IFSL RC Brown UK Primary Opportunities | Fund Update | April 2023

9th May 2023

April: M&A galore

April saw a rebound in global equity markets following the worries of a banking crisis in March which saw three US banks face liquidation and Credit Suisse rescued by UBS. We believe the events have been contained and specific to poorly managed banks. The banking sector has staged a partial recovery in April. We continue to believe European banks and particularly UK banks, as a result of substantial regulation since the great financial crisis, are very well capitalised and able to withstand further financial shocks.

April will otherwise be remembered as a month that saw a plethora of UK listed companies attract bid interest – too many to name here but the most notable being Dechra Pharmaceuticals, Network International, both FTSE 250 companies along with small caps Industrials REIT, Numis and Medica. This frenzy of activity further highlights the discount that UK companies, particularly mid and small caps, trade at relative to overseas peers. The UK and Europe are expected to avoid a recession as GDP forecasts have improved this year. With the absence of a re-rating, we anticipate a flow of M&A deals to continue.

Inflation in the UK at 10.1% remains stubbornly high, particularly compared to other countries, and whilst the rate will fall from these elevated levels, interest rate cuts are only likely when the Bank of England is confident that inflation is controlled.

Franchise Brands was added to the portfolio as part of an equity placing.

In April the IFSL RC Brown UK Primary Opportunities fund returned 2.9% compared with 3.4% for the FTSE All Share and 2.5% for the IA UK All Companies sector.

***Stock in focus***

Dechra Pharmaceuticals

Dechra, a vetinary pharmaceutical products company, has announced that it is in discussions with private equity about a possible offer for the company. The shares surged over 30% on the news and stand well above the £34.30 offer price of last July’s equity placing when we added to the holding. The indicated offer is £40.70, 8% higher than the shares are currently trading. We are minded to continue holding the shares and await further developments as to whether a formal offer for the company will be made.

Kape Technologies, an internet security company, has received a marginally higher offer from its majority shareholder. Whilst we believe the offer undervalues the company, it now has sufficient votes to take the company private so we have accepted the offer.

Purchases

Franchise Brands

Franchise Brands is focused on leading franchise brands in niche, market leading sectors. The company raised over £100m in order to fund the acquisition of Pirtek Europe, a hydraulic hose emergency replacement company for heavy vehicles. The shares were acquired at over a 10% discount

Sales

The holdings in Public Policy Holdings and Whitbread were reduced following solid trading updates.

Cumulative Performance (Total Return %) – April 2023

Fund/Benchmark Name 3M to 30/04/2023 6M to 30/04/2023 Year to 30/04/2023 3 Years to 30/04/2023 5 years to 30/04/2023 Since Inception (28/05/1997)
IFSL RC Brown UK Primary Opportunities P Acc 0.4 8.2 -5.1 24.6 12.4 446.9
Quartile Ranking IA UK All Companies 3 4 4 3 3 2
IA UK All Companies 0.7 11.9 1.8 32.6 14.5 311.5
FTSE All Share 1.9 12.5 6.0 45.2 24.2 355.8

Source: FE: 30/04/2023

Discrete Annual Performance (Total Return %) – April 2023

Fund/Benchmark Name Year to 30/04/2023 Year to 30/04/2022 Year to 30/04/2021 Year to 30/04/2020 Year to 30/04/2019
IFSL RC Brown UK Primary Opportunities P Acc -5.1 -3.9 36.7 -12.5 3.1
Quartile Ranking IA UK All Companies 4 3 1 2 2
IA UK All Companies 1.8 -0.1 30.3 -14.6 1.2
FTSE All Share 6.0 8.7 26.0 -16.7 2.6

Source: FE: 30/04/2023

Please be advised that the past is not necessarily a guide to future performance. Investments and the income derived from them can fall as well as rise and the investor may not get back the amount originally invested.