June 15, 2026 • 38 mins
Laurence Hulse, founder and lead fund manager of Onward Opportunities, explains how he launched and grew a specialist UK small-cap investment trust despite one of the toughest environments in decades for both investment trusts and British equities. He shares his "gems among the rubble" approach to uncovering overlooked companies, discusses why UK small caps remain deeply undervalued and reveals how active engagement, artificial intelligence-powered research tools and intensive company analysis have helped his fund significantly outperform its peers.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:19):
Welcome to marrin Jock's Money, the podcast in which people
who know the markets explain the markets. I am Meren'
Sunset Web and with me today is Lawrence Hult's, founder
of the investment company Onward Opportunities.
Speaker 3 (00:30):
This is a rare beast in this relatively recent launch
of a long only trust which specializes in UK small caps,
one of the most unpopular parts of the global stock market.
So we talk about why he launched into this sex so,
how he's done it and how he makes his returns.
Speaker 2 (00:49):
Laurence, thanks for joining us today. It's very nice to
have you with us.
Speaker 4 (00:52):
Good afternoon, and thank you for having me here at
the European headquarters of Bloomberg, where everyone wants to be,
where everyone wants to be.
Speaker 2 (00:59):
Listen. We've got on today because you've done something really interesting.
You have actually, in really an appalling environment for the
investment trust industry, managed to launch a new one a
lot only did you do it, but it's actually gone
quite well. So tell us about why you did that
and how you did it.
Speaker 4 (01:16):
I had spent eight or nine years at a business
called Gresham Ascesset Management, I was on the UK Critest
team there investing in UK swatter companies. We had a
good performance track record as a team, and it came
to sort of late twenty twenty one twenty twenty two,
and I really observed that the world, the financial world
as well as the wider world, was changing quite fundamentally,
(01:38):
and that really hung around interest rates. You'd had for
the first period of my career when I was there,
cheap money, lots of it, and it was really a
multiple expansion market, Whereas I had been taught to investor
in my time at Gresham House around catalysts and engagement
and being a truly active manager, and in you know,
(02:00):
in a world of rising interest interest rates, as was
about to happen and went on to happen, those elements
of investment thesis become much more important because you can't
and as many high profile managers are finding out at
the moment, you can no longer rely on multiple expansion
and liquidity to drive a thesis. And I spotted really
(02:22):
a good old fashioned gap in the market to do
this for investors for clients, using my experience at Gresham
House the time I spent there, they had a fantastic
journey of growing products of clients. I got to witness
that take part of it. I was one of the
original employees, and I combined that with the sort of
stock picking techniques i'd learned there to launch a fund.
(02:43):
And here we are.
Speaker 2 (02:44):
So you thought you would launch into one of the
most unpopular parts of part of global markets, UK's mall caps,
the one place that has been so cheap for so long.
We've talked about mos podcasts for so long. We're constantly
saying UK's monument caps are ridiculously cheap, need buy them
before somebody else does. But it never really happens. The
stuff just days cheap. And it's also a relatively crowded
(03:07):
market getting smaller. But when you launched, there were still
quite a few funds and silarizedly trying to operate in
this small than MidCap area in the main kind of failing.
Speaker 4 (03:17):
You're right, there are quite a few, but we've been
outperforming the majority of them, and at points in the
first three years of our fund's life, outperforming them materially.
And that really loops back to what I was describing before.
We have got a slightly different or more specific specialist
way of investing in these companies. And yes, many of
them remain difficult and cheap, but some clearly aren't given
(03:41):
our investment returns since we launched. And it comes back
to this idea of I call them the gems amongst
the rubble. It is undoubtedly difficult market that's slightly appealed
to the contrarian and me to have a go and
resign and try and launch this at twenty nine years
of age. We just about did and it's gone on
to good thing since. But and I know you talked
(04:02):
about this on the podcast before, therein lies the opportunity.
I think the thing I'd love to add today for
the listeners beyond what's been talked about in previous podcasts,
which is around how cheap it is, I think that's
just the start of any investment thesis. I think what
we've been showing and demonstrating along Sudce some other fund
managers is actually what can you buy within that value
(04:24):
and if you have a strategy like ours that is
pretty concentrated, pretty hands on. My sister who's an artist,
calls it brutalist investing. It's pretty pointy, it's pretty active,
it's pretty energetic, but it delivers out performance by foraging,
rummaging and finding those gems, and we have a really
eclectic portfolio today. Of some of these companies have capitalized
(04:45):
at less than fifty million, but their clients are some
of the biggest companies in the world.
Speaker 2 (04:49):
Well, let's come back to that in a minute. I
want to come back to exactly how you invest your
family companies, and then want to talk about a couple specifically,
but before I want to stick with the with the
structure of the fund. I mean, the first thing to
ask being who are your investors? Because one of the
things that you hear constantly and investment trust business is
that you've got to have four hundred million, five hundred million,
maybe at this point even six hundred million to get
(05:09):
any wealth managers in for example. So to get those flows,
you need to be pretty big. So if you're down
at the much smaller end of that, you're really only
looking at retail investors.
Speaker 4 (05:20):
That is the law, and I think I was told
it so many times I would sort of wake up
in the night seeing those words on my bedroom wall.
But what we've shown is that there are there is
a different way, and if you listen to someone like
Andrew Mhattie, who's quite a spokesperson in the industry, or
Jonathan Davis through on his podcast recently, we've actually done
(05:41):
something quite revolutionary in building a trustmost from the ground up,
brick by brick, as you point out, and we actually
have managed to convince some wealth managers with our pitch
and our approach and our background and our performance that
it's okay to just dip the toe. And I think
just this week you had a podcast out What's the
Future Like for Wealth Managers and there was a lot
(06:03):
of talk about being engaged with your clients and taking
them on a journey to demonstrate the value adding for
them beyond a kind of robotic solution. I would take
that step further. We've you know, many many industries, and
as a relatively younger fan manager, I witness and experience
this things are becoming experiential and even restaurants now there
(06:24):
are an experience to be successful. There's a little bit
of that about this investment product, this fund. If listeners
go on the website, they'll hopefully pick up on some
quite fresh branding. It's designed to be very accessible, relatable.
We have a dynamic, energetic board, you know who work
for some pretty big hitters, Bill Lackman, Guy Hands. And
(06:48):
because that's what's great about investment trust, they can and
are accessible. There's no minium investment, there's no sort of
hurd or the minium investment is the share price in
having a retail investment platform. You know, Rath Bones, Kallenish Capital,
gpi AM. There are all wealth managers that have now
disclosed a greater than five percent stake. We had some
(07:09):
seed money from my mothership, their clients Downgate Wealth, who
were a specialist boutique private client business. And then the
rest really was high net worth sophisticated investors that I
had met along the way in my career and really
convinced to back something slightly entrepreneurial, slightly different, and then
promised to thank them without performance, which we so far.
Speaker 2 (07:30):
Just good okay, And they'll do that. Those wealth managers,
even though it's expensive, it has to be expensive because
it's small, right. But if you look at the investment
trust environment now most people are kind of trending down
to zero point seven percent, zero point six percent, But
at your side is you're still one point five percent.
Speaker 4 (07:49):
They are trending down on costs and costs are and
input and the output is best performance. I think it's
well documented on this show, amongst many others, some other
struggles of act management, and one of them has been performance,
and one of I talked about interest rates and spotting
a gap in the market to quit my job and
do this another thing I became aware of. And this
(08:12):
isn't a criticism, it was an observation. As Gresham House grew,
it became a big business itself, and we were starting
to look after various funds across a team, and it
was becoming a bit thinly spread. I want to be
solely focused on this and make it a life's work,
and to do that requires full time and overtime of myself,
(08:33):
the manager, lead manager, and the founder, but also the
investment committee, which we'll hope you talk about later. We
need to build out the team over time to dilute
key man risk and add resource. And this is a
sort of specialist hig end product and his priced accordingly.
That will rule out a large swathe of investor. But
the reality is this strategy can never be big enough
(08:53):
to attract large spaces of all list.
Speaker 2 (08:54):
Yeah, okay, well, on that same subject, tell me about
the performance few because I have said everyone listeners this podcast,
I really really disapproved performance fees on the basis that
outperformance should be its own reward. Because you joined General
laurm And as the fund gets bigger and bigger and bigger,
so does the income of fund manager. So a performance
fee shouldn't, I think, really be necessary. But what you've
(09:15):
got is twelve and a half percent over six percent hurdle.
And is that six percent nomenal or real?
Speaker 4 (09:22):
So a couple of points that this fund can't get
bigger and bigger realistically, it will never be bigger than
two hundred maybe in the fullness of time two hunred
and fifty million, adjusting for inflation and asset price growth.
So again to that point around keeping the team aligned,
fully resourced, fully costed, it forms what effectively becomes a
(09:45):
bonus pot for the team and the investment committee on
our performance. The hurdle is six subject to a high
water mark. It also resets every year. If you think
some performance fees are what called a compounding hurdle. At
this case six Most of our peers are six or
seven percent in what we do in the small cap market,
(10:06):
but our target returns are fifteen and they've they've been
pretty much that until recently around the earl. More so,
you can quite quickly open up a very large spread
to this compounding hurdle that there means nothing. So ours
resets every year as well, on top of the high watermark.
Speaker 2 (10:23):
On top of the high watermark.
Speaker 4 (10:24):
Yes, correct, We get asked, how have you done this?
Have your gown a fund? How's it performed well? And
I think you leaded to that at the starting the
market we live and breathe this. I do nothing else.
I'm pretty selfish with my time. If it's not something
to do with stock picking, looking after the stocks that
we've got, or or talking to relating to finding clients,
I just don't do it. And again that was one
(10:45):
of the reasons to spin out and do something entrepreneur.
There'sn't time for kind of wider top co office agendas.
Speaker 2 (10:51):
Okay, fair enough, we didn't actually mention the performance numbers
at the beginning, So tell us the performance numbers now.
Speaker 4 (10:57):
So as we sit today to the last FAG sheet
at the end of May, that the nevs plus thirty
five percent that is running costs. That's a net number
of all these costs we talk about. It peaked at
an even more attractive number of about plus fifty towards
the end of last year before Hummers and Iran and
the straight or Schroding as straight as I call it
(11:18):
with a friend opened up or not or closed, and
that's materially outperforming our two peer groups, which we define
as the Investment Association UK Smaller Company's funds, that's the
open ended vehicles, is about sixty of them, and it's
outperforming the AIC UK Smaller Companies in peer group, which
is the trust that invest in small caps. And we're
(11:40):
outperforming both by circle double through the life of the fund,
and listeners can see that on our fact sheets and
investment decks.
Speaker 2 (11:47):
Okay, great, let's move on to more interesting stuff then,
and how you do this? How you it's a big
universe UK smaller and medium cap getting getting a smaller university.
Actually there's more and more companies are taking out of it.
How do you find these gems among them?
Speaker 4 (12:00):
RUB two? What makes a gem a special company with
an attractive price doing something different? I think what I've
definitely refined since we started the fund, and this is
my past life running other funds in this world of
higher interest rates, scarce capital outflows, it's pretty barren companies
(12:25):
their shares that really had to command capital. And when
I did a sort of three year review of our
first three years at the start of this year, the
stocks that had won were sort of what I call
world beaters on a London rating. And we've had some
particular case studies with some great returns, and it's because
they've really been global businesses with ip with great products,
with great strategies that happened to be listed in London
(12:49):
and at that London discount.
Speaker 2 (12:51):
Can we stop there actually and just talk about this
London discount that we talk about on podcasts quite quite
a lot, and it just doesn't go away. Why do
you think that is?
Speaker 4 (13:00):
I think it won't go away until flows return. I
think it's a multiple question. There's plenty of great businesses
in our portfolio and other funds portfolios that are doing
great things and their earnings are going up. In fact,
I've got some friends at Shore Capital and Canicord who
deserve a shout out for helping me do the work
before I came on. UK retailers, the small Cap index
(13:22):
of UK retailers, their margins are much higher than the
US peers and they trade on half the valuation. Same
with the industrials and the construction stocks. But the problem,
actually it all sounds a bit too good to be true,
has been growth. The US indices, the US stocks all
have much better growth prospects. And hopefully we've got a
(13:43):
chance today talk about the current administration and environment in
which the stock market sits. But in terms of the discount,
I think it stays until there's fundamental policy change to
make flows or encourage flow incentivized flows to return. And
that's one of the reasons why I concentrated approach like
(14:04):
US has been able to outperform. I'm not going to
be sadly today one of the fund managers that comes
on and says small caps are ready to rock and roll.
That will come one day and I can't wait for it,
and I hope they'll still be around. But at the
moment it's very stock specific commanding. You've got a command capital.
Speaker 2 (14:23):
Well, let's you said that. We hopefully will talk about
the lady, but let's talk about it now. The policy
changes that probably not this administration, but maybe a future
administration could bring in that might change the direction of
flows needs.
Speaker 4 (14:37):
Before getting political, which I probably will.
Speaker 2 (14:40):
It doesn't have to people, let go, we're just discussing, well,
this is the point that's discussing policies that my door
might not help the London stock market, which is hugely
important to our economic.
Speaker 4 (14:49):
Growth totally, and that's the point. You don't have to
get political. Where a fund manager that myself and frankly
a citizen of the country gets cross is object of
matters get really poorly executed, like when to have a
budget in twice in succession. Now they've the government have
effectively waited till the last possible moment to announce what
(15:11):
they're going to do. Now, anyone with any grasp from
a kind of GCC level of business studies or economics
will know that businesses love certainty and predictability. Well, delaying
your budget for as long as possible is the opposite
of that. But it's particularly painful when there's leaks and
speculation and there's an ability to front run based on
(15:33):
said leaks and signation and do real economic damage. I
don't think it's a coincidence that since the build up
to last year's as late as possible budget that the
construction sector has really been struggling ever since. Some of
the peer numbers are at pandemic levels. You listen to
the house builders, the brick layers, these are all real
companies that we talk to on the stock market. They're
(15:54):
tearing their hair out with frustration. It's just so incredibly helpful.
And that's before you can get to some of the
policy decisions that then get made s late.
Speaker 2 (16:05):
What about things like signal policy is like changing stamp
duty a polishing stamp duty or the brit I ser
that kind of thing. Do you feel they make a
substanceial difference even if they were just there as signals
that the administration cared.
Speaker 4 (16:20):
I think the brit icer genuinely would. But again there's
the frustration. It was kind of semiing out as it
was going to happen, and then it wasn't. So if
you're a wealth management business or wealth manager or it
adds to this image of confusion and flip flopping and unpredictability, uncertainty.
And I think if there's one word you could use
to define the UK over the past ten years, it
(16:42):
would be uncertainty. Yeah, whatever, the Prime Minister, we've had loads, whatever,
the Housing Minister or whichever department it's been uncertain, hasn't it,
And you know businesses crave certainty even if it's a
bad number. At least then they can adjust the model
accordingly and make a decision, even if it's to build
slightly less homes or in a different cost base. So
I think the British I had structured the right way
(17:04):
is a good idea. I know some listeners some commentators
will say your commanding capital, you're not, because I don't
think anyone's saying you can't invest in other stocks. I
think what people are saying is an increasingly polarized splintered
to the world and world economy. A big tax incentive
(17:25):
should be domiciled, especially the time when our economy, on
our market and the stock market. By the way, isn't
this sort of casino that some politicians would have voters
listeners believe it's a capital location mechanism. We myself, my team,
we decide which companies to put money in so they
can go and do things in the economy, and we
(17:49):
need to be encouraging that, incentivizing that a British iSER
something around pensions. Those can only be good things and
signals as you say, because of course, what I think
most likely happen is fast dynamic in forum. Capital would
follow that because it was one of the big challenges
of the UK dot rocket would being fixed.
Speaker 2 (18:28):
Let's go back to where we were on the positive
stuff choosing with gems.
Speaker 3 (18:32):
What's the process.
Speaker 4 (18:33):
So there's two sort of crosshairs or identifiers. One is
a set of quantitative mechanisms. We use a tool called quest,
which is a cash flow modeling tool, but we use
it in the opposite way of how it's designed to
be used. So an investor like Terry Smith or Lion Trust,
they will look for quality compounders through the cycle, generating
(18:54):
cash flow returns from their assets above the cost of capital,
reinvesting them well, creating more cash flows. The simple kind
of summary. We actually look for situations in businesses where
that isn't happening anymore, could happen it stopped happening, and
go and ask ourselves why. And there's six different scenarios.
We traw the market for once a month. You get
(19:14):
six sort of shortlists, and then we spend the rest
of the month shortlisting them into things that we should
spend proper time on or not so that's that's been
historically the core of idea generation. We do operate like
private investors, so we try and find our own ideas,
our own pipeline, rather than take the traditional inbound broker calls,
which makes it quite unpopular, but it kind of works.
(19:38):
And then the other which is a little bit more recent,
past year or so, and this is a genuine benefit
of artists and intelligence that everyone sort of wants to
talk about at the moment. For years, I desperately try
to read every RNs and for listeners aren't familiar, RNs
stands for Regulatory News Service. So every day a company
that has is on the stock market has some important
(20:00):
news to share, they have to announce it at seven
am via our NS. And I used to try and
read them every morning.
Speaker 2 (20:07):
Your whole day gone, Yeah, because a lot of things
people have pretend in RNs are not exactly.
Speaker 4 (20:12):
Important correct interesting, And even with filtering out some of
the sort of fairly vanilla or technical ones, it was
just unsurmountable when trying to launch a fund and grow it.
But the business I work at dowgate board into sort
of PhD types about a year ago to help our
business take up costs through AI and that was working fantastically.
(20:35):
And they sit on the desk a couple from me,
and I overheard them talking about something and I kind
of twigged that they could automate what Lawrence is doing
every morning at seven oh one, but in thirty seconds.
So every day I get any of the rns's that
have some phraseology or words and other things I don't
really want to share on here because it's genuine IP,
(20:56):
and I get them a moment box. I usually get
between one and five a day. I can read those
over the course of.
Speaker 2 (21:01):
A couple of How much time has that saved you?
Speaker 4 (21:04):
A couple of hours a day?
Speaker 2 (21:05):
Has it interesting?
Speaker 4 (21:06):
All?
Speaker 3 (21:07):
The reality is how are you using AI in your business?
Speaker 2 (21:09):
That's fascinating.
Speaker 4 (21:10):
It's more than saving a couple of day. It's actually
prevented me missing out by not doing the second hour
because it's the world.
Speaker 2 (21:18):
Okay, interesting. So we've got those things on the go,
could you maybe talk us through an example of a
company that you've picked up, looked at it and gone, well,
that's a gem, and then what's happened?
Speaker 4 (21:31):
There's one that comes to mind because we're sat in
a broadcast studio and that's what they do. In fact,
I suspect some of your colleagues probably use their products.
So there is a stock called Pebble Beach Systems. It
flagged up on our screening system as a business that
had some capitalication questions very quickly. Just to give some context,
(21:51):
the business has a piece of globally eading software that
allows broadcasters to, in what I call layperson speak, put
content in a line. So when any of us watch
a show or stream a live event, we get a
continuous thread of basically various video streams behind that on
the other side of the screen, there are anything from
(22:13):
twelve to fifty different cameras. Think of a football match
or the tennis or producing a broadcast show, and all
those feeds plus the adverts to be sliced and spliced
and moved around and put into a almost in situ,
into a thread fee years. Pebble Beach had been doing
that for traditional broadcasters. That's the market that's deemed in
(22:34):
structural decline. So they started trying to invest in new products.
And I'm going to condense this for effect, because I
don't want to go on for hours and hours, and
we do a lot of work to qualify these ideas,
but there's long short There were generally some great cash
flows but burning them all. And because of that and
the fact it was deemed a kind of legacy industry,
broadcast media is treated like tobacco today in terms of
(22:56):
structural decline. It was a stop with a thirty five
percent margin trading on a p of five when we
found it, So we asked themselves, why, what's the catch?
What's going on? The catch was the stock market didn't
believe in the strategy. They thought the new product wasn't
going to work and costing lots of money, and they
thought what they did already was great but die. And
(23:18):
one of the things we do, and with diligence and ideas,
we talk to people that basically know a lot more
than I about what we're looking at. So in this case,
we spoke to people in the broadcast world and someone
quite a stupidly pointed out to us that, yeah, look,
the streamer is our cannibalizing traditional television, but they're now
going through an absolute arms race for live content for sports.
(23:42):
And that's because there's loads of reasons start, which you
can go on to another time. But the interesting thing
about sports is even though you stream it, you watch
it in a line. It's live, you don't just download
and watch it. It's continuous like a traditional broadcast, fast forward,
lots of engagement, lots of diligence, mothboarding the previous product,
which meant the margins and the cash flows got even better.
(24:05):
The company announced in February this year it won an
initial contract with a global streaming giant. I think what
the words use. So it's probably one of five companies
that they didn't disclose, but it was for sport. They'd
just won. Anyone that is keen sports and streaming will
be able to work it out. We did. But what
they do disclosed is they also do the Six Nations,
familys and Prime now the football. So all of a sudden,
(24:28):
you've had a business with cracking margins become a world
beater and it was on five times p The shares
have done well is eighteen months now but still today
only trades on a P ten and we think that
can get better and better because one thing we have
learned at the moment it's winning sort of marquee sports
like the rugby or the one they won in Februar,
(24:49):
which people have to go and work out, so I'm
not allowed to share it. But what's interesting and we
learned this on one of our regular sort of site
visits we do with the investment as a whole cohort
of what did you call sort of tier two tier
three sports that are an economical to produce as a
as a media format on a national basis, but actually
(25:10):
if you're producing it by a streaming platform to global audience,
the economics work too. Broadcast the volleyball season or.
Speaker 2 (25:19):
What is a tier three sport.
Speaker 4 (25:23):
But niche sports can now be televised and monetized and
that's all going to be worked for Pebble. So just
a classic case of gem amongst the rebel, really cheap
wild beating product listed in London global earnings and that's
what this fund has all been about, and that's where
the success has come from. And we have we have
(25:43):
a really eclectic cast from one of the largest podcast
publishers in the world. Topic is what we're doing today
to the UK's leading retailer fishing tackle to the market leader.
Speaker 2 (25:54):
Is fishing in tier three sport.
Speaker 4 (25:56):
I bet it gets televised now, but it wasn't before,
So yeah, that would be something that wasn't traditionally broadcast
on the Channel four aiming direct.
Speaker 2 (26:05):
Your is your second biggest holding, correct, and that is
I mean, it's a huge hobby in the UK, getting
a bigger hobby in the UK fishing outside my comfort
zone here, but my husband and my son are both
great fishermen.
Speaker 4 (26:18):
And they spend probably quite a big time doing it.
When they do, they.
Speaker 2 (26:21):
Spend a lot of time doing it, and I spend
a lot of time buying them.
Speaker 4 (26:24):
Yeah, I'm signed to find my sort of co manager
for the fun because you're picking up our investments here,
which was really very rarely have we invested in retail.
But if you're going to do it retailing, fishing tackle
is a down good place to start because it's a
large hobbyist community. What's really interesting is you tend to
(26:45):
have to go to the store to buy the bait
because it's live and therefore it's a genuine omni channel proposition,
and that ring fences it from some of the online
I mean, I don't think many people do buy fishing
reels from Tama. They're quite complicated and expense but it
sort of ring fences you from the Amazon effect. And
you've seen that come through in There aren't many retailers
(27:06):
that upgraded profit forecast twice last year, but Angling Direct
did even after absorbing an unexpected employers National Insurance contribution
of three quarters of a million pounds and their profit
target was five. So that's quite a meaty okay.
Speaker 2 (27:20):
And when you found the Angling Direct, we've just talked
about why you hold it. When you found it, how
cheap was that.
Speaker 4 (27:25):
The market cap was roughly twenty They had net cash
as sixteen, ditcasha fourteen and inventories of sixteen, so it
was trading at a negative tangible and that I said
value that one we invested in the depths of twenty
twenty three, and I think that was the real bleakest
in the deer of yuk smatter companies. But interestingly, you
(27:48):
know that's the whole reason why we launched the fund.
To one of your comments at the very start of
the podcast on earth have you done that? Did done this?
I'm a bit of a contrarian by nature, but of
course the same reasons that made it really hard to
launch a fund were the same reasons why we can
buy Angling Direct at a crazy evaluation like that and
generate those returns of thanks to our early investors.
Speaker 2 (28:11):
Yeah, and a lot of these companies that kind of
company are too small to be bought by some of
the larger funds and the larger trusts.
Speaker 4 (28:17):
But yes by the larger funds, yes, but interestingly not
buy larger strategic acquires acquirers. We've had three acquisitions now
in our first three years. We had nearly our fourth
just this week with audio Beam, which is the podcast publisher.
I mentioned that Bily your top holding, Yeah, that had
three confirmed now publicly three cash bids, but the board,
(28:40):
who owned six percent of the company themselves deemed them
not representative of the accelerating growth and margins in the business.
That refesshingly actually rejected the offers and are going to
go it alone and I think to acquire other podcast
businesses themselves. But again when we invested in that, it
was on zero point seven sales group profits of fifty
(29:01):
percent last year. We think will grow them both more
this year. And Netflix Spotify Fox have been acquiring podcast
businesses on multiples of sales. So there was a you know,
it was really a US business but listed in London,
so therefore traded at a material discount to where it's
a Peers trade, so just another gem amongst the ruble.
Speaker 2 (29:25):
Interesting Now it's a very constrated portfolio. Twenty twenty two
twenty two stocks. Tell us about something that you've bought
more recently, something interesting. We haven't heard about it and
isn't isn't here on the top ten list.
Speaker 4 (29:38):
Ah, now you've got me. I don't think min CON's
quite on the top ten. For memory.
Speaker 3 (29:44):
It might be number eleven, but it is only five
percent of that.
Speaker 4 (29:49):
Is very recent. So this again is in the camp
of what's particularly interesting about this one. Usually when we
think we found a gem amongst the rubble, people have
heard about it but missed something. This stock I mentioned
to people and they look at me like I've got
two heads. Tell me what about this Mincoon thing. It's
one hundred million pound capitalized business dual listed in London
(30:12):
and the Urinext and it has some of the best
copper and deep bore construction drilling drill bits in the world.
In fact, they're so good that this year they've announced
that Epi Rock, which is a larger pier ten times
the size of Mincom, is having to use Mincon's green
(30:34):
hammer technology to do it's deeper drilling. Having tried to
crack the technology itself for ten years, they're now on
trial with twelve rep Rock customers. We obviously hope and
believe that will go well, hence making the investment. But
when we first identified the shares and put it in
what we call the nursery, which is the investments that
aren't in the top ten that we disclose, we bought
(30:55):
them about thirty five pence per share. They've been one
pound fifty four years ago. At thirty pence per share,
they're at a deep discount to tangible value. And then
we made it a core holding and hence it appearing
in the top ten now in February this year. Is
our conviction grew on really a recoverying copper mining, a
recovery in margins, and growing evidence that their ip was real.
(31:17):
There's not no bigger compliment than a peer having to
begrudgingly buy your products off you.
Speaker 3 (31:23):
What about mistakes.
Speaker 2 (31:25):
We've talked about three really great buyers already, and I
mean kind was already out twenty seven percent since you
brought it right, So that's marvelous, But it can't always
go well.
Speaker 4 (31:35):
Sadly not We've definitely made mistakes, and it's going to
sound like a cliche, but that's been one of alongside.
Speaker 2 (31:44):
In a learning experience.
Speaker 4 (31:45):
No, it's more than that. It's been a joy alongside
some of the support and the counterparties and basically people
I've got to work with and launching this and sort
of break out from a desk job at my old chop.
I've developed more as a fund manager in the past
twenty four thirty six months than ten years before, and
(32:05):
that's because I've directly made mistakes. And yes, it's a
cliche that you learn from them, but you really learn
from them when they're yours and they're very public. And
I described to friends and family who aren't in the
finance world that the job is akin to running a
high street store and in a big glass window. Every
day you have to put your p and l what
(32:26):
you're selling, what you're not, what you're losing money on,
and you have to walk past it five times a day.
Your friends, your family, in fact, they can look on
their phone seit, your rivals, your peers, your advisors, your customers,
and that takes a certain fiber to assault. Actually, I
think we have got you know, we've made mistakes. Particularly
(32:49):
bad ones are where we've almost tried too hard. So
there was a business called RBG Holdings. They had a
distress balance sheet. It was a legal services business. It
used to have cracking margin. The founder returned the namesake
of the business chat called Ian Rosen Black, and re
really backed him to strip out the cost, went back
to the key clients, paid down the debt organically and if
(33:12):
you did that, it was from memory. Yeah, a business
that lot long ago did a forty percent margin training
on point one of sales, so it'd of been a
cracking return if you go anywhere near one time sales
or two. But in hindsight it was a bit of
an attempt at a hero trade and we were trying too hard,
I think. So that was one another very recently. It's
one we partly got wrong because actually we took profits
(33:34):
along the way, fortunately, and that's one of the great
things about having colleagues they encourage you to do that
sort of thing. But there's a business called Scenectics and
the portfolio is still there today. It is still there still,
and we're down I think.
Speaker 2 (33:51):
On this. Latest facts twenty.
Speaker 4 (33:55):
Was point nine out twenty we'll call it around twenty
and when we invest in the company, we'd identified it
had again Jim amongst the rubble, some well leading software
and cameras for security, mainly around casinos, but that in
the modern world we live in, those techniques and products
could be applied to other sites like metro stations, hospitals,
(34:17):
data centers, in structure sites. The stock was going through
a purple patch earnings upgrades. Here we go. We called
this one right fantastic, and then the chief executive very
tragically sort of died overnight and the business that purple
patches within twelve months come to an end and it's
(34:40):
now throughout. You know, so the business is now sat
in a loss rather than a profit in terms of
our investment, and we are now back to the brutalist
investing comment earlier on. We were at a bit of
an apex in our journey with Scenectics and sourcing that
out and reformulating the strategy, getting back to basics. You know,
the business isn't distressed. It's got fourteen million of cash
(35:02):
and the bandsheet the market caps about thirty today and
the management and happy to speak to you. They're speaking
to us, Yeah, and the board in particular. We like
to deal with non executives. That's their role and we
encourage them to take that up. And because the business
does have that IP and a margin of safety, we've
(35:22):
got options to review the best way to maximize value
in the investment. But in hindsight should have taken more
profits on the way up than we did. But now
stepping into and I'm pretty confident with exit the investment
with a profit. But it's requiring a lot more time
than buy and hold to do.
Speaker 2 (35:40):
So you said earlier before we started recording. Actually we
were talking about podcasts and listening to podcasts and how
much you drive, suggesting you spend a lot of time
on the road visiting prospects.
Speaker 4 (35:52):
We do, and funny enough, just yesterday I was about
half past three to drive to the airport to fly
to see some Perspective clients in Edinburgh. Funny enough, and
then I got back about eleven o'clock last night, and
here we are today. But the fun, the more fun
traveling is is the site visits. And you do get
some almost sort of caricature type moments where the penny drops.
Speaker 2 (36:13):
So when you go on these site visits, one of
one of the things. I was at a conference justin
and we were talking about how AI is the new
ESG that in intol rered de rousion, every time you
went to visit a company, you'd also about their ESG policies,
and they musfer away for a while about all that.
And now every time anyone goes to a company they said, well,
how are you using AI and presumaly, you're asking that
question every time you go to see anybody.
Speaker 3 (36:35):
Nope, you're not.
Speaker 4 (36:35):
If anything, I get slightly cheapish when someone brings it up,
because it's become a bit of a buzzword like CRYPTO
was a few years ago, an EESG before that. I
think what most people call AI is just good automation,
and really honest and good automation. I'm all for. We're
just a bit wary and when we start seeing words
(36:56):
like AI and big budgets for it crop up kind
of from nowhere. They were talking about it three years ago.
Fantastic cutting edge. You cleanly need it. But back to
one of the ways we find ideas, there's things we
used to weed things out as well, and AI isn't
one of them. But that is really haven't done it
twelve years now. It's fascinating some of the little habits
(37:17):
and tricks you can spot in the way a company
communicates that can let you sort of look around corners.
I mean the classic is broadly in line or however
more over in the outlook and you just go, oh god,
six months task can be a disaster.
Speaker 2 (37:30):
Yeah, okay, interesting. I think that's a good tip to
end on. That's good tip for negative stuff. You've got
a good tip for something positive to look through for
the ordinary invers day going out attempting to do a
little bit of what you do, filtering through one hundreds
and hundred companies. What's the top number one thing to
look at from management?
Speaker 4 (37:46):
Follow the money, go and look at the l tips,
which is for code for how the management team get paid.
If there's triggers or thresholds or share prices that they
have to hit, and they look interesting versus where the
shares are today? Always worth investigating.
Speaker 2 (38:01):
Okay, interesting, Lawrence, Thanks very much, Thank you very much.
Thanks for listening to those week's Merrin Talks Money. If
you like our show, rate review and subscribe wherever you
listen to your podcasts and keep sending your questions or
comments to Merrin Money at Bloomberg dot net.
Speaker 3 (38:21):
You can also follow.
Speaker 2 (38:22):
Me and John on Twitter or x I Am Meren
s W and John is John Underscore step Back. This
episode was hosted by Me Maren's ms at Web. It
was produced by Someersadi and Moses, and sound designed by
Blake Maples and special thanks to Lawrence Hultz
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:19):
Welcome to marrin Jock's Money, the podcast in which people
who know the markets explain the markets. I am Meren'
Sunset Web and with me today is Lawrence Hult's, founder
of the investment company Onward Opportunities.
Speaker 3 (00:30):
This is a rare beast in this relatively recent launch
of a long only trust which specializes in UK small caps,
one of the most unpopular parts of the global stock market.
So we talk about why he launched into this sex so,
how he's done it and how he makes his returns.
Speaker 2 (00:49):
Laurence, thanks for joining us today. It's very nice to
have you with us.
Speaker 4 (00:52):
Good afternoon, and thank you for having me here at
the European headquarters of Bloomberg, where everyone wants to be,
where everyone wants to be.
Speaker 2 (00:59):
Listen. We've got on today because you've done something really interesting.
You have actually, in really an appalling environment for the
investment trust industry, managed to launch a new one a
lot only did you do it, but it's actually gone
quite well. So tell us about why you did that
and how you did it.
Speaker 4 (01:16):
I had spent eight or nine years at a business
called Gresham Ascesset Management, I was on the UK Critest
team there investing in UK swatter companies. We had a
good performance track record as a team, and it came
to sort of late twenty twenty one twenty twenty two,
and I really observed that the world, the financial world
as well as the wider world, was changing quite fundamentally,
(01:38):
and that really hung around interest rates. You'd had for
the first period of my career when I was there,
cheap money, lots of it, and it was really a
multiple expansion market, Whereas I had been taught to investor
in my time at Gresham House around catalysts and engagement
and being a truly active manager, and in you know,
(02:00):
in a world of rising interest interest rates, as was
about to happen and went on to happen, those elements
of investment thesis become much more important because you can't
and as many high profile managers are finding out at
the moment, you can no longer rely on multiple expansion
and liquidity to drive a thesis. And I spotted really
(02:22):
a good old fashioned gap in the market to do
this for investors for clients, using my experience at Gresham
House the time I spent there, they had a fantastic
journey of growing products of clients. I got to witness
that take part of it. I was one of the
original employees, and I combined that with the sort of
stock picking techniques i'd learned there to launch a fund.
(02:43):
And here we are.
Speaker 2 (02:44):
So you thought you would launch into one of the
most unpopular parts of part of global markets, UK's mall caps,
the one place that has been so cheap for so long.
We've talked about mos podcasts for so long. We're constantly
saying UK's monument caps are ridiculously cheap, need buy them
before somebody else does. But it never really happens. The
stuff just days cheap. And it's also a relatively crowded
(03:07):
market getting smaller. But when you launched, there were still
quite a few funds and silarizedly trying to operate in
this small than MidCap area in the main kind of failing.
Speaker 4 (03:17):
You're right, there are quite a few, but we've been
outperforming the majority of them, and at points in the
first three years of our fund's life, outperforming them materially.
And that really loops back to what I was describing before.
We have got a slightly different or more specific specialist
way of investing in these companies. And yes, many of
them remain difficult and cheap, but some clearly aren't given
(03:41):
our investment returns since we launched. And it comes back
to this idea of I call them the gems amongst
the rubble. It is undoubtedly difficult market that's slightly appealed
to the contrarian and me to have a go and
resign and try and launch this at twenty nine years
of age. We just about did and it's gone on
to good thing since. But and I know you talked
(04:02):
about this on the podcast before, therein lies the opportunity.
I think the thing I'd love to add today for
the listeners beyond what's been talked about in previous podcasts,
which is around how cheap it is, I think that's
just the start of any investment thesis. I think what
we've been showing and demonstrating along Sudce some other fund
managers is actually what can you buy within that value
(04:24):
and if you have a strategy like ours that is
pretty concentrated, pretty hands on. My sister who's an artist,
calls it brutalist investing. It's pretty pointy, it's pretty active,
it's pretty energetic, but it delivers out performance by foraging,
rummaging and finding those gems, and we have a really
eclectic portfolio today. Of some of these companies have capitalized
(04:45):
at less than fifty million, but their clients are some
of the biggest companies in the world.
Speaker 2 (04:49):
Well, let's come back to that in a minute. I
want to come back to exactly how you invest your
family companies, and then want to talk about a couple specifically,
but before I want to stick with the with the
structure of the fund. I mean, the first thing to
ask being who are your investors? Because one of the
things that you hear constantly and investment trust business is
that you've got to have four hundred million, five hundred million,
maybe at this point even six hundred million to get
(05:09):
any wealth managers in for example. So to get those flows,
you need to be pretty big. So if you're down
at the much smaller end of that, you're really only
looking at retail investors.
Speaker 4 (05:20):
That is the law, and I think I was told
it so many times I would sort of wake up
in the night seeing those words on my bedroom wall.
But what we've shown is that there are there is
a different way, and if you listen to someone like
Andrew Mhattie, who's quite a spokesperson in the industry, or
Jonathan Davis through on his podcast recently, we've actually done
(05:41):
something quite revolutionary in building a trustmost from the ground up,
brick by brick, as you point out, and we actually
have managed to convince some wealth managers with our pitch
and our approach and our background and our performance that
it's okay to just dip the toe. And I think
just this week you had a podcast out What's the
Future Like for Wealth Managers and there was a lot
(06:03):
of talk about being engaged with your clients and taking
them on a journey to demonstrate the value adding for
them beyond a kind of robotic solution. I would take
that step further. We've you know, many many industries, and
as a relatively younger fan manager, I witness and experience
this things are becoming experiential and even restaurants now there
(06:24):
are an experience to be successful. There's a little bit
of that about this investment product, this fund. If listeners
go on the website, they'll hopefully pick up on some
quite fresh branding. It's designed to be very accessible, relatable.
We have a dynamic, energetic board, you know who work
for some pretty big hitters, Bill Lackman, Guy Hands. And
(06:48):
because that's what's great about investment trust, they can and
are accessible. There's no minium investment, there's no sort of
hurd or the minium investment is the share price in
having a retail investment platform. You know, Rath Bones, Kallenish Capital,
gpi AM. There are all wealth managers that have now
disclosed a greater than five percent stake. We had some
(07:09):
seed money from my mothership, their clients Downgate Wealth, who
were a specialist boutique private client business. And then the
rest really was high net worth sophisticated investors that I
had met along the way in my career and really
convinced to back something slightly entrepreneurial, slightly different, and then
promised to thank them without performance, which we so far.
Speaker 2 (07:30):
Just good okay, And they'll do that. Those wealth managers,
even though it's expensive, it has to be expensive because
it's small, right. But if you look at the investment
trust environment now most people are kind of trending down
to zero point seven percent, zero point six percent, But
at your side is you're still one point five percent.
Speaker 4 (07:49):
They are trending down on costs and costs are and
input and the output is best performance. I think it's
well documented on this show, amongst many others, some other
struggles of act management, and one of them has been performance,
and one of I talked about interest rates and spotting
a gap in the market to quit my job and
do this another thing I became aware of. And this
(08:12):
isn't a criticism, it was an observation. As Gresham House grew,
it became a big business itself, and we were starting
to look after various funds across a team, and it
was becoming a bit thinly spread. I want to be
solely focused on this and make it a life's work,
and to do that requires full time and overtime of myself,
(08:33):
the manager, lead manager, and the founder, but also the
investment committee, which we'll hope you talk about later. We
need to build out the team over time to dilute
key man risk and add resource. And this is a
sort of specialist hig end product and his priced accordingly.
That will rule out a large swathe of investor. But
the reality is this strategy can never be big enough
(08:53):
to attract large spaces of all list.
Speaker 2 (08:54):
Yeah, okay, well, on that same subject, tell me about
the performance few because I have said everyone listeners this podcast,
I really really disapproved performance fees on the basis that
outperformance should be its own reward. Because you joined General
laurm And as the fund gets bigger and bigger and bigger,
so does the income of fund manager. So a performance
fee shouldn't, I think, really be necessary. But what you've
(09:15):
got is twelve and a half percent over six percent hurdle.
And is that six percent nomenal or real?
Speaker 4 (09:22):
So a couple of points that this fund can't get
bigger and bigger realistically, it will never be bigger than
two hundred maybe in the fullness of time two hunred
and fifty million, adjusting for inflation and asset price growth.
So again to that point around keeping the team aligned,
fully resourced, fully costed, it forms what effectively becomes a
(09:45):
bonus pot for the team and the investment committee on
our performance. The hurdle is six subject to a high
water mark. It also resets every year. If you think
some performance fees are what called a compounding hurdle. At
this case six Most of our peers are six or
seven percent in what we do in the small cap market,
(10:06):
but our target returns are fifteen and they've they've been
pretty much that until recently around the earl. More so,
you can quite quickly open up a very large spread
to this compounding hurdle that there means nothing. So ours
resets every year as well, on top of the high watermark.
Speaker 2 (10:23):
On top of the high watermark.
Speaker 4 (10:24):
Yes, correct, We get asked, how have you done this?
Have your gown a fund? How's it performed well? And
I think you leaded to that at the starting the
market we live and breathe this. I do nothing else.
I'm pretty selfish with my time. If it's not something
to do with stock picking, looking after the stocks that
we've got, or or talking to relating to finding clients,
I just don't do it. And again that was one
(10:45):
of the reasons to spin out and do something entrepreneur.
There'sn't time for kind of wider top co office agendas.
Speaker 2 (10:51):
Okay, fair enough, we didn't actually mention the performance numbers
at the beginning, So tell us the performance numbers now.
Speaker 4 (10:57):
So as we sit today to the last FAG sheet
at the end of May, that the nevs plus thirty
five percent that is running costs. That's a net number
of all these costs we talk about. It peaked at
an even more attractive number of about plus fifty towards
the end of last year before Hummers and Iran and
the straight or Schroding as straight as I call it
(11:18):
with a friend opened up or not or closed, and
that's materially outperforming our two peer groups, which we define
as the Investment Association UK Smaller Company's funds, that's the
open ended vehicles, is about sixty of them, and it's
outperforming the AIC UK Smaller Companies in peer group, which
is the trust that invest in small caps. And we're
(11:40):
outperforming both by circle double through the life of the fund,
and listeners can see that on our fact sheets and
investment decks.
Speaker 2 (11:47):
Okay, great, let's move on to more interesting stuff then,
and how you do this? How you it's a big
universe UK smaller and medium cap getting getting a smaller university.
Actually there's more and more companies are taking out of it.
How do you find these gems among them?
Speaker 4 (12:00):
RUB two? What makes a gem a special company with
an attractive price doing something different? I think what I've
definitely refined since we started the fund, and this is
my past life running other funds in this world of
higher interest rates, scarce capital outflows, it's pretty barren companies
(12:25):
their shares that really had to command capital. And when
I did a sort of three year review of our
first three years at the start of this year, the
stocks that had won were sort of what I call
world beaters on a London rating. And we've had some
particular case studies with some great returns, and it's because
they've really been global businesses with ip with great products,
with great strategies that happened to be listed in London
(12:49):
and at that London discount.
Speaker 2 (12:51):
Can we stop there actually and just talk about this
London discount that we talk about on podcasts quite quite
a lot, and it just doesn't go away. Why do
you think that is?
Speaker 4 (13:00):
I think it won't go away until flows return. I
think it's a multiple question. There's plenty of great businesses
in our portfolio and other funds portfolios that are doing
great things and their earnings are going up. In fact,
I've got some friends at Shore Capital and Canicord who
deserve a shout out for helping me do the work
before I came on. UK retailers, the small Cap index
(13:22):
of UK retailers, their margins are much higher than the
US peers and they trade on half the valuation. Same
with the industrials and the construction stocks. But the problem,
actually it all sounds a bit too good to be true,
has been growth. The US indices, the US stocks all
have much better growth prospects. And hopefully we've got a
(13:43):
chance today talk about the current administration and environment in
which the stock market sits. But in terms of the discount,
I think it stays until there's fundamental policy change to
make flows or encourage flow incentivized flows to return. And
that's one of the reasons why I concentrated approach like
(14:04):
US has been able to outperform. I'm not going to
be sadly today one of the fund managers that comes
on and says small caps are ready to rock and roll.
That will come one day and I can't wait for it,
and I hope they'll still be around. But at the
moment it's very stock specific commanding. You've got a command capital.
Speaker 2 (14:23):
Well, let's you said that. We hopefully will talk about
the lady, but let's talk about it now. The policy
changes that probably not this administration, but maybe a future
administration could bring in that might change the direction of
flows needs.
Speaker 4 (14:37):
Before getting political, which I probably will.
Speaker 2 (14:40):
It doesn't have to people, let go, we're just discussing, well,
this is the point that's discussing policies that my door
might not help the London stock market, which is hugely
important to our economic.
Speaker 4 (14:49):
Growth totally, and that's the point. You don't have to
get political. Where a fund manager that myself and frankly
a citizen of the country gets cross is object of
matters get really poorly executed, like when to have a
budget in twice in succession. Now they've the government have
effectively waited till the last possible moment to announce what
(15:11):
they're going to do. Now, anyone with any grasp from
a kind of GCC level of business studies or economics
will know that businesses love certainty and predictability. Well, delaying
your budget for as long as possible is the opposite
of that. But it's particularly painful when there's leaks and
speculation and there's an ability to front run based on
(15:33):
said leaks and signation and do real economic damage. I
don't think it's a coincidence that since the build up
to last year's as late as possible budget that the
construction sector has really been struggling ever since. Some of
the peer numbers are at pandemic levels. You listen to
the house builders, the brick layers, these are all real
companies that we talk to on the stock market. They're
(15:54):
tearing their hair out with frustration. It's just so incredibly helpful.
And that's before you can get to some of the
policy decisions that then get made s late.
Speaker 2 (16:05):
What about things like signal policy is like changing stamp
duty a polishing stamp duty or the brit I ser
that kind of thing. Do you feel they make a
substanceial difference even if they were just there as signals
that the administration cared.
Speaker 4 (16:20):
I think the brit icer genuinely would. But again there's
the frustration. It was kind of semiing out as it
was going to happen, and then it wasn't. So if
you're a wealth management business or wealth manager or it
adds to this image of confusion and flip flopping and unpredictability, uncertainty.
And I think if there's one word you could use
to define the UK over the past ten years, it
(16:42):
would be uncertainty. Yeah, whatever, the Prime Minister, we've had loads, whatever,
the Housing Minister or whichever department it's been uncertain, hasn't it,
And you know businesses crave certainty even if it's a
bad number. At least then they can adjust the model
accordingly and make a decision, even if it's to build
slightly less homes or in a different cost base. So
I think the British I had structured the right way
(17:04):
is a good idea. I know some listeners some commentators
will say your commanding capital, you're not, because I don't
think anyone's saying you can't invest in other stocks. I
think what people are saying is an increasingly polarized splintered
to the world and world economy. A big tax incentive
(17:25):
should be domiciled, especially the time when our economy, on
our market and the stock market. By the way, isn't
this sort of casino that some politicians would have voters
listeners believe it's a capital location mechanism. We myself, my team,
we decide which companies to put money in so they
can go and do things in the economy, and we
(17:49):
need to be encouraging that, incentivizing that a British iSER
something around pensions. Those can only be good things and
signals as you say, because of course, what I think
most likely happen is fast dynamic in forum. Capital would
follow that because it was one of the big challenges
of the UK dot rocket would being fixed.
Speaker 2 (18:28):
Let's go back to where we were on the positive
stuff choosing with gems.
Speaker 3 (18:32):
What's the process.
Speaker 4 (18:33):
So there's two sort of crosshairs or identifiers. One is
a set of quantitative mechanisms. We use a tool called quest,
which is a cash flow modeling tool, but we use
it in the opposite way of how it's designed to
be used. So an investor like Terry Smith or Lion Trust,
they will look for quality compounders through the cycle, generating
(18:54):
cash flow returns from their assets above the cost of capital,
reinvesting them well, creating more cash flows. The simple kind
of summary. We actually look for situations in businesses where
that isn't happening anymore, could happen it stopped happening, and
go and ask ourselves why. And there's six different scenarios.
We traw the market for once a month. You get
(19:14):
six sort of shortlists, and then we spend the rest
of the month shortlisting them into things that we should
spend proper time on or not so that's that's been
historically the core of idea generation. We do operate like
private investors, so we try and find our own ideas,
our own pipeline, rather than take the traditional inbound broker calls,
which makes it quite unpopular, but it kind of works.
(19:38):
And then the other which is a little bit more recent,
past year or so, and this is a genuine benefit
of artists and intelligence that everyone sort of wants to
talk about at the moment. For years, I desperately try
to read every RNs and for listeners aren't familiar, RNs
stands for Regulatory News Service. So every day a company
that has is on the stock market has some important
(20:00):
news to share, they have to announce it at seven
am via our NS. And I used to try and
read them every morning.
Speaker 2 (20:07):
Your whole day gone, Yeah, because a lot of things
people have pretend in RNs are not exactly.
Speaker 4 (20:12):
Important correct interesting, And even with filtering out some of
the sort of fairly vanilla or technical ones, it was
just unsurmountable when trying to launch a fund and grow it.
But the business I work at dowgate board into sort
of PhD types about a year ago to help our
business take up costs through AI and that was working fantastically.
(20:35):
And they sit on the desk a couple from me,
and I overheard them talking about something and I kind
of twigged that they could automate what Lawrence is doing
every morning at seven oh one, but in thirty seconds.
So every day I get any of the rns's that
have some phraseology or words and other things I don't
really want to share on here because it's genuine IP,
(20:56):
and I get them a moment box. I usually get
between one and five a day. I can read those
over the course of.
Speaker 2 (21:01):
A couple of How much time has that saved you?
Speaker 4 (21:04):
A couple of hours a day?
Speaker 2 (21:05):
Has it interesting?
Speaker 4 (21:06):
All?
Speaker 3 (21:07):
The reality is how are you using AI in your business?
Speaker 2 (21:09):
That's fascinating.
Speaker 4 (21:10):
It's more than saving a couple of day. It's actually
prevented me missing out by not doing the second hour
because it's the world.
Speaker 2 (21:18):
Okay, interesting. So we've got those things on the go,
could you maybe talk us through an example of a
company that you've picked up, looked at it and gone, well,
that's a gem, and then what's happened?
Speaker 4 (21:31):
There's one that comes to mind because we're sat in
a broadcast studio and that's what they do. In fact,
I suspect some of your colleagues probably use their products.
So there is a stock called Pebble Beach Systems. It
flagged up on our screening system as a business that
had some capitalication questions very quickly. Just to give some context,
(21:51):
the business has a piece of globally eading software that
allows broadcasters to, in what I call layperson speak, put
content in a line. So when any of us watch
a show or stream a live event, we get a
continuous thread of basically various video streams behind that on
the other side of the screen, there are anything from
(22:13):
twelve to fifty different cameras. Think of a football match
or the tennis or producing a broadcast show, and all
those feeds plus the adverts to be sliced and spliced
and moved around and put into a almost in situ,
into a thread fee years. Pebble Beach had been doing
that for traditional broadcasters. That's the market that's deemed in
(22:34):
structural decline. So they started trying to invest in new products.
And I'm going to condense this for effect, because I
don't want to go on for hours and hours, and
we do a lot of work to qualify these ideas,
but there's long short There were generally some great cash
flows but burning them all. And because of that and
the fact it was deemed a kind of legacy industry,
broadcast media is treated like tobacco today in terms of
(22:56):
structural decline. It was a stop with a thirty five
percent margin trading on a p of five when we
found it, So we asked themselves, why, what's the catch?
What's going on? The catch was the stock market didn't
believe in the strategy. They thought the new product wasn't
going to work and costing lots of money, and they
thought what they did already was great but die. And
(23:18):
one of the things we do, and with diligence and ideas,
we talk to people that basically know a lot more
than I about what we're looking at. So in this case,
we spoke to people in the broadcast world and someone
quite a stupidly pointed out to us that, yeah, look,
the streamer is our cannibalizing traditional television, but they're now
going through an absolute arms race for live content for sports.
(23:42):
And that's because there's loads of reasons start, which you
can go on to another time. But the interesting thing
about sports is even though you stream it, you watch
it in a line. It's live, you don't just download
and watch it. It's continuous like a traditional broadcast, fast forward,
lots of engagement, lots of diligence, mothboarding the previous product,
which meant the margins and the cash flows got even better.
(24:05):
The company announced in February this year it won an
initial contract with a global streaming giant. I think what
the words use. So it's probably one of five companies
that they didn't disclose, but it was for sport. They'd
just won. Anyone that is keen sports and streaming will
be able to work it out. We did. But what
they do disclosed is they also do the Six Nations,
familys and Prime now the football. So all of a sudden,
(24:28):
you've had a business with cracking margins become a world
beater and it was on five times p The shares
have done well is eighteen months now but still today
only trades on a P ten and we think that
can get better and better because one thing we have
learned at the moment it's winning sort of marquee sports
like the rugby or the one they won in Februar,
(24:49):
which people have to go and work out, so I'm
not allowed to share it. But what's interesting and we
learned this on one of our regular sort of site
visits we do with the investment as a whole cohort
of what did you call sort of tier two tier
three sports that are an economical to produce as a
as a media format on a national basis, but actually
(25:10):
if you're producing it by a streaming platform to global audience,
the economics work too. Broadcast the volleyball season or.
Speaker 2 (25:19):
What is a tier three sport.
Speaker 4 (25:23):
But niche sports can now be televised and monetized and
that's all going to be worked for Pebble. So just
a classic case of gem amongst the rebel, really cheap
wild beating product listed in London global earnings and that's
what this fund has all been about, and that's where
the success has come from. And we have we have
(25:43):
a really eclectic cast from one of the largest podcast
publishers in the world. Topic is what we're doing today
to the UK's leading retailer fishing tackle to the market leader.
Speaker 2 (25:54):
Is fishing in tier three sport.
Speaker 4 (25:56):
I bet it gets televised now, but it wasn't before,
So yeah, that would be something that wasn't traditionally broadcast
on the Channel four aiming direct.
Speaker 2 (26:05):
Your is your second biggest holding, correct, and that is
I mean, it's a huge hobby in the UK, getting
a bigger hobby in the UK fishing outside my comfort
zone here, but my husband and my son are both
great fishermen.
Speaker 4 (26:18):
And they spend probably quite a big time doing it.
When they do, they.
Speaker 2 (26:21):
Spend a lot of time doing it, and I spend
a lot of time buying them.
Speaker 4 (26:24):
Yeah, I'm signed to find my sort of co manager
for the fun because you're picking up our investments here,
which was really very rarely have we invested in retail.
But if you're going to do it retailing, fishing tackle
is a down good place to start because it's a
large hobbyist community. What's really interesting is you tend to
(26:45):
have to go to the store to buy the bait
because it's live and therefore it's a genuine omni channel proposition,
and that ring fences it from some of the online
I mean, I don't think many people do buy fishing
reels from Tama. They're quite complicated and expense but it
sort of ring fences you from the Amazon effect. And
you've seen that come through in There aren't many retailers
(27:06):
that upgraded profit forecast twice last year, but Angling Direct
did even after absorbing an unexpected employers National Insurance contribution
of three quarters of a million pounds and their profit
target was five. So that's quite a meaty okay.
Speaker 2 (27:20):
And when you found the Angling Direct, we've just talked
about why you hold it. When you found it, how
cheap was that.
Speaker 4 (27:25):
The market cap was roughly twenty They had net cash
as sixteen, ditcasha fourteen and inventories of sixteen, so it
was trading at a negative tangible and that I said
value that one we invested in the depths of twenty
twenty three, and I think that was the real bleakest
in the deer of yuk smatter companies. But interestingly, you
(27:48):
know that's the whole reason why we launched the fund.
To one of your comments at the very start of
the podcast on earth have you done that? Did done this?
I'm a bit of a contrarian by nature, but of
course the same reasons that made it really hard to
launch a fund were the same reasons why we can
buy Angling Direct at a crazy evaluation like that and
generate those returns of thanks to our early investors.
Speaker 2 (28:11):
Yeah, and a lot of these companies that kind of
company are too small to be bought by some of
the larger funds and the larger trusts.
Speaker 4 (28:17):
But yes by the larger funds, yes, but interestingly not
buy larger strategic acquires acquirers. We've had three acquisitions now
in our first three years. We had nearly our fourth
just this week with audio Beam, which is the podcast publisher.
I mentioned that Bily your top holding, Yeah, that had
three confirmed now publicly three cash bids, but the board,
(28:40):
who owned six percent of the company themselves deemed them
not representative of the accelerating growth and margins in the business.
That refesshingly actually rejected the offers and are going to
go it alone and I think to acquire other podcast
businesses themselves. But again when we invested in that, it
was on zero point seven sales group profits of fifty
(29:01):
percent last year. We think will grow them both more
this year. And Netflix Spotify Fox have been acquiring podcast
businesses on multiples of sales. So there was a you know,
it was really a US business but listed in London,
so therefore traded at a material discount to where it's
a Peers trade, so just another gem amongst the ruble.
Speaker 2 (29:25):
Interesting Now it's a very constrated portfolio. Twenty twenty two
twenty two stocks. Tell us about something that you've bought
more recently, something interesting. We haven't heard about it and
isn't isn't here on the top ten list.
Speaker 4 (29:38):
Ah, now you've got me. I don't think min CON's
quite on the top ten. For memory.
Speaker 3 (29:44):
It might be number eleven, but it is only five
percent of that.
Speaker 4 (29:49):
Is very recent. So this again is in the camp
of what's particularly interesting about this one. Usually when we
think we found a gem amongst the rubble, people have
heard about it but missed something. This stock I mentioned
to people and they look at me like I've got
two heads. Tell me what about this Mincoon thing. It's
one hundred million pound capitalized business dual listed in London
(30:12):
and the Urinext and it has some of the best
copper and deep bore construction drilling drill bits in the world.
In fact, they're so good that this year they've announced
that Epi Rock, which is a larger pier ten times
the size of Mincom, is having to use Mincon's green
(30:34):
hammer technology to do it's deeper drilling. Having tried to
crack the technology itself for ten years, they're now on
trial with twelve rep Rock customers. We obviously hope and
believe that will go well, hence making the investment. But
when we first identified the shares and put it in
what we call the nursery, which is the investments that
aren't in the top ten that we disclose, we bought
(30:55):
them about thirty five pence per share. They've been one
pound fifty four years ago. At thirty pence per share,
they're at a deep discount to tangible value. And then
we made it a core holding and hence it appearing
in the top ten now in February this year. Is
our conviction grew on really a recoverying copper mining, a
recovery in margins, and growing evidence that their ip was real.
(31:17):
There's not no bigger compliment than a peer having to
begrudgingly buy your products off you.
Speaker 3 (31:23):
What about mistakes.
Speaker 2 (31:25):
We've talked about three really great buyers already, and I
mean kind was already out twenty seven percent since you
brought it right, So that's marvelous, But it can't always
go well.
Speaker 4 (31:35):
Sadly not We've definitely made mistakes, and it's going to
sound like a cliche, but that's been one of alongside.
Speaker 2 (31:44):
In a learning experience.
Speaker 4 (31:45):
No, it's more than that. It's been a joy alongside
some of the support and the counterparties and basically people
I've got to work with and launching this and sort
of break out from a desk job at my old chop.
I've developed more as a fund manager in the past
twenty four thirty six months than ten years before, and
(32:05):
that's because I've directly made mistakes. And yes, it's a
cliche that you learn from them, but you really learn
from them when they're yours and they're very public. And
I described to friends and family who aren't in the
finance world that the job is akin to running a
high street store and in a big glass window. Every
day you have to put your p and l what
(32:26):
you're selling, what you're not, what you're losing money on,
and you have to walk past it five times a day.
Your friends, your family, in fact, they can look on
their phone seit, your rivals, your peers, your advisors, your customers,
and that takes a certain fiber to assault. Actually, I
think we have got you know, we've made mistakes. Particularly
(32:49):
bad ones are where we've almost tried too hard. So
there was a business called RBG Holdings. They had a
distress balance sheet. It was a legal services business. It
used to have cracking margin. The founder returned the namesake
of the business chat called Ian Rosen Black, and re
really backed him to strip out the cost, went back
to the key clients, paid down the debt organically and if
(33:12):
you did that, it was from memory. Yeah, a business
that lot long ago did a forty percent margin training
on point one of sales, so it'd of been a
cracking return if you go anywhere near one time sales
or two. But in hindsight it was a bit of
an attempt at a hero trade and we were trying too hard,
I think. So that was one another very recently. It's
one we partly got wrong because actually we took profits
(33:34):
along the way, fortunately, and that's one of the great
things about having colleagues they encourage you to do that
sort of thing. But there's a business called Scenectics and
the portfolio is still there today. It is still there still,
and we're down I think.
Speaker 2 (33:51):
On this. Latest facts twenty.
Speaker 4 (33:55):
Was point nine out twenty we'll call it around twenty
and when we invest in the company, we'd identified it
had again Jim amongst the rubble, some well leading software
and cameras for security, mainly around casinos, but that in
the modern world we live in, those techniques and products
could be applied to other sites like metro stations, hospitals,
(34:17):
data centers, in structure sites. The stock was going through
a purple patch earnings upgrades. Here we go. We called
this one right fantastic, and then the chief executive very
tragically sort of died overnight and the business that purple
patches within twelve months come to an end and it's
(34:40):
now throughout. You know, so the business is now sat
in a loss rather than a profit in terms of
our investment, and we are now back to the brutalist
investing comment earlier on. We were at a bit of
an apex in our journey with Scenectics and sourcing that
out and reformulating the strategy, getting back to basics. You know,
the business isn't distressed. It's got fourteen million of cash
(35:02):
and the bandsheet the market caps about thirty today and
the management and happy to speak to you. They're speaking
to us, Yeah, and the board in particular. We like
to deal with non executives. That's their role and we
encourage them to take that up. And because the business
does have that IP and a margin of safety, we've
(35:22):
got options to review the best way to maximize value
in the investment. But in hindsight should have taken more
profits on the way up than we did. But now
stepping into and I'm pretty confident with exit the investment
with a profit. But it's requiring a lot more time
than buy and hold to do.
Speaker 2 (35:40):
So you said earlier before we started recording. Actually we
were talking about podcasts and listening to podcasts and how
much you drive, suggesting you spend a lot of time
on the road visiting prospects.
Speaker 4 (35:52):
We do, and funny enough, just yesterday I was about
half past three to drive to the airport to fly
to see some Perspective clients in Edinburgh. Funny enough, and
then I got back about eleven o'clock last night, and
here we are today. But the fun, the more fun
traveling is is the site visits. And you do get
some almost sort of caricature type moments where the penny drops.
Speaker 2 (36:13):
So when you go on these site visits, one of
one of the things. I was at a conference justin
and we were talking about how AI is the new
ESG that in intol rered de rousion, every time you
went to visit a company, you'd also about their ESG policies,
and they musfer away for a while about all that.
And now every time anyone goes to a company they said, well,
how are you using AI and presumaly, you're asking that
question every time you go to see anybody.
Speaker 3 (36:35):
Nope, you're not.
Speaker 4 (36:35):
If anything, I get slightly cheapish when someone brings it up,
because it's become a bit of a buzzword like CRYPTO
was a few years ago, an EESG before that. I
think what most people call AI is just good automation,
and really honest and good automation. I'm all for. We're
just a bit wary and when we start seeing words
(36:56):
like AI and big budgets for it crop up kind
of from nowhere. They were talking about it three years ago.
Fantastic cutting edge. You cleanly need it. But back to
one of the ways we find ideas, there's things we
used to weed things out as well, and AI isn't
one of them. But that is really haven't done it
twelve years now. It's fascinating some of the little habits
(37:17):
and tricks you can spot in the way a company
communicates that can let you sort of look around corners.
I mean the classic is broadly in line or however
more over in the outlook and you just go, oh god,
six months task can be a disaster.
Speaker 2 (37:30):
Yeah, okay, interesting. I think that's a good tip to
end on. That's good tip for negative stuff. You've got
a good tip for something positive to look through for
the ordinary invers day going out attempting to do a
little bit of what you do, filtering through one hundreds
and hundred companies. What's the top number one thing to
look at from management?
Speaker 4 (37:46):
Follow the money, go and look at the l tips,
which is for code for how the management team get paid.
If there's triggers or thresholds or share prices that they
have to hit, and they look interesting versus where the
shares are today? Always worth investigating.
Speaker 2 (38:01):
Okay, interesting, Lawrence, Thanks very much, Thank you very much.
Thanks for listening to those week's Merrin Talks Money. If
you like our show, rate review and subscribe wherever you
listen to your podcasts and keep sending your questions or
comments to Merrin Money at Bloomberg dot net.
Speaker 3 (38:21):
You can also follow.
Speaker 2 (38:22):
Me and John on Twitter or x I Am Meren
s W and John is John Underscore step Back. This
episode was hosted by Me Maren's ms at Web. It
was produced by Someersadi and Moses, and sound designed by
Blake Maples and special thanks to Lawrence Hultz
Host
Merryn Somerset Webb
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