European equity markets were down significantly over the month. Despite the third quarter reporting season containing generally positive updates, markets became much more focussed on tighter lockdowns across Europe in the face of a rising second wave of Covid infections.
The fund was also down over the month. Despite difficult markets generally, there were a few notable strong performances from holdings following positive results. Knowit (IT services) continues to deliver growth and released a confident statement regarding the ongoing need for digitisation by businesses. Arcadis (environmental consultancy) also delivered another strong quarter with improved cash generation. Nokian Renkaat (specialist tyre manufacturer) also enjoyed a strong share price performance over the month following a well-received trading update.
On the negative side, D’ieterin (auto glass repair) was weak, despite no newsflow (reports in early November). Bayer (agrichem and pharma) had a profit warning, sending the shares lower. Barco, which specialises in a range of technologies from home office connectivity to cinema projection also produced disappointing results and was generally cautious on the short-term outlook for its cinema and entertainment businesses. Despite having a significant net cash balance sheet, the shares sold off on the update.
Over the month, we added two new holdings. Zardoya Otis is a Spanish based elevator manufacturer. With 80% of cashflows coming from recurring maintenance contracts, a net-cash balance sheet and strong free cashflows supporting a dividend yield of over 6%, it is attractively valued. Cliq Digital provides aggregated content streaming services. It has an unusual combination of rapid growth prospects, yet valued on a free cashflow yield of 6.4%, has almost no debt and has commenced dividend payments.
We took profits in Reply (Italian IT service business) which had doubled since purchase and no longer had adequate valuation support. We also sold Unilever, again recycling a lower free cashflow yield into more attractive opportunities.