We don't just invest in cutting-edge companies. We look at companies with a history of steady growth. And companies whose growth cycle has come round again. Because in the real world, you have to look at growth in three dimensions. Monks investment trust. Run a business and not thinking about podcasting? Think again. More Americans listen to podcasts than add supported streaming music from Spotify and Pandora. And as the number one podcaster, IHearts twice as large as the next two combined. Learn how podcasting can help your business. Call 844-844-iHeart. A new chapter in global growth is being written and much of it is happening in Africa. Africa needs to invest. There are days to be done and business to be won. I'm Jennifer Zabisajab. Every week on the NextAfrica podcast, we track capital flows and political shifts shaping the continent's future. The digitalization of Africa is good at power its growth. Reading the world of something like HIV is possible. Opulation growth is so enormous in Africa. Listen to NextAfrica on Apple's Spotify or wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, radio, news. Welcome to Merrin Talks Money, the podcast image people who know the markets, explain the markets. I am Merrin Zabisajab. And with me today is Laurence Hulse, who's founder of the investment company Onward Opportunities. This is a rare beast in this relatively recent launch of a long-only trust which specializes in UK small caps, one of the most unpopular parts of the global stock market. So we talk about why he launched into this sector, how he's done it and how he makes his returns. Laurence, thanks for joining us today. It's very nice to have you with us. Thanks for joining us. And thanks for having me here at the European Headquarters of Bloomberg. Wherever it wants to be. Now listen, we've got you on today because you've done something really interesting. You have actually in really an appalling environment for the investment trust industry, managed to launch a new one. A lot of you do it, but it's actually gone quite well. So tell us about why you did that and how you did it. I had spent eight or nine years at a business called Gresham Assessant Management. I was on the UK equity team there investing in UK small companies. We had a good performance track record as a team and it came to sort of late 2021, 2022. And I really observed that the world, the financial world as well as the wider world was changing quite fundamentally and that would really hang around, interest rates. You'd had for the first period of my career when I was there cheap money, lots of it and it was really a multiple expansion market, whereas I had been taught to invest during my time at Gresham House around catalysts and engagement and being a truly active manager. And in a world of rising interest, interest rates as was about to happen and when it happened, those elements of an investment thesis become much more important because you can't and as many high profile managers are finding out at the moment, you can no longer rely on multiple expansion and liquidity to drive a thesis. And I spotted really a good old fashioned gap in the market to do this for investors, for clients using my experience at Gresham House. The time I spent there, they had a fantastic journey of growing products for clients. I got to witness that tape art today. I was one of the original employees and I combined that with the sort of stock picking techniques I'd learnt there to launch a fund and here we are. So you thought you would launch into one of the most unpopular parts of part of global markets, UK small caps. The one place that has been so cheap for so long, we took that most podcast for so long we're constantly saying UK small and make ups are ridiculously cheap. You really need to buy them before somebody else does, but it never really happens. This stuff just stays cheap and it's also a relatively crowded market getting smaller. But when you launch there was still quite a few funds and still are actually trying to operate in this smaller mid cap area in the main kind of failing. You're right there are quite a few, but we've been outperforming the majority of them and at points in the first three years of our funds life outperforming them materially. And that really loops back to what I was describing before. We have got a slightly different or more specific specialist way of investing in these companies and yes many of them remain difficult and cheap, but some clearly aren't given our investment returns since we launched and it comes back to this idea of I call them the gems amongst the rubble. It is undoubtedly a difficult market. That slightly appealed to the contrarian in me to have a go and resign and try and launch this at 29 years of age. We just about did and it's gone on to good things since. And I know you talked about this on the podcast before therein lies the opportunity. I think the thing I'd love to add today for the listeners beyond what's been talked about in previous podcasts, which is around how cheap it is. I think that's just the start of any investment thesis. I think what we've been showing and demonstrating along some other fund managers is actually what can you buy within that value. And if you have a strategy like ours that is pretty concentrated, pretty hands on my sister who's an artist calls it brutalist investing, it's pretty pointy, it's pretty active, it's pretty energetic, but it delivers outperformance by foraging, rummaging and finding those gems. We have a really eclectic portfolio today of some of these companies have capitalised at less than 50 million, but their clients are some of the biggest companies in the world. Well, let's come back to that in a minute. I want to come back to exactly how you invest in your company and I want to talk about a couple specifically. But before we do that, I want to stick with the structure of the fund. I mean, the first thing to ask being, who are your investors? Because one of the things that you hear constantly in the investment trust business is that you've got to have 400 million, 500 million, maybe at this point, even 600 million to get any wealth managers in, for example. So to get those flows, you need to be pretty big. So if you're down at the much smaller end of that, you're really only looking at retail investors. That is the law. And I think I was told it so many times I would sort of wake up in the night seeing those words on my bedroom wall. But what we've shown is that there is a different way. And if you listen to someone like Andrew McKatty, who's quite a spokesperson in industry or John Davis, we run his podcast recently. We've actually done something quite revolutionary in building a trust, from the ground up brick by brick, as you point out. And we actually have managed to convince some wealth managers with our pitch and our approach and our background and our performance that it's okay to just dip the toe. And I think just this week you had a podcast out, what's the future like for wealth managers. And there was a lot of talk about being engaged with your clients and taking them on a journey to demonstrate the value you're adding for them beyond a kind of robotic solution. I would take that step further. We've many, many industries and as a relatively younger fan manager, I witnessed and experienced this. Things are becoming experiential. And even restaurants now, there is an experience to be successful. There's a little bit of that about this investment product, this fund. If listeners go on the website, they'll hopefully pick up on some quite fresh branding. It's designed to be very accessible, relatable. We have a dynamic, energetic board, you know, who work for some pretty big hitters, Bill Ackman, Guy Hans. And because that's what's great about investment trust, they can and are accessible. There's no minimum investment. There's no sort of hurdle. The minimum investment is the share price and having a retail investment platform, you know, Rathbones, Kalanish Capital, GPIM. There are wealth managers that have now disclosed a greater than 5% stake. We had some seed money from my mother's ship, their clients, Dowgate Wealth, who were a specialist boutique private client business. And then the rest really was a high net worth sophisticated investors that I had met along the way in my career and really convinced to back something slightly entrepreneurial, slightly different and then promised to thank them without performance, which we've so far just been managed to do. So far so good. Okay, and they'll do that. Those wealth managers, even though it's expensive, it has to be expensive because it's small, right? But if you look at the investment trust environment now, most people are kind of trending down to 0.7%, 0.6%, but at your size, you still 1.5%. They are trending down on costs and costs are an input. And the output is the performance. I think it's well documented on this show amongst many others. Some other struggles of active management and one of them has been performance and one of, I talked about interest rates and spotting a gap in the market to quit my job and do this. Another thing I became aware of and this isn't a criticism. It was an observation. As Gresham House Group, it became a big business itself and we were starting to look after various funds across a team and it was becoming a bit thinly spread. I want to be solely focused on this and make it a life's work and to do that requires full time and overtime of myself, the manager and the manager, but also the investment committee, which we'll talk about later, we need to build out the team overtime to dilute key man risk and add resource. This is a specialist high-end product and is priced accordingly. That will rule out a large, so very of an investor, but the reality is the strategy can never be big enough to attract large, so very much. Yeah. Okay, well on that same subject, tell me about the performance fee because I have says everyone listens to this point.
God knows, I really, really disapproved performance fees. On the basis, that outperformance should be its own reward because you judge a little or a minute as the fund gets bigger and bigger and bigger. So does the income of fund manager. So a performance fee shouldn't, I think, really be necessary. But what you've got is 12 1/2% over a 6% hurdle. And is that 6% nominal or real? - So a couple of points that this fund can't get bigger and bigger. Realistically, it will never be bigger than 200. Maybe in the form of time, 250 million adjusting for inflation and asset price growth. So again, to that point, around keeping the team aligned, result fully resourced, fully costed, it forms what effectively becomes a bonus pop for the team and the investment committee on performance. The hurdle is 6 subject to a high watermark. It also resets every year. If you think some performance fees are what called a compounding hurdle. So in this case, 6, most of our peers are 6% or 7% in what we do in the small cap market. But our target returns are 15. And they've been pretty much that until recently around the year or more. So you can quite quickly open up a very large spread to this compounding hurdle that there means nothing. So ours resets every year as well on top of the high watermark. - On top of the high watermark? - Yes, correct. We get asked how have you done this, how have you grown a fund, how's it performed well? And I think you needed to start the fiscal market. We live and breathe this. I do nothing else. I'm pretty selfish with my time. If it's not something to do with stock picking, looking up the stocks we've got, or talking to relating to finding clients, I just don't do it. And again, that was one of the reasons to spin out and do something entrepreneur. It doesn't time for kind of wider top-code office agendas. - Okay, fair enough. We didn't actually mention the performance numbers at the beginning, so tell us the performance numbers now since inception. - So as we sit today to the last fact sheet, the end of May, the NAV's plus 35%. That is, net of some running costs. That's a net number of all this cost we talk about. It peaked at an even more attractive number of about plus 50 towards the end of last year before hummus and Iran and the straight or shroding as straight as I call it with a friend, opened up or not or closed. And that's materially outperforming our two peer groups, which redefine as the investment association UK Smaller Companies Funds. That's the open ended vehicles is about 60 of them. And it's outperforming the AIC, UK Smaller Companies in peer group, which is the trust that invest in. Smallcaps and we're outperforming both by circle double through the life of the fund. And listeners can see that on our fact sheets and investment dates. - Okay, great. Let's move on to the more interesting stuff then. And how you do this? How are you, this is a big universe, UK Smaller and Medium Cap, getting a small universe actually, but where's there's more and more companies that are taking out of it? How do you find these gems among the rumble? - Two, what makes a gem? A special company with an attractive price doing something different. I think what I've definitely refined since we started the fund and this is my past life running other funds in this world of higher interest rates, scarce capital, outflows, it's pretty barren. Companies, they're shares that really had to command capital. And when I did a sort of three year review of our first three years at the start of this year, the stocks that had won were sort of what I call world beaters on a London rating. And we've had some, you know, particular case studies with some great returns and it's because they've really been global businesses with IP, with great products, with great strategies that happen to be listed in London and at that London discount. - Should we stop there as you and just talk about this London discount that we talk about on the podcast quite a lot? And it just doesn't go away. Why do you think that is? - I think it won't go away until flows return. I think it's a multiple question. There's plenty of great businesses in our portfolio, in other funds portfolios that are doing great things and their earnings are going up. In fact, I've got some friends at Shore Capital and Canacore to deserve a shout out for, hopefully do the work. Before I came on, UK retailers, the small cap index of UK retailers, their margins are much higher than the US peers and they trade on half the valuation. Same with the industrials and the construction stocks. But the problem, actually it all sounds a bit too good to be true, has been growth. The US indices, the US stocks all have much better growth prospects and hopefully we're going to chance that they talk about the current administration and environment in which the stock market sits. But in terms of the discount, I think it stays until this fundamental policy change to make flows, encourage flow, incentivize flows, to return and that's one of the reasons why concentrated approach like ours has been able to outperform. I'm not going to be saddly today, one of the fund managers that comes on and says, small caps are ready to rock and roll. That will come one day and I can't wait for it. And I hope we are still here, I'm out. But at the moment, it's very stock specific, commanding, you've got to command capital. Well, let's, you said, let we, hopefully, we'll talk about it later, let's talk about it now. The policy changes that probably not this administration, but maybe a future administration could bring in that might change the direction of flows need. Before getting political, which I probably well, I don't know how to be able to go, we're just discussing. So this is the point. That's discussing policies that might or might not help the London stock market, which is hugely important to our economic growth. Totally. And that's the point you don't have to get political, where a fund manager like myself and frankly a citizen of the country gets cross is objective matters, get really poorly executed like when to have a budget. In twice in succession now, the government have effectively waited to the last possible moment to announce what they're going to do. Now, anyone with any grass from a kind of GCC level of business studies or economics will know that businesses love certainty and predictability. Well, delaying your budget for as long as possible is the opposite of that. But it's particularly painful when there's leaks and speculation and there's an ability to front run based on said leaks and circulation and do really economic damage. I don't think it's a coincidence that since the build up to last years as late as possible budget, that the construction sector has really been struggling ever since some of the PMI numbers are at pandemic levels. You listen to the house builders, the brick layers. These are all real companies that we talk to on the stock market. They're tearing their hair out with frustration. It's just so incredibly helpful. And that's before you can get to some of the policy decisions that then get made so late. What about things like signal policies like changing stamp duty, abolishing stamp duty, or the Britisers kind of thing. Do you feel they'll make a substantial difference? Even if they were just there as signals that the administration cared. I think the brick nicer genuinely would. But again, there's the frustration. It was kind of semi-in-outs. It was going to happen. And then it wasn't. So if you're a wealth management business or a wealth manager or a thought, it adds to this image of confusion and flip-flopping and unpredictability. Uncertainty. And I think if there's one word you could use to define the UK over the past 10 years, it would be uncertainty. Whatever the Prime Minister we've had loads, whatever the housing minister at the Department has been uncertain, hasn't it? And business is crave certainty. Even if it's a bad number, at least then they can adjust the model accordingly and make a decision. Even if it's to build slightly less homes or in a different cost space. So I think the British ISOD structured the right way is a good idea. I know some listeners, some commentators will say, "You're commanding capital." You're not. Because I know the only one saying, "You can't invest in other stocks." I think what people are saying is in an increasingly polarized splintered sort of world and world economy, a big tax incentive should be domicile, especially at a time when our economy and our market. And the stock market, by the way, isn't this sort of casino that some politicians would have voters, listeners believe, it's a capital allocation mechanism. We, myself, my team, we decide which company is to put money in so they can go and do things in the economy. And we need to be encouraging that and centivizing that. A British ISO, something around pensions, those can only be good things and signals, as you say. Because of course, what I think would most likely happen is fast, dynamic, informal capital would follow that. Because one of the big challenges of the UK stock market would be being fixed. We look at companies with a history of steady growth and companies whose growth cycle has come round again. Mokes investment trust. [BLANK_AUDIO]
844-844-i-heart to get started. That's 844-844-i-heart. Follow the money in the world of sports every week on the Bloomberg Business Sports Podcast. Hello. I'm Rand Williams, join Michael Bar, Vanessa Prado-Mal Maglion, and me as we take you inside the deal's decisions and innovations that power this multi-billion dollar industry. Plus, we'll speak with executives, athletes, and visionaries that are transforming sports across the globe. Subscribe to the Bloomberg Business Sports Podcast on Apple, Spotify, or anywhere you listen. [Music] Let's go back to where we were, the positive stuff, choosing with gems. What's the process? So there's two sort of cross-airs or identifiers. One is a set of quantitative mechanisms. We use a tool called Quest, which is a cash flow modeling tool, but we use it in the opposite way of how it's designed to be used. An investor like Terry Smith or Lion Trust, they will look for quality compounders through the cycle, generating cash flow returns from their assets above the cost of capital, reinvesting them well, creating more cash flows is the simple cut summary. We actually look for situations in businesses where that isn't happening anymore, could happen, or stop happening, and go and ask ourselves why. There's six different scenarios. We draw the market for once a month. You get six sort of short lists, and then we spend the rest of the month short list in them into things that we should spend proper time on or not. So that's been historically the core of sort of idea generation. We do operate like private investors. We try and find our own ideas, our own pipeline, rather than take the traditional inbound broker calls, which makes it quite popular, but it kind of works. And then the other, which is a little bit more recent, past year or so, and this is a genuine benefit of artist intelligence that everyone sort of wants to talk about the moment. Four years, I desperately tried to read every RNS, and for this and so on, familiar RNS stands for Regulatory New Service. So every day, a company that has, is on the stock market, that has some important news to share, they have to announce it at 7am via RNS. And I used to try and read them every morning. That's your whole day gone. Yeah. A lot of things people have spread out in RNS are not exactly important. Correct. We're interesting. And even with filtering out some of the sort of fairly vanilla or technical ones, it was just unsamountable when trying to launch a fund and grow it. But the business I work at, Dowgate bought into sort of PhD types a year ago to help our business take up cost through AI. And that was working fantastically, and they sit on the desk a couple from me and I overheard them talking about something. And I kind of treated that they could automate what Lawrence is doing every morning at 7.01, but in 30 seconds. So every day, I get any of the RNSs that have some phraseyology or words and other things I don't really want to share on here because it's genuine IP. And I get the memory inbox. I usually get between one and five a day. And I can read those over the course of a couple of days. And how much time has that saved you? A couple of hours a day. How's that? Interesting. Or the reality is, how are we using AI in your business? That's fascinating. It's more than saving a couple of hours a day. It's actually prevented me missing out by not doing the second hour because other stuff is happening. Because it's the world. Yeah. Okay. Interesting. So we've got those things on the go. Maybe talk us through an example of a company that you've picked up, looked at it and gone, well, that's a gem. And then what's happened? There's one that comes to mind because we're sat in a broadcast studio and that's what they do. In fact, I suspect some of your colleagues probably use their product. So there is a stock called Pebble Beach Systems. It flared up on our screening system as a business that had some capital allocation questions. Very quickly, just to give some context, the business has a piece of globally eating software that allows broadcasters to, in what I call layperson speak, put content in a line. So when any of us are watching a show or stream a live event, we get a continuous thread of basically various video streams. Behind that on the other side of the screen, there are anything from 12 to 50 different cameras, think of a football match or the tennis or producing a broadcasso and all those that feeds plus the adverts have to be sliced and spliced and moved around and put into a, almost in situ into a thread. Few years, Pebble Beach had been doing that for traditional broadcasters. That's a market that's deemed instructional decline. So they started trying to invest in a new product and I'm going to condense this for effect because I don't want to go on for hours and hours and we do a lot of work to qualify these ideas. But long short, they were generally some great cash flows but burning them all. Because of that, and the fact it was deemed a legacy industry broadcasters media is treated like tobacco today in terms of structural decline, it was a stock with a 35% margin trading on a P of 5 when we found it. So we asked ourselves why, what's the catch, what's going on? The catch was the stock market didn't believe in the strategy. They thought the new product wasn't going to work and costing lots of money and they thought what they did already was great but dying. And one of the things we do when we diligence the idea is we talk to people that basically know a lot more than I about what we're looking at. So in this case, we spoke to people in the broadcast world and someone quite stupidly pointed out to us that, yeah, look, the streamers are cannibalizing traditional television, but they're now going through an absolute arms race for live content, for sports. And that's because there's loads of reasons that we can go on to another time. But the interesting thing about sports is even they stream it, you watch it in a line, it's live, you don't just download it and watch it, it's continuous, like a digital broadcast. Fast forward, lots of engagement, lots of diligence, mothboarding, the previous product, which meant the margins and the cash flows got even better. The company announced in February this year it won an initial contract with a global streaming giant, I think with the words used, so it's probably one of five companies that they didn't disclose, but it was for a sport they're just one, anyone that is keen sports and streaming will be able to work it out, weeded. But when they do discloses, they also do the Six Nations, Farmers and Prime now, the football. So all of a sudden, you've had a business with cracking margins become a world beta. And it was on five times P, the shares have done well as you're in the back. How long have you had it? 18 months now. It's still today only trades on a P10 and we think that can get better and better because one thing we have learnt at the moment, it's winning sort of marquee sports, like the rugby or the one they want in February, which people have to go and work out, because I'm not allowed to share it. But what's interesting, and we learnt this on one of our regular site visits we do with the investment, there is a whole cohort of what did you call sort of tier two, tier three sports that are an economical to produce as a media format on a national basis. But actually, if you're producing it via a streaming platform to a global audience, the economics work to broadcast the volleyball season or. I was about to say, what is a tier three sport? I don't know how you're going to get it for. But niche sports can now be televised and monetised and that's all going to be work for Pebble. So just a classic case of Gemma Monks the Rebel, really cheap, well-beating product listed in London, global earnings. And that's what this fund has all been about and that's where the success has come from. We have a really eclectic cast from one of the largest podcast publishers in the world, tough calls, what we're doing today, to the UK's leading retailer, Fishing Tackle, to the market leader in. No, it's Fishing and Tier three sport. I bet it gets televised now. I bet it does soon. But it wasn't before. So yeah, that would be something that wasn't traditionally broadcast on the channel four. Yeah, so Angling Direct is your second biggest holding. Correct. And that is. I mean, it's a huge hobby in the UK, getting a bigger hobby in the UK, Fishing. Outside my comfort zone here, but my husband and my son are both great fishermen. And they spend probably quite a bit time doing it, right? They spend a lot of time doing it and I spend a lot of time buying them stuff. Stuff. Stuff. I'm signed to find my sort of co-manager for the fun because you're picking up our investment thesis here, which was really, you know, very rarely have we invested in retail. But if you're going to do it, Returning Fishing Tackle is a damn good place to start because it's a large, hobbyist community. What's really interesting is you tend to have to go to the store to buy the bait because it's live. And therefore it's a genuinely normally channel proposition and that ring fences it from some of the online, I mean, I don't think many people do buy Fishing Reels from T-Moo. They're quite a complicated and expensive, but it sort of ring fences you from the Amazon effect. And you've seen that come through in, you know, there aren't many retailers that upgraded profit forecast twice last year, but Angling Direct did even after absorbing an unexpected employer's national insurance contribution of three quarters of million pounds and their profit target was five. So that's quite a meaty. Okay, and when you found Angling Direct, we just talked about why you hold it. When you found it, how cheap was that? The market cap was roughly 20. They had net cash was 16, net cash was 14 and inventories of 16. So it was trading at a negative 10 to $1,000, I said, value. That one we invested in the debts of 2023. And I think that was the real bleakest in the deer.
of you guys smaller companies. But interestingly, you know, that's the whole reason why we launched the fund to one of your comments at the very start of the podcast. Why on earth have you done this? I'm a bit of a contrarian by nature, but of course, the same reasons that made it really hard to launch a fund were the same reasons why we can buy Angling Direct at a crazy valuation like that and generate those returns of thanks to our early investors. Yeah, and a lot of these companies that can company are too small to be bought by some of the larger funds, the larger trusts. Yes, by the larger funds, yes, but interestingly not by larger strategic inquiries, we have three acquisitions now in our first three years. We had nearly our fourth just this week with audio beam, which is the podcast publisher I mentioned that had. Yes, really our top holding. Yeah, that had three confirmed our publicly three cash bids, but the board who owned six percent of the company themselves deemed them not representative of the accelerating growth and margins in the business that professionally actually rejected the offers and are going to go at a loan and I think are going to acquire other podcast businesses themselves. But again, when we invested in that, it was on 0.7 sales, it grew profits at 50 percent last year, we think it will grow them more this year and Netflix, Spotify, Fox have been acquiring podcast businesses on multiples of sales. So it was a really US business, but listening London, so therefore traded a material discount to where it's peers trade. So just another gem amongst the world. Interesting. Now, it's a very concentrated portfolio, 2022. Correct. 22 stocks. Tell us about something that you've bought more recently, something interesting we haven't heard about and isn't isn't here on the top 10 list. Oh, now you've got me. I don't think Mincon's quite on the top 10 for memory. It might be number 11. Just let it in there. But it is only 5 percent of the portfolio. And it's very recent. So this again is in the camp of what's particularly interesting about this one, usually when we think we found a gem amongst the rubble, people have heard about it, but miss something. This stock I mentioned to people and they look at me like I got two heads. Tell me what that's Mincon thing. It's a £100 million capitalised business dual listed in London and the year and X. And it has some of the best copper and deep bore construction drilling drill bits in the world. In fact, they're so good that this year they've announced that EpiRot, which is a large appear 10 times the size of Mincon, is having to use Mincon's green hammer technology to do its deeper drilling, having tried to crack the technology itself for 10 years. They're now on trial with 12 EpiRot customers. We obviously hope and believe that we'll go well, hence making the investment. But when we first identified the shares and put it in what we call the nursery, which is the investments that aren't in the top 10 that we disclose, we bought them about 35 Pents per share. They've been £1.54 years ago. At 30 Pents per share, they're at a deep discount to tangible value. And then we made it a core holding and hence it appearing in the top 10 now. In February this year is our conviction grew on really a recovering copper mining, a recovery in margins and growing evidence that their IP was real. There's no big accompaniment that appear having to begrudgingly buy your products off you. What about mistakes? We've talked about three really great buyers already and Mincon has already outlawed 27% since you bought it, so that's marvelous, but it can't always go well. Sadly not. We've definitely made mistakes. And it's going to sound like a cliche, but that's been one of alongside. That's been a learning experience. No, it's more than that. It's been a joy. Alongside some of the support and the counterparties and basically people I've got to work with and launching this and sort of break out from a desk job at my old shop. I've developed more as a fund manager in the past 24, 36 months than 10 years before and that's because I've directly made mistakes. Yes, it's a cliche that you learn from them, but you really learn from them when they're yours and they're very public. I describe to friends and family who aren't in the finance world that the job is akin to running a high street stall and in a big glass window every day you have to put your peer now. What's your selling? What you're not? What are you losing money on? And you have to walk past it five times a day. Your friends, your family. In fact, they can look on their phones, see it. Your rivals, your peers, your advisors, your customers. And that takes a certain fiber to your soul, actually, I think. We have got, we've made mistakes, particularly bad ones where we've very much tried too hard. So there was a business called RBG Holdings. They had a distress balance sheet. It was a legal services business. It used to have cracking margins. The founder returned the namesake of the business, Chuck Lee and Rosenblatt, and re-really backed him to strip out the cost, win back the key clients, paid on the debt organically. And if you did that, it was from memory, a business that not long ago did a 40% margin trading on point one sales. So it would have been a cracking return if you've got anywhere near one time sales or two. But in hindsight, it was a bit of an attempt at a hero trade and we were trying too hard, I think. So that was one. Another very recently, it's one we partly got wrong because actually we took profits along the way, fortunately, and that's one of the great things about having colleagues. They encourage you to do that sort of thing. But there is a business called Synetics and the portfolio is still there today. It is still there, still. And we're down, I think about 20%. I don't, on this latest fax, 20.9%, 20% years. I'll just point nine out, we'll call it around 20. And when we invest in the company, we don't identify the ads, again, Jim Rocks the Rumble, some while leading software and cameras for security mainly around casinos. But in the modern world we live in, those techniques and products could be applied to other sites like Metro stations, hospitals, data centers, infrastructure sites. The stock was going through a purple patch, earnings upgrades, here we go. We called this one right, fantastic. And then the chief executive, very tragically, died overnight. And the business, that purple patch is talked with in 12 months, come to an end. And it's now, so the business is now sat on a loss rather than a profit in terms of our investment. And we are now back to the brutalist investing comment earlier on. We're at a bit of an apex in our journey with Synetics and sorting that out and reformulating the strategy, getting back to basics. The business isn't distressed, it's got 14 million of cash on the balance sheet, the market caps about 30 today. And the management, how do you speak to you? They're speaking to us, yeah. And the board in particular, we like to do with non-executives, that's their role and we encourage them to take that up. And because the business does have that IP and a margin of safety, we've got options to review the best way to maximize value in the investment. But in hindsight, it should have taken more profits on the way up than we did. But now stepping into, and I'm pretty confident we'll exit the investment with a profit, but it's requiring a lot more time than buy and hold to do so. Yeah. You said earlier, before we started recording, actually we were talking about podcasts and listening podcasts and how much you drive. Suggesting, he's been a lot of time on the road visiting prospects. We do, and it's funny enough, just yesterday. I was about half past three to drive to the airport to fly to see some prospective clients in Edinburgh, funnily enough. And then I got back about 11 o'clock last night, and here we are today. But the more fun travelling is the site visits. And you do get some almost caricature type moments where the penny drops. So when you go on these site visits, one of one of the things that I've had a conference yesterday and we were talking about how AI is the new ESG in that in Intel bread did recently. Every time you went to visit a company, you'd also have that there ESG policies and they might for a while for a while about all that. And now every time anyone goes to your company, they say, well, how are you using AI? I'm presumably you're asking that question every time you go to see anybody. No, you're not. If anything, I get slightly sheepish and someone brings it up because it's become a bit of a buzzword like crypto was a few years ago, and ESG before that. I think what most people call AI is just good automation, I'm really honest, and good automation, I'm all for, we're just a bit wary of when we start seeing words like AI and big budgets for it, crop up kind of from nowhere. If they were talking around it three years ago, fantastic, cutting edge, you clearly need it. But you know, back to one of the ways we find ideas, there's things we used to weed things out as well. And AI isn't one of them. But that, it's really, haven't done it 12 years now. It's fascinating. Some of the little habits and tricks you can spot in the way a company communicates that can let you sort of look around corners. I mean, the classic is broadly in line or however more over in the outlook, can you just go, oh god, six months time, it's going to be disaster. Yeah. Okay, interesting. I think that's a good tip to end on. That's good tip for negative stuff. You've got to get tip for something positive to look for. The ordinary of our day going out attempting to do a little bit of what you do filtering through hundreds and hundreds of companies. Well, so
top number one thing to look at from management. Follow the money, go and look at the L-tips, which is for code for how the management team get paid. If there's triggers or thresholds or share prices that they have to hit and they look interesting versus where the shares are today, always worth investigating. Okay, interesting. Lawrence, thanks very much. Thank you very much. Thanks for listening to this week's Merrin Talks Money. If you like our show, rate for review and subscribe, but ever listen to your podcasts. And keep sending your questions or comments to
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