Downing Strategic Micro-Cap

DSM’s highly concentrated portfolio could benefit from a wave of M&A…

Squeezing out old investors with new investor money

It might not be necessarily this way as the individuals or funds might be the same, but it was definitely an unexpected move to raise money to squeeze out the old shareholders. Against the background of the simplification of the CEO structure of DSM-Firmenich (Mrs Matchett leaves the company), this manoeuvre looks odd to us.

A margin-protective strategy change

DSM-(majority held by DSM-Firmenich) reported a mixed set of figures (the top-line -7.4% missed the consensus; adjusted EBITDA was €-2m below), but increased its adjusted EBITDA margin qoq. As usual, the company reported a sales statement in Q1.

Inflation-related margin compression

DSM’s FY figures were characterised by the ambition to offset cost inflation which had started to bite into profitability in the first semester 22. This trend accelerated in H2, especially in the Q4. For 2023 the management guided for an additional cost increase. On the other hand, demand has normalised in some businesses. Due to the ongoing merger, the management did not provide any guidance, but seemed confident that things would go well.

Downing Strategic Micro-Cap

DSM’s discount remains an outlier, given recent NAV outperformance…

No sunny upland in 2023

DSM is seeing some initial signs of an end to its strong pricing power. This is being compounded by the shock waves coming from the inflationary scenario which are seeing customers turn to cheaper white label products. It is becoming clearer that DSM’s suppliers will have increasing difficulty in passing on higher raw material prices. Furthermore, a first look behind the curtain does not indicate a sunny upland in 2023. DSM revised its guidance downwards despite the still-positive adjusted EBI

Downing Strategic Micro-Cap (DSM): Portfolio upside and de-risked entry and exit

Ingredients for success

This year has been full of surprises, and not many of them good ones. Inflation figures surpassing expectations and the Russian invasion of Ukraine have been key drivers of tumultuous markets. Prior to 2022 investors were well rewarded for simply following trends, and the volatility this year is perhaps a painful reminder of the necessity for good portfolio diversification. Diversification of asset classes is important, but so is diversification within asset classes. Simply buying growth or buyi

Perfectly formed

Our research suggests that investment trusts really are a better way to gain exposure to smaller companies

Downing Strategic Micro-Cap

DSM’s strong performance in January illustrates just how different it is

Don’t fear the reaper

With market direction hard to call, we consider the case for taking a long- term view in the investment trust sector...

Grade inflation

Markets had a great first half to 2021 following on from what was a strong 2020, just as we all would have expected during a pandemic, no doubt! Our discounted opportunities portfolio has performed respectably in the six months to the end of June. We had one great success, with a trust leaving the list after a barnstorming rally, but overall results from a NAV and discount perspective were mixed, as we discuss below. Overall share price ratings are now high in the investment trust space, with de

Downing Strategic Micro-Cap - Overview

Downing Strategic Micro-Cap (DSM) aims to benefit from stock market valuation inefficiencies that exist amongst the UK’s smallest listed companies. This is an area of the market that offers the potential for significant value-add from a manager. DSM’s management team aim to identify catalysts for value to be crystalised, but if required they will engage with senior managements or boards in order to effect change that will be this catalyst. DSM is by definition a ‘value’ investment strategy base

Morning Note – 22 April 2024

Frenkel Topping - Resilient with strong growth potential

FY 2023 was a challenging year for Frenkel with higher interest rates encouraging clients to place money into lower margin money market funds. Despite this, sales grew +32% (supported by recurring revenue +9% and +51% in non-recurring), EBIT margins remained strong at 22% and adj. EPS grew +17% (taking into account the higher number of shares). FY 2024 has seen a solid start to transactional business and there is a strong pipeline of new FUM opportunities both of which support further growth. Wi

Benefits of scale set to materialise

S&U - PBT ahead, encouraging volume trends

S&U reported FY24 PBT of £33.6m, down from £41.4m in FY23 on higher funding and regulatory costs and higher impairments in Advantage in H2. PBT was 2% ahead of our forecast as stronger revenues – up 12% to £115.4m – and better costs offset higher-than-expected impairments. Net receivables grew to a record at both Advantage and Aspen and management noted particular strength in Q4 and a good trading environment in the current year. Having absorbed a significant rise in funding cost as well as addi

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

LIBERUM: PayPoint: On track for £100m of EBITDA in FY 26

Foresight Solar Fund - Termination of coverage

Edison Investment Research is terminating coverage on ABC Arbitrage (ABCA), paragon (PGN), Foresight Solar Fund (FSFL), Kendrion (KENDR), Lithium Power International (LPI), Triple Point Energy Transition (TENT), 4iG (4IG), e-therapeutics (ETX), Pharnext (ALPHA) and Shield Therapeutics (STX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our web

LIBERUM: Speedy Hire: Weakness in FY 24 but recovery in FY 25

Hybridan Small Cap Feast - 22 April 2024

22nd April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

Regional REIT - Performing as expected ahead of refinancing

In a challenging market, Regional REIT’s (RGL’s) FY23 operational and financial performance was robust, in line with expectations and previous guidance. Investor focus remains on the company’s loan to value (LTV) reduction and bond refinancing plans, explored in detail in our previous note and RGL will provide an update on this in due course.

The Hardman & Co Monthly: April 2024

Feature article: Steady as she goes, but could be better: A review of investment company liquidity since 2016 Liquidity is the lifeblood of equity markets. The measurement of liquid asset availability to a market or company is a way of gauging a market’s health. This article builds on our previous work, which analysed the liquidity data for non-financial trading companies, by applying the same analytical techniques to the investment companies (IC) space. We analyse liquidity for ICs as a whol

Foxtons Group (FOXT LN) - 1Q24 IMS shows real momentum

Foxtons Group plc first quarter revenue rose 9% to £35.7m (1Q23: £32.9m) with growth delivered across all business segments. Trading is in line with management's expectations.

Morning Note – 29 February 2024

Jupiter Green

Hardman & Co Insight - Asset managers had a poor 2022

Asset managers had a poor 2022: the S&P Composite 1500 Asset Management Index was down 22% and, according to the Investment Company Institute (ICI), worldwide mutual funds fell by 20%, from $76tr to $60tr. When bond and equity markets fall, the results are unlikely to be pretty: with revenues trending down and multiples contracting, there is a double whammy to contend with. So how do valuations shape up now, after a bullish start to the new year? The first chart is my favourite chart of asset m