The share in question is Hotel Chocolat, a producer of chocolates. The shares came to market last year at £1.48 and are currently £2.85, and had been higher.
Nickols commented that he sold a very small number of shares in the company, but is happy to retain the majority of his holding because, ‘while we didn’t anticipate the share price movement on that scale so soon, the size of the opportunity has not changed. The structural growth story remains.’
He commented, ‘As a business Hotel Chocolat has a lot of self-help, and that is always appealing. It used the cash raised from the IPO last year to begin automating production, and that will bring long-term benefits.’
Nickols continued, ‘the company sell what can only be described as posh chocolates. But one area where they are differentiated from rivals is with their tasting club. So a box of chocolates might be very expensive, but someone can join the tasting club, and pay a small fee every month to taste the products that Hotel Chocolat are considering bringing to market. So not only are Hotel Chocolat getting getting some of their market research done for them, and getting paid for it. The revenue is recurring monthly payments, and recurring revenues are always attractive to invest in.’
The tasting club has around 170,000 members.
A second small cap in which he is invested and intending to stick with even as the share price has risen starkly is Luceco.
These shares came to market in 2016 at £1.30, and are now at £1.85.
Nickols told What Investment that the company is involved in the distribution and sale of LED lighting to households.
The Old Mutual UK Smaller Companies fund has delivered an annualised return of 17.8 per cent over the past decade.
He commented, ‘this is a market share story. The company is an aggressive new entrant into the market. This is not about the company manufacturing the lighting and expanding by having to build new factories. The key to this is that because the end customer is a household, they keep buying new bulbs, so it is repeat purchases, lots of small purchases.’