Richard Pease exits decade-long holding amid China worries

Pease Richard Henderson Crux

The Crux European Special Situations Fund has sold its entire position in lift operator Kone after holding the stock for more than a decade.

Fund manager Richard Pease says he made the decision as 30 per cent of the Finnish company’s profits are exposed to China “where capacity for lift production is close to double the likely demand”.

“This leaves the company open to pricing pressure,” Pease says. “As Kone was trading on 23 times earnings, I felt this could present a dangerous situation. It is still a great business, but you have to consider the structural headwinds.”

Pease says he has held the company for “10 to 15 years”.

On navigating difficult market conditions, Pease says 20 to 25 per cent of his portfolio has been through private equity hands at some stage, because these businesses “perform well in various market conditions and are conservatively managed”.

“We clearly look for similar characteristics to private equity firms when we examine potential investments, namely: companies that are capital light, cash generative with recurring revenue.”

Examples of such companies in the fund include Scandinavian service management businesses Coors and ISS, and French contract caterer Elior, all of which Pease favours for their sticky contracts.

Another example, French electrical and mechanical maintenance company Spie, is liked by Pease due to its negative working capital.

Despite difficult market conditions at the start of the year, the Crux fund has returned 11.6 per cent compared to 2.2 per cent in IA Europe ex-UK over the past six months.