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Now up to 28.02% an increase of 12% (all owned directly). Where has this stock come from?
This is the last snapshot I can find of the register, not sure how correct this might be (WRT downing themselves).
Have Milkwood cleared out Premier Miton?
Note the Foresight group acquired their stake when they acquired some downing VCT funds, they could possibly have offloaded, although their remit, would suggest they too would prefer the fund continues.
I would say, regards any vote, that it appears that Downing themselves have at least 11% of the vote, but Milkwood now have 27%. Very interesting.
Foresight Group LLP - 10,388,813 22.29 % 8 M p
Milkwood Capital Ltd - 7,780,412 16.69 % 6 M p
Premier Fund Managers Ltd. - 5,220,253 11.20 % 4 M p
Downing Strategic Micro-Cap Investment Trust Plc - 5,025,819 10.78 % 4 M p
Downing LLP - 4,291,022 9.207 % 3 M p
Asset Value Investors Ltd. - 3,300,000 7.080 % 3 M p
Rath Dhu Ltd. (Isle of Man) - 2,220,000 4.763 % 2 M p
First Equity Ltd. - 1,500,000 3.218 % 1 M p
Downing Ventures - 743,750 1.596 % 583 301 p
Wesleyan Unit Trust Managers Ltd. - 325,000 0.6973 % 254 888 p
So it seems that Milkwood capital are building a large stake here to vote against the resolution to return capital. (See news articles). Then it seems that Downing have tried to increase the amount of capital that will be returned, perhaps to sway some voters. "level of cash within the Company's portfolio against the Company's NAV as at 6 March 2024 (being the NAV referred to throughout the Circular) has increased to over 40%." Proposing return of 26p on 4th April.
Milkwood have declared with about 17% so far, I think they will need to buy a few more to get this over the line, unless they have found another party who wants to remain invested. Crazy that the SP did not increase during this time.
"The issue and redemption of B shares is subject to the passing of the resolutions to be moved at the General Meeting of the Company being held on 3 April 2024, which together seek to approve the implementation of B shares schemes by the Company."
If Milkwood manage to stop the return of capital, then this money will need to be re-invested presumably, but in to what? DSM could end up with even more cash if and when Fire angle sale goes through. I for one don't mind either scenario. I agree that funds like this are heavily discounted, the market is heavily discounted, and more so small caps. Therefore the potential return if this fund continues should be much more in 24 months. I was planning to purchase stocks in the fund, with the capital returned anyway, so don't mind holding on. Perhaps the last few months have allowed a re-think of the portfolio, and potentially a chance to start over on a few new positions. I for one, like these concentrated portfolios, of 10 or so holdings. Will Milkwood have any influence? That would be interesting. Milkwood were pressuring Foxtons to sell up last year.
Up 8% as another interested party appears.
The DSM portfolio was last reported as consisting of over 5% EQLS. Should boost the NAV.
https://news.sky.com/story/ex-chancellor-hammonds-fintech-railsr-eyes-merger-of-equals-13098444
The recent TR1 was good timing, how fortunate for the holder.
We have a notifiable stake of 8% in the trust now from Milkwood Capital.
We also have some action over at NBB, where downing have sold 6.65% of NBB, and it looks like Canaccord have picked it up. No change to share price so this serves as an exit at current NAV, bearing in mind how iliquid that one is...not bad.
The trade has printed today (From Friday) 4,000,000 at 7.5p , £300k.
SNX now up 8% this morning after being tipped in the Mail on Sunday. I Refuse to open the link but take City wires word for it. SNX is the largest holding of DSM, should bode well for tomorrows NAV declaration. All other holdings no major moves.
I should have said, the Kelso group is publicly traded:
https://www.lse.co.uk/SharePrice.html?shareprice=KLSO&share=Kelso-Grp-Hldg
From the daily mail.
“There was some love shown towards The Works after Kelso Group, which invests in small and mid-cap British companies such as THG (down 2.1 per cent, or 1.42p, to 67.28p) and Angling Direct (flat at 39p), bought shares in the arts and crafts firm on Valentine's Day.
Might be worth checking them out. Maybe another video lol.
TheWorks.co.uk PLC - Birmingham, England-based retailer of books, arts and crafts, stationery, toys and games - Kelso Group Holdings PLC buys 345,000 shares in The Works at an average price of 24.03 pence, worth GBP82,904, on Wednesday. Kelso, an activist investor, now has 3.7 million shares in The Works, a 6.0% stake, up from 5.1% previously. The share purchase was made on the same day that The Works and Kelso announced that Kelso Chief Executive Officer John Goold and Chief Financial Officer Mark Kirkland had joined the board of The Works as non-independent non-executive directors.
This is good news on 2 levels. One, they should be able to help with the recovery - these are the guys who voted down the dividend payment. Two, if they are stake building, DSM may be able to off load this directly to them. The Kelso group first announced a stake in September (share price was 30p) then upped it in October (share price was 40p). So they must think there is considerable upside here. The last Kelso purchase was quite small, so I doubt there is much stock available at these prices. I guess DSM are quite a bit under water on this, but as I keep saying. Any one who buys today this does not matter. Any uplift will be NAV accretive.
I took some WRKS stock this week, though missed the 20p entry and got 25p. I reckon I can make 50% easily on this in a few months. Its just a trade, still not a fan of the shops.
The works - WRKS is up 20% in 2 days. Hopefully making a small contribution to NAV announcement tomorrow.
I made a video of the portfolio holdings here. No advice, just a review of which stocks are in the portfolio.
https://www.youtube.com/watch?v=TO0gwhwfPmk&ab_channel=DartronTrading
I am already up 5% here, before any return of equity. While the NAV discount has narrowed a little, the NAV has also increased and ticked up in to the 66p range. HSP and SNX doing well last week. Downing have reduced on 2nd Feb, HSP to from 4.97 to 3.89%. SPEC also recovering (as expected). This is probably what has helped the NAV over last week. JNEO results were good, it dropped on release. However, it looks like we were exiting in the build up to results, so a positive there too. VLX looks set to break out. No major downers over last week, though obviously there are a few laggards in the pf. This is why a managed winddown is in our best interests. Personally, I may take positions in a few of these portfolio companies over the next coming months. Even though I don't like the Works, it is looking VERY cheap now.
Here is a share price chart of DSM from trading view with a few averages (green 50 day, white 100, purple 200, dotted very long term).
https://www.tradingview.com/x/Z3klTkzz/
My apologies for my post below as I had not seen the RNS of 2nd February.
Up 3.3% today getting back to levels last seen in November. Having started February at 58p it has just moved above 62p. We are overdue an update on the first distribution at NAV which was expected in Mid January. I wonder if they are pursuing another option perhaps with another fund making them unable to comment. Interesting
How about this for consideration by the Board.
They can have 2.5% upside participation but not on rises in the NAV (which could simply reflect the market) but instead on the outperformance of the NAV against say the Numis Small Cap Index or some relative benchmark.
Then it is at least fair to say that they are getting a reward simply for the NAV increasing beyond simply market moves - that truly would be aligned to shareholders and would be outperformance that may merit some reward.
Would that have been so hard to come up with by the Chairman and Board, who are obviously far too closely attached to the managers? Would it be so unreasonable to the Investment Managers, who frankly must be very embarrassed by their professional performance?
That makes me laugh - the company will keep access to the expertise of Judith Mackenzie!
Expertise indeed.
A NAV of £54m on fundraising, expertly managed down to £30m today, with only a few dividends on the way.
The new fee arrangements are an insult to any long-term shareholder, although I guess most bailed out long time ago.
The two managers have charged 1% p.a. to lose 45% over the life of the Trust. Paid for losing money (but it wasn't their fault, it was the market you know, honest!).
Now they get an upside incentive if they can recover some of the money they have lost (or rather if the market recovers and lifts their boat with it, because let's not forget it's all the markets doing as to why they have lost money).
What a joke!
I know anyone who has bought in recently won't care, and can shrug off the absurdity of this situation, but really you should not be sharing your upside with these expert fund managers. They should acquit themselves professionally to manage out this mess, without any upside participation.
Investment Manager, is currently estimating that the Managed Wind-Down could be completed within 2 years. Further, the Board believes, in consultation with the Investment Manager, that within the first six months of 2024 up to, or exceeding, 50 per cent. of the Company’s NAV could be returned to Shareholders in cash (assuming current bids for certain of the Company’s investments complete by then) with more value remaining in the NAV of the residual portfolio to be realised through the process of complete wind-down.
on or around the end of the first quarter in 2024, 25 per cent. of Shareholders’ capital at NAV which, given the Company’s discount as at 31 January 2024 of 11.9 per cent., would be a 13.5 per cent. premium to the Current Share Price; a further 25 per cent. of Shareholders’ capital at above NAV by 30 June 2024, which on current discounts and NAV would represent a greater than 13.5 per cent. premium to the Current Share Price; and beyond 30 June 2024, a mid case scenario for the current market suggests a return above the current NAV and hence a significantly better than 13.5 per cent. premium to the Current Share Price. In order to keep up a timely rate of returns, the Board has constructed an incentive scheme for the Investment Manager
So basically DSM keep invested and hope things improve, which I suspect they will. I think the second return - when they say " Shareholders’ capital at above NAV by 30 June 2024" they must mean 25% of todays NAV? So the same payment as payment 1? This leaves them 50% of todays NAV to hopefully make some returns and get those manager incentives.
So assume about 15p payment twice within 6 months. Any thoughts?
The NAV has reduced over January from 31.2 to 30.67. (-1.69%) Not bad considering a few of the drops the portfolio saw over January. The 27% cash is close to about 17p per share. The FA. sale will help when this concludes, shares are about 10% under the offer price currently. Of the ones that dropped, SPEC should bounce. Not sure about WRKS or CAU. We also a large dividend to look forward to from HSP, which should be about £270k.
The sale of FA. has been delayed a little due to the buyer being foreign. This could be an issue.
Prior to the wind up, it was always stated that 50% of shares could be redeemed for NAV in May 2024. So this is probably why it is winding up. They realise that you would be silly no to, and this would leave the fund in a sticky spot going forward. Shame about SPEC, as DSM added to this recently. It dived 30% last 2 days, but has not affected the nav by much. Shame the top up was il timed- as a buy today would have worked well. It could even be DSM selling to cause the drop. Fluid power down a little today. (I made a DSM watch list on this site and in Trading view, so I can follow all of the stocks).
A reminder:
“ DSM: Return of Capital - Board Update
Downing Strategic Micro-Cap Investment Trust Plc (the "Company")LEI: 213800QMYPUW4POFFX69DSM: Return of Capital - Board Update28 December 2023
As announced by the Company on 9 November 2023, the board of directors of the Company (the "Board") has been considering the best means by which the Company can meet its commitment to return capital to shareholders and had concluded that it would advantage all shareholders equally if the Company were to commence a managed wind down of its investment portfolio. The Board has worked closely with the Investment Manager to determine an appropriate managed wind down strategy and is of the view that within the first six months of 2024 up to or exceeding 50% of the Company's current market value can be returned to shareholders in cash (current bids for investments assumed to complete by then) with more than the remaining portfolio market value still to be realised through the process of complete wind down.
The Board continues to consult with its advisors on the most tax efficient method of returning capital to shareholders pursuant to that wind down, whilst also remaining open to any alternative options for the future of the Company that merit consideration. Good progress is being made on the former, and the Board notes that bids for portfolio companies continue to be made at premiums to their share price.
The Board expects to update shareholders further by mid-January 2024.”
I hope the Board are working hard to bring us good news as they were expecting to Update us by Mid January. Tomorrow is the last day of January so it’s overdue.
I have bought in recently. I did some research at the time, and regarding the Works - The position was bought in May 2022 at 3%, then it was added to on January 2023 to go to 4.3%. The economic climate was very different in 2022. Yes the position could have been sold, but the remit of the fund is to stay invested in microcaps. By all accounts the Works is very cheap now, there are other II there who are pushing back on Dividends and asking for buy backs. At least the business is virtually debt free and has currently a fair bit of net cash. It appears cheap on fundamentals, but I dont like the business.
I have not followed the stock closely but it seems to have disappointed repeatedly after the buy in here. It looks from a cursory glance that a management shake up is needed, though you could argue that the business itself is not a great one (shops full of tat IMO, not great at anything). I wouldn't buy the stock myself, but we are where we are. Just putting the record straight that the decision was not made in 2023 to invest in the Works, if anything you could say it was back in 2022.
Having just bought in, it only matters to me if the NAV increases from now, so even if the Works cannot get back to b/e for this fund, I still think it will recover somewhat. The fund is a mixed bag in terms of success, but I still feel they can add value as they wind up the fund. They are selling in to strength on JNEO which is at an ATH, and selling down a few other positions. I noticed that they increased on SPEC. Of all the positions, assuming FA. sale goes through, and EQLS gets a bid, then we only need another big winner to make a material difference here. I like NWOR, be great to see an offer there after Media courage went up to 24% in December. You can only pick the stocks as an investor, manage your entries and exits. Nothing else is in your control.
Decision to invest into The Works in 2023 is final evidence that as hard as macro conditions have been for smaller company funds, the fund managers themselves are simply not good enough to be running a concentrated portfolio where they their wrong decisions are as numerous as their right decisions.
I think DSM need to update on Real Good Food - their NAV has gone down 10% and they are showing all exposure to RGF at 0% of the portfolio, i.e. they have written down the equity and loan notes to zero. They were only putting more money in back in May. I think something like this warrants a shareholder update given the impact on NAV and their planned capital returns. RGF was put into a pre-pack - equity wiped out, but surely not all of the Loan Notes? But if you are in bed with Hilco anything can happen.
The fund managers here have been terrible but been handsomely paid their fees each year to lose other peoples money.
The final part of the very detailed article and Buy recommendation:
“ Although Ramsdens continues to outperform analysts’ earnings expectations, prompting another round of upgrades post results last summer, the shares are only priced on a forward PE ratio of nine and offer an attractive prospective dividend yield of 4.9 per cent. A price-to-book value of 1.3 times is modest for a cash-rich company generating a post-tax return on equity of 17 per cent and one that is performing well during a cost-of-living crisis. Liberum’s target of 290p is more than a third higher than Ramsden’s current share price.
It’s worth noting, too, that DSM’s largest holding is a liquid £2.9mn (8.5 per cent of NAV) stake in cable manufacturer Volex (VLX:285p), a £511mn market capitalisation company. In other words, the investment trust’s cash. Proceeds from the two agreed takeovers and investments in the above five holdings account for 54 per cent of DSM’s NAV.
Scope for narrowing of share price discount to NAV
The point is that there should be scope for a narrowing of DSM’s share price discount to NAV as cash distributions are made. There is also the real possibility that other portfolio companies will succumb to takeovers or corporate events at share price premiums during DSM’s wind-down process given that their listed market valuations are well below the intrinsic value of the holdings.
Indeed, investment manager Judith MacKenzie has identified key catalysts within investee companies that point to an estimated intrinsic value of the portfolio, which if divestments are carefully managed, indicates an upside of at least 50 per cent to DSM’s current market capitalisation of £28mn (59p). True, a complete wind-down could take time given the nature of some of DSM’s investments and liquidity. However, this could work in shareholders' favour as small-caps have historically outperformed strongly after downturns.
The bottom line is that there is potential for capital returns to shareholders well above DSM’s current NAV of £34mn (71.5p), a factor not reflected in the 18 per cent share price discount to NAV. Buy.
More from the IC article where Simon Thompson has separately issued buy recommendations on a number of companies in DSM’s portfolio:
“ In recent weeks, portfolio companies OnTheMarket (OTM:110p), an online residential property portal, and FireAngel Safety Technology (FA.:6.73p), a home safety product supplier, have attracted recommended cash offers at bid premiums of 261 per cent and 56 per cent to their previous day’s closing prices. DSM will receive £2.7mn cash proceeds from each holding which, when combined with its cash holdings of £1.9mn, represents 21 per cent of DSM’s net asset value (NAV).
In addition, another investee company, Aim-traded fintech payments group Equals (EQLS:119.5p), has entered talks with potential bidders that could lead to a takeover of the fast-growing challenger brand in banking and international payments. DSM’s holding in Equals is worth £2.1mn, or 78 per cent higher than cost. It could have a 45 per cent further upside if analysts’ 175p fair valuations are hit (‘Equals offers opportunity for 50 per cent upside’, 8 November 2023).
Lowly rated portfolio offers material capital upside
DSM holds positions in three other companies I am particularly keen on: Hargreaves Services (HSP:418p), an industrial group and land developer; Journeo (JNEO:205p), a transport systems provider; and Middlesbrough-based financial services group Ramsdens (RFX: 212p). Combined the holdings are worth £6mn, or 17.6 per cent of NAV. I have target prices materially higher than the current share price for all these holdings, highlighting the value opportunity on offer.
For instance, Hargreaves is being valued on a 33 per cent discount to NAV of £201mn (618p) even though the group’s renewable energy assets (three wind farms, six access agreements and two solar farm leases) have been valued between £27.2mn and £28.9mn (83p to 89p). These assets are in the books for only £6.6mn (20p). The shares are rated on a forward price/earnings (PE) ratio of 6.7 and offer a five per cent dividend yield, too. Sum-of-the-parts valuations are 84 per cent higher than the current share price.
Following two recent earnings upgrades, house broker Cavendish expects Journeo’s full-year pre-tax profit to almost quadruple to £3.7mn to produce earnings per share (EPS) of 19.7p, rising to £4.2mn and 22.7p, respectively, in 2024. On this basis, the cash-rich company’s shares are rated on a 2024 price/earnings (PE) ratio of 9.1, an unwarranted 32 per cent discount to peers. My 300p target price represents a premium of almost 50 per cent to Journeo’s current share price (‘Journeo is en route to quadrupling its profit’, 18 September 2023).
Buy recommendation from Simon Thompson of IC. This is the beginning of it:
“ Downing Strategic Micro-Cap Investment Trust (DSM: 59p) is planning an orderly wind-up of the company and to return capital to shareholders. The first distribution will be made early in 2024 and will be at least 20 per cent of DSM’s current net asset value of £34mn (71.5p).
DSM retains a portfolio of 17 well-run, niche businesses that continue to generally perform well even in a more challenging economic environment. The manager has been outperforming a falling stock market, too, reporting an 8.3 per cent decline in NAV since its last financial year-end (28 February 2023), or half the 17.1 per cent decline in the FTSE Aim All-Share Total Return (TR) index over the same period. Moreover, although the holding is 12.9 per cent below the entry-level in my 2021 Bargain Share Portfolio, the FTSE Aim All-Share TR index has shed 39 per cent of its value in the same 32-month holding period, highlighting DSM’s outperformance.
However, there is no avoiding the negative sentiment towards UK small and micro-cap companies that has led to some of the deepest investment trust’s discounts to NAV in the past 20 years, nor the fact that there is little interest in small specialist investment trusts like DSM. This explains the investment manager’s and the board’s decision to pursue an orderly wind-up of the company.
Initial distribution fully funded
Importantly, the board has the cash on hand to make the initial cash distribution. That’s because more than 20 per cent of the portfolio by value is under offer or in a strategic review process.
That upside isn't certain.
I would not be surprised if we see more NAV enhancing takeovers of portfolio companies, but we can't count on that for sure.
Tempted to buy a few in my SIPP; the downside seems essentially zero.
Bit surprised they talk about the upside being as high as 50%. I would think the small cap sector is still seeing net outflows so my expectation is that they may take a few haircuts offloading some of their stakes. Not sure who the natural buyers are for eg the loan notes - some distressed credit fund maybe?
I wonder if the 50% is based on a desktop exercise or whether there have been conversations in the background around some of these stakes? Interesting!