At Odyssean Investment Trust we invest in high-quality businesses trading below their fundamental value where management can drive an improvement in underlying performance. We focus on UK smaller companies. We believe that this part of the market commonly fails to appreciate the medium-term potential of a business going through a transformation, instead being more focused on near-term momentum.
This leaves an opportunity for our detailed diligence process to identify investments where management self-help actions can drive operational improvement; we aim to invest before this is priced in by the wider market. As this change is delivered, we hope to then see a double benefit with earnings improving, but also increased interest as more investors buy into the story. Our portfolio today contains a number of these exciting self-help special-situation opportunities.
British small caps undergoing transformations
1. NCC (LSE: NCC) is an example of a business delivering an improvement story. The group is a leading provider of global cybersecurity services, supporting blue chip clients in this secular growth market. Over the past year, the firm has undergone a transformation to improve profitability by restructuring its service delivery operations and accelerating growth by refreshing its approach to engaging with its customers and persuading them to opt for NCC’s services.
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This newly improved NCC has started to deliver results, outperforming expectations at its most recent update. With the foundations now in place, we see NCC as set to continue to deliver an improving performance which is underestimated by the market. Despite a strong recent run, the shares still trade below those of cybersecurity peers and below our view of a break-up value for the group.
2. James Fisher and Sons (LSE: FSJ) is at an earlier stage of its transformation. The group is a leading provider of marine services and technical products to the offshore renewable, energy and defence sectors. Over the past 18 months, a new management team has gone through the painful process of disposing of non-core and underperforming assets in order to strengthen the balance sheet.
With this done, management has a clear plan to improve profitability materially through implementing operational best practices and better integration of a diverse group of businesses. We see the path ahead as clear and the team as able to deliver. The rating of shares at an enterprise value-to-sales ratio of below one shows the market has yet to factor in the group’s potential.
3. Genus (LSE: GNS) is another company at the start of its self-help journey. It is a leading provider of genetics to the porcine and bovine industries, with strong market positions and unique intellectual property. The group has suffered from an unusual confluence of downturns in its markets in recent years. These are now stabilising and a new CEO is spearheading an improvement programme focused on bolstering profitability in the underperforming bovine business through concentrating on operational efficiency, commercialising research and development, and value pricing.
Alongside this, the group continues to progress through regulatory approval of novel, disease-resistant pig genetics which, if successful, could materially reshape the group’s profit-and-loss account. Genus’s transformed prospects have yet to be factored into the share price.
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