Andrew Smith
Perennial Value’s (Perennial) Smaller Companies team has unveiled a new investment trust aimed at delivering excess returns from the large and growing Microcap end of the market.
The Perennial Value Microcap Opportunities Trust (the Trust) strategy marshals the experience and skill of Perennial’s highly successful Smaller Companies Team.
Portfolio Manager Andrew Smith said the product was created following discussions with investors and their advisers, in which they expressed interest in accessing Perennial’s experience to invest in Microcap opportunities.
“These investors want a proven, professional manager able to conduct detailed in-house research, as well as bring the capability to seize opportunities as they present themselves,” he said.
The Microcaps universe is both large and under-researched, creating plenty of opportunity for Perennial to add value.
Grant Oshry, Head of the Perennial Small Companies team for over a decade said: “The number of available opportunities helps explain why a professional manager is required for this market segment. At a macro level, there are 2,092 ex-100 listed companies – but only 401 or 20% of these are researched by major brokers*”.
Importantly, the Trust can invest in Pre-IPO opportunities.
“We have significant experience in assessing IPO’s and adding value via our selection process. In this Trust we can take this one step further and invest in Pre-IPO opportunities if we believe the investment case will appeal to the market. We can also provide strategic input given our experience in listed markets,” he said.
Examples of quality Microcap stocks, included by Perennial in its Smaller Companies Trust, include:
- SeaLink Travel Group. Perennial Value was a cornerstone investor at IPO priced at $1.10 in late 2013, the share price has now surpassed $4.30.
- EML Payments (a card technology player). First purchased at 50 cents in September 2014 it is currently trading close to $1.50.
- National Veterinary Care was purchased at the IPO for $1.00 in August 2015 and is currently trading close to $2.50
These stocks traded below $100 million market cap at time of investment and thus had little or no research coverage from brokers at the time of investment. As a result, Perennial utilised its in-depth research process to identify these opportunities before they became popular with the market.
Perennial will also leverage the skills of the team’s dedicated small cap resources analyst Sam Berridge. Sam will manage the resources component of the portfolio and brings a ‘hands-on’ approach.
A trained geologist, Sam is based in Perth where many smaller resources companies are located. He currently sees good opportunities in companies servicing the mining exploration space, which bottomed in July last year. Volume and margins in the sector are steadily increasing off a low base. In many cases, this recovery is not fully captured in the market’s forecast.
To remain nimble and opportunistic, the Trust will hard close when it reaches $150 million. The Trust will invest in a portfolio of up to 70 stocks with a market cap of less than $500 million at the time of purchase.