westbrooke thrives on activist book
1 October 2016
Westbrooke thrives on activist book by HedgeNews Africa
Fund returns a net annualised 17.5% over three years, investing in concentrated portfolio of small- and mid-cap names
The Westbrooke Capital Management Special Opportunities Fund has been making steady progress with net returns of 6.7% this year to the end of September and a gain of 14.7% for the last 12 months.
The fund has returned a net annualised 17.5% per annum over the last three years, including 18.5% for the calendar year 2015.
It invests on a concentrated basis in small-mid cap listed equities and is made up of an active portfolio consisting of longer-term positions where the fund has taken board representation on select positions to ensure value is unlocked. It has a further liquid portfolio where fund manager Jarred Winer runs shorter-term more liquid investment opportunities, which include short positions.
The fund delivered impressive returns of 7.5% in the last quarter of 2015, driven by shortpositions in its liquid book and from the fund’s active position in supply-chain and logisticscompany Santova, where it provided equity capital to fund the company’s acquisition of Tradeway Shipping in the UK.
In the first quarter of this year, the fund dropped 3.4% due to the rally in industrials while it was still predominantly short the sector. It gained 6.7% for the second quarter, benefiting largely from longer-term holdings in the active book. One such holding is a 20% stake in electronics company Amecor. As part of a wider restructuring in October 2013, the fund initially acquired a 12% shareholding in the undervalued and underperforming company. This increased to 20% in March 2015, making it the largest shareholder, with Winer appointed to the board. Together with the other stakeholders, Winer’s mandate included restructuring and repositioning Amecor on its cash generative core annuity security technology business.
The first glimpse of the company’s turnaround came in its March annual results, in which Amecor’s headline earnings per share was up 309% to 40.4c and earnings before interest, taxes, depreciation and amortisation (ebitda) up 110% to R47 million. In August, Amecor announced it had received a binding offer from Stellar Capital to acquire the company at R3.80 per share. The fund’s role in originating the transaction, which is expected to close in November, will result in an internal rate of return of approximately 36%
on the position.
Another significant position in the active book is a 13% equity stake in speciality chemicals sector company Rolfes. Winer sits on the Rolfes board and has been working with management on the strategic repositioning of the company, which has included exiting underperforming business segments, acquiring minorities of the agri business and the acquisition of Bragan Food Chemicals.
“They have just delivered solid results and there has been a slight re-rating of the share price.
However, we think it is still significantly undervalued and the company is now in a position where we can focus on corporate activity again,” he says.
After the close of the Amecor deal, the fund will have more cash on its books, which is well timed for it to capitalise on new opportunities that Winer believes are now at attractive valuations.
“In 2014, we thought that the market was quite bullish relative to local economic prospects but were often losing deals based on valuation expectations,” he says. “In our universe, companies are now trading at more attractive valuations.”
“We don’t put aggressive growth in our models, we are relatively conservative and patient capital allocators.”
Winer has identified opportunities across a number of sectors, which he believes are now attractively priced.
The liquid book has also contributed to performance. Investments in two high-yielding smaller-cap property companies trading below fair value added to a net return of 2.8% in August.
The fund’s shorts included pair trades on the property sector, shorts in retail stocks and also a short in a chicken producer. Total assets under management, including segregated mandates, is R350 million, with significant capacity for growth.
Winer believes the fund can add meaningfully to investors’ portfolios due to its event-driven strategy and low market correlation. Moreover, it provides investors with private equity-type returns with shorter duration, superior liquidity and risk mitigation through hedging.
“We believe that we are better placed to outperform when there is market uncertainty because we are not relying on momentum,” he says. “We follow a fundamental value bias and look for situations where we can identify a unique catalyst. A key differentiator in our strategy is that we will play an active role to drive events within our investments.”
Looking ahead, Winer sees South African political issues and economic growth as a key risk, as well as “high event risk” globally. With greater uncertainty, Winer is even more conservative on the fund’s valuations, looking to invest in opportunities where there’s enough protection on the downside.
For the remainder of the year, Winer has a conservative capital allocation stance but is positive that he will continue to find attractive risk-adjusted opportunities in the market. The fund is planning to launch as a qualified investor fund in the first quarter of next year under the newly approved Collective Investment Scheme Control Act (CISCA) legislation for
In February, Westbrooke Capital Management launched two Section 12J venture-capital companies, investing in real asset and hospitality investment opportunities. The venture, headed by Richard Asherson, has raised R430 million in its first year and is currently capitalraising for the 2017 tax year. Copyright. HedgeNews Africa – October 2016.
Westbrooke Capital Management Special Opportunities Fund
Strategy: South Africa special opportunities
Manager: Jarred Winer
Inception date: June 2012
Structure: converting to QIF
Prime broker: Peregrine
Open to investment: Yes
Minimum investment: R1 million
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