Online retailers continue to disrupt established market players in August

In August, the Fund reported a gain of 0.63%* on an absolute basis, whilst the Fund’s benchmark lost 2.14%, leading to a relative outperformance of 2.77 percentage points.

Fund Commentary
25 Sep 2018

In August, the Fund reported a gain of 0.63%* on an absolute basis, whilst the Fund’s benchmark lost 2.14%, leading to a relative outperformance of 2.77 percentage points. was the largest monthly contributor to the Fund’s performance, followed by Valmet and Lisi. has performed well year to date and continued to do so in August. The Company posted its H1 results on 1st August, indicating strong orders. According to the Investment Adviser, revenues and EBITDA were both ahead of consensus expectations, driven by lower than expected losses in Germany and other countries. The Company’s EBITDA margin in its home territory, the Netherlands, stood at 58% in 2017, demonstrating the benefits of a leading position in the food delivery marketplaces. In other markets, in which the Company is not yet the market leader, EBITDA is currently negative. As part of the results announcement, Management reiterated its medium-term objectives, which include achieving a positive EBITDA margin for both the group and Germany within 2 to 3 years after the Company’s IPO (i.e. between Oct 18 and Oct 19).

Similar to July, Valmet was the second largest contributor without any significant news. Finally, LISI rebounded strongly in August after poor performance in July.

At the other end of the spectrum, U-Blox, Granges and Ipsos were the three main detractors. U-Blox posted disappointing H1 numbers with slower than expected top line growth (only 2.6% organic). In the team’s opinion, the disappointing growth largely stems from decreasing revenues in the Asia-Pacific (-19%), while EMEA grew 35.4% and Americas remained stable (0% growth). US protectionist policies negatively impacted performance (with the business surrounding mobile phone base stations having been negatively affected by the issues surrounding ZTE). At the same time, some Asian consumer electronics markets (i.e. shared bikes) struggled throughout the month. The team believe these external factors to be temporary for several reasons: 1) U-blox indicates H2 revenue growth of around 12 – 16% vs a strong H2 2017 and 2) both executive and non-executive insiders have bought following the share price drop in August, demonstrating confidence in the Company’s revised full year guidance.

There was no significant news regarding Granges in August apart from a decision to halt the plans for a joint venture in North America. According to the Company, the project wasn’t sufficiently attractive from a risk/reward perspective.

A surprising 6.4% drop during the last day of the month made Ipsos one of the largest detractors, prior to which the stock had gained 1.9% during the month. There was no news accompanying this move.

During the second half of August, tensions in the market (notably trade tensions and Italian political risk) appeared to ease a little, however this failed to translate into a rebound for the stock markets. The Investment Adviser will continue to closely monitor these external factors, particularly in the context of a slowdown of the Chinese economy.

The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 13/08/18 and are based on internal research and modelling.