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Cazenove

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  • 1. Identifying growth in UK small cap Paul Marriage Prepared for professional advisers only
  • 2. Agenda - -
    • Team
    • Performance
    • Filtering & idea generation
    • Portfolio construction, P3M & market cap split
    • Stock characteristics
    • The short-term opportunity
    • Summary
  • 3. Investment team – Fund managers - -
    • Paul Marriage, fund manager
      • Paul Marriage joined Cazenove Capital in 2005. He is a member of the pan-European equity team and Manager of the Cazenove UK Smaller Companies Fund and Cazenove Capital’s UK Dynamic long-short funds (UCITS and Cayman domiciled hedge fund); the Cazenove Absolute UK Dynamic Fund and the Cazenove UK Dynamic Absolute Return Fund. Paul joined from Insight Investment where he was head of UK Small Cap investments valued at £750 million. Prior to this, he was an analyst at GH Asset Management. Paul graduated from University College, Oxford with a degree in Modern History. He is a member of ASIP and has 13 years of investment experience.
    • John Warren, fund manager
      • John Warren joined Cazenove Capital in 2010. He is a member of the pan-European equity team working with Paul Marriage on the UK small cap desk. John is back up manager on the Cazenove UK Smaller Companies Fund and the UK equity dynamic short/long funds; the Cazenove Absolute UK Dynamic Fund (a UCITS fund) and the Cazenove UK Dynamic Absolute Return Fund a Cayman domiciled hedge fund. John has over 10 years of experience in the UK mid and small cap sector, having previously been at UBS and Investec Bank. Before this John spent 3 years at PriceWaterhouseCoopers where he qualified as a Chartered Accountant. John graduated from Loughborough University with a degree in Economics and Accountancy. He holds the ACA and SFA qualifications.
  • 4. 1 process – 3 products - - Fund sizes at 30.09.11 £385m managed in strategy Offshore Hedge Fund £100m UK Smaller Companies Fund £85m Absolute UK Dynamic Fund £200m
  • 5. - - Source: Lipper, net income reinvested . Calendar year performance
  • 6. What I do own, what I don’t X No mining, no oil & gas X No loss makers  Only UK/UK exposure Investment universe: Hoare Govett Index including AIM 2,000 stocks Now 1,000 companies to consider
  • 7. Source of stock ideas - -
    • Experience Trades
    • Know what works and when
    • Met 5,000 co’s in the last 10 years
    Execute investment decision within 24 hours Research – Broker Notes, Annual report, Bloomberg data Valuation, liquidity, technicals One to One Meetings – CEO & CFO
    • Own Idea
    • Company meetings
    • Visits
    • Observational
    • Screens
    • Investment Banks and Brokers
    • Ideas
    • IPO’s
    • Placings
  • 8. Portfolio construction - -
    • Target 40-50 stocks (min holding 1%, max 5%)
    • 75% core – P3M
    • 25% value opportunity
    • Define reason for holding – if this changes = sell signal
    Stock B Stock A Fund Stock B One in, one out
  • 9. Creating long term performance
    • P roduct a differentiated product, R&D backed, IP preferred
    • M arket market leader in chosen niche
    • M argin ability to grow the margin and generate cash
    • M anagement stock ownership, understanding of shareholder value
    - - P3M
  • 10. Stock examples - - P3M Andor Technology Product Digital cameras for scientific research Market Company is the tech leader with 10pc share of $400m market Margin Margins have scope to grow with m/f scale up, company is strong cash generator Management Own 20% stock, understand shareholder value Value Opportunity Hogg Robinson Value Purchased in Q3 2010 on fwd p/e of 4.5x Opportunity Poorly handled 2006 IPO with debt and pension fund issues, unpopular management but a strong market position globally in corporate travel agency Trigger Improvement in corporate travel evident from other companies – BA, Menzies, BBA Validations Profit upgrades, debt and pension deficit reduction drive rerating (now 7.5x fwd). Share price appreciation of 108% since purchase
  • 11. Major holdings - - Source: Cazenove Capital Management 07/10/11 Holding Name Market Cap No. years held Analyst coverage Fwd P/E Booker £1,114m 5 10 17.6 Staffline £48m 1 5 7.4 Perform Group £467m 1 4 21.1 DS Smith £741m 1 9 8 British Polythene £86m 3 2 6.64 Xaar £154m 5 4 22.8 Elementis £551m 5 8 9.1 Hansteen £471m 3 9 0.85x NAV Menzies £282m 5 8 6.78
  • 12. Hitting the ‘sweet spot’ - - Source: Cazenove Capital at 30/09/11
  • 13. It’s a small world - percentage of sales - - Asia / RoW 13% Americas 23% Europe 25% UK 39% Source: Cazenove Capital at 30/06/11
  • 14. - - The earnings scenario - 2011 Cons Reality Sensibly managed SC’s Long Short Earnings Forecasts 2008 2009 2010 2011 2012 Source: Cazenove Capital Management
  • 15. Are UK smaller companies overvalued? - -
        • Is the size, liquidity and efficiency trade being reflected in valuations?
    • Are earnings growth numbers realistic?
    • M&A maybe more prevalent going forward.
    Source: Altium Securities at 06/10/11 fwd PE ex-loss fwd EPS growth fwd DY ex-nonpay fwd DPS growth FTSE 100 8.4x 11.4% 4.4% 10.9% Mid 250 9.7x 16.0% 4.1% 9.3% Small Cap 7.9x 11.7% 4.4% 6.2%
  • 16. Regulatory information and risk warnings
    • This document is intended for Independent Financial Advisers, Professional Intermediaries and non-private clients only.
    • Issued by Cazenove Capital Management which is the name under which Cazenove Capital Management Limited and Cazenove Investment Fund Management Limited both authorised and regulated by the Financial Services Authority provide investment products and services.
    • Past performance should not be seen as an indication of future performance. The value of investments and the income from them can go down as well as up and an investor may not get back the amount originally invested and may be affected by fluctuations in exchange rates. The levels and bases of tax assumptions may change.
    • This is a specialist fund, which invests in small, less liquid companies. The fund is likely to provide a higher level of volatility and this may carry increased risk.
    • This document is for information purposes only and does not constitute an offer to enter into any contract/agreement nor is it a solicitation to buy or sell any investment or to provide any services referred to therein.
    • This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
    - -