The more things change, the more they remain the same!
Twenty five years ago, Alan Greenspan, then Chairman of the Federal Reserve, coined the phrase “irrational exuberance.” The characters may have changed but the story is not much different. The dot coms have been replaced by other forms of online businesses. Some managing small and mid-cap Funds believe it is okay to toss coins and invest in binary outcomes. That is not our style. As analytical investors, we seek well established businesses – the average age of the companies within our portfolio is 47 years – and the best years are ahead of them. ~ ~ We believe that business is all about people. In that pursuit, we meet hundreds of businesses every year. Supreme is a company that we recently acquired shares in via an IPO. The company is a highly profitable supplier and distributor of a variety of consumer products, including vaping liquids and hardware, sports nutrition powders and snacks and, soon to be added, vitamins. Most importantly for us, the company is led by Sandy Chadha, an ambitious and highly driven founder. In the year to 31st March 2021, the group is expected to achieve a 33% hike in sales, to £122m, and a 16% jump in EBITDA, to £18m. The shares have already enjoyed a 40% increase over their IPO price but we have not sold a single share to flip our capital into the next hot idea.
Good ideas are rare and we like to run winners. With ample opportunities to both grow sales from its existing product portfolio and expand into new product categories, in our view, this company has a long runway ahead of it. ~ ~ Another holding worthy of mention is Hargreaves Services, which is a diversified business spanning the industrial and property sectors. Interim results released at the end of January confirmed an NAV of 400p per share (well ahead of the current price) and, post period end, the group sold off its specialty coal division for £24m – eliminating all debt on the books in the process. Hargreaves holds its land in the book at cost, so recent disposals, such as the 12.9 acres of land in Scotland sold to Persimmon, will strengthen its balance sheet further. ~ ~ Pure growth investors may buy Supreme but shun Hargreaves, while pure value investors may do the opposite. However, we feel that such polarised views miss the point. In our view, all investors should be seeking value – i.e. to pay below intrinsic value – whether that intrinsic value is apparent now or whether it can reasonably be expected to materialise in the future. Rather than taking one side or the other, we feel that this pragmatic approach should help to maximise our opportunities going forward.