April update – three new investments are made and we sell the star of our portfolio – Fever-Tree

12th May 2019

We participated in three primary opportunities in April – Entertainment One, Diversified Oil & Gas and Yourgene Health. We are continuing to see a growing pipeline of potential primary opportunity deals despite the political uncertainty.

In April, the MFM UK Primary Opportunities Fund returned +2.98% compared with +2.68% for the FTSE All Share and +4.50% for the IA UK All Companies Sector.

Markets continued to make good progress with the UK hitting eight month highs following the Easter break. A delay in Brexit until 31 October gave the market comfort that a no deal Brexit had in effect been ruled out. A more constructive, market friendly outcome is also anticipated in the US-China trade dispute.

Despite the ongoing political shenanigans, which of course are far from resolved, we continue to believe the UK market to be relatively unloved and offering value, though cognisant that given the sharp rise in equity markets so far this year, a period of consolidation can be expected.

We also did not want the sale of Fever-Tree, the premium tonic water brand and the star performer in our portfolio for the past 5 years to go unmentioned. First bought at IPO in 2014 at 134p, it was once our largest active holding at over 3% of the Fund. We have reduced the holding gradually as the Company continued to markedly exceed expectations. With further recent share price strength we took the opportunity to sell the remaining modest holding at £30. Whilst very few investments perform as spectacularly as Fever-Tree, it underlines why we consider IPO’s as a source of investment. It is often an opportunity to invest in a fast growing company at ground level which can lead to oversized returns. 4 further IPO’s in the portfolio, all bought in the past few years, have doubled or more since our initial investment at IPO – FDM, Midwich, Gamma Communications and Creo Medical. The key is to be selective and determine those companies that have a particular niche or edge and are leaders in a growing sector.

Please be advised that the past is not necessarily a guide to future performance. Investments and the income derived from them can fall as well as rise and the investor may not get back the amount originally invested

 

Purchases

Entertainment One

Entertainment One is a film and TV content provider – perhaps best know as the creator of Peppa Pig. We acquired the shares as part of a £130m placing to fund the acquisition of a complementary music production company.

Diversified Gas & Oil

DGOC is predominantly a gas producer in America’s mid west. It aims to buy mature assets with a low decline production profile. We acquired the shares as part of a $225m raise to fund the acquisition of materially earnings enhancing assets. The Company is planning to move from an AIM list to a full list which should see it enter the FTSE 250, fueling further demand for the shares. A rarity for a smaller gas and oil company, the shares are forecast to pay a growing dividend yield in excess of 5%.

Yourgene Health

Yourgene develops and commercialises genetic products and services such as non invasive pre-natal testing for Down’s syndrome and other genetic disorders. We acquired the shares as part of a fundraise to buy a complimentary business whose products include pre natal cystic fibrosis testing. The combined business is now forecast to be profitable which we believe will provide a re-rating of the shares.

 

Sales

Fever-Tree

We used the recent share price strength following another excellent set of results to sell the remainder of our modest holding. We continue to hold the Company in high regard but believe the valuation is anticipating the Company take the US premium mixers’ market by storm. We do not feel it will be a straightforward process and may take longer than current market expectations. With the shares trading on a very high multiple, there is no margin for error. Whilst we would not back against the management who have consistently over delivered since IPO in 2014, we are content to sit on the sidelines for now whilst continuing to follow the story with interest.

Mercantile Port & Logisitics

We took the advantage of liquidity in one of our smallest holdings to lock in gains on this Indian port operator and developer. With the shares having performed well following the port’s opening, we felt the shares are unlikely to gain materially in the medium term.

International Public Partnerships

We sold our remaining holding in this FTSE 250 infrastructure company. A defensive holding that has held up well and done its job during the market falls in late 2018. We were content to take our modest gains as we see more attractive opportunities elsewhere.

Premier Technical Services Group

The shares have been weak on concerns over the Company’s working capital. We sold part of our holding before the most recent falls. We continue to monitor closely and await further news on this electrical services and fire specialist business.

Amigo Holdings

It has been a volatile period for the loan guarantor business on concerns that the FCA was looking more closely at the guarantor loan market. Our view was that the recent falls were overdone and with the stock rebounding sharply, we used the opportunity to sell our modest holding as we await more attractive investment opportunities.

 

Cumulative Performance (Total Return %)– April 2019

Fund/Benchmark Name Year to 30/04/2019 3 Years to 30/04/2019
5 years to 30/04/2019
Since Inception (28/05/1997)
MFM UK Primary Opportunities P Acc 3.07 40.11 47.46 401.62
Quartile Ranking – IA UK All Cos 2 1 1 1
IA UK All Companies 1.20 29.18 34.38 263.60
FTSE All Share 2.62 33.33 35.16 276.75

 

Discrete Annual Performance (Total Return %)– April 2019

Fund/Benchmark Name 30/04/2018 to 30/04/2019 30/04/2017 to 30/04/2018 30/04/2016 to 30/04/2017 30/04/2015 to 30/04/2016 30/04/2014 to 30/04/2015
MFM UK Primary Opportunities P Acc 3.07 8.34 25.48 -0.64 5.93
Quartile Ranking – IA UK All Cos 2 2 1 1 4
IA UK All Companies 1.20 7.40 18.85 -3.62 7.93
FTSE All Share 2.62 8.16 20.14 -5.69 7.48

Source: FE 2019

 

The past is not necessarily a guide to future performance. Investments and the income derived from them can fall as well as rise and the investor may not get back the amount originally invested. R.C. Brown and Marlborough are authorised and regulated by the FCA. Marlborough Fund Manager are the ACD. The Key Investor Information Document and the Full Prospectus can be obtained via www.marlboroughfunds.com or by request at: info@rcbpo.co.uk