Smithson Investment Trust (SSON) has made the first outright disposal from its portfolio since launching just under a year ago with the sale of its stake in US auto industry software provider CDK Global.
Illinois-based CDK supplies car and truck dealerships - mainly in the US and Canada - with management software, digital marketing and websites. Its software also helps customers manage their finance, insurance and credit services.
Smithson’s latest factsheet explains why fund manager Simon Barnard decided to sell the stock.
‘Since the unexpected change of chief executive in November 2018 there have been major strategic changes announced which have given us some concern over the future allocation of capital,’ he says.
‘Further, as we no longer felt confident in the long term growth of the company after these changes, we decided to sell the position and reinvest the proceeds in existing holdings.’
The decision to sell the stock demonstrates Smithson’s disciplined approach and willingness to act when an investment turns out to be something the managers weren’t originally expecting.
QUESTIONABLE CONDUCT
Last November’s appointment of former Intel chief executive Brian Krzanich to the top job at CDK certainly raised a few eyebrows.
The company’s press release touted Krzanich’s credentials as a ‘proven technology CEO’ with ‘an exceptional track record of creating shareholder value’ whose role would ‘drive top-line growth and help CDK take full advantage of its many opportunities’.
What it failed to mention was that Krzanich had resigned from Intel a few months earlier after an internal probe found that he had had a consensual relationship with a colleague - violating an Intel rule which says managers cannot have relationships with people who report to them.
One of Krzanich’s first decisions at CDK was to launch an accelerated share buyback, a well-known way of goosing earnings per share (EPS) in order to meet internal targets and trigger share options.
Then, after beating Wall Street estimates with its second and third quarter earnings, CDK disappointed investors with a fourth quarter loss of $155m and revenues which also missed forecasts. The shares promptly lost a fifth of their value, wiping out their previous gain for the year.
