By Alyx Wood, CIO at Kernow Asset Management
The world order has changed. Oil doubled, and markets turned hostile. Frankly, things are never as bad or as good as they seem. Once the market pays you for caution, it often starts paying you for courage.
So what did we sell and buy?
I want to get away, I want to fly away
We exited our position in Amedeo Air Four Plus after a takeover bid. This is an aircraft leasing operation whose largest customer is in the Middle East, making the timing extraordinary.
The deal was struck at a 32% discount to NAV, hardly generous. Even so, since January 2023, we more than doubled our money. This is a decent outcome, given the complexity the board must have had to navigate. In hindsight, we underappreciated how hard it is to sell, or scrap, the Superjumbo. The A380 is the largest passenger plane ever built. Great economics on paper, if it fit the airport.
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On deeper reflection, buying planes in the aftermath of the pandemic felt uncomfortable at the time, and as is often the case, that discomfort turned out to be the opportunity. Almost all airline-related stocks have done well, so we are not sure we were paid enough, or quickly enough, for the risk. We still have nightmares about buying and then selling Rolls-Royce in January 2023.
If survival keeps you in the game. Dropping a 15 bagger sure keeps you hungry.
The monopoly we mocked… and then bought
When Autotrader came to market in 2015, we shook our heads. Surely the regulator would notice the monopoly. We also chuckled as new competition entered with innovative, well-funded models that looked set to grab market share.
Management taught us a lesson. This is a formidable, well-run business. It is valued as such. Or it was. People say it is a car classifieds business with steady pricing power. And, oh boy, what power. Over the past 20 years, the inflation-adjusted price of a used car has barely moved. Over the same stretch, Autotrader has driven prices up by roughly 7% per year. We challenge you to send us the name of the only other UK-listed business that has increased prices more consistently over the same period.
Autotrader is climbing the value chain. Entering the vehicle transaction via finance, part exchange, reservation and buyer identity. Each step embeds it deeper into the economics of every sale. The Kernow valuation upgrade here is astonishing. Truly.
The company’s ambition is simple. It is evolving from billboard to tollbooth.
For customers, the shift is simply modern retail. Reserve online. See finance upfront. Reduce friction. This is not some sort of radical innovation. The forecourt is catching up to consumer expectations set by other shopping experiences.
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Car dealers do not like it. Not one bit. It reduces control of the opening negotiation and increases price transparency. Platforms that control the flow of customers tend to collect the economics. Everything else is logistics. And nothing else matters.
10,000 car dealers discussed boycotting Autotrader. The rebellion faded. It is difficult to abandon the castle when that is the only place customers spend money securely. Yes, the brand took a bruise along the way, and so the company needs to stay diplomatic. A price rise of only 5.5% this year served as an olive branch to prevent a bad-faith spiral.
Lesson over, we now own a small piece of the company.
Exit on strength, not hope
Secure Trust Bank largely played out as expected, with an 86% gain. The strategy reset day was an opportunity to raise ambition and build something distinctive that would enhance the Kernow valuation. It fell short on both counts.
A good bank strategy is simple: be smarter, more consistent, or cheaper. That means stable funding, disciplined lending, tight costs, and capital deployed where you have an edge. Peers are clearer on where they will win.
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That clarity was missing from Secure Trust. There was not even a slide on peers in its new strategy deck. We genuinely hope there is a cunning plan bubbling beneath the surface, leading to a rebrand. Yes, it’s a very attractive asset to acquire; alas, we don’t do fantasy M&A trades.
The shares are now a value trap and will trade at a persistent discount to NAV. We have exited the entire position. The catalyst played out. Ruthless, and we feel wretched. The best bit of advice my old boss gave me was to fall in love with a woman, not a stock. Still, breakups are tough.
You don’t know what you’ve got till it’s gone.
Empires are no exception.
