The share in question is Cobham, an aerospace company. He confirmed that he added ‘significantly’ to what had been a ‘modest’ holding up to now.
On the investment case for the shares Stuart commented that, ‘The company warned again on profits during the month, as the new management instigated a series of write downs and announced significant exceptional costs. This is a company with strong products and technology but where poor execution and overpriced acquisitions have caused major problems. The balance sheet is weak, but the recently announced rights issue will help rectify this. While there is a significant amount of reorganisation still to be done, we expect the returns in this business to be improved substantially over time.’
The fund manager is also keen on the case for house builder Bovis homes, and has started to buy the shares.
He commented, ‘We started a new position in troubled house builder Bovis. The company has suffered from poor execution over the past year as it sought to substantially increase the volume of new homes constructed. This has led to the CEO leaving and a reduction in the volume of units the company is set to produce this year. Following this the shares have fallen to their net asset value (NAV). Profits in 2017 will be lower than 2016. However we are buying a company at NAV, with cash on the balance sheet and where the returns are half of the industry average. If the returns can be improved, profitability should increase markedly.’
Another stock on which he is keen is Morgan Advances Minerals. He said, ‘organ Advanced Materials. Here again an improvement in the balance sheet and profitability is being executed by the new team. This is a diverse group of businesses and part of the turnaround is a refocusing on its core strength. There is some investment required but following recent disposals the company is on the right path.’
The Artemis UK Special Situations fund has returned 59 per cent over the past five years. The largest investments are BP and Micro Focus International.