Factsheet Commentary: November 2021

Several of our portfolio companies provided updates over the month. Some examples are outlined below: 

Kinovo’s trading update for the 6 month period ending 30/09/21 showed the company continuing to make good progress on its turnaround strategy. During the period, revenue from continuing operations increased to £23.8m (up 64% vs H1 20) and operating profit increased to £1.2m (vs a £0.2m loss in H1 20). Debt reduction is also progressing well, with net debt now down to £1.7m (vs £4.9m at the H1 20 point). In addition, the company continues to win new work and have signalled their confidence in their future prospects by reinstating dividend payments. Chief Executive David Bullen and his able team have completely transformed this company, once again reminding us that business is about people.

Premier Foods’ interim results update demonstrated robust performance, with the company remaining on track to meet their full year guidance. Faced with a tough comparative from the lockdown boosted prior year period, Premier Foods delivered revenue of £394m and trading profit of £57m for their H1 22. While these figures were down 6.5% and 12.2%, respectively, on the prior year, they represented increases of 7.5% and 13.1%, respectively, against the 2 year ago period, indicating underlying improvement. Under the stewardship of CEO Alex Whitehouse and CFO Duncan Leggett, net debt has reduced by 30% from 2 years ago and their pension scheme has now swung into a healthy surplus. With their international business gaining traction, we believe the future remains bright for Premier Foods.

Intermediate Capital Group reported excellent results for the 6 month period to 30/09/21, raising $13.8bn in new funds over the period – a record for both a half year and a full year. With assets now in excess of $65bn, management fee income should increase considerably over the coming years. 

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Investors who follow us would know our cautious stance on valuations. This very disciplined approach has impacted our short term performance. However this approach is even more necessary in a bull market like we are in today, when most companies are more than fairly valued, in our opinion. Assumption that a bigger fool will buy later or depending on hope has never been our strategy. 

It is, of course, frustrating when results are not in sync with our methodical, thoughtful style but this is also nothing new: it is a bull market occurrence and we have been there before. We are annoyed, not deflated, and we march on. It is encouraging to read Charlie Munger’s recent comment that “Overall, I consider this era even crazier than the dotcom era.” Those old enough to remember (like us) know that the excesses of the dotcom mania did not end well. 

The interviewer dared to further tease Charlie about his thoughts on cryptocurrency investors, to which he replied “I wouldn’t want any one of them to marry into my family.” There is nothing more we can add.

Sterling Investments Management Ltd
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