October saw a sharp rebound in European markets. It was difficult to point to an obvious catalyst for the move – the macroeconomic environment is generally unchanged, and the company Q3 reporting season was more mixed than obviously positive. The most likely explanation was that markets were beginning to feel quite oversold. We wrote in last month’s factsheet that the fund’s free cashflow yield was at more attractive levels than at the depths of the Covid crisis, levels reached during April 2022, so such a rally was perhaps not surprising.
The fund was also up strongly over the month.
The two strongest performers over the month came from companies in our Energy and Minerals cluster - AMG (mineral production, including Lithium) and Noram Drilling (oil services). There were also positive contributions from Amadeus Fire (human resources and training) and Kaufman and Broad (French housebuilder). Atea (IT services) and Huddly (meeting room optical technology) were also notably stronger over the month.
Negative contributions came from two of our IT service investments – Visiativ and All for One. The investment cases and valuations in both remain very attractive. Post NL (Dutch postal services) was also weak over the month, following disappointing results. On a re-appraisal of the prospects and taking into account that debt levels were increasing ahead of initial expectations, we exited the position, as we have a number of alternative attractive opportunities competing for capital at present.
During the month, we initiated an investment in Rheinmetall. Rheinmetall is a defence business and is expected to be a long-term beneficiary of increased Defence spending globally. We also invested in Noram, a Norwegian based drill rig supplier to E&P companies based in the US Permian basin, which IPO’d during October. The company is enjoying very strong demand for its rigs, is at full capacity, and is being run as a cash cow, expected to deliver well in excess of a 20% free cashflow yield. The vast majority of cash generated will be paid as dividend.