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Smithson turns up the heat as it invests in Queen's oven maker

29 July 2020

Global smaller companies trust bucked the coronavirus crash with a 15% first half gain. Fund manager Simon Barnard used sell-off to buy two new shares, including Rational, a supplier of ovens to the Royal Family.

Global smaller companies trust Smithson (SSON ) has used the global sell-off to snap up shares in the manufacturer of ovens for the Queen and a security software business at bargain prices. 

The £1.8bn trust, which was launched by star fund manager Terry Smith’s investment company Fundsmith, has seen its net asset value (NAV) and share price soar this year despite the meltdown in global markets due to the Covid-19 pandemic. 

The portfolio delivered a total return of 15.3% in the first six months of the year, outpacing the MSCI World SMID index decline of 4.7%. Since launch in October 2018 the trust has cheered investors with NAV growth of 44.8% against the 6.6% increase in the benchmark, and the fact it has only fallen to a discount once. It currently trades at a premium of 2.8%. 

Fund manager Simon Barnard revealed he had added two new stocks after the crash. The first purchase was Rational (RAA.DE), the German producer of automated professional ovens, and market leader in ‘combi-ovens’ that use heat and steam for cooking. 

So prestigious are the ovens that the kitchens in both ‘Buckingham Palace and the White House’ have one, and less-prestigiously, the oven maker has ‘been in partnership with Nando’s for 25 years’, said Barnard. 

Barnard said he bought the shares after they plummeted 44% due to social distancing measures closing down the restaurant and catering trade.

‘Given its competitive advantage of having the best technology and most focused research and development capabilities...we believe the company will be able to exit the crisis in a good position,’ he said. 

‘We therefore saw the share price decline as an attractive opportunity to build a position in a company which we had admired for some time.’ 

The second addition to the portfolio was Nasdaq-listed Qualys (QLYS.O), which develops security software and sells to 15,000 customers, including Microsoft (MSFT.O).

Barnard admitted that while Qualys shares did dip during the crisis ‘we didn’t time our purchase quite so well as with Rational’ but even at a ‘less discounted price’ the purchase was ‘great value for a company which is one of very few to provide identification, security, and vulnerability management across all remote devices attached to a corporate network’. 

With cyber crime on the rise, Qualys was already benefiting, but the more permanent shift towards remote working instigated by the pandemic will add further fire to the company. 

The new acquisitions were funded by part-sales of healthcare stocks such as Ambu (AMBU-B.CO), a Danish company that produces diagnostic and life-support equipment, and which was the largest contributor to returns in the first half. Barnard also sold some shares in respiratory care products maker Fisher & Paykel Healthcare (FPH.NZ), and medical devices company Masimo (MASI.N) after the positions grew too large on the back of the boost Covid-19 brought to the healthcare sector. 

Barnard said the proceeds of the healthcare sales were also used to top up positions in companies that were ‘economically sensitive’ and had seen values fall to ‘extremely attractive’ levels. 

This includes top ups in shares of Verisign (VRSN.O) which ‘manages and protects the dot com domain of the internet’, simulation software designer Ansys (ANSS.O), and Recordati (REC.IT), which produces medications for rare diseases and Barnard thought was ‘declining for no rational reason’.

 

Barnard (pictured) said there was only one company ‘that gave us any real concern during the crisis’, and that was travel technology stock Sabre (SABR.O), which creates software that connects airlines and hotels to travel agents and package holiday websites. 

‘Its revenue is directly linked to the number of passengers travelling, so as these fell 90% in the worst hit weeks, so did its revenue,’ said Barnard. 

Sabre responded to the crisis by cutting costs and raising enough debt to cover it for two years, which Barnard said made him ‘feel more confident in maintaining our holding’ and he topped up his holding on 23 March when global markets troughed.

He said it has ‘turned out to be, so far, fortuitous timing, with the shares rising 120% from that point to the end of June’.  

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