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During December Columbus European Equity Fund Class I rose by 5.45%. Over the past 12 months the Fund has risen by 21.4%, and by 65.81% over the past 3 years. Since inception in June 2008, Columbus’ return has been 190.5%, comfortably exceeding the broad European equity index. These results have been achieved with a volatility of 10.75% over the last year, lower that the one of the European equity markets at 12.0%.

European markets bounced back convincingly in December as Omicron concerns eased and business confidence measures showed continued improvement. Unsurprisingly this led to strong performances from stocks in the Leisure and Travel sectors which had been hit hardest by the arrival of the new variant. This particularly benefitted our holdings in National Express (+20.4% in the month, UK listed public transport operator), Kinepolis (+16.7% Belgium, Cinemas operator) and Talgo (+17.9% Spanish railway operator).

The largest contribution to performance, however, came from our positions in Interpump (+8.1%) and VGP (+8.7%). Interpump, the Italian listed specialty industrial group, has been a long time holding for the fund and continues to show solid growth both organically and through M&A. We supported our position in VGP, the Belgian listed logistic property developer, during November as they raised additional equity for expansion. VGP has considerable opportunity for growth in our view and continues to enter new markets with their proven strategy. The main detractor in December was S&T AG (-23.1%), the Austrian IT company, which suffered from an aggressive short attack after an independent research group published a report outlining a range of issues from the past. The company quickly responded with a detailed rebuttal, but the damage was done for December.

It is always helpful to look back over the past year to review our holdings and track our decision making. The two themes which dominated investor attention through the year were the resurgence of inflation and, of course, the pandemic. Inflation, though much discussed, had little direct impact during 2021, but may well be a bigger concern over the coming 12 months. The pandemic, however, had a more material impact on the fund as a number of our holdings experienced weakness during the summer months when the expected rebound in tourism was curtailed by the arrival of the new variant. Happily most of these stocks recovered during the second half of the year to provide a positive contribution to performance.

Adding to this was the performance boost we received from having three of our holdings taken over during the year. It is a relatively common event to lose a holding to a takeover, but to have three in one year is unusual. Amongst these, the biggest positive impact came from Zooplus, the German listed pet products group. Over the course of the year the stock rose over 180% after the original private equity bidder was challenged by other interested parties and a bidding war ensued. We eventually sold the stock when this process was complete. Akka Technologies (French digital consultancy) and Zardoya Otis (Spanish elevator subsidiary) were also both helpful contributors to performance, with Akka in particular returning around 85% for the year. Our position in Liberbank in Spain was also acquired as part of a consolidation with Unicaja Banco to create a stronger, more sustainable player in the domestic Spanish banking market. The largest negative contribution for the year came from Neoen, the French listed alternative energy group which performed extremely well in the prior year but gave back some of this performance in 2021.

As we enter 2022 we feel very comfortable with the structure of the portfolio and the combination of both value and growth opportunities that we hold. Although some extreme points across markets, such as segments of the technology sector, appear expensive relative to historical valuations this is not generally true across much of the European market. We continue to find compelling investment opportunities in often overlooked businesses and feel confident of generating strong returns in the future.

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We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

During November the Columbus European Equity Fund class I fell by -3.2%. Year to date the Fund has risen by 15.14%, and by 21.2% over the past 12 months. Since inception in June 2008, Columbus’ return has been 175.5%, comfortably exceeding the broad European equity index. The volatility of the Fund over the last 12 months has been 10.7%, below the STOXX 600 index at 12.0%.

Grafico performance noviembre | Columbus

The weakness in equity markets in November resulted from the increase in hospitalisations across Northern Europe and the arrival of a new Covid mutation, the ‘Omicron variant’, which was first identified in South Africa. Concerns over the impact of the upsurge likely contributed to the fall in the German IFO business climate survey data, as businesses worried about the potential for renewed lock-downs during the important Christmas season. The news led to a general flight to safety from investors as shares in affected sectors such as travel and hospitality were sold in favour of the better visibility coming from the IT and pharmaceutical sectors.

Germany was the source of other important news during the month after the various factions of the new government reached agreement on their ‘traffic light’ coalition. Olaf Scholz of the leading SDP is to take the reins as Chancellor, ending Angela Merkel’s successful 16 year tenure in the role. Unsurprisingly the coalition is placing great emphasis on the climate, which was outlined by voters as the issue of most concern, but national labour laws are also likely to be an area of focus.

Within the portfolio, Auto Trader, (+ 20.9% in the month) the UK online car sales site was the strongest contributor after reporting an excellent set of first half numbers with revenue growth of 82% vs the weak 2020 early pandemic phase, but also 15% above the strong 2019 figure. The group dominates the car sales market in the UK and have been consistently able to expand along the value chain. Ageas, (+8.4%) the Belgian listed Life and Non-Life insurance business also reported strong figures, and despite the impact of some significant natural disaster claims, reiterated their earlier targets and those for their longer-term strategic plan. The company overall, and particularly the Asian business, continues to generate a strong free cash flow and remains under-appreciated in our view.

On the more negative side, Royal Unibrew, (-12.4%) the Danish brewer, gave up much of its earlier strong performance in the year after announcing the impact of higher freight and raw material costs in the third quarter. This has been a common refrain throughout the recent results period and unsurprising given some of the well-publicised global supply chain issues. We continue to see a very strong longer-term opportunity for the group and view much of the current margin weakness as a temporary hiatus while the higher costs are transferred into prices. We added no new names to the fund in November but added to our position in VGP (Belgian listed logistics real estate business) and trimmed both Interpump (Italian specialist engineering) and SIG Combibloc (Swiss packaging equipment).

Download monthly factsheet [PDF]

We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

During October, Pareturn GVC Gaesco Columbus European Mid Cap Equity Fund class I increased by +2.21%. The Columbus Fund has risen by +18.99% YTD, and by +41.64% in the last 12 months . Since its inception in June 2008, Columbus’ return has been +184.7%, comfortably exceeding the broad European equity index.

Following the sell-off in September markets rebounded strongly this month on the back of stronger than expected Q3 results season, led by the US. The gentle recovery in the Chinese market added to the risk-friendly mood as the problems at China Evergrande were at least temporarily alleviated, as did the Congressional renewal of the extension of the US debt ceiling.

From the perspective of the portfolio, the current reporting season has been relatively benign with October bringing a positive trading update from Elementis (UK chemicals) and improved guidance from Edenred (French meal voucher business). However, despite the generally positive tone across the market many companies continue to complain of high and rising input costs, near term wage inflation and ongoing supply constraints in a number of sectors. Many of these impacts are expected to be transitory, but the ‘transition’ phase continues to be extended with many commentators now expecting the trends to continue until mid 2022.

During October the strongest contribution to the Fund came from our largest holding, Interpump (+13.84% in the month) the Italian specialist engineering group, which continues to perform well operationally and announced a new share buyback mandate. The other strong contributors were VGP (+12.8%), the Belgian listed logistics facility group and Safestore (+14.59), the UK listed self-storage Group, which benefitted from the strong performance of property related businesses in the month, which led to global REITs being the second best performing category across all assets classes. The rise in inflationary concerns continues to push investment into real assets such as commodities and property. Indeed the fund’s structural underweight in the oil & gas sector partly explains the relative underperformance over the month. The most significant negative contributions in October came from Bodycote (-8.9%), the UK listed heat treatment Group. Bodycote suffered along with other automotive related businesses as the sector continued to be plagued with component supply shortages and is affected by the energy high prices.

Download monthly factsheet [PDF]

We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

During September the Pareturn GVC Gaesco Columbus European MidCap Equity Fund class I fell by – 0.98%, beating the -3.41% return of the STOXX 600 index. Over the past six months the Fund has risen by +13.49%, and by +34.34%% over the past 12 months. Since inception in June 2008, Columbus’ return has been 171.07%, comfortably exceeding the broad European equity index.

European equity markets traded down over the month as the sharp, early phase of the post-covid recovery slowed to a more normal rate. In addition, the ongoing concerns around inflation continued to gather support as energy prices rose further, leading to more public pressure for higher wages. Central bank commentary was incrementally more hawkish with the US Federal Reserve, the European Central Bank and the Bank of England all now planning to reduce their pace of asset purchases over the coming months. Within Europe the much-discussed German elections proceeded smoothly with the more extreme parties garnering less support than some had feared. Although the result will lead to a somewhat complicated structure the broad approach of the yet-to-be-formed government is unlikely to lead to dramatic policy changes.

Grafico performance

Across the portfolio we again enjoyed a strong month of relative performance, helped by our third take-over in as many months. Zardoya-Otis has often been held up as a likely candidate to be fully absorbed by their parent company, Otis in the US. Following the spin-out of Otis from the United Technologies group in 2020 they were free to pursue the buy-out and delisting of the Spanish subsidiary. Zardoya was a relatively recent purchase for Columbus as we felt strongly that the valuation did not reflect the prospects of the business and that this would ultimately be resolved either by the market or by a corporate action. The other material takeover news over September was the continued increase in the bid value for our holding in Zooplus, the German listed online pet supplies group. EQT, a Swedish investment company slightly outbid the increased offer from rival, Hellman & Friedman, with a price of €470 per share – a noteworthy 69% premium to the closing price before the takeover proceedings began.

Unsurprisingly Zardoya (+25.85%) and Zooplus (+22.18) were strong contributors to performance in the month, but Kinepolis (+20.07%), the Belgian listed cinema group also performed well as investors begin to see the positive impact from audiences returning to cinemas. The most significant negative contribution came from Interpump (-6.98%), the long held Italian specialty machinery group. The stock drifted down with the market giving back some of the very strong returns from earlier in the year. This experience was shared by a number of other industrial companies.

Download monthly factsheet [PDF]

We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

Price€4.50
Market Cap€730mPE FY202214x
EV€664mEV:Sales0.54x
DY0.5%EBITDA Margin9.2%

 

Conclusion

Having initially purchased our position in DOM at the IPO in 2016 for a price of €2.74 we have now followed the company for over 5 years and continue to find the investment case very attractive. The compound annual return (inc dividends) of almost 11% has been acceptable rather than dramatic but following our recent review we continue to find a compelling risk:reward case for the stock.

Operations

Global Dominion Access (DOM) is a diversified service company that offers consultancy, project management and commercial management services. In addition, in Spain they provide a consumer utilities offering providing households with access to a wide range of services from telecoms to insurance and alarms to plumbing. This latter B2C segment represented less than 7% of the group profit in 2020 but is growing quickly and ischaracterised by high renewal rates. Since the 2020 financial year was so impacted by Covid I will use the more recent H1 2021 numbers to give a more accurate breakdown of the business.

global dominion b2b revenue by activityThe core B2B business is divided into 2 segments; the higher margin design and implementation solutions provider, ‘360 Solutions’, and the more stable, but lower margin BPO division, ‘B2B Services’. Contract lengths vary significantly between the two segments with the Solutions business typically one-off projects as compared to the multi-year recurring BPO contracts. The company aims to offer a complete end-to-end solution for customers from project consulting, design, implementation through to the operation of facilities. The core focus is on industrial operations across Energy (particularly alternatives such as solar and biomass), Industry (chemicals, cement, glass etc), and Tech & Telecoms.

The group separates the operations of building and then maintaining projects in order to maintain visibility of returns in both elements. By it’s nature the 360 solutions side is highly project driven with visibility coming from the depth of the order pipeline, which appears to have held up well during the pandemic. The most recent release has the backlog at €605m which they believe is conservatively assigned and currently represents ~years of revenues for the division. This segment represented ~30% sales in H1 with a contribution margin of 17.6% (and 19% in Q2). By contrast the Services segment is characterised by high levels of recurring sales (c60%) as the management contracts typically last for 3-5 years and sometimes longer. This division represented 53% of sales in H1 with an 11.4% contribution margin. This area continues to see solid revenue growth posting a 14% increase over the 2019 H1 figure (which was not distorted by the pandemic). Both divisions have clearly performed well despite the on-going disruptions in many of the regional markets.

The B2C division, while currently small (15% of the profit contribution in H1 2021) has shown solid growth since launch in 2018. DOM acquired Phone House Spain from Dixons Carphone and spent the last 3 years expanding the range of services away from being a pure telecoms reseller to now marketing a wide range of services including gas and electricity supplies, telecoms, insurance, alarms and security, and general maintenance. They offer this both online and across a network of 400 retail outlets. The maintenance services are provided by FAMAEX, a subsidiary of the group which serves both the B2B and B2C businesses, which allows for a small amount of cost synergy between the two.

Many investors were sceptical regarding the Phone House acquisition, seeing it as a complicated and opaque change to the Group strategy. Certainly Covid had a more significant impact on this business as the retail stores were closed for much of the pandemic period, dramatically impacting the flow of new subscribers. In 2020 the revenue declined by 11% with the contribution margin falling by 68% (although distorted by one-offs). However, this has bounced back strongly in H1 2021 with the contribution on track to surpass the 2019 figure. The firm remains committed to this strategy and plans to increase the store network by up to 100 new franchise-based locations, as well as acquiring smaller competitors in line with the Alterna deal from 2019. The business aims to tie customers into a range of services making the process simple and competitively priced meaning that the revenues should provide high renewal rates going forward.

Attractions of the investment case

  • Overall focus on key trends of digitalisation and alternative energy.
  • Net cash balance sheet of €66m at H1 2021. While this is certainly conservative it is also an important confidence builder for clients looking appoint partners in new construction projects.
  • Significant proportion of recurring revenues – and growing as the B2C business expands. Organic revenue growth compounded at 11% from 2016 until the arrival of Covid.
  • Highly diversified revenues by geography (35 countries) and customers (largest customer<5% sales)
  • BPO segment advantaged by connection to the design and construction phase through the B2B 360 division.
  • In 2016 the group co-founded the Bas Projects Corp to focus on development of alternative energy projects. Since then the new division has built a pipeline of ~1GW of projects across wind, solar, hydro and bio-mass plants across Europe, Latam and the Caribbean. While DOM currently own a 35% stake in this business they are looking sell a minority stake in this business to generate additional growth as the investment across the sector continues to ramp up aggressively. The division may be spun-out of the group which would create a valuation catalyst which is not reflected in the current valuation. This makes DOM an inexpensive way to invest in the growth of renewables over the next 5 years.
  • The service based model means the business runs with limited capital intensity with capex running at just over 2% of sales.
  • DOM was spun out of CIE Automotive in 2018 and the founding Riberas family remain the largest shareholder in the group. The portfolio of companies controlled by the Riberas family (including Gestamp Automoción) have an excellent reputation and this stability of ownership allows the management team to focus on the longer term development of the company, which is a characteristic we actively seek in our investments.
  • Strong record of achieving financial targets (net prior growth plan 1 year early) – achieved RoCE of mid 20s percent since listing (ex Covid). Current strategic plan calls for doubling of net profit from 2019 to 2023 (delayed from 2022 due to Covid). Note that this target is not expected by consensus or our internal forecasts and so if achieved would lead to a meaningful upgrade for the stock.
  • The valuation remains attractive given the growth and profitability of the business (see below).

Valuation

When it comes to valuing companies we agree with the maxim it is better to be roughly right than exactly wrong, so we tend to review valuations from more than one perspective. The best sense-check of a company’s intrinsic value is generally a DCF model. As we know this technique can produce a wide range of outcomes with even relatively small adjustments to the inputs, but ultimately a company is ‘worth’ the present value of it’s future cash creation and so it makes sense to be comfortable that the current price incorporates reasonable assumptions. We often call this a reverse DCF as it enables us to assess what is currently priced into a stock as well as how this compares to what we believe is realistic.

Valuation multiples are a short-hand version of this and are a simple way of assessing a company relative to other listed peers. The water here is quickly muddied by different tax rates, profit margins and other variables so in order to avoid these issues I find that a useful starting point is EV/Sales. The benefit of this multiple is that the EV normalises for debt and revenues tend to be much less volatile than earnings, particularly for cyclically exposed stocks like DOM.

In this case we know that the revenues in 2020 were depressed by the pandemic and the management have been clear in outlining their expectations for the current year and looking ahead. Assuming 2021 plays out as expected then the shares currently trade on an EV:sales of 0.65x. This falls to 0.54x for 2022. For a company that is likely to grow EBITDA margins back to ~11% in 2022 this looks very under-valued. Contrast this to another portfolio holding, Akka Technologies, which offers somewhat similar engineering consultancy with an EBITDA margin of ~10% and a similar organic growth rate. Akka was recently  acquired for an EV:sales of 1.1x – or a premium of 70% to DOM. (Actually the equity premium was larger as the static debt component of EV within Akka hides some of the increase in market cap). In our view the acquisition under-values the Akka business in the mid-term but either way the comparison stands.

As DOM returns to an 11% EBITDA margin and recovers the organic top-line growth the shares should re-rate back towards 1x EV:sales providing a theoretical upside of >60% for the shares. We handicap this by around 15 percentage points to represent the exposure of the business to Latam and the associated political risks. Even allowing for this we are still expecting ~45% upside from the current price.  Our DCF (9% WACC, 2% terminal growth after 10 years) also suggests a target of €6.30 or ~40% upside – excluding the potential uplift from the spin-off of the renewables division (Bas Projects).

While this appears to be a considerable potential return we should note that the company does not, in our view, sit amongst the higher quality business in the Columbus framework. Our portfolio approach is to have the majority of holdings, typically 70-80% in companies that we perceive to have very high-quality attributes – essentially strong barriers to entry, clear and consistent strategy, and a proven management team. These factors tend to lead to higher than average margins, more consistent growth and strong returns on capital. However, the remainder of the portfolio is invested in more ‘opportunistic’ holdings where we see significant under-valuation and the catalysts to reveal this to the broader market. DOM fits into this second category and so needs to offer material upside to justify a continuing position on the fund.

Risks

The most obvious risk comes from the geographical exposure of the group with ~22% of sales from Latam (principally Mexico, Chile and Peru). Potential political risk is high in the region which can affect FX rates and payment terms.

The growing focus on the B2B segment is a largely unproven model and may not achieve the growth, profit or revenue renewal targets the group expects. Worth noting that the analyst community appears to have conservative assumptions here so the risk:reward appears fairly balanced.

 

 

 

(You can also download this report as a PDF here)

During August the Pareturn Columbus European MidCap Equity Fund rose by 3.23%, surpassing the 1.99% return of the STOXX 600 index. Over the past six months the Fund has risen by 18.7%, and by 33.2% over the past 12 months. Since inception in June 2008, Columbus’ return has been 171.1%, comfortably exceeding the broad European equity index.

August is typically a slower month in Europe with activity levels reduced as much of the region takes a summer break. The surge in cases of the Delta variant in Europe and the associated travel restrictions likely reduced activity even more than normal during the month, although the successful vaccination programs thankfully kept hospitalisations well below prior levels. After the very strong industrial production growth through the spring and early summer it was not a surprise to see this number come down somewhat in August. The more forward-looking Composite Purchasing Manager’s Index also fell back from the high in July but remained comfortably in expansionary territory. The initial snap-back of the economy appears to be normalising again and as usual stock valuations led this process with many now trading well above pre-covid prices. As a result, stock selection is likely to be a bigger factor in outperformance over the coming year.

Following the take-over of Akka Technologies in July your portfolio benefitted from a second take-over in August; Zooplus, the German listed pet products online retailer. This was again the largest contributor to performance over the month after private equity group, Hellman & Friedman entered into an agreement with the company at a 40% premium to the prior closing price. However, the story has not ended there and a confirmed rival bidder, EQT, has entered the process at an as yet undisclosed level. Zooplus did not provide the only significant positive contribution in August, however, as our long-standing holding in Interpump (+14.34% en agosto),Italian engineering group, also performed well on the back of strong results and an analyst upgrade.

There were no material detractors from performance although S&T, the Austrian industrial technology group drifted down on no news only to recover much of the fall in the first few days of September. We made no new additions to the fund nor complete sales during August. While we have a number of interesting names in the pipeline, we remain comfortable with the balance of the current portfolio.

Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

Download monthly factsheet [PDF]

We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

 

Price€52.70
Market Cap€4.8bnPE FY202225.2x
EV€5.0bnEV:Sales3.5x
DY0.6%EBITDA Margin23%

Interpump stock price | Columbus

 

A COLUMBUS TOP 5 HOLDING

Both Pedro and I have known Interpump for well over a decade (actually closer to 2 decades) and we have been investors for much of this period. The reason for this is that the company consistently demonstrates the characteristics we look for in the ‘high quality’ investments that make up the majority of the Columbus portfolio. These are:

  • Clear strategy
  • Strong management team with proven ability to allocate capital – leading to
  • High, unlevered returns on equity
  • Evident leadership characteristics and barriers to competition – demonstrated by high margins and free cash generation
  • Significant scope for further growth

I have not included valuation in this list as this is not a characteristic of the company but merely a timing issue in the investment decision.

To understand Interpump, as with many quality companies, we need to look at its history.

After the company was founded in 1977 it grew quickly on the back of their highly innovative designs of high-pressure piston pumps, utilising new materials to create smaller and more efficient products than their competitors. This is the culture that the group has taken forward and which took them to be the largest producer of these pumps in the world.

The success of the company led to huge cash generation which the management team put to work acquiring small, specialist companies in engineered products in the hydraulics industry. This allowed them to benefit from their core engineering knowledge and expand into adjacent markets. Fast forward to 2021 and the Group has acquired more than 40 companies since going public in 1996 and have expanded beyond hydraulics into pressure homogenizers and fluid handling components.

By expanding into new areas, they have vastly increased their scope for acquisition as well as created significant opportunities for cross-selling. The result of this strategy has been to provide the group with highly diversified revenues and a base of ~20,000 customers, helping to reduce the cyclicality of the revenues. It also avoids customer concentration with the largest account representing only 1.4% sales.

Revenue Split by End Market 2020

Interpump Revenue Split by End Market | Columbus

Source: Interpump IR Presentation Q1 2021

An interesting common aspect of many of the high quality companies in Europe is family ownership. In this case the founder controls close to 25% of the shares both directly and through a listed investment company. This level of family involvement has shown in many examples to lead to better long term capital allocation and investment behaviour. Owners tend to have their eyes on the longer term, rather than the annual bonus or 3 year incentive plan, and this tends to provide better long term returns. This is certainly the case at Interpump where the returns on equity over the past 5 years have averaged ~18%

Interpump Revenue Split by Geography | Columbus

Source: Interpump IR Presentation Q1 2021

Over the last decade (since FY 2011) the combination of organic and acquired growth led to a CAGR in revenues of 12% and 16.2% in EPS. This has not been achieved at the cost of the balance sheet however, as net debt:EBITDA actually declined over this period from 1.54x to 1.13, peaking at 1.66x in 2014. (The Group’s focus on the financial structure of the business is reflected in the fact that the balance sheet is presented before the income statement in the annual report). Obviously then the growth is driven by the FCF and this has increased by a compound annual growth rate of ~20% over the same period. Margins have also expanded over the Group’s history, with EBITDA margins rising from mid-teens in the early 2000’s to 23% over the past few years. One of the quirks of Interpump is that the company believes in the power of specialist brands which is why, contrary to much received wisdom in corporate finance, they do not typically integrate the companies they buy. Rather they keep them as specialists in their niche and instead provide funding and operational assistance to help them to grow. This maintains their portfolio of niche leaders and reinforces the barriers to competition.

 

Their M&A strategy in general is somewhat differentiated in that they refuse to buy troubled companies to turn them around, and they refuse to buy from private equity. Their aim is to find family led, niche businesses and help them to transition to a larger platform for growth. Since they do not integrate and aggressively cut costs they are seen as a ‘good buyer’ and are often the only bidder in the process. For investors that know Judges Scientific in the UK, it is a very similar mentality.

 

Valuation

It is the combination of the M&A strategy and an average organic growth of ~4% that has provided the 12% CAGR in sales achieved over the past decade. In discussions with management they are confident that they can maintain a similar pace for the foreseeable future as they continue to grow across a number of different product areas. Our model assumes a similar outlook margin in the near term with revenue growth falling quickly to 10% and then fading to a 2% terminal growth in nine years. Assuming a 7% WACC we achieve valuations around €62 per share – about 17% above the current €52.70. Having performed this exercise several times over the years I have found that my assumptions have typically been too conservative. Although the terminal growth rate is low after only 9 more years we prefer to take this approach. No company grows in perpetuity at a rate above GDP and by keeping the a higher portion of the value in the forecast period we can update our target each year and feel confident that the valuation is not slipping too far into the forever.

Benchmarking the current valuation against their closest listed peer, Eaton in the US, we find that Interpump trades at close to a 5 point discount on EV/EBITDA despite similar margins and a higher growth rate. This has typically been the case and results, I believe, partly from the higher multiples generally paid in the US, and partly due to the difference in market cap with the much larger Eaton attracting more attention from analysts.

 

Risks

Key man risk – Fulvio Montipo founded the company in 1977 and remains in position as Chairman and CEO. He has overseen the expansion of the group and is a clear figurehead for the culture of the business. At 77 years old this is an obvious issue for the shares. However, we are confident that the business model and culture of the group is sustainable, even without Mr Montipo at the helm and while there may be some turbulence when he decides to leave his post we do not see this as a significant game changer foe the company given the strength of the operational team he has put in place.

ESG – Although we are not aware of any significant issues on the environmental side the group would not be held up as an example of good corporate governance given the dual Chairman/CEO role held by the founder and a clear lack of gender diversification on the board. However, while we see and understand this argument we would counter that the structure has been highly successful while maintaining very positive treatment of all stakeholders. The supportive approach to M&A and the stability of the workforce (outsourced manufacturing takes the brunt of swings in demand) suggest that the group pays more attention to governance than they appear to from the outside.

M&A – obviously the majority of the growth over the past two decades has come from acquisitions so in order to maintain a similar rate of growth going forward they will need to continue this record. If for any reason the company is unable to identify and execute on acquisitions the shares would be at risk of derating.

Interpump Capital Allocation | Columbus

 

 

(You can also download this report as a PDF here)

imagen ficha junio

During July the Pareturn Columbus European MidCap Equity Fund rose by 5.93%, well above the 1.96% return of the benchmark STOXX 600 index. Over the past six months the Fund has risen by 17.8%, and by 39.8% over the past 12 months. Since inception in June 2008, Columbus’ return has been 162.9%, comfortably exceeding the broad European equity index.

Financial markets remain in a tug-of-war over the inflation outlook with an increasingly hawkish investment community on one side and an immovable (for now) central banking response on the other. Those on the investment side who see inflation as a more transitory issue generally back the accommodative stance of the central banks and help to cause the sort of swings we are seeing in bond yields. Over the month, despite the current inflationary spike we saw US 10-year yields fall back to as low as 1.16% from 1.7% levels as recently as May. The effect of this fall is to boost the performance of the longer duration ‘growth’ stocks which again outperformed the ‘value’ segment over the month.

From our perspective we can see the transitory nature of the current pressures but are fully alive to the possibility of a more structural return to inflation as governments increasingly shift to fiscal policy to support growth. Our approach, as always, is to focus on what we know and can reasonably predict, and to limit the portfolio risks regardless of the outcome. We continue to invest where we see structural growth potential and advantaged business models, as well as companies with significant upside as the post-Covid recovery progresses.

By far the biggest positive impact over the month was the acquisition of Akka Technologies (one of our top 10 positions, 3% of Columbus AUMs prior to the offer) by the Swiss listed staffing group, Adecco. The bid took the stock price very close to our internal fair value for Akka and represented 100% upside for the month. Akka has been a holding, since 2017, for Columbus, which tested our resolve during the pandemic as the shares endured a period of weakness. However, after spending time (online) with the management team and revisiting our investment case we maintained our commitment and added to the position. So it was gratifying when the value we saw was also identified by an industrial competitor who was able to take advantage of the discount in such a decisive way.

The other very solid performances came from Duerr (+25% for the month), the German listed engineering group, and Borregaard (+22.34%), the Norwegian biomaterials company. Both groups reported strong results for the first half of the year with growth well above consensus expectations, and for Duerr a significant increase in orders.

There were no material detractors from performance this month although the financial holdings (Scor and Unicaja) drifted down in line with the fall in bond yields.

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We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

During June the Columbus Fund fell by 0.4%. Over the past six months the Fund has risen by 7.52%, and by 30.87% over the past 12 months. Since inception in June 2008, Columbus’ return has been 148.56%, comfortably exceeding the broad European equity index. 

The economic data across Europe strengthened further in June with the composite PMI achieving a 180-month high of 59.2 and further improvements in consumer confidence and manufacturing activity. However, despite this positive backdrop shares in travel and related sectors weakened over the month as Covid restrictions on travelling across the Continent were tightened in response to the rising incidence of the newer ‘Delta’ variant. We continue to believe in the reopening of the economies in the second half, especially in Europe where vaccination was delayed. Alongside the fight against the pandemic, inflation is the other focus of markets. Central Banks continue to reiterate their message that the rise in inflation is temporary and there has been a reduction in the yields of long term bonds. As bond yields fell the rotation towards growth stocks intensified this month while most cyclical stocks and those that benefit the most from interest rates increasing, like financials and energy, performed poorly.

The largest positive contributions for the month came from our long standing positions in Auto Trader and Interpump. Auto Trader (+11.34% in the month), the UK listed on-line motor vehicle classified business reported very strong results in June, both in terms of revenues and margins,  as semiconductor shortages reduced the supply of new cars pushing up demand for used vehicles. The company also improved their guidance for this year and reinstated the dividend. Interpump (+6.34%), the Italian based engineering group saw their share price rally following the announcement of a new acquisition in the US in the hydraulics area. Management called it “the most significant in Interpump’s history expanding our role as a global player in hydraulics”. We think the valuation paid is very attractive, slightly over 5 times EV/EBITDA.  Within the portfolio our holding in Dalata Hotels, the Irish listed hotel operator, was particularly affected by the Delta variant news, falling 15% over the month. While the delays to the resumption of normal tourist activity are obviously a short-term blow, we remain very confident about the longer-term recovery potential in this space and will use any weakness to add to our positions.

Download monthly factsheet [PDF]

We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.

During May, the Columbus European Mid Cap Equity Fund rose by 4.01%, ahead of the STOXX 600 index which returned 2.14%. Over the past six months the Fund has risen by 13.6%, and by 33.7% over the past 12 months. Since inception in June 2008, Columbus’ return has been 149.8%, comfortably exceeding the European equity index.

Europe was the best performing of the major equity indices over the month, buoyed by the rising rate of vaccinations taking place across the region. Within the major European countries the run rate of close to 1% of the population receiving a jab each day has boosted sentiment regarding the potential speed of the economic recovery. This improving confidence was reflected in the Purchasing Managers Index for the services sector which far exceeded forecasts by rising to 55.1.

Although some form of travel restrictions remain in place across much of the continent there is a rising hope that tourism activity will rebound as the summer progresses. Concerns about the spread of newer variants of the covid virus did lead to some profit taking in the travel and leisure sectors, but this was more than offset within the fund by the very strong industrial recovery evident across much of Europe. This data drove up the prices of a number of our industrial holdings including Interpump,(+5.3% in May) the Italian high pressure pumps manufacturer and Senior,(+32% in May) the UK listed engineering group which soared after receiving a takeover proposal from Lone Star Funds. Senior’s board unanimously rejected the offer as it “fundamentally undervalued Senior and its future prospects”. We agree with the company.

The largest individual contribution, however, came from Bodycote (+12%, UK heat treatment) which also benefitted from an upbeat trading statement late in the month. The company is seeing improvement in revenue trends across most of their key markets and
benefiting from the restructuring achieved over the past year. The most significant detractor was Zooplus, the German online pet product retailer. There was no notably negative news for the company but it gave back some of its strong performance since the beginning
of the year.

Download monthly factsheet [PDF]

We thank you for your trust and wish the best to you and your families during these uncertain times.


Since June 14, 2018 both domestic and foreign investors have been able to access the Columbus strategy via the master-feeder structure between the Columbus 75 Sicav in Spain (feeder) and the Luxembourg registered Pareturn GVC Gaesco Columbus European Midcap Equity Fund (master). The Luxembourg vehicle offers both institutional and retail share classes.