Interim Management Statement
INTERIM MANAGEMENT STATEMENT
Strategic Equity Capital plc
This interim management statement, issued in accordance with the UK Listing
Authority's Disclosure and Transparency Rules, relates to the period from 1
July to 30 September 2008.
Investment Highlights
â— NAV negatively impacted by market turmoil
â— Majority of portfolio companies operating satisfactorily; strategic
and operational plans broadly on track
â— Fund exhibiting attractive valuation characteristics
Financial Highlights
◠Net assets of £43.9 million, or 63.1p per share; a decrease of 22.4%
during the period (FTSE All Share down 12.2% and FTSE small cap
(excluding investment trusts) index down 14.9%)
â— Share price of 42.75p, a decrease of 35.5%
â— Company fully invested at the end of the period; net cash represented
0.9% of NAV
â— A further 1,463,000 shares bought into treasury at an average price
of 57.02 pence
Investment Manager's Review
The third quarter was an extraordinary time for the UK equity markets,
continuing an extremely uncertain period in equity market history. At 30
September 2008, from peak to trough, the FTSE All-Share Index had fallen by
29.7% and the FTSE Smaller Companies (ex Investment Trusts) Index by 48.7% as
equity risk premia rose dramatically. Companies with debt have been
particularly badly hit. Investors' concern about the general outlook for
earnings and the potential impact of significant downgrades on banking
covenants coupled with a severe reduction of credit availability has focused
attention on balance sheets. Whilst the majority of portfolio companies have
demonstrated comparatively resilient operational performance, the Company's net
asset value has been materially affected by these conditions.
Portfolio Activity
Overall, the portfolio saw limited activity during the quarter. We are seeing
an increasing number of potential opportunities for new investments as
conventional sources of finance have become increasingly scarce and we continue
to evaluate these. However, liquidity in the small cap market remains extremely
low and, although we benefitted from corporate activity in H1, we do not expect
takeover activity to return in any meaningful way before the end of the year.
Consequently, our focus has been on working with the management teams of
existing investments to ensure that all necessary operational action is taken
in view of the economic climate.
The Company made two new small investments in the period. We made a modest
investment in convertible preference shares issued by Inspired Gaming. Each
preference share carries a payment in kind coupon of 7%, has a redemption price
of £1.00, equivalent to 200% of the issue price, and is convertible at any time
into one ordinary share. Certain mandatory redemption rights arise in the event
of a takeover. Management are working with advisers to sell the business. The
investment represented 0.9% of net assets at 30 September 2008.
Avingtrans is a small niche engineering conglomerate focused on value added
products for critical applications predominantly in medical, nuclear and
alternative energy, and aerospace sectors. The company has recently experienced
wholesale management change led by the new chairman and now a significant
shareholder, Roger McDowell. We supported an equity issue to support the
expansion of the company's facilities in China on the back of contracted
orders. We expect the business to focus on improving its return on capital as
well as growing both organically and by acquisition. This should provide the
opportunity to work with management and to put more capital to work in future.
The investment represented 1.1% of net assets at 30 September 2008.
The Company had committed to three equity issues at 30 June 2008. The equity
issue in Renold completed on 7 August 2008 and the company continues to trade
well with the forward order book at 30 September 36% ahead of the comparable
prior year period. Melrose completed its equity issue supporting the
acquisition of FKI Group and plans for FKI remain on track. These commenced
with a buy-back offer for the existing FKI high yield bonds. The results for
the business excluding FKI to 30 June showed a good performance in the Group's
main businesses. The Journey Group equity issue and bond conversion completed
successfully on 29 August. Results to 30 June showed a sharp turnaround from
2007 with the company producing an EBITDA profit of £0.7m for the six months
against a loss of £2.1 million in the comparative prior year period. Whilst the
outlook for the business remains challenging in light of the deterioration in
the macroeconomic outlook, management has demonstrated the organic growth
prospects and has positioned the group for a number of strategic alternatives.
Corporate Events
At the time of the Company's results the Board announced that it was reviewing
all options to reduce the level of discount over the medium term for the
benefit of all shareholders. The Board subsequently announced that, having
obtained the views of shareholders representing over 90% of the issued share
capital, it was resolved to continue to support the existing investment policy
whilst selectively continuing to use its existing buy-back authority. In
addition, the Board undertook to present an ordinary resolution at the 2010 AGM
to allow shareholders to vote on the continuation of the Company.
Outlook
Given the high concentration of the Company's portfolio, we anticipate
continued volatility in the underlying net asset value until we see some
stability returning to the equity markets. Despite this, we believe that this
is a clear investment opportunity. The UK market is now looking good value,
both relative to gilts and on a long term valuation basis. In our view,
Strategic Equity Capital is attractively valued, exhibiting strong value and
cashflow metrics. We believe that by avoiding companies that have deep
structural issues and focusing on companies with value characteristics,
smaller, cash generative companies, and incentivised management teams we should
deliver strong returns for investors in Strategic Equity Capital.
As at 7 November 2008 the unaudited net asset value per Ordinary Share,
including current period revenue, was 45.90 pence.
Summary
Summary (as at 30 Sept 2008)
Net assets £43.9m
Net Asset Value (NAV) per Ordinary 63.06p
share
Net cash as % of funds invested 0.9%
Top 10 Investments
Company name (as at 30 Sept 2008) % invested
in portfolio
Redstone 12.4
Pinewood Shepperton 8.1
Intec Telecom 7.4
Spirent Communications 7.1
Thorntons 7.1
4Imprint 6.2
Vintage I 5.2
RPC Group 5.1
Ora Capital 5.1
Renold 4.9
Sector analysis % of portfolio
Technology 22.4
Industrials 14.8
Media 13.9
Telecom 13.0
Support services 12.7
Investment Companies 7.8
Retail 7.0
Financial 5.1
Construction 1.6
Leisure 0.8
Net cash 0.9
Size analysis % of portfolio
(market cap)
Less than £100m 59.4
£100m - £300m 24.4
£300m - £500m 7.1
Greater than £500m 9.1
For further information please contact:
Xziena Charles
SVG Advisers Limited
Telephone: +44 (0)20 7010 8993 or email xziena.charles@svgcapital.com
Company website: www.strategicequitycapital.com
Throughout this document "Strategic Equity Capital" or the "Company" refers to
Strategic Equity Capital plc. "The Investment Manager" refers to SVG Investment
Mangers Limited
11.11.2008
Latest directors dealings
- 5 minutes ago Prudential
- 16 minutes ago Vanquis Banking Group 20
- 2 hours ago Frasers Group
- 2 hours ago Cavendish Financial
- 2 hours ago Diaceutics