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Starcount stalls and Artemis Alpha suffers
The marketing company founded by the creators of Tesco Clubcard is struggling and taking a toll on Artemis Alpha investment trust.
Business is stalling at Starcount, the social media marketing company founded by the creators of Tesco Clubcard, and it's taking a toll on Artemis Alpha (ATS ), the investment trust that backs the privately-owned firm.
In an update to investors last week Artemis Alpha, which is run by John Dodd and Adrian Paterson, two of the longest serving fund managers at Artemis Investment Management in Edinburgh, said it had to cut the fund’s net asset value by 2.1% after lowering a number of the valuations of its unquoted holdings.
Starcount, the investment trust’s second biggest position at 4.4% of the portfolio, was the main factor in the write-down as it struggled to win corporate customers.
The London-based firm is headed by Edwina Dunn (pictured) and Clive Humby, the husband and wife team behind Dunnhumby, the customer data business that helped power Tesco in its heyday and which the retailer failed to sell last year.
In a statement to the stock exchange Artemis Alpha said: ‘The most significant reduction [in net asset value] was to Starcount, where it was considered prudent to reduce the current valuation to recognise a slower rate of the company’s development than expected. This has reduced the net asset value by 1.2%.’
The admission is a setback for Dodd and Paterson in their efforts to turn round Artemis Alpha. Originally billed as a ‘best ideas’ fund it has lost shareholders 25% in the past three years as some of its oil-related and unquoted investments have soured.
The news is also a disappointment for Sir Terry Leahy (pictured), the former Tesco boss who has been among investors who over the past two years have pumped around £12 million into Starcount.
According to its website, Starcount uses Twitter and data analytics to provide companies such as Barclaycard with insights into consumer behaviour.
Worryingly for the company’s investors this is not the first sign of problems at Starcount, which acquired Dunn and Humby’s business H&D Ventures in 2013.
The latest write-down of Starcount is the second announced by Artemis Alpha. In its half-year results before Christmas the fund managers revised the valuation of their holding after the company raised £5 million from investors, including Dunn and Humby, at a lower level than the fund’s investment.
‘The price of the issue was a reflection of its slower-than-expected progress in winning clients,’ Dodd and Paterson said in their statement at the time.
This followed a £2.5 million reduction in the value of its unquoted investments in August.
The results for the six months to the end of October clearly show the pros and cons of investing in private companies, which make up over a quarter of Artemis Alpha, which is very high compared other funds investing in the stock market.
A stake in Reaction Engines, developer of a hybrid rocket-jet engine called Sabre, had to be written down after BAE Systems (BAES) invested £20 million for a 20% stake in the company, again at a lower valuation than Artemis had bought in at.
Meanwhile a holding in Physiolab Technologies was impaired by technical glitches that delayed sales of its thermal compression system, although the managers said they remained confident about its prospects.
By contrast, the pair took some profits on Oxford Nanopore Technologies as its value was hiked 40% in a fund raising last year. The managers were in good company as co-investors in the company had included Neil Woodford’s Woodford Patient Capital Trust (WPCT ) and James Henderson’s Henderson Opportunities Trust (HOT ).
Previously the Leahy connection has worked well for Artemis Alpha which in 2014 netted £15 million – three times its investment – from the sale of its stake in The Hut Group, an online retailer also backed by the former Tesco chief.
Nevertheless, the past few years have been a struggle for the fund which has had to unwind a big exposure to oil exploration companies and has seen the shares swing out to a 22% discount below net asset value.
Still, with personal stakes of 6.6% and 3.9% respectively in the £94 million fund, it can’t be said Dodd (pictured) and Paterson aren’t sharing in investors’ pain.
Paterson’s own heyday was as a Citywire-rated manager of Artemis UK Growth , which he ran until 2009 before passing it on to Tim Steer who recently stepped back and was replaced by Edward Legget who joined from Standard Life Investments.
Dodd, a co-founder of Artemis, made his name running its UK Smaller Companies fund until 2011. He still runs its Global Energy fund with Richard Hulf. He succeeded Mark Tyndall, another of the group’s four co-founders, as the group’s senior partner last year.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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