A strategy of applying private equity philosophy to the public markets is paying off for Odyssean Investment Trust
Thursday 10 Sep 2020 Author: James Crux

A 9.4% discount to net asset value at Odyssean Investment Trust (OIT) looks attractive for investors keen to pocket a ready-made portfolio of small caps with significant performance improvement potential.

The trust looks to generate attractive total returns, principally through long-term capital growth, by backing often under-researched and undervalued smaller companies.

Besides the re-rating potential of the underlying holdings, Odyssean should also benefit if takeover activity picks up as the managers have an eye for coveted corporate assets liable to draw premium-priced bids.

Indeed, that’s already happened three times since its May 2018 launch, with all the takeover offers made at 40%-plus premiums.

One of its first holdings, language translation software developer SDL (SDL) recently agreed an all-share takeover by RWS (RWS:AIM) in a deal that will create a global language services and technology provider. The other two investments subjects to bids were Consort Medical and Huntsworth.

Managed by Stuart Widdowson and Ed Wielechowski, Odyssean runs a portfolio of rigorously researched UK small caps which have the potential to deliver improved returns to shareholders.

Widdowson forged his reputation by turning round the fortunes of investment trust Strategic Equity Capital (SEC), and Wielechowski is a former HgCapital technology expert. They boast a combined 30 years-plus experience in smaller companies as well as having some of their own money invested in Odyssean.

The trust’s approach applies three core elements of the private equity investment philosophy to public markets; the trust is highly focused, invests for the long term and pursues an engaged ownership investment style.

In plain English, it builds stakes large enough for the managers to wield influence at under-performing firms and help their chief executives to drive improved returns.

Admittedly, this is a highly-concentrated portfolio of no more than 25 names. Yet Shares believes the risk is mitigated by the managers’ intensive due diligence and the fact they’ll only invest in their highest-conviction ideas.

Odyssean’s ongoing charges figure plus performance fee is 1.51%, roughly in the middle of the range for the AIC’s UK Smaller Companies sector.

With a bias towards the tech, media, telecoms, services, industrials and healthcare sectors, Odyssean focuses on firms with characteristics including low cyclicality, a business-to-business focus and high or improving returns on capital employed.

The portfolio includes the likes of pharmaceutical group Clinigen (CLIN:AIM), countermeasures seller Chemring (CHG), sausage skins maker Devro (DVO), aquaculture biotech Benchmark (BMK:AIM), ventilation products specialist Volution (FAN) and share registrar Equiniti (EQN).

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