Bath/Head Office & Unquoted Equity Team:
London Office & Quoted Equity Team:
Edinburgh Office & European Quoted Equity Team:
MI Chelverton European Select Fund – Monthly Manager Commentary – June 2019

MI Chelverton European Select Fund – Monthly Manager Commentary – June 2019

European markets rebounded strongly in June, recouping much of their losses from May. Mario Draghi’s dovish comments regarding potential future ECB interest rate cuts were taken positively. Hopes of a resolution to the current US China trade dispute were also heightened ahead of the meeting between Donald Trump and Mr Xi, taking place at the G20 summit in Japan at the end of the month.

The fund performed strongly over the month. The best performer was TKH, a technology business focussed on four core technologies – vision and security, mission critical communication, connectivity and smart manufacturing systems. The shares responded very positively to an update at a capital markets day whereby TKH increased its guidance and planned to divest of non-core businesses. Bayer also had a good month, with the shares reacting positively to the news that it has set up a committee to focus on the Glyphosate litigation issues and retained a legal expert to strengthen its negotiation team. Also noteworthy was the strong performance of our Semiconductor cluster, driven by hopes of a resolution to the US China trade dispute. There were no significant detractors from performance over the month.

Two new holdings were purchased during the month. Lastminute.com was a well-known cheap online flight business which came to prominence during the dot com boom. It has returned to the public market as a technology driven business, having developed a dynamic packaging platform which allows customers to select various combinations of flights, accommodation, car hire etc. Booking.com, the largest online travel agent with a 50% market share in Europe attempted to build this technology but didn’t succeed, and now licenses from Lastminute.com. It is an asset light business, with a strong balance sheet, good growth prospects and a double digit free cashflow yield. It is an exciting investment prospect. Bouvet is an addition to our IT services cluster, an area with good long-term structural growth prospects. Bouvet is focussed on the Oil and Gas, and Public Sector verticals. It has a net cash balance sheet, a free cashflow yield approaching 6% and revenue growth prospects of over 8% for the next three years.

The fund sold out of JM, a Swedish housebuilder. The shares have performed well, as the Swedish housing market shows signs of recovery, and the valuation is no longer compelling. We also exited Ageas, the multi-line insurance business, for a modest profit. The sale was driven more by the opportunity cost of better ideas elsewhere in the portfolio, rather than any specific issue relating to Ageas itself.