The TM CRUX UK Special Situations Fund contains mostly mid- and small-caps and targets capital growth over the long term. We have traditionally done best when the stockmarket recovers and we like to buy long-term growth companies when times are difficult.
This has proved very profitable for us over 17 years: over this period we have returned 10.4% versus 6.2% for the IMA UK All Companies sector. Performance has been highly biased towards recovery periods and we delivered 168% and 150% returns in the recoveries of 2009 and 2020.
The UK trades at a 30% discount to global equities. We think large companies such as Shell, Glencore and Legal & General have great appeal, but even better returns will come from the small and mid-caps below that have been oversold. The current mood is one of extreme pessimism and, with low valuations in the British market, we believe now is a very attractive time to invest.
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Cheaper than the sum of three parts
Ascential (LSE: ASCL), at 242p, is a cheap but slightly complicated medium-sized special situation. The business consists of three different divisions and the sum of the parts has for some time appeared to be significantly higher than the share price.
Recent results have reflected the company’s resilience, with the events business benefiting from the post-Covid recovery, offsetting any weakness elsewhere. Most significantly, the company has declared its intent to break itself up to realise value.
The events business will remain listed in the UK. The high-quality, highly prized business information business WGSN will be sold, and the digital content business will be listed on the US Nasdaq market.
Recent brokers’ notes suggest a sum-of-the-parts valuation between 380p and 450p using conservative assumptions; the current price is 248p. It is somewhat surprising that the shares have not responded more strongly to the clear strategy to break the business up.
IP Group (LSE: IPO) is a UK mid-cap that is discounting too much bad news. The company helps fund innovative technologies from the UK’s leading universities. Venture funding is an area under pressure owing to rising interest rates. The group’s recent estimated net asset value of 130p per share will come under some pressure. However, we note that some of the investments, such as Featurespace, a software group using artificial intelligence (AI) to combat financial crime, are highly promising and should raise money successfully. Today’s share price of 60p is unrealistically pessimistic and we believe that IP Group will soon repeat its 2020 recovery, when the shares rallied from 50p to 150p.
A proven software strategy
AdvancedADVT (LSE: ADVT) raised money at 100p to allow seasoned software investor Vin Murria to acquire software businesses and improve them. Murria has had three successful iterations of this strategy at Kewill Systems, Computer Software Group and Advanced Computer Software Group. She raised money and invested £16m herself at 100p per share.
Today the shares languish at 71p and the firm has around 95p per share in cash and shares. Paradoxically, the more difficult the economy, the better the odds of finding the bargain needed to kick off “the investment story”. The shares could bounce by 50% or more on a deal, and would return 95p-plus in the unlikely event that no deal is found. It’s a small company, but one widows and orphans could readily invest in.
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