Written by Victoria Harris, Senior Investment Analyst and Co-Portfolio Manager
May the rally continue
Global markets had another strong month with the S&P 500 finishing up +3.1% for November, its strongest gain since February. This means the US market has delivered a positive return in every calendar month year-to-date. If this rally continues to 2018, it will be the first year US equities have recorded a positive return in every calendar month.
Returns
The Global Fund had another positive return for the month, finishing +0.54% for November and up nearly 17% YTD. Within the direct holdings, the three positive contributors were; iomart Group, dotDigital Group and Issuer Direct Corporation. Some detractors to performance this month were; LivePerson, BlueSky Alternative Investments and Curtis Banks Group. We continue to remain investors in these companies as we believe the outlook remains positive, despite some short-term weakness.
iomart Group: New to the court
We initiated a position during the month in a UK cloud services company called iomart Group. iomart is a founder-run, highly cash generative company that has delivered consistent revenue and earnings growth over the last 10+years. It has managed to grow organically at above industry growth rates supplementing this growth with a disciplined acquisition strategy. It is presently trading at an attractive multiple and its recurring nature of revenue gives us confidence in the outlook for earnings growth.
Written by Daniel Sims, Senior Investment Analyst and Co-Portfolio Manager
Gearing up
November was a surprisingly busy month for the Growth UK & Europe Fund as we participated in a private placement of stock, locked in some profits from one of our best performers, and built up a new, mid-sized position. We finished the month up 1.14% taking the total return since inception to 22.93% while remaining cautiously positioned and ready to take advantage of opportunities when they become available.
The big money is not in the buying and selling, but in the waiting. -Charlie Munger
IMI Mobile: A possible contender
The biggest move over the month came from a long-held position in IMI Mobile. We first became interested in the company after meeting with the CEO and CFO back in September of last year. We were attracted to the sticky revenues the firm generates through providing mission-critical software to large Banks and Telecommunications companies that increases the ease in which they can communicate with their customers.
At the time of our investment, a number of cosmetic issues were disguising the underlying earning power of the business and we were able to acquire a meaningful position in the company at prices that we believed were well below what the business would command in a private market transaction. The issues were...
- A confusing capital structure that included two separate classes of shares and caused financial databases to misstate the true enterprise value.
- Accounting standards that require the company to report operating profit margins below what would be expected from a software company.
- The presence of a large shareholder looking to reduce their holding in the firm.
Our thesis was that in-time, these issues would be resolved due to the alignment of incentives between management and outside shareholders, and once resolved, the business would trade on a multiple more in-line with its peer group.
Shortly after initiating our position, the company cleaned up the capital structure by swapping the B class shares for A’s, creating a clean corporate picture of the firm’s net worth. This gave the price a short-term kick, but the stock continued to trade well below what we thought it was worth for nearly 12 months. Fortunately, this month, the large and on-going shareholder managed to sell their entire holding through a placement to several, large, UK institutional investors. Removing this overhang sent the shares “off to the races” and they quickly appreciated ~20% to close around current levels of ~245p.
Evaluating the replay
While it is frustrating to watch a stock “do nothing” for nearly 12 months, despite the investment thesis playing out, it reinforces the virtue of patience and the need to focus on process as opposed to outcome. If your investment process is sound, and your conclusions correct, it’s highly likely the market will reflect your reasoning.
You’re neither right nor wrong because other people agree with you. You’re right because your facts are right, and your reasoning is right. -Benjamin Graham
Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser.