Fund Manager October 2021 Commentary – Henderson Eurotrust plc

October has been a disappointing month and there are two primary reasons for our underperformance.

First, we have been hurt by a small number of high growth companies in which we have reasonable sized positions in. Our two payments companies (Worldline and Nexi) cost us significantly and this has been our single biggest issue this month. The abrupt sell-off in these shares was triggered by a soft Q3 from Worldline and medium-term guidance that was marginally ahead of consensus expectations. Investors are nervous about the sector at the moment due to concerns that a handful of small, fast growing businesses (Adyen, Stripe) are gaining share from the traditional payment processors. Worldline should still be capable of growing revenues by >10% per annum into the medium term and we also see more M&A to come which will help, however, we acknowledge that the competitive situation is worsening to some extent. Worldline and Nexi now trade on around 13 x 2022 EBITDA which seems too cheap to us.

Second, we have positioned ourselves in a number of companies which we see as likely to benefit from an easing in global supply chain issues, especially centred around the auto sector and the consumer sector.  Although we feel strongly that this positioning is correct on a 6-month view, during October, the situation didn’t improve quite as much as some had hoped and so the share prices of these companies (Danone, SKF, Beiersdorf for example) suffered. We are seeing promising signs of an easing in supply chain issues and expect to see these share prices react positively over the next 6 months or so to reflect this. To be clear, we are not playing this as a macro theme, I have simply grouped together the companies within the portfolio that have been negatively impacted by this theme during October.

In summary, we are confident in our positioning and will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.

Earnings before interest, tax, depreciation, and amortisation is a metric used to measure a company’s operating performance that excludes how the company’s capital is structured (in terms of debt financing, depreciation, and taxes).

Mergers and acquisitions (M&A) is a general term that describes the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.