Fraser Mackersie, co-manager of the Unicorn UK Growth Fund, highlights three of his favourite shares as part of MoneyWeek's regular fund manager interview series:
Growth company valuations have contracted significantly, as less value is ascribed to expected future profits owing to the higher discount rates.
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This trend has created a number of interesting investment opportunities in growth companies globally, and – of particular interest to us – in UK equities.
Companies’ operational and financial performances during the past year and a half have remained relatively strong, with businesses continuing to implement their long-term growth plans.
With interest rates now approaching levels widely expected to prove a peak, and with inflation set to subside during the remainder of 2023, we believe that current conditions have created an exciting opportunity for investors to back high-quality growth companies.
Secret of long-term success
In the Unicorn UK Growth Fund, we look to identify and back profitable and cash-generative companies capable of delivering above-market organic earnings growth over the longer term.
Many of these businesses are aligned with multi-year structural growth themes. Our focus on profitability, cash generation and balance-sheet strength means we can find companies with the solid foundation to fund and support ambitious growth aspirations.
This approach also ensures that higher-risk, earlier-stage and cash-consumptive companies are left out of the portfolio. Alpha Group International (Aim: ALPH) is a company we initially backed at its initial public offering (IPO) in 2015.
Alpha started life on UK markets as a provider of corporate foreign-exchange (FX) services, but in recent years it has diversified into alternative banking (digital-banking services) for companies.
The firm’s recent full-year results show that both sides of the business continued to deliver excellent growth rates, with revenue in the FX division expanding by 22% and Alternative Banking Solutions delivering sales growth of 41%.
The company also announced plans to move from Aim, London’s junior stock exchange, to the main market of the London Stock Exchange next year.
4Imprint (LSE: FOUR) supplies branded promotional products (ranging from pens and notebooks to bags and clothing) to the US corporate market.
The company experienced exceptionally strong sales growth in 2022 as a shift in its marketing expenditure to focus more on brand recognition delivered impressive results.
The company is the market leader in the US but continues to command a relatively modest market share, providing ample scope for future growth.
Recent highlights from the full-year results for 2022 included revenue growth of 45% and a sizeable special dividend, reflecting the strong trading performance and growing net cash position.
A deep dive into detailed data
FD Technologies (Aim: FDP) is a relatively small software and consulting business. The group’s kdb+ software is the world’s fastest time series database and real-time analytics engine.
It enables customers, which include Formula 1 racing teams, Fortune 500 manufacturing companies and financial regulators, to analyse large amounts of data in real-time.
In 2022 the company entered a strategic partnership with Microsoft which made the engine available on the Microsoft Azure platform. Initial preview customers reported performance up to 100 times faster at one-tenth of the cost of competing solutions.
Rupert was the former Deputy Digital Editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing.
His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert has freelanced as a financial journalist for 10 years, writing for several UK and international publications aimed at a range of readers, from the first timer to experienced high net wealth individuals and fund managers. During this time he had developed a deep understanding of the financial markets and the factors that influence them.
He has written for the Motley Fool, Gurufocus and ValueWalk among others. Rupert has also founded and managed several businesses, including New York-based hedge fund newsletter, Hidden Value Stocks, written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
He has achieved the CFA UK Certificate in Investment Management, Chartered Institute for Securities & Investment Investment Advice Diploma and Chartered Institute for Securities & Investment Private Client Investment Advice & Management (PCIAM) qualification.
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