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View the article online at http://citywire.co.uk/wealth-manager/article/a724376

Why are hedgies pouncing on wealth managers?

by Robert St George on Dec 19, 2013 at 09:26

Why are hedgies pouncing on wealth managers?

The march of hedge funds up the shareholder registers of listed wealth managers has been relentless; the only impediment seems to be a lack of sellers.

Having taken his first bite out of Walker Crips in August, JO Hambro Capital Management co-founder Christopher Mills (pictured) now owns 9.5% of the firm through his Oryx fund. It is a stake worth £1.6 million after several top-up purchases.

Similarly, hedge fund veteran Christopher Gate initiated a position in WH Ireland last month.

He has since built it up and now controls 9.5% of the company – equivalent to almost £2 million – through his Oceanwood Capital Management.

Beyond the superficial coincidences – two Christophers, two 9.5% stakes, two funds beginning with O and two wealth managers beginning with W – what they have in common is value.

By style, the two investors seek out mispriced assets: Mills goes for strong business models’ suffering from ‘factors constraining their performance’ that he can address as an activist shareholder.

Meanwhile, Gate likes companies that are undergoing a fundamental change, such as a corporate deal or a management shake-up, the consequences of which yet to be appreciated by the market.

‘There’s no genius in this one,’ Mills told Wealth Manager. ‘The business is obviously worth something but you’re not paying anything for it at these prices.’

Walker Crips trades at just 1.6x earnings, despite a 3% yield. Its average price-to-earnings ratio over the past five years has been 16.3x. The company also boasts £10 million of cash on its balance sheet and a net asset value per share of 41.5p. The share price is currently at 45.25p.

‘At this price we would take the stake a lot further,’ Mills confirmed.

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