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March

We have seen a notable pick up in corporate activity in recent months. This is a positive phenomenon for our investment style and a number of companies in our portfolio are seeing stronger performances on the back of this.

The bidding for Vivendi’s SFR has concluded with the announcement of Altice as the winner. The other bidder, Bouygues, had the upper hand at first and its share price jumped early on and we sold our position in Bouygues and retained our holding in Vivendi. We await clarification from Vivendi on any return of capital which we believe likely given the very substantial cash inflow it will see from the sale of SFR to Altice.

The weakest performer over the month was Morrison, a fairly recent addition to the portfolio. Morrison had fallen sharply since September on fears of a challenging operating environment. We believed management would seek to deliver some value to shareholders by way of a sale of part of their freehold estate, with the potential for some of that capital to be returned to shareholders. The operating environment was worse than feared and the four UK majors face a real structural challenge from the low cost operators which is worrying. Given the degree of asset backing, the current dividend yield and the plan put in place we still think the current share price looks to have upside.

We made a new investment in Dolphin Capital, an AIM listed property developer, with assets principally located in the coastal areas of Greece and Cyprus. Its market capitalisation today of c £250m is significantly lower than the capital it raised on launch in the mid-2000s. The onset of the financial crisis hit this company hard and in late 2012 it was forced to raise additional capital from several hedge funds. Today, with many of its projects well on the way to being developed and markets such as Greece once again attracting interest from foreign investors, the future looks a lot brighter for Dolphin Capital and having acquired our stake on a discount to NAV of 45% we see a lot of upside. Management recently reported the first increase in NAV since 2008. This is a positive indicator of the changing fortunes for its asset base. The intention is to sell off the developments that are completed and to return capital to shareholders. The pace of capital returns is dependent of course on the timing of asset sales. We think it is possible that one or two larger schemes are sold in the not too distant future which will allow for a swifter re-rating of the shares and of course capital return.

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