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Top AIM investor shocked by Patisserie Valerie crisis

Top AIM investor shocked by Patisserie Valerie crisis

Citywire AA-rated fund manager Paul Mumford has been left shocked by the scandal engulfing high street cake maker Patisserie Valerie.

Patisserie Holdings (CAKEP) announced this morning finance director Chris Marsh had been arrested and released on bail, after he was suspended by the company on Wednesday following the discovery of 'significant, and potentially fraudulent, accounting irregularities'.

The company warned yesterday it needed an ‘immediate injection of capital’ to continue trading.

Mumford said the company's 'grim' outlook had forced him to write off his investment in the company, which had accounted for 1.5% of his £77 million Cavendish AIM fund.

‘The trouble is their products are sold on a daily basis and suppliers might not want to give them ingredients if they’re concerned about cash,’ said Mumford. ‘The situation could deteriorate very quickly indeed.’

‘So on the one hand they need a fairly big cash injection and on the other they need to reassure suppliers.’

‘And banks won’t want to get involved unless there is cash in the kitty.’

Shares in Patisserie Holdings have been suspended since Wednesday.

The following day, the Alternative Investment Market (AIM) company, which had a market capitalisation of more than £440 million, revealed it faced a winding up order from HM Revenue & Customs over £1.1 million in unpaid tax. The notice was filed against its subsidiary company Stonebeach in September.

Just months before these financial issues came to light, Marsh sold the majority of his shares, making a profit of around £680,000.

The Serious Fraud Office announced on its website this morning it would be investigating the situation. 

'Following this morning’s Regulatory News Service announcement by Patisserie Holdings, the SFO confirms that its director has opened a criminal investigation into an individual,' a spokesperson said. 

Mumford said he had been taken aback by the news. 'I must admit this is the one of the last of my stocks I expected to have this problem.’

For shareholders to continue backing the business Mumford (pictured) said Patisserie would have to come back with a ‘compelling story’ as to what happened and how the business would be managed in the future.

However, Mumford was more optimistic on the company’s chairman Luke Johnson, the former Pizza Express owner who founded Patisserie Holdings in 2005 and owns around 37% of the business.

‘He’s the sort of person who will be working 24 hours a day to sort this issue out.’

He said Johnson was known for being a ‘conservative investor’ and that he would not want to tarnish his reputation.  

Mumford argued the issue should have been picked up by the company’s auditor Grant Thornton.

‘It does leave a question mark over the auditors,’ he said.

Grant Thornton, Mumford pointed out, was currently being sued by AIM-listed fire engine firm AssetCo (ASTO) for a similar issue over the mismanagement of its books.

The Financial Reporting Council fined Grant Thronton £2.3 million last year over its role in the AssetCo scandal.

Mumford bought into Patisserie Holdings in 2014, two years after the company floated on AIM.

His Cavendish AIM fund is the best performing fund in the Investment Association's UK Smaller Companies sector over three years, up 71% over that period.

Other funds with exposure to Patisserie Holdings include Aberdeen UK Smaller Companies, with a 2.3% portfolio position listed in January's annual report.

A spokesperson for Aberdeen Standard Investments said yesterday: ‘This is an entirely unforeseen situation upon which we are unable to comment until the results of the investigation become known.’

Also among the investors was Jonathan Brown, who holds the stock in his Invesco Perpetual UK Smaller Companies (IAT) investment trust and fund of the same name. Both positions accounted for just over 1% of the portfolios at the end of January.

The most recent portfolio listings for the Rathbone Heritage and Rathbone UK Opportunities funds meanwhile show 2.4% and 2.6%  portfolio positions at the end of June and March respectively.

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Paul Mumford
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