Circ re. (Portfolio Update)
8 August 2017
Downing Strategic Micro-Cap investment trust PLC
Portfolio Update
The Board of Downing Strategic Micro-Cap Investment Trust (TIDM: DSM) ("DSM" or the "Trust") is pleased to announce that, since the launch of the Trust on 9th May 2017, it is now 32.21%* invested through acquisitions of holdings in five companies. These holdings reflect the investment philosophy and objectives of the Trust, taking strategic stakes of over 3% in the underlying businesses and engaging with management teams to drive longer term value.
All of the investments made to date are considered long-term strategic holdings, and as per our stated strategy, likely eventual exits are expected to be by way of trade sales or through liquidity in the shares provided by improved trading results.
The Investment Manager (the "Manager") is encouraged by the investment rate to date and the conversion of the work-in-progress. The Manager continues to believe that the Trust is on track to be near fully invested within 10-12 months of IPO.
The portfolio positions are outlined below (figures to 4th August 2017).
|
Investee Company |
Cost (£m) |
% of DSM* |
|
AdEPT Telecom Plc |
3.47 |
6.58 |
|
Real Good Food Plc (Equity) |
1.86 |
2.03 |
|
Real Good Food Plc (Loan Notes) |
4.91 |
9.18 |
|
Redhall Group Plc |
4.09 |
7.07 |
|
Other** |
3.76 |
7.35 |
|
Total |
18.09 |
32.21% |
* Market value of investments as a proportion of NAV less accrued interest, as at 4th August 2017
** Two additional investments made by DSM not individually over 3% of their respective issued share capital
Background to the investments
AdEPT Telecom Plc ("Adept")
Adept is one of the UK's leading independent telecommunications providers, offering a complete unified communications portfolio: fixed line calls, line rental, mobile, data connectivity, hardware, managed services, Wi-Fi, IP telephony and IT services. Headquartered in Tunbridge Wells, it is a provider of unified communications solutions to thousands of commercial and public-sector customers across the UK, including around 40 councils, Adept offers flexible technical and commercial options for onsite and cloud-based telephony and managed services.
Downing Funds first invested in Adept in 2015 and recently participated in a placing of Directors' stock. Downing Funds now own 11.67% of the company, of which DSM invested £3.47m representing 4.57% of Adept.
Real Good Food Plc ("RGD")
RGD groups its operation into three categories: cake decorating; food ingredients; and premium bakery. It is headquartered in London, and has its development centre in Liverpool. The two main divisions are Cake Decorating and Premium Bakery. The Cake Decorating business, led by the brand Renshaw, manufacturers sugar pastes and decorations (under the Rainbow Dust brand name). Haydens, the brand under which premium bakery operates, is a manufacturer and distributor of premium bakery products, with clients including Waitrose and Marks and Spencer.
On 29 June 2017, RGD announced that it had raised £15.5m of expansion capital from funds managed by Downing LLP (including DSM) ("Downing Funds") and two existing shareholders by way of both debt finance and new equity. Of the total fundraise, £8.75m was raised by way of a secured loan note instrument (the "Loan Notes") from Downing Funds. The Loan Notes are redeemable in full after three years. In addition to subscribing for the Loan Notes, Downing Funds have subscribed for shares in RGD representing 10% of the issued share capital at a price of 35p per share raising a further £2.75m. DSM's allocation of this issue was £6.77m, comprising £1.86m of equity and £4.91m of debt. The rest of the raise is in the form of two £2m one-year term loan facilities from two existing shareholders. Downing Funds are providing the Loan Notes, which have an interest rate of 6.5%, payable quarterly and are secured against the company's assets, subject to some additional intercreditor agreements. Furthermore, DSM was granted the right to appoint a new non-executive director to the board and Judith Mackenzie took up the position with immediate effect.
The Board was disappointed with the trading statement published by RGD on 1 August so soon after the investment by DSM but the Manager remains confident in the fundamentals of the business and the underlying investment case remains strong. It is a particular benefit of the investment model that through board representation alongside the structure of its investment in RGD, the Manager is able to work closely with RGD to assist in the ongoing improvement of the company's control environment. In addition, the manner in which the investment has been structured has meant that the majority of exposure to RGD is in the form of secured debt, reducing risk exposure.
Redhall Group Plc ("Redhall")
Based in Wakefield in West Yorkshire, Redhall's manufacturing businesses develop and provide high integrity products and solutions particularly for nuclear, defence, decommissioning, oil and gas and infrastructure projects. The businesses respond to customers who require ever more sophisticated products with a combination of security, blast, fire, pressure and acoustic ratings.
After new management were engaged in 2014, Downing took its first position in Redhall in 2015. Since then the order book has improved and the company has benefitted from nuclear related orders on decommissioning and new build.
On 14 June 2017 Downing Funds helped to cornerstone a £10.8m equity raise at 10p per share to fund working capital, of which, DSM invested £4.09m and now own 12.28% of the equity of Redhall.
The latest Net Asset Value(s) of DSM can be found here.
Hugh Aldous, Chairman, commented: "The managers have done precisely as they said in the prospectus: deploying a rigorous private-equity style of diligence and pro-active engagement that is producing a portfolio determined by future value. Their energy and diligence is building a unique, active investment company aiming to maximise shareholder value over the long term. They keep the board closely informed, involving us as necessary, and this investment company looks to be turning out to do exactly what it said it would do."
Judith MacKenzie, DSM Lead Fund Manager, commented: "We are encouraged by our early deployment of capital to date, in companies that should help us achieve our longer-term target returns. We are carefully working through our shortlist and have ongoing diligence processes underway on a number of future candidates for the portfolio."
For further information please visit our website or contact:
|
Downing Strategic Micro-Cap Investment Trust plc |
Tel: 020 7416 7780 |
|
Judith MacKenzie |
|
|
Gemma Smith |
|
|
James Lynch |
|
|
Alyx Wood |
|
|
Nick Hawthorn |
|
|
Downing PR - Jean Birrell |
Tel: 07799 555 353 |
|
|
|
|
Stockdale Securities Limited |
Tel: 020 7601 6100 |
|
Corporate Finance - Robert Finlay/ Daniel Harris / Edward Thomas |
|
|
Corporate Broking - Henry Willcocks / Fiona Conroy |
|
ENDS
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
This information is provided by RNS
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