Johnson Service Group (JSG), Marlowe (MRL), and Breedon (BREE) were strong contributors to the performance of the portfolio in the first quarter. JSG has weathered the pandemic-related disruption to now see a recovery in volumes/margin and a recent share buyback announcement has helped the valuation. Marlowe has run an aggressive buy and build model which was particularly successful in the low interest environment of the last decade. However, as the macroeconomic environment has now changed, MRL management announced at their Capital Markets Day that they aim to focus on “margin expansion through integrating acquisitions” and given the defensive nature of the business we welcome MRL taking a breather to wait for synergies to come through and reduce their debt levels. Lastly, Breedon has been growing modestly over the years as a result of stronger infrastructure activities in the UK. However, they recently announced plans to move onto the main market and as a result we will be switching out of it.
Meanwhile, MJ Hudson has agreed to sell its business units to various buyers for approx. £41m and the majority of the consideration will be used to repay the £33.7m of debt owed to its senior lender. Unfortunately, it is highly unlikely that there will be any remaining proceeds available to shareholders following payment of all creditors and costs. It is a disappointing outcome, one which we will reflect on and learn lessons from.
To further diversify our portfolio, we started a position in Ashtead Technology (AT) in January. AT is a subsea equipment rental and solutions provider for the global offshore energy sector. The importance of energy security has never been more relevant, and AT is well placed to benefit from The West’s need for energy sources closer to home. The sector is experiencing record demand and orderbooks are full many years in advance. The longer-term focus is on Renewable Energy projects given the wider transition to clean energy and the vast investment that will be required from governments and the private sector in the infrastructure of an electrified world.
Overall, we have started 2023 on a positive note and hope to continue this momentum for the rest of 2023.