Portfolio Activity & Investments: Clinigen Gore Street Energy Storage Fund, Elementis, Diaceutics

Portfolio Activity & Investments

The invasion of Ukraine by Russia has set the pace for global financial markets at a time of rising interest rates. We have responded where we felt it was appropriate, butportfolioturnoverhasremainedmodest aswefeelourclients ’holdingsare,toalarge extent, well positioned for the current economic environment.

Wehavebenefittedfromafewtakeoverbids, notably Clinigen, the pharmaceutical business, and we are awaiting clarity on a bid in residential care business, Caretech, fromthefounders. Wehavebenefittedfrom the surge in electricity price rises and increased usage of battery storage in the Gore Street Energy Storage Fund. Our holding in chemical company Elementis hasbeenlessbeneficialsofar,butweremain confident of our investment thesis and figures have shown continuing growth in profitability. We increased our holding in the UK’ s largest defence company, BAE Systems, on the day of the invasion of Ukraine. This has aided performance. Finally,forourAIMportfolioclientswehave initiated a position in Diaceutics, a companythatisvitaltothesuccessof many of the new drug development breakthroughs. This is particulary important for AstraZeneca, another key client holding, who are Diaceutics largest customer.

Clinigen

We exited our position in global pharmaceutical and services company Clinigen following a bid for the company. UK based private equity group Triton were the acquirors and increased their bid price to 925p per share in cash, up from 883p in December,inordertoclinchtheacquisition. Clinigen specialises in niche commercial drugs and offers services that run clinical trails,helpswithdistribution,andhelpswith areas such as packaging and medicine sourcing.

The largest shareholder in Clinigen was Elliott Associates, managed by legendary money manager Paul Singer. The fund was rumouredtobeinterestedintakingClinigen private itself, however they seem satisfied with the latest bid by Triton.

Gore Street Energy Storage Fund

We have held the Gore Street Energy Fund for the last 2 years and again met with the management during the last period. The fund offers battery energy storage solutions for the grid network’ s customers. The company balances energy supply during periods of low solar or wind generation as well as being used by generation businesses to access the peak demand load. The fund recently announced a landmark energy storage acquisition in Cremzow, Germany, marking the first venture outside of theBritishIsles. Theyhavealsoacquired 3 producing assets in Texas that are more frequently used than the European equivalent, producing a higher yield for the fund. Thefundiswellplacedforthecurrent energy environment and is benefitting from higher energy prices and strong demand for its services. Demand currently outstrips supply and is likely to continue to do so for some years to come. The fund currently yields circa 5.75%.

Elementis

A new position in speciality chemicals company Elementis was started in Q4 of 2021. The company rebuffed 2 takeover bidsfromrivalsat130pand160pinthelast 12months,whichshouldunderpintheshare price over the short-term. Elementis is verticallyintegrated,owningmanyof itsraw material inputs, which provides a level of cost inflation control. Elementis is well positioned in structural growth markets, for example the growing demand for premium

personal care products in Asia and the use of talcinmanufacturingtoreducesingleuse plastics. The shares trade on 1.1x book value,significantlylowerthanthelong-term average of 1.4x. At the recent trading update in April, revenues were up 7% yearon-year and the company announced it mightsellitshighvaluechromiumbusiness. Webelievethatanydisposalwouldhighlight the value of the remaining business.

BAE Systems

TheUK’ slargestdefencecontractorisBAE Systems,theoldBritishAerospace. TheUK and many of the countries within NATO have been spending insufficient sums on defence over the past 20 years. The UK’ s militaryeffectivenessisatalowebb,withthe British Army unable to fight on two fronts simultaneously as frontline troops are now downtoonly75,000men. TheRoyalNavy has 2 carriers but still lacks the Joint Strike Fighter squadrons to equip them and there are insufficient ships to fulfil the carrier support role. Theinvasionof Ukrainehashighlightedthe gaps in European defence and the dependence on the US within NATO. Many countries have announced increased expenditure, with Germany announcing EUR100bn of increased allocation to defence. BAE sits between the US and Europeandoperatesacrossmultipleproduct areas including naval shipbuilding, fighter jets (they have circa 12% of the revenue of the F35, the Joint Strike Figher), land systems(tanksandothertrackedvehicles)as wellascybersecurityandelectronicsystems.

The stock has rallied strongly since the invasion of Ukraine but is now considered tobeagrowthstockratherthanavalueplay. The stock trades on circa 15x December 2023earningswitha4%dividendyield. We believetheremaybefurtherupgradestothe stock over the coming few years.

Diaceutics

Diaceuticsisacompanythatworkswiththe largest pharmaceutical companies in the world to provide them with data on the best testing (diagnostic) laboratories for each product sold. They are able to access revenueacrossseveralof thephasesof drug d evelopment and into production. While this sounds a simple task, their database is critically important for the drug companies. Many of the newer drugs will only work on patients with specific criteria.

These new generation, targeted drugs can cost poun tens ds fo or r a hun cour dr se eds and of so tho the usand speed s a of nd accuracy of finding if a patient will benefit from the drug can mean millions of extra profits for the companies, as well as improved patient outcomes. The company has developed a web-based portal for drug companies to access the information which is accelerating growth at the company. Diaceutics is at an early stage of development and we expect earnings to riserapidlyfromthecurrent2.46ppershare expected for 2022 to circa 4p per share in 2023. If surplus cash is taken off the valuation, the p/e multiple for Diaceutics could be 37.6x for December 2022, falling to 22x December 2023.