It was a remarkable second quarter with global markets staging the sort of comeback few would have thought plausible, at the end of March. With some countries still battling the first wave of infection and others seemingly headed to a second, not to mention what happens when governments start to remove direct stimulus measures, uncertainty still abounds.
Companies: NCYF EGL NAIT NAIT THRG GCP IGC HHI JLEN PCT VNH ASLI IBT HRI CSH SIGT
BlackRock Throgmorton Trust (THRG) aims for long-term capital growth and an attractive total return through investment in UK small- and midcap companies. Uniquely in the sector, THRG has both a long and a short book, meaning manager Dan Whitestone can capitalise on opportunities, regardless of the wider market environment. The ability to short has been beneficial over the past few years, when Dan has achieved significantly stronger returns than peers, as we discuss in the Performance section. In fact, in each of the past ten years the trust has outperformed the benchmark, and has achieved the fourth-highest returns in the sector. In the long book, Dan owns two types of investment. The first are highquality differentiated long-term-growth companies, and the second are companies which are leading industry change – ‘disruptors’. For Dan, highquality businesses have strong management teams and a protected market position. They also possess a unique and compelling product offering with an attractive route to market which perhaps benefits from structural growth, and they are well financed. He aims to short those businesses with the opposite characteristics, i.e. the victims of industry change (‘the disrupted’), as well as companies with commoditised product offerings and weak financial structures, which are facing structural or cyclical industry pressures. The trust invests primarily in the UK small- and mid-cap market; however, Dan also has the flexibility to hold up to 15% outside the UK. The trust’s discount has narrowed since the post-referendum lows, and the board has been able to issue a large number of shares to investors over the past year. Currently the trust is trading on a slight premium of 0.4%.
Companies: Blackrock Throgmorton Trust
COVID-19-related falls in markets have weighed on BlackRock Throgmorton Trust (THRG), although it has held up well relative to both its peer group and its benchmark. Its manager sees this as a defining moment for investors – one that could set the stage for many years to come.
Smaller companies are usually a problematic area to invest in during significant downturns or recessions; and the sharp fall in 2020 hasn’t been an exception. In this article we assess the performance of smaller companies trusts throughout the pandemic, while identifying the factors that have differentiated the winners from the losers. This includes the impact that cash, market cap exposure, sector allocation, revenue exposure and growth or value biases have had, with some surprising results. We also ask whether now is an attractive time to invest in smaller companies, highlighting the trusts which stand out to us…
Companies: THRG GHE MINI RMMC ASIT ASL MTE TRG BRSC DSM
Helped by a positive contribution from its short positions, BlackRock Throgmorton (THRG) continues to turn out benchmark-beating returns and leads its sector over the medium term. A share price return of 46.5% over the year to the end of November is the best among all AIC investment trusts.
Helped by a positive contribution from its short positions, BlackRock Throgmorton (THRG) continues to turn out benchmark-beating returns and leads its peer group, the AIC’s UK Smaller companies sector, over the medium term. A share price return of 46.5% over the year to the end of November is the best among all AIC investment trusts.
In January 2019 we unveiled our new quant rating system for investment trusts, identifying both the top 20 trusts for capital growth and the top 20 trusts for income by using a quant screening system. We believe this is the first quant rating system for closed-ended funds to be based on NAV returns, which reflects the performance of the manager much more purely than the share price, which is a far noisier signal. We aimed to reward consistent long-term outperformers within the metrics we chose and the five-year time period over which we assessed them. In the New Year we will be rerunning our screens and rebalancing our ratings, but for now we are pleased to be able to report that in the first ten months since we revealed our selection, subsequent performance has been strong across both lists.
Companies: FEV TRY THRG IPU
BlackRock Throgmorton Trust (THRG) is managed by Dan Whitestone, who runs a UK-focused portfolio of high-quality growth companies. THRG can also use contracts for difference (CFDs) to both gear up and short individual companies. This means the trust can vary its exposure to the market quickly and flexibly, giving it greater capacity to benefit from volatility in the markets and the potential to generate additional alpha. The trust has an exceptional long-term track record of outperformance relative to the benchmark and peer group alike. Particularly noteworthy is the manager’s ability to outperform during both rising and falling markets, still at low levels of volatility. The trust’s discount has narrowed significantly since the referendum in 2016, after which it reached a 22% discount at one point. This year has seen the discount continue to narrow, and seen the trust now start to trade at a premium of 1.16%. This has allowed the board to begin to issue shares to investors, providing significant liquidity for investors entering the trust at scale.
Since we last published on BlackRock Throgmorton Trust (THRG), it has continued to beat both its benchmark and the average of its peer group by some margin. In a period where the market has been rising, the short book managed to break even, whilst the long book outperformed.
Since QuotedData last published on BlackRock Throgmorton Trust (THRG), it has continued to beat both its benchmark and the average of its peer group by some margin. In a period where the market has been rising, the short book managed to break even, whilst the long book outperformed (see pages 6 and 7 for explanation of Dan’s shorting strategy).
Now the sole manager, Dan Whitestone offers a growth-oriented portfolio of UK small and mid caps through BlackRock Throgmorton Trust.
The trust is referred to as an ‘extension fund’ by BlackRock, using both long and short positions to deliver consistent capital growth and attractive total returns. More specifically, this means the trust can increase its overall gross exposure to the market, varying its net exposure over time. Dan aims to manage the portfolio so that the net exposure amounts to between 70% of NAV and 115% of NAV. The shorts are typically a smaller size than long positions, between 0.5% and 1% of NAV.
Today, we introduce our investment trust ratings. According to the quantitative screens we have selected in an attempt to highlight the best performers in the closed-ended universe, the trusts discussed here have been the best in their classes over the last five years. We have selected trusts using two different sets of criteria, aiming to identify the top performers for capital growth and for achieving a high and growing income. There are many rating systems for open-ended funds, but no quantitative-based system for investment trusts that is available to the average investor. While we cannot identify trusts which will perform well in the future – past outperformance is no guide to future out-performance – we hope these ratings will highlight the outstanding performers in the closed-ended universe and those managers who have best used the advantages of investment trusts to generate alpha. We are trying to reward consistent and long-term outperformance, and so we have decided to look over a five-year period. All data is as of the end of December 2018, sourced from Morningstar and JPMorgan Cazenove. We have looked at NAV total return performance and discount value has not been considered: the aim is to identify those trusts which have performed the best rather than highlight bargains.
Companies: IPU FAS ATR JEO FEV FGT THRG SEC PAC BRSC IAT HNE MIGO TRY JMG DIVI SLS BGS SDP JETI SOI BCI MRC TIGT EDIN JAGI BEE SDV BRIG AAIF HFEL SCF SIGT BRFI IVPG CTY HINT JCH NAIT
With a decision on Brexit looming and US rates climbing, many investors appear to have adopted a more defensive stance. Dan Whitestone, manager of BlackRock Throgmorton Trust (THRG), has reduced the portfolio’s net exposure to markets to well below 100%, taking profits on some positions. Otherwise, Dan’s focus remains on the long-term drivers of growth. His ability to short (taking a negative exposure to) companies with unsound business models gives him another way of making money even when markets are falling. Over the year to 30 November 2018, short positions added 1.4% to returns.
With Brexit looming and US rates climbing, many investors appear to have adopted a more defensive stance. Dan Whitestone, manager of BlackRock Throgmorton Trust (THRG), has reduced the portfolio’s net exposure to well below 100, taking profits on some positions. Otherwise, Dan’s focus remains on the longterm drivers of growth, and his ability to short companies with unsound business models gives him another way of adding value even in falling markets, as was evidenced in THRG’s returns over the year to 30 November 2018.
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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.