Emily Barnard, Deputy Portfolio Manager of Edinburgh Investment Trust, discusses why the investment team are attracted to self-companies, what distinguishes them and why they can have a significant impact.
What do we mean by self-help? Self-help refers to companies going through a turnaround, where perhaps there were operational or strategic missteps, and now those missteps of the past are being corrected. Self-help strategies are usually designed to improve growth, margins, and returns of the company, and can sometimes also include balance sheet repair. Whilst clearly every self-help turnaround is unique, there are some common elements we see in self-help turnarounds across industries. They usually start with an identification of the issues and usually a profit warning, a cut to numbers and a reset of expectations. Quite often, they can follow with a few more profit warnings as the true depth and breadth of the issues facing the company are uncovered. You can quite often see management change. Perhaps the management change is the catalyst for the issues being uncovered as the old management team leave, new management team come in and find problems. And sometimes the existing management team can run into some missteps and be determined not to be the best placed people to then deliver on the turnaround. The new management team will come in, set out their stall for recovery for the business and the share price. And then ideally you get to a point of share price and underlying company recovery and improvement. Now, self-help stories can be very powerful as you can have both an earnings inflection and evaluation rerating when they work. They can also be nice idiosyncratic sources of upside for a portfolio and that can be nicely diversifying.
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Emily Barnard
Emily Barnard is a fund manager on the Global Fundamental team. She joined Liontrust in April 2022 as part of the acquisition of Majedie Asset Management, where she was an equity analyst for six years. Prior to joining Majedie, Emily completed a two-year rotational graduate programme at the Wellcome Trust, focusing on equity analysis.
Emily holds a Master of Physics in Theoretical Physics from Durham University and is a CFA Charterholder.