One of the longer term holdings in the SVS Church House Deep Value Fund (B79XM02), Enteq Upstream (NTQ:AIM) ‘came back to life with a bang during April’, according to portfolio manager Jeroen Bos (pictured below).

At 32.5p, Enteq’s shares are up 33% on the 24.5p average paid during 2014, although they’ve recently been as high as 40p for a 63% paper gain and Bos believes this stock ‘should do very well over time, with the much improved outlook for the oil price.'

BOOST FOR BOS

The oil services business released an upbeat trading statement during April that has caused the share price to jump, providing a boost for Bos’ SVS Church House Deep Value Fund, a concentrated portfolio of holdings exhibiting deep value characteristics seeking to generate long-term capital growth for investors.

‘In this statement, management stated: “The board is pleased to report that both full year revenues and underlying EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) are expected to be significantly ahead of its expectations’, says Bos.

He continues: ‘The company has been listed since 2014, and the highly regarded management team had expectations that Enteq Upstream would become a consolidator in the sector by buying smaller oil services companies, a process they had previously, very successfully, undertaken with a different company. Enteq Upstream is this management team’s second incarnation and the aim was to repeat a very successful operating model.’

‘Due to the collapse in the oil price, the company struggled to execute this strategy, so management instead concentrated on protecting the business during the downturn and not committing funds while the market was in free-fall. Apart from one purchase, it continued to protect cash reserves to such an extent, that at the low point, cash on the balance sheet was greater than the company’s market capitalisation.’

‘By this stage it could be said that the company was truly cheap, albeit operating in a very, temporarily, difficult sector. Fast forward to April 2018 and an encouraging trading statement was all that was needed to propel the shares to higher levels. With profitability expected to make an appearance and an improving oil industry outlook, we should expect the shares to move to higher levels in the future,’ says Bos.

‘This is a great example of value investing. We buy shares that appear to be deeply depressed, but on balance sheet terms they are very cheap and there is a clear expectation that better business performance will emerge in the not too distant future.’

TRAWLING FOR ‘NET-NETS’

The charismatic Dutchman justifies a company’s value based on balance sheet information rather than future earnings forecasts. His goal is to find companies where the assets on the balance sheet outnumber the liabilities. He trawls the market for so-called ‘net-net investments’, first described by famous investor Benjamin Graham.

This is when the current assets of the company outnumber all of its liabilities, enabling investors, theoretically, to buy a pound for 50p.

In his July fund factsheet, Bos flags a new portfolio purchase, ‘Game Digital (GMD), a debt free net-net. The company, a retailer of video games, is transforming into the leading eSports venue organiser where gamers are able to meet and compete.

'It recently entered into a joint venture with Sports Direct (SPD), where Game Digital will be able to roll out the new gaming concept in the Sports Direct retail stores. Sports Direct has also taken a 25% shareholding in Game Digital.'

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