug 2009.
Page 17 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSAttractions of smaller company universe
AIM valuation and growth forecasts
Many smaller companies suffer a valuation
discount compared with larger peers
Longer term investment can exploit the ‘illiquidity
discount’
Many of the smaller companies exhibit attractive
Source: Liberum; Bloomberg
value characteristics and growth potential,
providing a large pool from which to source ideas FTSE Allshare and AIM Allshare indices – 1461 Companies
Of these …
900 – companies with a market capitalisation below £250m
Of these …
490 – companies trading at a share price which is trading at 26 – have ROCE > 49 – deliver Free
EV/EBITDA below 7x 75% 10% Cashflow yield > 10%
Source: Bloomberg, as at 17 December 2015
Page 18 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSLittle competition from other investors
Private equity is often unable / unwilling to access the
small quoted company opportunity AIM trading values
Restricted to public information
Private equity investors usually require certainty
of transaction and seldom go hostile
Pension deficits or other contingent liabilities may
prevent investment
Public market managers are often wary of private Source: Allenby Capital AIM market update Aug 2015 and LSE
equity and will not engage AIM market capitalisation range
Access to borrowing can be restricted
Trading liquidity on AIM has fallen, reducing the
attractions to public market institutions
There is a large universe of companies with smaller
Source: Bloomberg; data as at 8 January 2016; FTSE AIM All Share index constituents,
market capitalisations to choose from excluding companies suspended from trading and nil values
Page 19 BRIDGING THE DIVIDE BETWEEN PUBLIC AND PRIVATE MARKETSThe flagship listed Gresham House
Strategic Public Equity platform
Gresham House Asset Management Ltd www.ghsplc.com
107 Cheapside info@greshamhouse.com
London EC2V 6DN 020 3837 6270
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