President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
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20 years ago, a young intern at a leading investment bank was asked for his views on the future of the media industry. His published thoughts included the suggestion that his generation never watched TV. This came as a complete shock to the older generation of analysts and fund managers. Could this apply to the car industry? The following article results from an interview between the Hardman & Co analyst, Derek Terrington, and his son, William (age 23). Derek is famous for his research note exposing Robert Maxwell in the 1990s, when he was the leading media analyst at UBS. The note was entitled Couldn’t recommend a purchase, the acronym of which has been quoted ever since in the City.
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The COVID-19 pandemic has had a significant impact globally in many areas. While primarily a health issue, it has had wide-ranging implications for stock markets, which have now rallied after the plunge in share prices in mid-March when the full severity of the emerging pandemic became more widely appreciated. Nonetheless, the FTSE 100 Index remains almost 20% off its late February 2020 figure.
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For this Monthly, we are delighted that Rooney Nimmo and 24Haymarket have allowed us to reproduce a recent report they jointly published, entitled An analysis of UK exits (2015-2019), which provides a granular analysis by sector of the activity in our dynamic private companies world. We hope you find the insights of interest.
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To be resilient, a bank needs three things – low risk assets, strong capital and surplus deposits. ABG has all three. The low-risk assets are reflected by the small percentage (and falling) Stage 2 and Stage 3 loans in the private bank as well as low loan to values. Surplus capital is now £66m and deposits exceed loans by £0.6bn. Profits before tax, though, fell from £2.9m to £0.2m as the decline in base rate squeezed margins (£2.7m cost) and with a £1m incremental COVID-19-related impairment. Our 2020 base-case scenario is now for a small loss (previously breakeven). The shares trade at 64% of NAV, implying value destruction to perpetuity.
Companies: Arbuthnot Banking Group PLC
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
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To be resilient in an economic storm, a bank needs three things – low risk assets, strong capital and surplus deposits. ABG has all three. At end-2019, 55% of loans were in the private bank (significantly secured on sub-60% LTV residential properties) or the acquired mortgage book. Just 1.5% of the commercial loan book was on 80%+ LTV. The equity-to-assets ratio was 8% and total capital ratio, 17.3%. The regulators have reduced capital buffers – we estimate ABG has ca.£60m of surplus capital. There is surplus liquidity: deposits £2.1bn, loans £1.6bn. ABG announced an increased dividend but withdrew it following PRA market guidance.
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Much of the UK’s privatisation programme took place between the early 1980s and the mid-1990s: subsequent sales have been few. Undoubtedly, privatisation attracted many private investors to the market, many for the first time.
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We recently published a paper, Share ownership: For the many, not the few, based on a statistical survey of share ownership, produced jointly with Argus Vickers, the share analysis service. The Office for National Statistics (ONS) has now issued its equivalent survey. This paper compares its results with ours. Although there are, inevitably, differences in the detail, the two surveys reach the same conclusions.
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The Office for National Statistics (ONS) is due to publish its most up-to-date survey on share ownership in mid-January, which identifies the beneficial owners and decision- makers of the stock market. Hardman & Co has worked together with the share analysis service, Argus Vickers, to jointly produce its own survey, which anticipates the conclusions of the ONS survey but goes into much greater detail. Our work does not use a sample of 200 quoted companies as the ONS historically has, but rather includes everyUK quoted company. The ONS samples share registers every two years; our study uses six-monthly data points. Our survey also extends to shareholders on NEX; the ONS does not.
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The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.
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What’s new: Interim results confirm the growth set out in the recent trading update:
12.6% rise in Group Revenues to £11.0m (1H last year: £9.7m);
21.9% rise in adj operating profit to £5.03m (1H last year: £4.13m);
17.4% rise over 6 months in AUM to £7.8bn on 30 September 2020,
n.b. From 31 March 2020 the WMA balanced index rose 11.6% to 4510;
Market movements added 12.5% to AUM (i.e. Tatton outperformed WMA);
1H net inflows of £328.1bn were 4.9% of opening AUM (i.e. c 10% annualised net inflows);
Companies: Tatton Asset Management Plc
Regional REIT (RGL) has published an encouraging trading update and, with continuing strong rent collection, has confirmed a Q320 DPS of 1.5p, in line with target. RGL remains very positive about prospects for the regional office markets beyond the current period of uncertainty and future investment will focus solely on this sector. The remaining industrial and other assets will be sold and in addition to reinvestment of the proceeds RGL will consider a share buy-back where this is accretive.
Companies: Regional REIT Ltd.
Tatton has demonstrated resilience to deliver a strong outturn. H1 performance was in line – delivering half our FY21 estimates – on sustained net inflows (£55m pcm) as performance benefited from market recovery and Paradigm addressed lower mortgage volumes by refocusing on refi/product switching. AuM has recently hit the £8bn milestone. The balance sheet is well capitalised (£13m cash) and pursuit of compelling organic (and acquisitive) opportunity continues. The 18x fwd PER reflects this, alongside 20% forecast EPS growth.
Today's trading update reads positively, evidencing a further rise in cash receipts towards pre-Covid levels, as three royalty partners exit forbearance measures. As a result, Duke will return to cash paid dividends from Q3/21E at attractive yields currently. Our newly released forecasts see YoY recovery in performance to FY23E, while significant upside exists from sizeable equity stakes arising from forbearance. Trading at a 16% discount to forecast FY22E NAV, we see Duke as overly discounted given the continued improving outlook, thus move to a Buy recommendation.
Companies: Duke Royalty
H1 Results: resilient performance
Companies: Palace Capital plc
The COVID-19 pandemic has accelerated trends in online retailing, to the benefit of the European logistics market, in which Tritax EuroBox (EBOX) is a leading player. Demand for logistics space is growing exponentially, while supply of existing and new stock is depleted. This dynamic is even more acute in prime locations close to heavily populated conurbations and prolonged rental growth is forecast. EBOX has amassed a portfolio of big box facilities located in major logistics hotspots across Europe. Numerous value-add opportunities also exist within the portfolio, including development and asset management projects. One of the key differentiators of EBOX to its peers is its exclusive ties with established logistics developers. Through the relationships, EBOX has access to and first right of refusal over a pipeline of development assets worth €2bn.
Companies: Tritax EuroBox Plc
Today’s $2.3m framework agreement with an existing Tier 1 global customer is further validation of Clareti’s competitive advantage, of its ability to land and expand and, logically, is the augury of incremental revenues ahead. Gresham continues to gain market share in the critical Tier 1 space and we expect this to show in a resumption of revenue growth next year. Trading on forward Clareti recurring revenues of c. 4.1x, we see significant upside.
Companies: Gresham House
Tatton delivered solid interim results for the 6 months period ending 30 September 2020, showing double-digit growth on most key metrics, despite very challenging market conditions. It also announced that it has secured a £30m credit facility to pursue organic and acquisitive growth. That, in addition to its accumulated net cash pile of £13.3m, is a significant ‘war chest’. In today’s uncertain and volatile economic environment, finding reasonably valued or even under-priced opportunities to deploy some of this capital is a realistic expectation.
We believe now is an interesting time to invest in Northgate, with a new executive board and a capable management team in place who have already delivered progress on an ongoing turnaround as we await a full strategic review. The group now has a clear and well communicated capital allocation strategy in place and improved earnings quality, in our view. We believe that the growth opportunity in the UK, the value of the Spanish business and the progress made to date with the turnaround are not being reflected in the share price, which is currently 15.9% below book value (414p per share in FY19A rising to 468p in FY22E). We use a variety of valuation methods including P/B, SOTP, DDM and DCF modelling and arrive at an average implied share price of 450p, 29.0% above the current share price.
Companies: Redde Northgate PLC
Avation is a lessor of 46 commercial aircraft to a diversified airline client base. This morning, the group has released results for the 12-months to 30 June 2020, which illustrate the challenges faced by its customer base as a result of Covid-19, as well as the corrective actions taken by the Board that have resulted in profitability being maintained in the year as a whole. Loan repayment deferrals of c.$24.4m were obtained in the period, in comparison to $13.1m short-term rent deferrals being granted to airline customers and thus emphasising management's focus on liquidity during an unprecedented period for global airlines. Avation again reports that it is currently reviewing alternatives in relation to the 6.5% senior notes due in May 2021. Whilst at this point our forecasts remain under review, and near term challenges remain across the industry, we believe that demand for aircraft from lessors such as Avation will increase in time as a result of airlines being even more reliant upon aircraft leasing firms due to the retirement of older aircraft during 2020 in combination with much weaker balance sheets that are unable to support direct aircraft purchases.
Companies: Avation PLC
Grey space was increasing in H1 20. British Land now forecasts Offices’ prime rents “to fall 5-10%, over 12-18 months”. It will make the balance sheet more fragile as Offices weighed 65% of BL’s GAV and haven’t been hurt that much until now. The conjunction of cycles (Offices + Retail) becomes likely in H1 21. Retail has accelerated its collapse, once again. The recent share price bump was another opportunity for exiting, following the vaccine. Buy it later.
Companies: British Land Company PLC
Standard Life UK Smaller Companies (SLS) manager Harry Nimmo is very bullish on the outlook for UK small-cap stocks, with the proviso that Brexit presents a near-term risk. He notes that despite current challenges due to the coronavirus, many companies are trading above expectations and there are now only a handful of SLS’s portfolio companies that are not paying dividends. The manager is comfortable with the trust’s ability to maintain its own dividend payments and is hopeful its valuation will improve given its very strong performance record. SLS’s NAV has outperformed its benchmark over the last one, three, five and 10 years; however, Nimmo cautions that given the trust’s focus on quality businesses, if there is a cyclical recovery in the UK market with a ‘dash for trash’, SLS is likely to underperform during this period.
Companies: Standard Life UK Small Co's Tst
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Interims are in line and unchanged yoy. This masks a resilient performance which has seen organic new scheme additions maintained – a reflection of marketing efforts. Some uncertainty remains for H2, particularly around the key treasury refinancing, which may impact interest income. There is competitive advantage in the holistic fee structure. Long term growth may come at the expense short term returns on interest income. We leave forecasts unchanged and will review again around the year end.
Companies: Curtis Banks Group PLC
Litigation Capital Management has announced FY20 results with gross profit up 7% to A$21.7m and PBT of A$9.2m, slightly behind expectations albeit the Group had already flagged that delays to 3 cases during the year would result in resolutions in FY21, thereby impacting FY20 results. That said, excellent strategic progress through the year and good news flow as well as increasing scale suggests more value to come. Reiterate buy
Companies: Litigation Capital Management Ltd