Citywire A-rated Nick Kirrage (above right) and Kevin Murphy’s (left) contrary call on Blacks Leisure via their Schroder Recovery fund has failed to pay off after the firm became the latest retailer to enter administration.
Just before Christmas the firm, which owns 98 Blacks outlets, 208 Millets stores and the Peter Storm and Eurohike brands, said it had received a number of bids.
After negotiations with the interested parties during the festive period the group has decided the best way to effect the sale of the business was through administration, which it announced to the London Stock Exchange today.
According to a shareholder register seen by Wealth Manager dated 22 November, Kirrage and Murphy held around 7.55 million shares in Blacks Leisure through the £220 million Recovery fund amounting to an 8.95% interest in the firm.
The investment in the likes of Blacks is a potential hazard Kirrage and Murphy face through their strategy, which targets firms which are in some form of distress with potential for a rebound.
With shares Blacks trading at 1.2p, well below the 42p they were trading at this time last year, Kirrage and Murphy are facing a significant loss on their holding.
Kirrage told Wealth Manager: ‘The Schroder Recovery fund looks to invest in companies which are currently experiencing hard times, but where long term prospects are believed to be good. This approach involves investment in deeply out of favour businesses, some of which have weakened balance sheets, but where the stigma associated with these types of companies has created depressed share prices offering significant upside.’
He added: 'This approach has generated phenomenal returns over the last 10 years, outperforming the market by nearly 60%, despite owning a handful of companies which unfortunately failed over that period. Blacks is an example.
'To mitigate the risk associated with failures, the Recovery Fund is well diversified, holding a large number of companies with higher risk businesses requiring small positions. Blacks was less than 1% of the Fund’s total value.’
Overall the fund has stood up well in the tough conditions. According to Lipper, in the three years to the 4 January the fund has returned 52.6% versus a 38.7% rise in its benchmark.
Adam McConkey of Henderson Global Investors has been another big backer of the stock recently. He held 7.66% on 22 November through his Henderson Fledgling Trust, which he manages with Harmish Suniara and a further 1.13% via his UK and Irish Smaller Companies fund, which he co-manages with Robert Giles.
Over the last three years the Fledgling Trust’s net asset value has risen by 91%, well ahead of the 51% rise in the FTSE Small cap, while the UK and Irish Smaller Companies fund has returned 66%.
After buying an 8.3% stake in the firm between March and May last year he gradually cut his exposure in the second half and no longer has a position after selling the holding in the autumn.
In the three years to 4 January Trenchard’s fund has returned 28.9% versus a 24.26% rise in the FTSE All Share.