BY BERTRAND FAURE
During April the Fund reported a gain of +0.68% on an absolute basis. After a negative first quarter, European financial markets took a breather in April, with solid economic growth outpacing geopolitical risks and the uncertain environment for monetary policies globally. As a result, the Fund’s benchmark was up 4.49% during the month.
Granges was the largest monthly contributor to the Fund’s performance, followed by Albioma and Jacquet, representing the third consecutive month in which Granges was the Fund’s largest contributor. The Company keeps delivering solid results that are above market expectations. Sell side analysts, who were bearish on the name and penalised the stock’s 2017 performance, are now reassessing their views on the Company’s prospects. Albioma’s stock price recovered in April post a share placement in March. Q1 turnover turned out to be slightly better than expected, with social pressure seeming to be fading away for the time being. Finally, Jacquet benefited from an inflationary trend with regards to nickel prices, which should create windfall profits for the Company in the coming quarters and provide them with better absorption of fixed costs going forward.
At the other end of the spectrum, OVS, Tarkett and MGI Coutier were the three main detractors. OVS was the largest detractor, detracting 0.87% from gross performance. Needless to say that full year numbers were disappointing. On top of that, OVS depreciated its stake in Sempione Retail (ex. Charles Voegele in Switzerland) and wrote down trade and financial receivables. What was perceived as a free call option six months ago became a one off cash detractor and shed some doubt on the Company’s ability to export its business model outside of Italy. To make things worse, the Board’s proposal to cancel the dividend sent the wrong signal. According to the Investment Adviser, a stable dividend would have easily been covered by free cash flow for the year to come. In spite of this negative news flow, the team believes that OVS’ business model is absolutely intact and that the derating from 12x PE to 8x PE fails to capture the soundness of OVS’s core business. There is not much to report on Tarkett and MGI Coutier during the month, with their impact on the Fund’s performance being significantly lower than OVS’ impact.
In April, one position was sold completely, Ebro Food in Spain. The Fund took a position in July 2017 and sold it with a small gain (+2%) ten months later. As in 2016, working capital was a serious drag on Free Cash Flow generation in 2017 as a result of increasing raw material prices (rice, durum wheat). As this phenomenon is expected to continue for the coming quarters, the Investment Adviser decided to exit the position.
The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 21/05/18 and are based on internal research and modelling.