European equity markets posted modest gains over the month. Concerns about the stability of the banking sector generally have abated for now, and the focus of the month was on the first quarter reporting season for companies. Results were mixed, with some of the more cyclical/industrial businesses reporting a more challenging business environment. Markets remain cautious and still appear to be anticipating a mild recession ahead in the Eurozone. In this environment, smaller companies continued to lag larger companies.
The fund was slightly down over the month, mainly as a result of the underperformance of smaller companies.
In terms of positive contributions, Signup Software, a Scandinavian software as a service (SAAS) business received a private equity bid at a 40% premium to the prevailing valuation. The fund’s holdings in Roche and Novartis (both pharma) also enjoyed a strong month in terms of share price performance. There were also notable performances from Zaptec (EV charging solutions) and Eurogroup Laminations (rotor supplier to EV manufacturers). Both of these holdings form part of our Commodities and Energy Transition cluster, which in aggregate accounts for over 37% of the portfolio as at end April.
Recticel (insulation materials) was weaker over the month, following a disappointing trading update plus news that the price of a planned disposal may be reduced. TGS (Seismic data provider) was also weaker on profit taking following a strong share price appreciation into results. Some of the fund’s more industrial companies such as AMG (lithium assets), Imerys (industrial additives) and Vallourec (steel tubing manufacturer) were also weaker over the month. The long-term investment cases in all of these businesses remain intact.
Over the month we sold our holding in Novabase. The company is effectively taking itself private and made a tender offer to all shareholders which we participated in.
We continue to see the underperformance of smaller companies as an opportunity for the fund. At the aggregate level, our holdings which have a market capitalisation of less than €2bn have net cash balance sheets and will be able to successfully weather any upcoming economic headwinds.