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Gresham House Strategic (LSE: GHS)
Mkt Cap: £32.8m
Next results: Finals, May
Gresham House Strategic (LSE: GHS) has done well to minimise the decline in its NAV since the fall in the markets. The NAV was 1264p a share at the end of September 2018 and it was still 1243.2p a share on 16 November after AIM had fallen by more than 10%. The share price discount to NAV is 26%.
The total return of GHS is 31.5% since Gresham House took over the asset management of the company. The value focus may have meant that it took time for improvements to show through in comparison with the share price rises of the more fashionable AIM shares but they do not have the fundamentals of most of the GHS portfolio, which helps to set a base to the price in tougher times.
GHS has reduced its dependence on IMImobile by reducing its stake, but the communications services provider was still a major contributor to the growth in the remaining portfolio. It remains one-quarter of the whole portfolio. The share price of Northbridge Industrial Services has also performed well. There was also a strong recovery form waste management services provider Augean as it begins to sort out its tax problems.
Investments in Miton and Revolution Bars have been sold. A strong trading statement meant that the Miton share price went above the level at which GHS thought worth holding.
There is plenty of cash to reinvest. There was £13.7m at the end of September 2018, although there is also a provision for a performance fee of £1.65m – the final figure will be set at the end of March 2019.
Some of this cash has been spent on building up stakes in cosmetic products brand owner and manufacturer Swallowfield and oil re-refining services provider HydroDec. The move into brands by Swallowfield has made it a much more attractive investment. HydroDec has had problems but these appear to be in the past.
The dividend policy is being changed to provide a minimum increase of 15% a year over the next three years. The interim is 8.75p a share. There have been some share buybacks and the overall policy for shareholder returns is being reviewed.
Centaur Media provides an example of the influence of GHS can bring to strategy. Centaur has decided to sell publication The Lawyer and its events business. That has helped to spark a share price revival and the disposals could yield as much as the market value of the company. This would leave Centaur to concentrate on its marketing services brands.
Not all of GHS’s investments have paid off as yet but the in depth research made into each investment means that there is a good chance that they will over the longer-term. BeHeard, for example, has been a disappointment but the underlying reasons for the investment in the digital business remain sound. GHS has helped with the revised strategy.
There is a lot of potential NAV growth from the existing investments and GHS is still seeing plenty of new opportunities, particularly given the recent market decline.
Original recommendation: 815p/835p