Service manager update

  • Fund manager update
  • 5 minute read

By Sam Barton

Market in focus

Equity markets were in a positive mood during February, as the vaccine roll-out and gradual exit from lockdowns boosted consumer and business sentiment. Commodities continued to rally, raising inflation expectations and contributing to a further increase in bond yields. Long duration assets (including growth stocks) again struggled to keep pace with the wider market as investors reacted to the potential normalisation of rates. At the same time, reopening has seen buyers shift their attention from COVID-19 beneficiaries, where tailwinds are starting to wane, to those companies most impacted by the pandemic. In a similar vein, domestic assets, hit by the fall in UK GDP last year are now back in favour (as evidenced by a sharp pick up in M&A activity) thanks to the rapid vaccine roll-out. Although the strength of Sterling held back constituents of the MSCI UK Index with high proportions of foreign earnings, it returned a respectable 1.9%, as did the Numis Alternative Markets Index.

Market conditions proved favourable for portfolio holdings although the rising tide did not carry all boats. The average portfolio returned 3.9% over the month. Leading the way was M&C Saatchi (+51.0%) after a positive trading update and investor presentation. Shepherd Neame (+30.0%) benefitted as UK reopening dates were released, as did Johnson Service Group (+24.5%) and Vertu Motors (+24.4%), noted that trading was ahead of expectations in spite of showroom closures. Laggards included Van Elle (-12.9%) which continued to struggle after weak interim results, Mission Group (-11.6%) as it gave back some of January’s gains and Spectra Systems (-8.2%) suffered due to a weaker US dollar.

Company in focus: Begbies Traynor

The Group is a professional services consultancy, providing independent professional advice and solutions in areas of corporate recovery, restructuring, asset and property valuation, risk consulting and forensic investigations. The corporate insolvency business represents the majority of Group profitability; it handles the largest number of corporate appointments in the UK, principally serving the mid-market and smaller companies. Begbies services its clients from a network of offices across the UK through its 700 parners and staff.

The shares have been good performers over the past few years, thanks to a strong focus on operational performance and a number of well executed acquisitions that have added scale to the business. Although insolvency numbers have fallen due to Government support measures, the division has managed to grow organically and benefitted from deals such as CVR Global, bought for up to £20.8 million in January. Cash generation has been very strong, leaving the balance sheet with the scope to consolidate the market further, grow the dividend and fund any working capital associated with increased caseloads. As support measures are withdrawn in the coming year, insolvency numbers look set to rise. The outlook for Begbies, which offers countercyclical exposure to this trend at a reasonable valuation, looks bright.

Source for all data: Bloomberg LP

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Important information
This article is only intended for use by UK investment professionals and should not be distributed to or relied upon by retail clients. Please note there is no guarantee that the CITS investment objective will be achieved. The value of investments will go up and down and clients may get back less money than they invested. Past performance is not a reliable indicator of future returns. The information contained in this document is believed to be correct but cannot be guaranteed. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.

Specific information
CITS is a tailored discretionary investment portfolio management service that invests in both the Alternative Investment Market (AIM) and the Aquis Stock Exchange Growth Market (AQSE), with the benefit of major tax advantages introduced by the Chancellor of the Exchequer in his budget of March 2000. CITS is an Inheritance Tax mitigation service based on current tax law and practice. The tax treatment depends on the individual circumstances of each client and may be subject to change in the future. CITS invests in ‘qualifying shares’ in smaller companies which may be more volatile than investments in more established companies. Such companies can be subject to certain specific risks not associated with larger, more mature companies. Consequently this can make the CITS portfolios more volatile as the value of an investment may fall suddenly and substantially. CITS is considered suitable only for informed and experienced investors.


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