Gresham House Strategic plc (GHS.LN) For professional investors only April 2020
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Any dissemination or unauthorised use of this Presentation outside the United Kingdom by any person or entity is strictly prohibited. Capital at risk: The value of investments may fall as well as rise and investors may not get back the original amount invested. Investments in smaller companies may carry a higher degree of risk than investments in larger, more established companies.
WHY NOW? ‘Taking the opportunities of a lifetime, in the lifetime of the opportunities’ Explosion in opportunities due to COVID-19 → Pipeline/deployment accelerating → Marginal buyer = price setter Material small company re-financing requirement → Portfolio very undervalued Significant further small-cap de-rating → Only the best opportunities Capital to pick 3-4 investments by year end UK 10-year CAPE 24 20 16 12.2 12 9.9 9.8 8 1998 2009 2020 UK 10Y CAPE LT CAPE Source: Panmure Gordon & Co, 22 April 2020 3
THE EXISTING PORTFOLIO EV/Ebitda 4.6x 1 vs Takeouts 8-12x Augean 24%, has significant upside No Consumer / Extractive / Distressed We have no burning fires Downside limited Well capitalised and extraordinarily cheap >2% prospective yield, CAGR 15% Cash at 16%, Convertibles 15% strong covenants GHS portfolio holdings average EV/EBITDA 5.6x 1 , EV/Sales 1.1x FTSE Small Cap (ex-IT) 10-year average 7.5x, CY 6.8x CY GHS holdings average discount 24% GHS stock theses forecast considerable EBITDA upside 1. Per GH internal estimates 4
WHY GRESHAM HOUSE STRATEGIC PLC? “It is my conclusion that the successful investor must have patience to wait for the right moment courage to buy or sell when the time arrives and liquid capital.” - Benjamin Roth ▪ Specialist equity fund targeting 2xMM (15% IRR) over the medium term ▪ Differentiated strategy with concentrated and engaged approach ▪ Proven team with a long, strong track record ▪ Small-cap specialists with significant public and private expertise and resource ▪ Structurally overlooked part of market ▪ Truly aligned Manager and Team with investment capacity to grow 1. See Strategic Public Equity - Track Record slide Past performance is not necessarily a guide to future performance. Portfolio investments in smaller companies typically involve a higher degree of risk. 5
WHY INVEST? “Be greedy when others are fearful and fearful when others are greedy” - Sir John Templeton UK Equities are very cheap relative to history The biggest determinant of future returns is entry valuation and other market/assets The ‘size’ discount for UK small cap The small companies ‘size’ effect is significant is large vs history Returns should mean-revert to long-term averages, Value factor is out of favour; underperformance stretched vs history implying significant outperformance of the factor Market focus on smaller companies deteriorated Structural factors supporting the strategy have intensified further post MiFID II Significant market dislocation Investment pipeline ramping up We have the resource and capacity in place to scale the strategy Nimble Fund and well-resourced Investment Team Portfolio conservatively positioned, no rush to deploy cash, April 2020 Outlook asymmetric returns focus 6
WHY INVEST? “Be greedy when others are fearful and fearful when others are greedy” - Sir John Templeton Significant market dislocation Investment pipeline ramping up ▪ Proven businesses ▪ Conservative GH forecasting ▪ Deals alleviate short-term financing stress Pipeline GH Estimated GH Thesis Industry Mcap £m Sales PY1 examples Ebitda FY3 Upside Industrial Investment 1 c.£50m £113m £13m 2.9x MM Services Business Investment 2 c.£50m £335m £22m 2.6x MM Services Investment 3 Consumer c.£10m £154m £12m 2.8x MM 7
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