Gresham House Strategic (GHS:AIM) is in the money after netting a £4.96m profit on one of its investments.
One of our great ideas from last year, the small cap investment management firm saw its share price rally 6% to £10.55 as it revealed the sale of a chunk of its 14.5% stake in marketing software business IMImobile (IMO:AIM).
Gresham House has cut its stake back to 8.4% of IMImobile. Up until now IMImobile had been Gresham’s largest single holding making up a staggering near-45% of its concentrated portfolio, according to the company's own website.
Gresham's stake sale was worth £9.6m but nets the investment company a near-£5m profit after the original investment is stripped out. According to Gresham House, the sale represents a 19% internal rate of return, above its stated 15% target.
STRATEGY AND STORY
The word ‘strategic’ in the company’s name refers to strategic public equity, a term coined by one of its fund managers Tony Dalwood. This means using private equity techniques for listed companies.
Typically private equity companies follows the ‘J curve’ strategy, meaning that initial stakes often lose money on paper early on before coming good over the longer-term.
Gresham House says is was attracted to IMImobile because it believed the target was ‘undervalued, poorly understood, [with a] significant growth and re-rating opportunity’. So it has proved.
IMImobile shares have rallied 105% since the end of 2016, when Shares also flagged the investment opportunity. We revisited the story again last month when the stock was changing hands for 275p. They trade today at 324p.
GOING FORWARD
In May, Monica Tepes, analyst at broker Finncap, said that Gresham House was ‘unloved’, trading at over a 30% discount to its net asset value. The shares were then trading at 840p.
Tepes also said in May that the rest of the portfolio (aside from IMImobile) is ‘attractively valued and the vast majority of investments are performing well.’
