STRATEGIC EQUITY CAPITAL PLC
This interim management statement, issued in accordance with the UK Listing
Authority's disclosure and transparency rules, relates to the period from 1
January to 31 March 2012.
* Net assets per share increase by 11.75%, underperforming the FTSE Smaller
Companies ex Investment Trusts index by 6.43%.
* Portfolio companies continue to deliver strong operating performances.
* Continued rotation from mature fairly valued investments into new
attractively priced opportunities.
* Net assets of 104.52p per share.
* Discount narrows to 18.44%
* Portfolio valuation remains highly attractive; post capex cash flow yield
Investment Managers Review
The first quarter of 2012 saw a continuation of the recovery in global equity
markets that began in November 2011. The broad UK market posted a healthy
increase of 6.2%; Mid cap stocks and smaller companies saw even larger gains of
+14.8% and +18.2% respectively. The rally in smaller companies was narrow, with
the median stock significantly underperforming the index. Some very large
increases in the market capitalisations of highly indebted, low margin, low
return companies, accounted for a sizeable proportion of the increase in the
This outperformance of companies outside of the FTSE100 index was not simply
attributable to increased risk appetite. Earnings growth estimates for the FTSE
100 fell sharply from +7.5% to +3.5% due mainly to downgrades of banks and
mining stocks. This was in stark contrast to the mid and small caps, whose
growth forecasts remained broadly unchanged at +13.5% and +8.9% respectively.
Market volatility as measured by the VIX index fell by more than 50% and ended
the period at a level in line with three year lows, leaving the market very
vulnerable to a negative turn in sentiment.
We are now three years into a bull market that has seen the FTSE All-Share
total return index rise by 62% to an all-time high and the FTSE Smaller
Companies (ex-investment trusts) total return index rally by 79%. When public
sentiment catches up with reality, and starts to recognise that UK equities
have massively outperformed most "low risk" asset classes for some time, there
may be potential for a significant further re-rating of the asset class.
The Company's NAV rose by 11.7% in the period, lagging the rise in the smaller
companies market. The total NAV return for the last 12 months was 7.5%, a
cumulative outperformance of 7.6% compared to a fall of 0.1% in the FTSE
Smaller Companies Index.
The majority of portfolio news flow remained extremely positive, with final
results and trading statements typically in line or ahead of expectations. In
aggregate, earnings and dividend momentum in the portfolio remained strong and
companies continued to degear in line or ahead of expectations.
The key positive contributors to performance in the period Lavendon, SRFII,
E2V, 4imprint and Lupus, which rose 40%, 12%, 16%, 28% and 14% respectively.
Lavendon released final results ahead of expectations and indicated that its
profitable Middle Eastern business was recovering.