Since our most recent note, the managers of Aberdeen Emerging Markets Investment Company (AEMC) have significantly increased the fund’s exposure to China. With 38.9% of the fund now allocated to China and 72.5% to wider Asia-Pacific, extensive exposure is provided to the region that has been the quickest to return to near-normal economic activity. Asian exposure is supplemented by pockets of strength elsewhere, such as in Romanian equities and frontier market bonds. AEMC continues to trade at what seems an excessively wide discount to its peer group, particularly when also factoring in its dividend yield and low ongoing charges.
Companies: Aberdeen Emerging Markets Invstmt Co
The managers of Aberdeen Emerging Markets (AEMC) are optimistic about the prospects for the company. Strong performance last year has not yet translated into a reduction in the discount that the share price trades at relative to the asset value, but if outperformance can be maintained, this should follow in time. Investors might also be comforted by AEMC’s much lower volatility of returns compared to its peers and its benchmark.
There was palpable shift in sentiment over the third quarter with the cautionary undertone perhaps best reflected by gold’s resurgence. Ongoing trade jockeying between the US and China did not help the mood and neither did the Argentine debt default in August. At the real economy level, manufacturing output has been trending lower across some of the major global economies.
Companies: AEMC BIOG SIGT IBT JEFI MHN MERI MTE PSHD RSE SIR FJV LTI MVI SEQI SOND SLI EGL SUPP VNH CSH VSL BRLA UTL ADAM SOHO GPM TPOU LEAF JRS JLEN SEC IGC MPO LIV INTU THRL
Year to date, Aberdeen Emerging Markets (AEMC) has been performing well, outstripping both its benchmark and the average of its peer group by some margin (see page 8). The members of the investment management team, who predicted a resurgence in AEMC’s performance in 2019, believe there is more to come over the remainder of the year. They highlight that, globally, investors are still underweight emerging markets. In addition, the recent rate cut in the US could signal a halt to US dollar strength, to the benefit of emerging market currencies and stock markets.
Worries about interest rates, trade wars and falling credit growth in markets like China have caused valuations in emerging markets to fall sharply. As trade issues get resolved, China refocuses on growth and the Fed pauses, the managers of Aberdeen Emerging Markets Investment Company (AEMC) believe that there is room for emerging markets to continue to rally. Since Andrew Lister and Bernard Moody took charge as co-managers on 1 July 2014, AEMC has outperformed almost all its EM peers, with lower volatility and tracking error. We believe this combination of long-term performance and an attractive dividend yield makes AEMC an attractive candidate for investors looking to increase their emerging market exposure.
In 2018, Aberdeen Emerging Markets (AEMC) gave up the gains it made in 2017; this left its shares trading on a 3.9% dividend yield (one of the highest in its peer group) and a wider discount to its net asset value, currently 15.0%. The shift was largely one of sentiment, investors were worried about the potential effects of rising US interest rates and a US trade war with China on emerging markets. Emerging market currencies weakened and funds focused on the sector experienced significant outflows. The underlying companies now trade on much lower valuations and AEMC’s managers believe that emerging markets have overshot on the downside. The potential is there for a reversal of fortune in 2019.
In 2018, Aberdeen Emerging Markets (AEMC) gave up the gains it made in 2017; this left it trading on a 3.9% yield (one of the highest in its peer group) and a wider discount. The shift was largely one of sentiment, investors were worried about the potential effects of rising US interest rates and a trade war with China on emerging markets. Emerging market currencies weakened and the sector experienced significant outflows. The underlying companies now trade on much lower valuations and AEMC’s managers believe that emerging markets have overshot on the downside. The potential is there for a reversal of fortune in 2019.
Aberdeen Emerging Markets (AEMC) will be 20 years old on 22 June 2018. This is no small feat; it has survived numerous crises in emerging markets (EM), the distortions of ‘hot money’ and a long-standing market focus on growth sectors (which does not suit the managers’ value-investment style). Furthermore, since launch, it has delivered an NAV return of 646% or 10.6% a year, ahead of the MSCI Emerging Markets Index, 541% or 9.8% per annum, and well ahead of the MSCI World Index, 256% or 6.6% per annum*.
The Board of Aberdeen Emerging Markets Investment Company (AEMC) has announced that the continuation resolution was approved with 65.3% of the votes cast voting in favour. There will be a further continuation vote in 2023. The Board has also announced the results of the tender offer. The tender price is 652.6487p per share. Given the number of measures introduced in the last year to increase the attractiveness of AEMC and the combination of strong historic performance and low tracking error we continue to recommend that investors buy AEMC for their core emerging market exposure.
The Board of Aberdeen Emerging Markets Investment Company (AEMC) has noted that for the three-year period ending 31 October 2017 the fund outperformed its benchmark index and its Direct Peer Group average. The Board has announced today proposals for a tender offer for up to 10% of the Company’s ordinary shares in issue at a price reflecting a discount of 3.5% to NAV. It has also declared a first interim dividend of 5.25p per share and anticipates that the total dividend for the year will be no less than 21p per share (up from 5p a quarter for the previous two quarters). We believe that these measures further enhance the attractiveness of AEMC and investors should buy AEMC for their core emerging market exposure.
Aberdeen Emerging Markets (AEMC) is designed for investors who want exposure to the compelling investment opportunity that emerging markets provide. Its managers believe that they have built a portfolio of best-of-breed and, often, hard to access managers, and its portfolio is much more diverse than those of competing funds.
Aberdeen Emerging Markets (AEMC) is designed for investors who want exposure to, what the managers are convinced is, the compelling investment opportunity that emerging markets provide. Its managers believe that they have built a portfolio of funds, managed by best-of-breed and, often, hard to access managers, and say that its portfolio is much more diverse than those of competing funds
Aberdeen Emerging Markets Investment Company (AEMC) has, since Andrew Lister and Bernard Moody took charge as co-managers on 1 July 2014, proven itself to be a strong performer, with lower volatility and tracking error than several of its peers. It can access specialist funds in various countries which can potentially boost returns for investors in AEMC. The board’s recent announcement that it will pay a dividend on an ongoing basis and the reduction in AEMC’s management fee add to the fund’s attraction. We recommend that investors should buy AEMC for their core emerging market exposure.
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FY20A results largely reflect a period prior to the Covid-19 lockdown, yet show Duke entering a more challenging FY21E with momentum. Yesterday's trading update demonstrated another notable rise in quarterly cash receipts for Q2/21, as royalty partner trading continues to improve. As some partners' forbearance measures will expire this month, Q3/21 receipts should continue this upwardly momentum. This opens the door to a return to cash dividends at some future point. Today, Duke also confirms it is now seeking new royalty partners, alongside follow-ons.
Companies: Duke Royalty
With the sale of the Singaporean operations for £1.6bn, the new CEO, Amanda Blanc, shows her intention to focus rapidly on its preferred markets (the UK, Ireland and Canada). The next candidate for sale is the French unit. This transaction is more complicated than the previous one, with the necessity to obtain the agreement of Afer, its key partner in France. With potential proceeds of £2.9bn, Aviva could reduce its debts significantly and allocate more capital to the UK bulk annuity business.
Companies: Aviva Plc
Oil posted its first back-to-back weekly loss since April's rout with the end of the summer driving season and concern about OPEC's production compliance weighing on prices.
Futures in New York edged up on Friday, but prices fell 6.1% this week coinciding with a retreat in U.S. equities. Traders are also examining data indicating the United Arab Emirates since July has been regularly exceeding its quota under a deal between the Organization of Petroleum Exporting Countries and its allies.
The uncertainty over how much supply OPEC+ is returning to the market adds another wrench in the recovery for oil prices still reeling from the pandemic-driven blow to consumption. While U.S. supplies had grown tighter in past months and producers were expected to restrain production amid a weak financial backdrop, stockpiles rose again last week for the first time since mid-July.
Companies: XOM HES KOS JSE 88E ADV CAD CHAR ECHO ENOG EME I3E PMG RBD SQZ SOU TLW VGAS WTE PHAR
What’s new: CLIG results have beaten Zeus expectations at revenue, EPS and DPS. On 14 July CLIG provided an update which revealed $338m of net inflows (6% of opening FUM), outperformance of the Emerging Market and Developed strategies (98% of FuM) and 25% rise in FuM in 4Q to $5.5bn and an indication that the final dividend would be not less than last year. In our opinion, key features of CLIG’s full year results include:
4.4% rise in revenue to £33.3m (Zeus forecast: £32.0m);
6.1% fall in adj PBT to £10.7m (Zeus forecast: £10.3m), excluding gains/losses on seed investment 9.4% rise to £11.6m (FY19: £10.6m);
3.2% rise in adj EPS to 35.3p (Zeus forecast 32.5p);
11.1% rise in final DPS to 20.0p (Zeus forecast: 18p) with the total DPS of 30p (Zeus forecast: 28p) is 11.1% above the prior year excluding special DPS.
Net cash of £14.6m (Zeus forecast: £10.0m)
The acquisition of KMI is expected to complete on 1 October 2020.
Companies: City of London Investment Group Plc
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.
Companies: AVO ARBB ARIX CLIG DNL GDR ICGT NSF PCA PIN PXC PHP RECI STX SCE TRX SHED VTA YEW
S4 Capital had an extraordinary week with strong interims and an impressive CMD accompanied by a further merger and topped off with winning its third Whopper. Interims were ahead of our expectations and we were particularly encouraged by LFL Gross Profit growth of +18% in July. The group announced the merger with Dare.Win, an award-winning digital creative agency which extends the geographical presence of MediaMonks to France. BMW and MINI consolidated its Pan-European account into a team led by MediaMonks, which is the third whopper account for S4 Capital, and notable in our view for being won in a pitch, rather than by land & expand, and being an automotive rather than technology client. The group held a three day CMD and our summary would be i) Day One demonstrated the compelling strategic logic and strict financial discipline underpinning the group ii) Day Two illustrated the already formidable partner/client list of S4 Capital, including Adobe, Amazon, Google and CAA and iii) Day Three highlighted the chemistry between the individual agencies brought together to form S4 Capital and the outstanding work that they produce. To reflect BMW and Dare.Win we raise our FY21 EPS forecast by +8% to 10.8p (was 10.0p) and continue to view 15p as a realistic target with further whoppers in prospect and the balance of the recent equity raise to deploy. On a 30x multiple, we raise our target price to 450p (was 375p) and retain our Buy recommendation.
Companies: S4 Capital Plc
Frontier IP has announced it has invested £320k in a £720k convertible loan financing of Nandi Proteins. Nandi Proteins is developing functional proteins for food ingredients aimed at reducing levels of fat, additives and gluten in processed foods addressing important social, health and environmental concerns about processed food. Frontier IP holds a 20.1% equity stake in Nandi Proteins; the last disclosed value of the holding was back in July 2017 at approx. £2.9m. Connected in part to the announcement today, we have used the opportunity to refresh our cash flow forecasts to reflect the net £2.1m proceeds of the July 2020 fundraise, the planned deployment of proceeds into bridge financing and refreshed our Sum-of-the-Parts valuation analysis to reflect the excellent portfolio progress made in FY’20. We anticipate a 50% increase in the unrealised profit on the revaluation of investments in FY’20e to £5.82m (vs. £3.0m prior estimate; £3.85m in FY’19). Applying the peer group multiple of 1.6x on Yr1 Book value of late-stage assets and incorporating the £2.1m proceeds and dilution associated with the July placing, implies an intrinsic value of 82p/share, 27% above the current share.
Companies: Frontier IP Group Plc
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
Following a solid H120, HgCapital Trust (HGT) announced several portfolio transactions representing a considerable uplift to the carrying value at end March 2020 and translating into a c 12.0% ytd NAV total return (TR) to end August. On completion of these deals, HGT’s cash resources will improve significantly to £314m from £123m in early July, while its unfunded commitments will decline to £814m. Consequently, HGT’s commitment coverage ratio will improve markedly to c 39% vs 13% in early July.
Companies: Hgcapital Trust
Artemis Alpha Trust (ATS LN) has undergone a radical transformation over the past two years following a comprehensive strategic review. In April 2018, the trust held around 90 stocks with approximately 25% of NAV held in unquoted positions. Following the implementation of the review, Kartik Kumar (who has been with Artemis since 2012) was appointed lead manager alongside John Dodd remaining in place with an overseeing role. Kartik has since significantly reduced the number of stocks to a much more concentrated high conviction portfolio of just 36 stocks, and has significantly reduced the unquoted exposure to only 7%. This shift in focus has at the same time improved portfolio liquidity by moving up the market capitalisation scale.
Companies: Artemis Alpha Trust
L&G reported an operating profit from continuing divisions (excluding Mature Savings and General Insurance businesses) of £1,128m, -2.2% yoy. The COVID-19-related cost was £129m. LGR posted a growing operating profit to £721m. Net profit amounted to £290m vs. £874m a year before, being affected by the reduced discount rate used to calculate LGI reserves. The Solvency II ratio stood at 173%. The Board recommended an interim dividend of 4.93p/share, stable relative to H1 19.
Companies: Legal & General Group Plc
Avation is a lessor of commercial aircraft to a diversified airline client base. In relation to the ongoing administration process of Virgin Australia, Avation has this morning announced that following the successful placing of five of the original thirteen aircraft that were on lease to the airline (two Fokker 100s plus three ATR 72-500s, with the latter having gone to two new customers), the remaining eight aircraft will be returned to Avation, being made up of three ATR 72-500s and five ATR 72-600s. Additionally, subject to approval at a creditors' meeting scheduled for 4 September 2020, the expected return to unsecured creditors is now anticipated at between 9-13% being paid prior to 30 June 2021.
Companies: Avation Plc
Deltic Energy is entering an exciting phase in its development based on its fully funded joint-venture projects with Shell. Preparations are now underway for an exploration well to test the Pensacola Zechstein prospect in the SNS (Southern North Sea). Deltic has indicated that it expects the current contingent well commitment to become firm on schedule by December 1, 2020. Drilling, according to Deltic, should follow in H2 2021. We see scope for positive news flow over the next few months, not least from the evaluation of Shell’s recently obtained processed 3-D seismic over Pensacola. Following Pensacola, the Selene prospect is scheduled to be drilled in mid-2022. The recent 32nd Round UKCS licence awards greatly expands Deltic’s exploration potential in the CNS and particularly the SNS Carboniferous fairway. Here some highly prospective acreage has been obtained.
Companies: Deltic Energy Plc
Belvoir’s H1 results evidence both strategic progress and profits growth. Given the challenges presented by COVID-19, this bodes very well for the group’s long-term growth potential. H1 adj. EPS grew +16%, the acquisition of Lovelle contributed well and in July the group entered into a strategic alliance with The Nottingham Building Society. Cash flow remained strong and the progressive dividend policy has been reinstated, with a 3.4p interim declared plus an additional 2p, as partial compensation for the missed 2019 final. With the resilience of lettings and the current record activity levels in sales and new mortgages the Board is optimistic that full-year results will hit its pre-COVID expectations and we make no changes to our PBT/EPS forecasts. Our target price of 233p (48% upside) assumes a 10% discount to the small/mid cap market. Given the above average performance in H1 and continued evidence that the long-term growth strategy is yielding value we see good upside to this target over time.
Companies: Belvoir Group Plc
S4 Capital has reported interim results that are ahead of our expectations and indicates an acceleration in the pace of recovery in Q3. LFL Gross Profit rose +12.2% in H1, with Q1 +18.8% and Q2 +6.5%. Encouragingly, after the trough of +3% in April, recovery accelerated to +5% in May, +11% in June and July was an impressive +18% ahead. PBT and EPS were both slightly better than our forecasts, while the group delivered a particularly impressive cash performance leaving it with net cash in June even before the £113m July placing. While we maintain our FY20 LFL Gross Profit growth forecast of +14% (Q3 +12%, Q4 +18%), the strong July result makes this look conservative. Further, the group awaits the outcome of two 'whopper' pitches each worth $20m+ with one due 'very shortly' and it can now see the pathway to 20 whoppers. S4 Capital is in a growth sweetspot and has already started to deploy the funds from the July placing to build capability in eCommerce (Orca Pacific) and econometrics/media optimisation (Brightblue). There are a number of moving parts in our forecasts and overall we retain our EPS estimates of 7p for this year, rising to 10p in 2021. We believe landing the whoppers combined with further M&A as the group deploys its recent equity raise & increased debt facility could see EPS of 15p next year.