Herald Investment Management June Herald Investment Management Ltd is authorised and regulated by the Financial Conduct Authority

Transcription

1 Herald Investment Management June 2015 Herald Investment Management Ltd is authorised and regulated by the Financial Conduct Authority

2 This presentation is intended for professional investors only Investors should remember that past performance is not necessarily a guide to the future and should determine for themselves what weight, if any, to place on such past performance. Prospective shareholders in any of the funds or companies mentioned in the presentation should not treat this presentation as advice relating to legal, taxation, investment or any other matters and are recommended to consult their own professional advisers concerning the acquisition, holding or disposal of shares. The figures in this presentation are not audited. This presentation has been approved by Herald Investment Management Limited. 2

3 Why Herald Investment Management Ltd? Established in 1993 and Managing over $1.2 billion assets in four technology-focused funds: Herald Investment Trust (HIT): Smaller Companies trust with UK bias including some unlisted holdings Herald Worldwide Fund (HWF) Herald Ventures I & II: Unquoted UK companies Venture Capital Trusts Team of 7 investment professionals and consultants dedicated to TMT investing Manage over $1 billion of investments in small cap TMT companies which provide insights used in managing the all-cap TMT fund. Source: Herald Investment Management Limited (31/12/2013) Past performance is not a guide to future returns. 3

4 Investment philosophy Fundamentally driven, long-term and patient: low portfolio turnover c. 30% per annum Value aware look at product potential Pricing power Predictable revenue stream Strong free cash flow generation, limited capital needs Solid balance sheet Disruptors Ability to grow EPS even in a difficult economic environment Buying stock market darlings Companies with eroding legacy positions Narrow customer bases 4

5 The UK as a base for a Global TMT fund Time zone and language allow a unified view from the west coast of the USA to eastern Asia every day Can look up and down the supply chain. Learn who is winning and losing market share in advance by speaking to suppliers First to know about key new tech developments on the manufacturing and consumer side Good access to companies in less-crowded IP-rich UK market vs. busy, brandleading US and low margin, competitive Asia UK a world leader online: Internet accounts for 8.3% of UK GDP the most of any G20 nation; G20 Average is 4.3%* 1.46 million talents working in digital business across the UK and among them 350k based in London. $682 million was pumped into capital digital sector in 1Q 2015 (up 66% YoY) *Source: BCG: The Internet Economy in the G-20 (March 2012) 5

6 Geography: Number of quoted TMT firms UK Western Europe US Asia Developed 1106 Asia Emerging Other 1538 Source: Bloomberg, Herald (31/12/13) 6

7 Geography: Sales of quoted TMT firms ( bn) UK W Europe ex UK US 741 Asia Dev Asia Emerging Other 798 Source: Bloomberg, Herald (31/12/13) 7

8 Geography: Profit of quoted TMT firms ( bn) UK Western Europe US Asia Developed Asia Emerging Other Source: Bloomberg, Herald (31/12/13) 8

9 Geography: Apple Supply Chain Company Market Cap (USD bn) Revenue (USD bn) Profit Margin EBITDA Margin FCF Margin ROCE No. of Employees Profit/ Employee (USD) Sales/ Employee (USD) Apple % 32.6% 26.6% 28.7% 80, ,234 2,128,394 Samsung % 19.6% 6.4% 17.3% 88, ,821 1,410,735 Hon Hai % 1.7% 3.2% 12.6% 1,290,000 2,484 84,384 Toshiba % 7.1% -2.3% 4.3% 206,087 4, ,615 ARM % 39.3% 25.6% 14.2% 2, , ,440 Imagination Tech % 28.2% -17.5% 14.8% 1,249 42, ,963 The Apple supply chain in a global market demonstrates the drivers of profitability in TMT investing the things that bring pricing power: Brand and style (Apple) Intellectual Property (ARM, Imagination) Large fixed capital deployment (Samsung) Same demand volumes in all geographies 9 Source: Herald & Bloomberg as of 31/12/13

10 UK is leading top tech IPOs over the last twelve months there were eight new unicorns (companies valued over $1 billion) in the UK and 13 in Europe. This compares with 22 new unicorns in the US during the same period. 10 Source: Herald & Bloomberg as of 31/12/13

11 Geographic Advantage Matrix UK US Europe Asia Investment Universe P P Regulatory regime P P Profitability P Valuation P P Liquidity P 11

12 HIT Proceeds from Acquisition ( m) No. of completed and pending bids Proceeds from takeovers 2015 announced 4 valued at 30.1m Total value of takeovers 340.4m (114) HIT Proceeds from Acquisition No. of completed and pending bids Year Source: Herald Investment Management Ltd 12

13 Chinese Tech Co Moving Towards higher Value Chain 13

14 Moving Towards Brand and IP Chinese smartphone 14

15 More Innovative Meitu Smartphone 15

16 More Creative Live Broadcasting 16

17 AIM vs NEEQ Setup in 1995 Total 1,074 companies listed on AIM by the of May Total market cap 75 billion (05/30) Low entry requirement. Typically costs between 400,000 and 600,000 to Join 6 billion Capital raised 2014 Setup in 2013 Total 2,300 companies listed on AIM by the of May Total market cap 100 billion (05/30) Low entry requirement. Typically costs between 200,000 and 400,000 to Join 1.5 billion capital raised in the past 12 months. 17

18 Privatisation Total market cap of announced deals reached $14 billion. 18

19 Valuation Gap Huge Valuation Gap between Chinese stock market and US stock market China SHENZ CIS 300 INFO TECH INDEX CHINA-US EQUITY INDEX Source: Bloomberg, (12/06/15) 19

20 Oversea M&A Deregulation trend towards international M&A and Investments. No need approval for acquisition below $1 billion. Internationalized RMB and open capital accounts in 5 test cities. Government subsidies technology equipment imports and IP acquisitions. National Industry Investment Fund set aside $170 billion. 20

21 Hunt for Value & Growth Large number of IP based companies in UK. Small scale and size relatively to their US peers. Low valuation and low growth for UK based tech companies. Transparent legal system and share hold protection. Bring value-added service and much bigger market. 21

22 TMT M&A Case 22

23 Providing VC for Start-ups Alibaba $217m for 20% Mobile Internet Tangome Tencent $35m for web building service. Tencent $36m for a star-up anonymous sharing app whisper JD $400m Smart wearable devices start-up company in US Start-up Misfit 23

24 Investment focus Large addressable market in China &/or UK With strong and niche intellectual property. Unique design and suite for Chinese consumer s tastes. Strong distribution and brand awareness in UK & Europe. Start-up and early stage companies with no experience in China market. 24

25 Appendix 25

26 Appendix 26

27 Appendix 27