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Smithson jumps on Fever-Tree as shares lose their fizz

13 August 2019

Fundsmith's small and mid-cap trust Smithson has snapped up a stake in AIM-listed Fever-Tree after 47% fall in the shares.

Smithson (SSON), the global smaller companies investment trust launched by star fund manager Terry Smith, has taken a position in premium tonic maker Fever-Tree (FEVR) after a near halving of the share price over the last year.

The stock has gained a legion of fund manager backers as the shares soared following their 2014 flotation, rallying more than 2,700% in less than four years to a peak of over £38 per share last September.

But it's downhill since then, with the shares falling to today's £21.47 and enduring their biggest-ever one-day fall last month after flagging lower growth in its UK market. 

Smithson managers Simon Barnard and Will Morgan jumped on the fall to take a stake with their £1.3 billion trust.

‘The position was initiated after the share price fell 47% from its peak in 2018, resulting in an attractive valuation given our estimation of the business quality and growth prospects for the company,’ they said in the trust's latest factsheet.

The buy came just after the end of the trust’s interim reporting period covering the six months to the end of June.

Over that period, the net asset value (NAV) was up 27.6% while the share price rose 23.4%, versus a 17.2% rise from the MSCI World Small and Mid Cap index.

Simon Barnard said the fund had performed well in a short space of time but ‘extrapolating this growth rate into the future is likely to prove too optimistic’.

Apart from the Fever-Tree buy, no changes have been made to the portfolio Barnard and Morgan built following the trust's launch

Consumer credit rating agency Equifax (EFX.N) was the biggest contributor to returns over the six months, having reached an agreement over some of its data breach lawsuits.

Medical devices company Masimo (MASI.N) also gained on the easing of trade tensions between the US and Mexico, where many of its products are manufactured.

The biggest detractor to returns was Ambu (AMBU-B.CO), a Danish company that produces diagnostic and life-support equipment, after the sudden replacement of its chief executive sparked a 30% share price fall.

‘Having been our best performer in the prior period, it was – perhaps inevitably – our worst over the last six months,’ said Barnard.

‘With a highly-rated growth company such as this, we should expect to experience a bump in the road from time to time, and as speed bumps go this was a big one.’

Barnard added to his stake in the company following the fall in the shares. ‘As we have no reason as yet to doubt the new chief executive, and on the margin we learned about more positive longer term developments, such as new potential products, our holding was added to during this period of share price volatility’.

Domino's continued to take a slice from returns, especially the Australian arm of pizza delivery chain Domino’s Pizza Enterprises (DMP.AX), after it was hit by lawsuits from franchisees disputing delivery worker pay. Domino’s maintains it did nothing illegal and Barnard said the issue was ‘likely to be short term in nature’ but he remains ‘vigilant for any other signs of deterioration in the business’.

Investment company news brought to you by Citywire Financial Publishers Limited.


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