We talk to a value-focused investment firm that concentrates on turnaround opportunities in the UK economy.

When financial markets hit trouble and the days of easy returns fade from view, that might cause many investors to frown. But for those who look for unjustly neglected and unloved firms to own, pain can lead to gain. 

Milkwood Capital, an investment house based in Windsor, near London, is all about valuation and looking for firms that can be turned around, and value can be unlocked.

It has found plenty of such opportunities in the UK. 

André Tonkin, an investment analyst and Rhys Summerton, who is the founder and investor at Milkwood, say their firm’s natural contrarian bias is part of the formula. They look for firms with cash on the balance sheet and the ability to create more, which can then be used for share buybacks, acquisitions and other ways to lift value. They also relish a chance to own stakes in companies that have been left for dead by public market investors but which they believe they can get the company back to an attractive state for either public or private investors.

“We want to be a part of how capital is applied,” Summerton told WealthBriefing in an interview. He’s not interested in firms that might initially look great but have heavy debt. “If there is no capital to allocate (because it will all go to debt repayment) then we are wasting our time,” he said. 

To illustrate how it works, Summerton gave the case of Mears, a housing management, repair and maintenance business in the UK that at one stage had about £80 million ($107.7 million) of balance sheet cash, generating £13 million in cash per year, but a modest market capitalisation of £160 million. Milkwood was eventually able to persuade Mears’ board to buy back stock, but not until two chairmen (Kieran Murphy and Chris Loughlin) had left the business in quick succession. Milkwood, which by that time owned about 10 per cent of the stock, had a good relationship with the CEO, David Miles, and together they managed to instigate the buybacks. 

The share price in Mears has more than doubled since Milkwood's involvement, and the firm is now generating more than £44 million per annum in free cashflow. Over five years, shares in Mears have skyrocketed 194 per cent, to 3350 pence per share (as of Tuesday 26 August).

Tonkin gave another case of unlocking value – UK group Menzies, which for most people was a renowned newspaper distributor (not exactly a growth business). But Milkwood identified that it was Menzies´ Aviation business – providing baggage handling, de-icing and related services, that was a very attractive asset for private or multinational owners. The aviation part of Menzies was split off and eventually sold in March 2022 after a hard push from Milkwood, at 608p per share (a 500 per cent profit in the stock over 18 months for Milkwood’s family office co-founders at the time).

Performance
According to its July 2025 factsheet, the Milkwood Fund has delivered a net return, since Inception in 2014, of 8.3 per cent, versus the MSCI ACWI benchmark of 9.3 per cent. In more recent years, however, the fund has outperformed strongly. For example, over five years, it has chalked up a 45 per cent annual return, above the benchmark of 12.8 per cent per annum. Over one year, the result is 36.7 per cent, above the benchmark of 15.9 per cent. There are two share classes: A shares, with an inception date of 17 January 2014, and D shares, with a start date of 1 January 2015. Both classes carry a 10 per cent performance fee; there is a 0.75 per cent management fee on the D class shares, and no such fee on the A class (which require a higher minimum investment).

Two parts
There are two elements of Milkwood: its fund business, which is now attracting US capital for the first time, and a listed investment company, AIMIA, in Canada, which Milkwood took control of about two months ago.

Summerton is the largest individual investor in the fund. He is a former MD and global head of emerging market equity research at Citigroup, and a chartered accountant, who started his career at Ernst & Young. That background helps him to see the investment story in the numbers. As for his colleague, Tonkin has worked at Milkwood since its founding in 2014 and is also an investor in the fund. He’s a qualified actuary – which among other things means that he “gets” how a firm’s valuation can be influenced if it still operates a defined benefit pension fund. (More on that later.)

The description of the Milkwood Fund outlines what it’s about, saying it “aims to achieve long-term capital appreciation, mainly through active realisation of value in small and mid-cap stocks…The fund invests in global equities, with a focus on developed markets and the UK in particular.”

WealthBriefing spoke to Milkwood against a background of continued concerns about the state of the UK economy. Over one year, the blue-chip FTSE 100 Index of UK shares is up 11.5 per cent, whereas the S&P 500 Index of US stocks has risen 20 per cent. The FTSE 350 Index, which includes more medium-sized and smaller companies, it has risen 11 per cent. This is not a terrible result but hardly gets investors cracking the champagne.

Against a background of concerns about UK firms such as Astra Zeneca and others possibly shifting listings from London to New York, the UK financial background appears challenging. But that doesn’t faze Summerton.

“We are not complacent about the situation in the UK. We recognise the risks but we also know we would not have as many opportunities here if the general outlook was rosy,” he said. He approvingly referred to US investment legend Warren Buffett’s comment that investors pay a high premium for rosy forecasts.

It is only really UK pensions and big retail funds that have abandoned UK equities in recent times, he said – this has not been the case on the private market side – private equity and multinationals are eager investors in UK companies. 

A high prevalence of income-focused funds compared with other markets is one of the reasons why Milkwood believes that they see opposition to buybacks by UK firms. This has been a headwind for companies’ return on equity performance. But there are a lot of solid companies whose CEOs want to listen to what Milkwood has to say, Summerton said. 

Tonkin explained the Milkwood formula: It starts with a universe of about 1,300 UK stocks and then they narrow this down to about 130, using various valuation methods. The firm will meet with these companies’ management, talk to suppliers and gain other information. It will buy shares in some of these firms to gain more information, while taking more significant stakes in only about 10 businesses at a time. 

“We like firms that have disappointed and fallen substantially, and then we can get more involved,” Summerton said.

Certain problems at a firm can be fixed with the right approach – such as disposing of poorer businesses or working to remove the pension deficit (under current accounting rules, deficits are treated as debt on a corporate balance sheet). 

“Our pitch to a company is that we’re aligned with you and here to help. If the share price triples, then you [the C-suite] will look like heroes,” Tonkin added.