Nick Greenwood runs an excellent fund over at Premier Miton called the Premier Miton Worldwide Opportunities Fund: the Citywire fund profile of this vehicle is here –
I think it’s fair to say that Nick spends a great deal of time looking at exactly the same set of unloved listed funds that I do. Our favourite lists tend to overlap although his list is a great deal longer than mine, nevertheless, by and large, we tend to agree on most things.
Very usefully, he also infrequently sends me over a series of pen portraits of his faves, summarising why he likes them. This week he sent me his latest update and I have filleted them and pasted them below. There’s almost nothing here that I would disagree with and nice to see him also picking up on Georgia Capital which I increasingly think is criminally undervalued. Also worth noting that Yellow Cake is on his list – as is Geiger Counter. Clearly we are both uranium bulls. And his biggest bet – resources via Baker Steel. I like this fund hugely but on balance prefer the BlackRock World Mining fund. As an aside Phoneix Spree looks to be this 6th biggest holding.
So, here’s my edited highlights of Nick Greenwood’s list:
- Phoenix Spree nav 402p – Share Price 265.5p – Discount 34% ( 4.2% of the fund): Rent collection on residential portfolio coming in post Covid at 97% , a rate that their UK Peers can only dream about. A factor is that unemployment benefits in Germany are high and the managers insist that tenants rent is less than 30% of household income when applying. There are some commercial units (6% of units) in the portfolio typically shops and cafes on the ground floor of residential buildings. The majority of these will have closed during lockdown so we are taking a 5% (6.5% post leverage) provision from the last stated nav which already reflected the implications of the Berlin rent freeze.
- Stenprop nav 130p – Share Price 93.5p – Discount 28.1% (2.52% of the fund): Stenprop is transitioning from global generalist property fund into a pure play owner of Mixed Light Industrial (MLI) units in the UK. It has been fortunate in that it sold a Hamburg shopping centre which represented around 20% of the portfolio just before the outbreak of Covid. Cash in hand and possibly softer vendor expectations should speed Stenprop’s task in becoming a pure play. Its MLI assets currently represent 47% of the portfolio. Until this achieved the shares will probably languish on a discount albeit probably narrower than where they trade now. The shares represent a play on the growth in the internet as companies can now operate from smaller , less central and more flexible premises. Whilst we are bullish on the long term outlook for MLI , a little over 20% of the tenant base is suffering as a result of the pandemic. The legacy portfolio will also suffer. This will lead to softness in the market. Our nav assumes a 7% (plus leverage) top slice from the latest official nav of 144p
- GEIGER COUNTER (1.84% of the fund) – [GCL] – URANIUM BASKET: Uranium prices slumped from $138 per pound prior to the Fukushima accident in 2011 to a low of $18. The spot price has languished around $25 per pound until its recent recovery. The disaster briefly led to a hiatus in the global nuclear power construction programme before generation recovered to former levels. Sentiment towards nuclear power remains terrible in Western Europe where it is perceived to be a dying industry. The amount of Uranium extracted globally is now well below the quantity that is being consumed. There are 442 nuclear power stations in the world with another 53 under construction. Nuclear power is central to energy policy in countries where the priority is to reduce pollution, particularly China and India. China plans to triple nuclear power capacity by 2030, India intends to build 21 reactors this decade, the UAE is bringing four plants on line and the United States has scrapped plans to retire older sites. This scenario requires a lot of uranium. Very little new supply is coming on stream as prices have been too low to justify the investment since Fukushima. Major mines, notably Rio’s Ranger site in Australia which closed in January, are becoming exhausted. Uranium is not a scarce mineral but lead times for new mines can be up to 7 years. Both dominant player Cameco and swing producer Kazakhstan have had to cut production to conform to social distancing rules. US utilities are behind the curve in acquiring the supply needed to operate their reactors. Therefore, there has been a bipartisan initiative to establish a national strategic uranium reserve. This supply imbalance reflects the reality that “the cure for low prices is low prices”. [Stated NAV 25p – Carrying Value 27p – Premium 8%]
- GEORGIA CAPITAL (2.28%) – [CGEO] – ARBITRAGE BETWEEN PERCEPTION AND REALITY: Georgia lies at the crossroads of Western Asia and Eastern Europe. It has become a conduit between the region and Western Europe, performing a role not too dissimilar to that historically of Singapore in Asia. In 2020, according to the World Bank, Georgia maintained its seventh place position out of 190 easiest country to do business with. This leaves it a place ahead of the UK and one behind the United States. The trust was spun out of Bank of Georgia after the combined entity became too large to manage at 16% of GDP. The portfolio had become unruly with investments in everything from wine, motor insurance, education, renewable energy and water supply as well as its listed stake in Bank of Georgia. Since we made our investment, the trust has had a tumultuous time. Sentiment, and the share price, were hurt by a badly handled transaction that gave shareholders in listed associate Georgia Healthcare (GHG) the ability to swap their investment into CGEO. At the time, there was intense focus on liquidity in the aftermath of the Woodford debacle and as a result, many investors no longer wanted to own micro caps such as Georgia Healthcare. They also were not natural owners of CGEO simply dumped their newly issued shares onto an unwilling market. Secondly, the closure of many frontier market funds has created structural selling of trusts such as CGEO. Their natural owners are departing the market. Despite these headwinds, we are optimistic for the future. The absorption of Georgia Healthcare is now complete and those assets are valued substantially higher on an earnings basis than they were during their lowly rated period on the UK stock market. The management team at CGEO are also now in a streamlining and consolidation phase. The sub scale businesses such as wine and motor insurance will be sold off leaving the team the time and energy to devote to their holdings that have the most potential. They are also aware that the market is waiting for them to be able to prove the value of their assets by selling off one of the more mature businesses. We anticipate that this may well be the Tbilisi water utility. Cash raised as the story is simplified will finance the recently announced buyback programme. This should mop up loose shareholders and give the share price some stability. The trust currently trades at around a 50% discount, therefore any stock bought in at this level will ratchet up the NAV. Investors should be attracted by a straightforward story and a wide discount. [Stated NAV 1071p* – Carrying Value 540p – Discount 49.6%]
- INDIA CAPITAL GROWTH (2.93%) – [IGC] – LAST CHANCE SALOON: Until recently, the trust’s focus on small caps has proved unhelpful, as large cap indices have generated much better returns than their smaller peers. IGC’s problems were compounded by some poor calls on alternative lenders and smaller banks leading to material underperformance during the second half of 2019. The portfolio was also hurt by some situations where controlling family holdings were held as collateral against loans made to their other business ventures. Instances where these proved unsuccessful led to the forced selling of family stakes to settle debts. Inevitably, this undermined share prices of otherwise healthy companies. However, the factor that has most drained support for this trust was that the discount was allowed to widen to 42% during April 2020. Poor performance would have triggered a continuation vote which could easily have been lost. Therefore, the board pre-empted that threat by offering shareholders an exit at a 6% discount to net asset value at the end of 2021. This is a much tighter discount than where India Capital Growth currently trades. The management has been bolstered by new appointments that have helped turnaround performance. In recent years, there have been major government iniatives such as demonetisations and a nationwide goods and services tax. In the short term, these disrupted the economy causing growth to be underwhelming. These reorganisations have now bedded down, for the first time in some years we are seeing brokers upgrading their earnings estimates. This environment suits the trusts mid and small cap bias. [Stated NAV 97.7p – Carrying Value 83.9p – Discount 14.1%]
- OAKLEY CAPITAL(3.35%) – [OCI] – BACKING THE MANAGER: This trust used to be on our “avoid” list due to a raft of historical corporate governance issues, in particular issuing stock at a discount. In the past few years, however, it has evolved from corporate bad boy to a much more professional operation. The trust remains on a very wide discount, as perception has not caught up with recent events. Oakley Capital invests in private equity, but the deal sizes tend to be smaller and the portfolio more concentrated than generalist private equity trusts. Oakley Capital tends to invest in smaller companies, finding prospects through their network enabling them to avoid expensive auctions. The portfolio has a bias towards software, tech-enabled services, online platforms, and subscription-based revenue models such as online education. A number of successful realizations have led to plenty of cash held on the balance sheet. Oakley Capital is perceived to be heavily exposed to Time Out and negative sentiment surrounding the magazine publisher and food market operator is likely to be part of the reason why the trust trades on such a wide discount. The company has been hard hit by lockdown and had to refinance last year. In practice success elsewhere in the portfolio combined with a decline in Time Out’s share price has left it representing only around 7% of the portfolio [Stated NAV 403p – Carrying Value 285p – Discount 29.3%]
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