Bath/Head Office & Unquoted Equity Team:
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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – October 2017

The Fund enjoyed a satisfactory October, modestly outperforming its IA UK All Companies benchmark in a moderately rising market. Bottom-up corporate newsflow was generally supportive. Immupharma was our best performing stock, returning over 50%, as its critical Phase 3 Lupuzor trial continued to progress without incident. Dotdigital was very firm on the back of some excellent full year numbers, which showed accelerating sales growth through the second half, which has continued into its new financial year. XP Power and Games Workshop were the other notable contributors to performance, both on the back of strong trading updates with Games Workshop’s earnings expectations being upgraded yet again. On the negative tack, Revolution Bars share price fell back sharply when Stonegate’s bid for the company lapsed. We had already sold a meaningful part of our holding at a premium to the bid price as we were uncertain as to whether the bid would proceed. Dialight also fell back further having warned on profits as it continued to experience teething problems with its strategy of outsourcing its manufacturing to a low cost production area.

We added four new holdings to the Fund in October. We started a holding in Gama Aviation, a provider of management and maintenance services to private jet owners. We felt the low earnings multiple for this business looked particularly attractive, given the growth and long-term contractual nature of the business. We took a small position in a fund raising by eServGlobal, which owns a share of Homesend, a cross-border payments platform, which is being rolled out across the global banking network by MasterCard, as an alternative to the old unwieldy corresponding banks network. We invested in Next Fifteen, an acquisitive international PR and marketing communications business, focussed on the technology sector, which boasts of major disruptive technology brands like Amazon, Google and Facebook as its customers. On the sell side, we exited our small residual positions in Orchard Funding and Solid State.

Since the month end we have seen a rise in UK base rates, which though widely expected, has coincided with a more unsteady phase in the market, as geo-political issues and higher volume of BREXIT noise have increased uncertainty. At the same time, liquidity in our mid and small cap segment is being absorbed by a high level of IPOs and fund raisings. This is serving to provide us with some attractively priced investment opportunities, both across our existing portfolio and amongst other investable candidates, which have met our financial and qualitative requirements.