Navigating Choppy Waters: Kelso’s FY24 Results & The Art of Small-Cap Activism
Let’s cut straight to the chase: 2024 wasn’t a year for the faint-hearted in UK small-cap investing. But amidst the market’s relentless sideways shuffle, Kelso Group’s latest results reveal a fascinating case study in patience, strategic pivots, and the quiet confidence of seasoned operators. Here’s what you need to know.
🛠 Strategic Pivot: From Cash Shell to Activist Powerhouse
Kelso’s original game plan? A traditional cash shell hunting for reverse takeovers. But when the UK IPO market decided to imitate a hibernating hedgehog, they pulled a textbook pivot:
- Switched lanes to activist investing in November 2022
- Raised £7.8m across three fundraisings since relaunch
- Built a 20% board stake – skin in the game that’d make even Gordon Gekko nod approvingly
As Chairman Sir Nigel Knowles notes: “Activism works best when institutional shareholders unite to drive change.” Translation? Kelso’s playing coalition builder in a space where most investors won’t bother with the paperwork.
📊 Financial Snapshot: Steady As She Goes
- Net assets: £9.0m (FY23: £7.5m)
- NAV/share: Flat at 2.4p – the fundraising equivalent of running up a down escalator
- Portfolio gross value: £8.71m (31 Mar 2025 unaudited)
The real story? A -1% gross return that CEO John Goold describes with British understatement: “Broadly flat in challenging conditions.” Translation: We kept the ship afloat while competitors were bailing water.
🔍 Portfolio Deep Dive: Four Horses & A Dark Horse
1. NCC Group (27% of portfolio)
Cyber security meets software escrow – and Kelso’s betting the parts are worth more than the whole:
- Escode division: £325m valuation potential at 50% EBIT margins
- Cyber arm trading at 0.3x sales – cheaper than a Lidl VPN subscription
2. THG (25%)
The beauty-and-the-beast story of UK small caps:
- Post-Ingenuity demerger: “Simpler to value” (market response: crickets)
- Moulding’s £60m personal stake – either supreme confidence or the world’s most expensive loyalty card
3. Angling Direct (11%)
Where else can you find a business trading at 4x EV/EBITDA with:
- £15m net cash (50% of market cap)
- UK revenue up 12% to £91m
- European ops losing £0.5m – the Brexit paradox in miniature
4. TheWorks (11%)
The “too small to care” play:
- 500 stores, £280m revenue, trading at 1x EV/EBITDA
- Kelso directors now on board – expect strategic fireworks
The Wildcard: Selkirk Group (26%)
Kelso’s AIM-listed cash shell baby:
- £7.5m raised, £7m still in the tank
- Consumer/tech focus – essentially a SPAC with a British accent
🔮 Outlook: Waiting for the Cavalry
The board’s mantra? “Proactive value creation in a market that’s forgotten how to price small-caps.” Key watch points:
- Potential share buybacks (AGM approval pending)
- THG’s FTSE 250 inclusion – will institutions finally bite?
- Interest rate tailwinds – will 2025 be the year liquidity returns?
As Goold notes: “Our internal price targets remain materially above current valuations.” Translation: Either they’re delusional, or there’s serious alpha hiding in plain sight.
🧠 The Bottom Line
Kelso’s playing a high-stakes game of chess in a market that’s stuck playing checkers. Their FY24 results show:
- ✅ Discipline in capital preservation
- ✅ Conviction in concentrated bets
- ✅ Patience worthy of a Zen master
For investors? It’s a binary choice: Either UK small-caps are a value trap par excellence, or Kelso’s building a spring-loaded portfolio ready to snap back. As the man said – the stock market is a device for transferring money from the impatient to the patient. Kelso’s betting big on being in the latter camp.
