Hanover's Matthew Peacock talks to The Motley Fool.
Hanover Investors is a specialist active investor in recovery and turnaround situations. Since 2002, it has made 20 investments in the public and private markets, investing between £1m to £25m in each transaction.
Its assets are currently worth around £68m and it has approximately £120m to invest.
Matthew Peacock, the founding partner of the firm, explained to me the rationale behind its investments:
"Our focus is specifically turnaround situations where we see considerable controllable change that can enhance earnings and often the rating. We are highly value orientated fundamental investors. In short, we tend to try to find assets that are performing in the third or fourth quartiles of their peer set but have the capacity to perform at least in line with the average of the peers. This is usually as a result of an error in strategic direction or in management but not because of the quality of the asset."
Past success
In the past it has made some very nice profits buying cheap stakes in what were then underperforming companies, such as 4imprint (LSE: FOUR) and Elementis (LSE: ELM), turning them around before selling its stake for a handsome profit.
Current investments
Hanover has not made a sizeable public investment for around 20 months however. Its current holdings are:
- Cosalt (LSE: CSLT) -- Hanover holds 6.2% of the issued share capital. Simon Gilbert, a managing partner at Hanover, is a non-executive director.
- Renold (LSE: RNO) -- Hanover Investors holds 11.2%. Matthew Peacock became non-executive Chairman in September 2006, at which time Hanover had built up a stake of 18.5%.
- STV Group (LSE: STVG) -- Formerly the Scottish Media Group before it changed its name in 2008. Hanover Investors holds 10.4% and has held shares since 2007. Matthew Peacock is a non-executive director. Vasa Babic, also a director at Hanover, is also a non-executive.
- Fairpoint Group (LSE: FRP) -- Hanover Investors holds 24.57% of the issued share capital. The non-exec chairman is Matthew Peacock who was appointed to the board on 10 June 2008. Simon Gilbert, a managing partner at Hanover, is a non-executive director of Fairpoint Group.
- Chapelthorpe (LSE: CPL) -- Hanover holds 25.25% of the issued share capital.
Recent performance
Hanover's quoted investments are still showing a loss despite the recovery that has taken place since last year. Matthew Peacock explained why this is:
"The recovery in share prices of perceived riskier assets at the smaller cap end has been slower than the market. Investors have been nervous of liquidity and balance sheet issues. Of course each situation has its own story: Renold was in the teeth of the capital goods cycle and like its peers lost considerable revenue having been very effectively turned around over three years. It is a well-run company which is very operationally levered and will benefit from the cyclical recovery, a newly strengthened balance sheet and the cost cuts pit in place. It does, however, mean we'll have to turn this around twice!"
Current environment
Peacock's views on the market are instructive:
"We don't think the market as a whole represents good value at the moment and are very concerned about what we see happening to the consumer through Fairpoint. The quadruple whammy of higher taxes, higher VAT, the prospect of higher interest rates and the high likelihood of major cuts in public sector employment mean we are very wary of revenue growth related stories and particularly so in the consumer exposed sectors."
"We are looking for undervalued cash flow particularly and believe it's very situational based rather than macro and sector based at the moment. You have to buy the balance sheet and cash flow cheaply on the basis of being happy to hold at the moment."
As and when Hanover makes an investment it will certainly be a value play that will be worth noting.
More from Chris Menon:
