June 2021 Insight: In conversation with Ross Mitchinson

John Warren (JW) – Ross, thanks for your time today – we started in broking about the same time 25 years ago, but we never worked together which given how many brokers I worked for is surprising. What was your route to the top at Numis?

Ross Mitchinson (RM): We actually just missed each other at UBS. I started there as a Graduate in 2000, working on the Pan-European Small Cap team. It was an amazing training ground with great people, and I loved my 6 years there. In 2006 I joined Kaupthing, the Icelandic bank, to help build a UK Broking business. It was great fun building something from scratch and refreshing to move from a huge organisation to a start-up. I am sure you felt the same going from Schroders to Tellworth. Ultimately, if you back your team and have a good proposition, then clients will generally follow you. I joined Numis in December 2008 as part of a team that had worked together at UBS and Kaupthing and we were confident that we could become the winner in the UK Small/Mid space. I have loved every minute of my 13 years here.

Paul Marriage (PM) – As investors you know we never invest in our supply chain, so we’ve never been on the Numis shareholder list.  How do you find being a co-CEO, it’s not something that seems to work in many places but you and Alex (Ham) seem to have made a great fist of it.

RM: Alex and I took the helm in 2016. Whilst co-CEOs is an unusual construct for listed companies, it’s not uncommon to have co-heads of financial services businesses. Tellworth is a great example of this and similarly, many private equity firms and law firms have joint Managing Partners. I think in our case it was quite seamless because we had been working together at Numis for many years already and always had a strong working relationship with shared views and values. It has also been helpful that our skillsets are quite complementary, with my background being in equities and facing our institutional clients, where Alex was previously running the Investment Banking side of our business which faces our corporate clients. We are on a mission to build the very best Investment Bank in the UK and having that common purpose is a great basis for our partnership.

JW – The IPO pipeline seems full to bursting right now – this should be good news for all of us – what are you seeing in terms of quantity and quality?

RM: For our financial year to September 2020, we acted on just one IPO, being a junior role on THG. As markets have rallied and confidence has returned, the IPO market has really re-opened and we have acted on 9 IPOs year to date, including two this week (Victorian Plumbing and About You in Germany). Many of these IPOs were obvious COVID beneficiaries such as Moonpig and Auction Technology Group as structural trends, that may have taken years to play out have been accelerated through the pandemic. As we sit here today, our IPO pipeline, and I suspect that of the market, is very full. The main factors behind this are some pent-up supply from companies or vendors who have been waiting for the IPO market to open, as well as greater investor confidence and increasingly attractive valuations on listed markets. We are seeing a broadening out to other sectors beyond ‘digital disruptors’ and are genuinely excited about the quality of companies that are looking to come to market. It is very healthy for markets to have good new companies seeking to list, and Brexit does not seem to have diminished the attraction of London as a listing venue.

PM – We have often had to fight the corner for public markets investors as private equity has grown so much in recent years.  Your business is right in the middle of that debate, how do you see it evolving?

RM: I think private equity gets pretty bad press, often unfairly! The characterisation of the industry as cost-cutting asset strippers is very often far from the truth, and I can think of dozens of examples where they have been great custodians of businesses who have invested behind a solid growth plan. Of course, they have access to cheap debt and therefore a relatively low cost of capital, but ultimately, they normally only succeed if they can grow a business or its geographic reach and leave it in good shape for the next owner or for listed market investors. I think private equity and public markets can happily co-exist and both have their merits and limitations.

JW – Do you expect regulation to change much in a post Brexit era, not least as the chancellor was one of your firm’s clients and our competitors not so long ago?

RM: It definitely feels unlikely that the EU will grant the UK equivalence for Financial Services. It is disappointing that Fishing took centre stage in the Brexit debate, whilst Financial Services was given less prominence. However, we have plans in place to open an office in Dublin and to have a fully-fledged EU-regulated entity up and running in the coming months. One of the other Regulatory pushes is around ensuring the UK remains a highly attractive listing venue for companies, and the recent Lord Hill review made a number of recommendations around this topic. I think regulation in that area is a fine balancing act between upholding the very high governance standards that the UK is known for, whilst also encouraging high growth, entrepreneurial companies to list here rather than elsewhere.

PM – Where do you stand on how much permanent change we will see in our way of working.  We miss seeing companies face to face, but I’m sure they don’t miss being stuck in a limo on the Strand between meetings?  You have also just moved into our old home at 30 Gresham Street – are you expecting a full return to office working for Numis?

RM: It is very clear that people want more flexibility in a post-covid world, and we will absolutely embrace hybrid working. We also expect the office to remain very important as a place for collaborations and face to face client meetings will always trump zoom calls. We plan to move to Gresham Street in September and assuming no fourth wave, we will use that as the starting gun for ‘the new normal’ whereby most of our people will be back in the office regularly. I am sure that some of the good bits of the last 18 months will endure, and company roadshows will end up being a mixture of face to face and virtual meetings in order to cut down on wasted travel time. It is amazing to think that we have now done a number of successful IPOs where not a single investor has met the company execs in person!

JW – What do you think makes a great UK equity fund manager, having spoken to so many over the years?

RM: I think the first thing is an inquisitive mind and the ability to have clear and rational views on some of the bigger trends that are happening. How simple was it last March to work out that COVID would rapidly accelerate the shift to online, yet Ocado, ASOS and others sold off just as quickly as their bricks and mortar peers, creating phenomenal buying opportunities in really great businesses that are on the right side of structural change. It can be hard to step back from the daily noise, but all of the best fund managers have that ability to act clearly and decisively when there is panic in the market. Of course, a good analytical brain is also important, but the answer is rarely found in a spreadsheet, but rather in getting to know and backing great management teams who have a sustainable competitive advantage in their business model.

PM – I have drawn Scotland in the Tellworth Euro 2020 sweepstake – please confirm that as a fully plaid up Tartan Army member that I haven’t got a hope?

RM: William Hill were offering odds of 250/1 on Scotland at the start of the tournament, and I would rather lay Scotland at those odds than back them! However, it has been great to see more than 25,000 Scottish football fans invade the capital in the last few days, and probably good news if you have any holdings in the UK-listed pub companies.

JW – You have seen lots of fund manager consolidation over the years what role do you think a specialist boutique-like Tellworth plays in today’s market from a brokers perspective?

RM: From a Brokers view, it is great to build a genuine partnership with firms like Tellworth. Our business is built upon strong and long-term relationships and it is so satisfying when we feel that we are valued, and have played some part in the success of our clients. Some of the biggest fund management organisations are hard to penetrate as they have an analyst-led model and are often looking at sectors on a global basis. Contrast with boutiques who are typically PM-led and stockpickers, which makes for a better discussion and a more fruitful relationship. It is also the case that small caps generally outperform large caps over time, and this plays into the hands of nimble boutiques who can take positions in some of the small and most interesting listed companies. It is no surprise that some of the best alpha generation comes from smaller firms who have the independence of thought to back their judgment on individual stock calls.

PM – It’s well known that I’m a frustrated farmer, much to agriculture’s gain and investors’ loss no doubt, is there a sector that feels the same about Ross Mitchinson?

RM: Cricket was my passion growing up, and I was lucky to play at a decent standard. Sadly I was not quite good enough to make a career out of it, but I can now try to live that dream vicariously through my ten-year-old son, who is showing some promise with the bat!

The views and opinions contained herein are those are those of Paul Marriage and John Warren, Fund Managers (and Ross Mitchinson) . They do not necessarily represent views expressed or reflected in other BennBridge investment communications or strategies and are subject to change.

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