European markets appeared to shrug off some of the more macro/geopolitical issues which have affected them in recent times. The results season, in full swing for much of April has generally been supportive, although some areas, such as clothing retail continue to suffer poor newsflow and results. We remain cautious on a number of these traditional value areas of the market, where we feel that valuations do not adequately reflect the structural disruptions being faced by these businesses.
Recently reported results led to strong performances from holdings such as Hexpol, Capgemini and Dometic, and improving sentiment towards oil service companies led to strong rebounds in the prices of Subsea7, Saras and Tenaris. Our worst performer was IFG, the financial services company which announced that it would not be selling its Saunderson House business, despite receiving a number of offers. This was taken badly by the market, despite the company providing a positive underlying trading update. We believe that IFG continues to offer good value, and have topped up our position into weakness.
Prior to launch, our research indicated that there was good value to be had from the Salmon farming industry. We purchased two holdings, Norway Royal Salmon and Grieg. With Norway Salmon subsequently rising over 35% since purchase, our analysis suggested that the margin of safety was no longer attractive, so we sold the holding, switching into Post NL, where the price now appears to have stabilised following recent weakness. With a free cashflow yield approaching 9%, a dividend yield of over 7% and an ungeared balance sheet, we calculated a significant margin of safety, and have initiated with a 1.5% weighting, looking to add on any further weakness. We are retaining our exposure to this area via our continued holding of Grieg.
Elsewhere, we purchased a small position in Ringmetall, a world-leader in the niche market of closure systems for transportation of chemicals, pharmaceuticals and food products. In keeping with the characteristics of our holdings within what we term our “sell-side vacuum” cluster, management hold a significant stake in the business and have recently participated in equity fund raisings.