Specialist asset manager Gresham House (GHE:475p) been scaling up its operations significantly as highlighted by a 148 per cent rise in assets under management (AUM) to £1.6bn in the first half of 2018.
Chief executive Tony Dalwood explained to me that around £893m of the increase in AUM came from the £27.5m acquisition in late May of Oxford-based FIM Services, a specialist alternative fund manager specialising in forestry and renewable energy. FIM added 83,000 hectares of forestry (AUM of £635m) to boost Gresham House’s forestry business to over 100,000 hectares with a combined AUM in excess of £900m. The asset class has a positive correlation with inflation, offers investors exposure to a growing global supply and demand imbalance, and has generated a 15.7 per cent annual return over the past decade, according to the IPD Annual UK Forestry Index. Tax legislation is favourable as forestry is free from UK income and capital gains tax, and qualifies for 100 per cent relief from inheritance tax once held for two years.
| Bargain Shares Portfolio 2016 performance | |||||
| Company name | TIDM | Opening offer price (p) 05.02.16 | Latest bid price (p) 12.09.18 | Dividends (p) | Total return (%) |
| Bioquell (see note one) | BQE | 125 | 550 | 0 | 340.0% |
| Volvere | VLE | 419 | 890 | 0 | 112.4% |
| Bowleven (see note two) | BLVN | 18.935 | 29.15 | 0 | 66.0% |
| Gresham House | GHE | 312.5 | 470 | 0 | 52.0% |
| Oakley Capital | OCI | 146.5 | 197 | 9 | 40.6% |
| Gresham House Strategic | GHS | 796 | 1010 | 32.25 | 30.9% |
| Juridica (see note three) | JIL | 36.1 | 14 | 32 | 27.4% |
| French Connection | FCCN | 45.7 | 49.4 | 0 | 8.1% |
| Mind + Machines (see note four) | MMX | 8 | 7.5 | 0 | 2.8% |
| Walker Crips | WCW | 44.9 | 36 | 3.72 | -11.5% |
| Average return | 66.9% | ||||
| Deutsche Bank FTSE All-share ETF index tracker (LSE:XASX) | 341 | 412.55 | 47.96 | 35.0% | |
| Notes: | |||||
| 1. Simon Thompson advised buying Bioquell's shares at 149p in February 2016. Bioquell bought back 50 per cent of shares in issue at 200p each in June 2016 through a tender offer and Simon recommended buying back the shares in the market at 145p to give an average buy in price of 125p (‘Bargain shares updates’, 22 June 2016). | |||||
| 2. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The total return reflects this share sale. | |||||
| 3. Simon Thompson advised buying Juridica's shares at 41.2p in February 2016. Juridica subsequently paid out a special dividend of 8p a share in June 2016 and Simon recommended buying shares in the market at 61p using the cash proceeds to take the average buy in price to 36.1p (‘Brexit winners', 1 August 2016). Juridica then paid out a special dividend of 32p a share in September 2016 and total return reflects this distribution. Simon advised selling the holding at 14p ('Taking Q1 profits and running gains', 4 April 2017), hence the price quoted in the table. Please note that Juridica has since paid out a further special dividend of 8p a share and current bid price is 4.1p. | |||||
| 4. Simon Thompson advised buying Mind + Machines shares at 8p in February 2016. Mind + Machines subsequently bought back 13.22 per cent of the shares in issue at 13p a share. The total return reflects this capital distribution. Simon advised selling the entire holding at 7.5p which is the exit price stated in the table ('Strategic acquisitions', 9 May 2018). | |||||
| Source: London Stock Exchange share prices | |||||
FIM also added 127MW of renewable energy generating assets in offshore wind farms and ground-mounted solar parks. Gresham House acquired renewable energy fund manager Hazel Capital a year ago, and the FIM acquisition more than trebled renewable AUM to £344m. Offshore wind and solar parks not only have low operating risk, but are partially index-linked and cash generative income producing assets, too. Gresham House plans to raise a further £100m for its new energy funds in the second half, and is also pre-marketing a new energy storage systems fund.
In addition, the company is targeting a second half £80m raise for its British Strategic Investment Fund, a closed-ended Guernsey Limited Partnership which invests in relatively illiquid investments in UK housing and infrastructure-related assets, having already committed 40 to 50 per cent of the original £150m.
With £17.4m of net cash on Gresham House’s own balance sheet, a £2.1m deferred payment from Persimmon due from a land sale, and £13.8m of other liquid assets including a valuable £6.8m holding in Aim-traded investment company Gresham House Strategic (GHS:1,010p), then cash and liquid assets account for well over half of the company’s book value of £60.7m, or 295p a share. Organic growth will be the key driver from this point onwards as the operational gearing of the business really kicks in. To put this into perspective analysts are forecasting a second half operating profit of £1.9m to deliver second half EPS of 8.5p, adding substance to expectations of EPS of 23.6p in 2019. The board could even deliver a maiden dividend of between 2p to 3p a share for the 2018 financial year, too, far earlier than expected.
So, having included the shares at 312p in my 2016 Bargain Shares portfolio, and last rated them a buy at 424p (‘Bargain Shares: Another chance to bag some bargains Part II’, 16 May 2018), I am lifting my target price again from 500p to 575p in expectation of a sharp ramp up in profits. It’s unlikely to be the last upgrade. Buy.
■ Simon Thompson's new book Successful Stock Picking Strategies can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging. Simon's second book Stock Picking for Profit has been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. Details of the content of both books can be viewed on www.ypdbooks.com.
