Rockwood Strategic plc
(“RKW” or “the Company”)
Trading Update
Rockwood Strategic plc (LSE: RKW) today provides an update on current trading ahead of publication of its unaudited results for the six months ended 30 September 2022 (the “Period“).
Financial highlights
| • | Net Asset Value (NAV) Total Return in the Period of -10.4% to 1446.7p/share which compares to the FTSE Small Cap (ex-ITs) of -20.3% and FTSE AIM All Share of -22.6%. |
| • | Total Shareholder Return in the Period was -0.35%. At Period end the Company traded at a discount of 2.2% to NAV. |
| • | No. 2 ranked fund by Total Shareholder Return in the AIC UK Small Companies sector over the last 6 and 12 months, achieving 0.9% positive performance whilst the FTSE Small Cap Index (ex-ITs) fell 26.6% and the AIM All-share even more, down 35.2% (LTM). |
| • | NAV Total Return performance in the three years to 30 September 2022 of 44.3% which compares to the FTSE Small Cap (ex-ITs) of 6%. The Total Shareholder Return in the same three year period was 65%, No.1 rank in the AIC UK Small Companies sector. |
| • | Investment gains realised in the Lakes Distillery Bond delivered a 21.6% IRR and £3.1m cash. |
| • | Net cash of £2.4m at the end of the Period (representing 6.6% of NAV). We are anticipating a number of H2 investee dividends alongside an announced return of capital from Smoove. |
Portfolio highlights
| • | Seven new investments were made across a range of industry sectors such as City Pub Group Plc within consumer, Argentex Group Plc in FX services, Galliford Try Holdings Plc in construction, RM Plc in educational services and Finsbury Food Group Plc in food manufacturing. All trade at a deep discount to our assessment of intrinsic value; all have material upside to historic or industry profit margins; and all are highly cash generative. We have identified catalysts to unlock, create or realise shareholder value in each. | |
| • | Significantly positive share price performance from Crestchic Plc (up 63.6% during the Period, finishing at 28.7% of NAV) which, following our engagement in 2020-21 led to the company’s ‘transformation plan’, divisional disposal and Board/management evolution. At the end of September the company released another material increase to profit expectations from its record order book. We maintain a positive outlook on the investment. | |
| • | Across the portfolio, there were strong results announced from a range of other holdings, despite the challenging macro-economic environment, including Centaur Media, MC Saatchi, Van Elle and Smoove: | |
| ◦ | Centaur Media Plc: Sales up 8%, Ebitda up 55%, net cash £14.2m (Interim results) | |
| ◦ | M&C Saatchi Plc: Sales up 10%, PBT up 52%, net cash £39.7m (Interim results) | |
| ◦ | Van Elle Holdings Plc: Sales up 48%, Ebitda up 133%, net cash £5.9m (Final results) | |
| ◦ | Smoove Plc : Sales up 13%, net cash £20m (Final results) | |
| • | Pressure Technologies Plc released a disappointing update at the very end of the Period and we are actively engaged with management. | |
| • | The Investment Manager is comfortable that overall the portfolio is well financed. In summary 9 holdings have a net cash position, 4 are lowly leveraged and 2 have elevated debt. | |
| • | The Investment Manager has highlighted that due to the weak market conditions experienced in 2022, the valuation of UK smaller companies have become very depressed. Their pipeline of potential investments has grown as multiple opportunities emerge to deploy capital in the period ahead. |
Corporate development
| • | Successful migration of the Company from the AIM to a premium listing on the main market of the London Stock Exchange. |
| • | Appointment of Paul Dudley as Non-Executive Director |
Richard Staveley, Fund Manager, Harwood Capital LLP said:
“2022 is rapidly becoming a year in financial markets that few will forget, despite their best efforts. Bond and equity markets have struggled with levels of inflation not experienced for decades and the tightening monetary policy stance of the world’s central banks. We see challenging market conditions and a difficult economic environment as delivering a “target rich environment” (Lt. Pete Mitchell) for our differentiated approach. We are focused on the future, making highly selective investments that will drive returns for Rockwood Strategic over our investment time horizon and find our pipeline for new potential investments building at pace. The ability of the portfolio companies to improve profitability via ‘self-help’ should mitigate and, in many cases, more than offset difficult end markets or cost pressures. This dynamic is being demonstrated most clearly at Crestchic. For all holdings we can identify a large ‘margin of safety’ in their equity undervaluation and catalysts to drive shareholder value”
The latest Investor Presentation and Q3 Factsheet are now available at www.rockwoodstrategic.co.uk.