Henderson Opportunities returns to form

Henderson Opportunities returns to form – Henderson Opportunities says that its NAV total return for the year ended 31 October 2017 was 29.5%, while the All-Share returned 13.4%. This strong outperformance more than recovered the shortfall in the preceding year, in which the NAV total return was 0.4% whereas the benchmark total return was 12.2%. During the year the share price discount to the NAV reduced marginally from 17.5% to 16.1%. The share price total return for the year was 32.3%.

The revenue return was 21.8p, compared with 20.5p last year. The total dividend for the year is 20.0p an increase of 1.0p on the previous year.

Top 5 contributors to performance

Blue Prism                  +356.0           +4.6
Keyword Studios       +266.2           +4.1
Conviviality Retail    +115.0            +1.8
RWS                            +60.2              +1.7
XP Power                   +112.5             +1.4 

Blue Prism enables robotic process automation, notably in mundane semi-automated tasks such as in call centres. By automating large elements of routine logic based functions, it releases the operative to carry out higher value functions. Since floating on AIM in 2016 at 78p the shares have risen more than tenfold, owing to very strong demand and the rapid internationalising of the offer through partner channels without undue financial strain. Cash is received upfront and revenue for 2017 has risen to GBP24m from original forecasts of GBP9m with 2018 now set to achieve GBP40m against original forecasts of GBP12m. The pace of growth shows no sign of slacking and, though the valuation is high, it remains a core holding. 

Keyword Studios is a global leader in services to the video games industry.  Shortly after its IPO in 2013 at 123p, two major console developers Sony (PlayStation) and Microsoft (Xbox) threw the support industry into turmoil by changing at short notice the launch dates for their new models. This put a dent in Keyword Studios’ short term profit forecasts. We did not panic at this external event but continued to believe in material medium term growth. The share price has since risen more than tenfold on a combination of organic growth and complementary acquisitions. These have moved the company from a project driven outsourcer to a strategic partner to all the leading global games developers. Given its rapid growth in a highly fragmented industry, it remains another core holding. 

Conviviality Retail, an alcoholic beverage wholesaler and supplier to franchise convenience stores, has seen the promise of the benefits of the Matthew Clark and Bibendum acquisitions materialise ahead of expectations, while evidence of growth emerged in the underlying trading of franchisees. This has driven a share re-rating but the cash generation of the stock is strong and the dividend is growing. With the quality of the team that CEO Diana Hunter has assembled around her, we look forward to seeing the strategy evolve further. 

RWS, through its most recent acquisition of Moravia, has moved well beyond its original patent translation roots and has been a long-term favourite of ours. A potent combination of growth, cash-flow and dividends has made a compelling story for the last ten years. A new bolder phase this year saw two major acquisitions. Moravia is a leading provider of localisation services to the world’s technology giants and adds a new fast growing client base. Earlier this year, RWS acquired Luz, a west coast USA based language service provider to the life sciences market. These acquisitions have diversified sector and client risk materially without diluting growth or cash generation. It remains a core position. 

XP Power, the designer and manufacturer of electrical power supplies, has been in the portfolio for more than ten years. It has again delivered good growth in profits as it continues to take market share through design and new product innovation, leading to new product wins with targeted original equipment manufacturers. These design wins, principally in medical and industrial technology markets, secure participation for the life of the product, typically around six to seven years. This has improved visibility for the future. 

Bottom Five 

4D Pharma                -51.3           -3.6
hVIVO                        -67.7           -1.0
Atlantis Resources  -44.4           -1.0
Ilika                            -53.6           -0.5
NAHL                        -31.6           -0.5 

4D Pharma, which harnesses bacteria in a revolutionary new class of medicines called live biotherapeutics, saw its share price fall earlier in the year as a lack of meaningful news flow weighed on the shares. This is expected to change dramatically over the next 9 – 15 months as human trials in cancer and asthma commence and study results from phase I in Paediatric Crohn’s are released. 2018 could be a pivotal year. 

Last year hVIVO, was again among our bottom performers. The change in strategy to focus on its own product pipeline rather than being just a services provider to the pharma industry has not produced the results hoped for with initial trial results in two programmes not meeting the primary endpoints required. The company is husbanding cash resources as further trial results are awaited in influenza and malaria vaccines. 

The developer of renewable tidal energy projects, Atlantis Resources, commissioned the first phase of its MeyGen scheme off the north coast of Scotland and power is now being produced and sold into the national grid. Phase 1A will produce 6 megawatts but when the project is completed, output should deliver 350 megawatts. The shares have been hit however, by Government procrastination over the funding of tidal power and its place within a broader framework of renewable sources. This is itself under pressure from falling subsidies. 

Ilika, a developer of novel materials, was spun out of  the School of Chemistry at the University of Southampton in 2004.The current lead product is a solid state miniaturised battery targeted for use in medical devices, emerging “wearable” technologies and as a remote power source for the “internet of things”. There has been no overtly negative news but we are still waiting for a breakthrough announcement and the stock market is losing patience. 

A common feature of the above has been they are all early stage companies trying to make the transition from the ownership of promising technology to full commercialisation. Stock markets are not yet giving them the benefit of the doubt. They have all seen share price declines of 45 to 70%. 

In the autumn 2016 budget statement, the Chancellor announced potential changes to the level of claims in the small claims court relating to road traffic accidents. This has necessitated some fundamental changes at NAHL, who provide marketing leads to the legal profession. The period of doubt persisted for much of the last year but the path to restoration of peak profitability has become clearer and pilot trials of the new business model have gone well. We have added to our position and remain encouraged for the future.”

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