April 2021 Commentary26 May 2021 09:40
In April, the Company’s NAV returned 7.6% and the share price returned 5.5%. The discount widened slightly to 14.5% on the back of the strong NAV performance. The portfolio continues to benefit from improving sentiment with four holdings increasing by over 20% and only three detractors in the month. The company realised a significant portion of its Real Good Food investment in the month.
FireAngel Safety Technology Group (+46.0%) announced a significant partnership worth over €21 million to develop a next generation alarm. Subsequently, the company announced results which highlighted a challenging past year, but a much brighter future, aided by a fundraise to fund growth and efficiency investments. AdEPT Technology Group (+23.5%) announced the acquisition of Datrix, a supplier of cloud-based networking, communications and cyber security solutions. We think that Datrix fits nicely in AdEPT’s portfolio and believe that 2021 looks increasingly positive for the group, with a raft of strategic progress made in the previous 12 months. Flowtech Fluidpower (+20.9%) also announced pleasing results which highlighted management’s hard work through a challenging Covid year. We think that the business is in great position to, firstly, recover to pre-pandemic levels of profits, and secondly, grow, through exposure to a market with increasing tailwinds and through taking organic and inorganic market share. Our remaining toehold (+20.8%) also continues to perform well and is trading ahead of expectations post re-opening. It has generated over a 2x return since we began purchasing in January.
Detractors were mainly in the form of Duke Royalty (-5.9%) and Digitalbox (-6.6%). Duke Royalty announced the successful results of its placing which we talked about in the last factsheet. Digitalbox reported no new news in the period.
Arguably the most significant news in the period is the partial redemption of our investment in Real Good Food (RGD) loan notes. RGD sold Brighter Foods for £43 million, and RGD loan note holders will receive £23.1 million of these proceeds. DSM has received over £5.3 million and has now recovered more than the cost of its investment in the 10% loan notes while retaining £2.0 million in these notes, £1.2 million in 12% convertible notes, and a residual amount of RGD equity. As at 11 May, this reduces DSM exposure to RGD to below 10%. We think there is scope for the remaining RGD business, Renshaw, to recover and return value to RGD debt and equity holders.
Finally, DSM made a new investment in Tactus – a private business that provides multi-branded IT hardware to retailersandthepublicsector.
Tactus had a transformational year and DSM partially funded the acquisition of CCL Systems which provides Tactus an e-commerce platform and access to the fast-growing PC gaming space. Management’s ambition is to create the premier gaming e-commerce platform. DSM invested £1.5 million split 50/50 in 10% yielding loan notes and equity.
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