Article from Investment Trust Newsletter June 2024.  For full access to all articles and back copies, please SUBSCRIBE HERE.

ORYX INTERNATIONAL GROWTH FUND (OIG, 1375p)

We have seldom written about Oryx over the years, but it does look interesting at present, which is why we were glad to be able to connect with highly experienced fund manager Christopher Mills for a detailed update on the trust’s portfolio companies.  We think there is a lot to like, although some issues as well to be aware of before considering an investment.

OIG was once rather different in scope, but these days it is a UK special situations trust in spite of its name.  Although the trust’s stated investment policy refers to companies in the UK and US, there is no exposure to the latter at present.  The trust has an ungeared portfolio focused mainly on smaller and mid-cap UK companies with market capitalisations of between £75m and £300m, immediately raising questions about how the trust differs from its two Harwood Capital stablemates Rockwood Strategic (RKW, 274.5p) and Odyssean Investment Trust (OIT, 173.25p), which are both UK smaller companies trusts. Christopher says that OIG is sandwiched in the middle, with RKW investing in slightly smaller companies and OIT in slightly larger, but in reality there is some overlap, some shared ideas, and the reason for the co-existence of these three trusts is more to do with the practicality of attracting fund management talent to a boutique business.  In some ways there is little strategic logic in running three apparently similar trusts side-by-side, each incurring their own costs, but Richard Staveley and Stuart Widdowson would not be working at Harwood if they did not have their own trusts, hence the three teams working separately yet in cooperation with each other.  Christopher Mills lends huge experience to the management, as the founder of Harwood, and he is well known for having plenty of ‘skin in the game’ with large stakes in his trusts. 

This can be a sticking point for investors too.  Whilst most investors like to see the manager holding a stake to ensure alignment of interest, in the case of OIG, Harwood Capital has a controlling stake of more than 50%, which severely limits the potential for any corporate action and also hoists some red flags on governance.  We have discussed this in relation to other trusts with large family stakes such as Canadian General Investments (CGI, 2190p) and Hansa Trust (HAN, 217p; HANA 213p), and generally feel the extra gains from careful capital management and risk aversion tend to provide more than enough balance for the lack of true independence from the boards.  Undoubtedly this is a hurdle for some though, and we accept that investing in OIG requires shareholders to place a lot of faith in the ability of Christopher Mills to keep delivering.  A long track record of outperformance provides considerable comfort here, we think.  A ten-year annualised return of 13.09% per annum puts Oryx in the top 5% of all investment trusts over the last decade, and it stands up well over most periods against relevant indices and against peer group trusts.  Christopher says it has gone up about 20x since launch in 1995, adjusted for a warrant issue.  It has enjoyed a good couple of months in April and May too as the UK market has risen and a number of small caps have attracted takeover activity.  In April alone the NAV was up by 9.1%, more than double the FTSE Small Cap (ex-ITs) Index.

Christopher says “we tend to buy very boring companies for the most part,” but typically the trust’s holdings have some special elements, often turnarounds or reconstruction situations.  The largest holding is the healthcare testing company NIOX, followed by the publisher and marketing company Centaur Media – which recently attracted some takeover interest that has gone away for now but may return.  Christopher says it is trading on only 5x EBITDA and that if a price can be agreed, he thinks that shareholders would accept a bid or otherwise break it up.  Christopher is very used to being proactive to encourage or stimulate corporate action, much as he did by engineering the competitive bids for Hipgnosis Songs Fund (SONG, 101.3p) once he joined the board.  Oryx benefited from nine takeovers last year, and of course there have been a lot of bids in the cheap UK smaller companies sector.  The trust does have a chunky cash position as a result, equal to 16% of assets, but that is an anomaly because the cash has just arrived from a takeover and a big dividend payment.  The third largest equity position is Avingtrans, a small industrial conglomerate that Christopher believes has a break-up value of perhaps 500p per share, plus a medical business that – if it works – could be worth another 300p-400p per share, and that is compared to the current share price of 385p.  It is a similar story for Hargreaves Services, currently trading at 564p but paying a high dividend and perhaps worth over 800p in breakup value.  When talking about the trust’s holdings Christopher talks constantly about large potential gains in value to come from breakups or sales.  He ran through all of the top 20 holdings in detail, including comments on companies such as Tribal Group, Eckoh, Carrs Group, Elementis, and Maintel.

The trust also has three unquoted investments that account for 9% of assets.  The largest is a superyacht company called GYG that was delisted from the market and is valued by the trust at 45p, but where there is a bid on the table at 65p from a credible bidder, so that might come to pass.  The others are Jaguar, an airline catering business that is up for sale, with a premium to the valuation expected; and Source Bioscience, another delisted company.

The sales pitch here is that you can buy a cheap trust, trading on a 24.7% discount, investing in cheap UK stocks in an unloved sector, and run by a vastly experienced market practitioner with an exemplary track record.  Oryx will not suit everybody though, as a relatively small trust with a market capitalisation of just under £200m, a much smaller free float because of the large Harwood stake, and a relatively wide dealing spread on many occasions too (currently 1350p-1400p).  We would also note that the shares were trading at 1150p as recently as late April, so they have enjoyed a good run higher over recent weeks, meaning that this may be a trust to watch for the moment and perhaps to buy on setbacks, if they arise.  It is very much on our radar now, having ducked under it for quite some time.

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