We highlighted the investment merits of Rockwood Strategic (RKW) at 187.5p in November 2023, arguing the value-focused trust was a way to gain differentiated exposure to a small cap asset class with exciting re-rating scope. We explained how manager Richard Staveley’s tried-and-tested strategy identifies undervalued stocks where the company will benefit from operational, strategic or management changes that can unlock or create value for investors.
Our thesis was that Rockwood’s concentrated portfolio contained ‘deeply undervalued future cashflow potential’ with re-rating catalysts in place. We also highlighted that the trust was benefiting from a number of takeover bids that were boosting its NAV (net asset value).
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
Staveley’s differentiated approach of taking active stakes in core holdings continues to prove highly effective. Results (19 June) for the year ended 31 March 2024 showed the trust’s NAV total return increased by 5.1% to 206.04p, outperforming the FTSE AIM All Share’s 8.6% decline in a challenging UK small caps market.
Since year-end, the NAV has risen by 19.1%, cementing Rockwood’s status as one of the AIC UK Smaller Companies sector’s best long-term performers. The shares closed the financial year at a 1.9% premium to NAV, having begun at a 7.1% discount, which has allowed the board to issue shares to grow the trust’s size and enhance liquidity.
WHAT SHOULD INVESTORS DO NOW?
Keep buying Rockwood Strategic as the outlook for UK smaller companies is positive. Falling inflation should pave the way for interest rate cuts, while further NAV-boosting bids for portfolio companies look highly likely.
Last year, five new investments were purchased for the fund as monies received from four takeovers and share issuance were re-deployed, including Scottish commercial broadcaster STV (STVG), shredding and recycling specialist Restore (RST:AIM) and marine, energy and defence group James Fisher & Sons (FSJ).
In the results announcement, Staveley said he was excited about the ‘underlying business turnaround momentum’ across Rockwood’s portfolio, expected ‘further profit recovery and valuation re-rating in our investments’ and insisted that ‘a number of positive potential catalysts are yet to emerge’.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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