Henderson International Income Trust (HINT) aims to provide UK-based investors with a unique, diversified source of income by investing in overseas markets. It is the only global equity income investment trust to totally exclude the UK market, which has high dividend concentration compared to global markets (see chart below). The manager, Ben Lofthouse, adopts a value-driven approach that targets fundamentally good businesses, with high barriers to entry, sustainable cash flows, solid growth prospects and scope to deliver rising returns over time. The manager has recently purchased some (mainly) investment-grade bonds to further diversify HINT’s income sources. The trust has an established track record of rising income delivery and solid total returns over the longer term. It has also outperformed the UK market since inception.
Companies: Henderson International Income Trust
Henderson International Income Trust (HINT) was launched in 2011 with the aim of enabling UK-based investors to diversify their sources of income by investing overseas. As shown in the chart below, the UK market suffers a high degree of dividend concentration, with the top 10 dividend payers accounting for 55% of total UK dividends in 2018 compared with 9% for the top 10 payers globally. Since launch, HINT’s investors have enjoyed total returns of c 10% a year, supported by well-covered dividends that have grown at a compound annual rate of 5.2%. While manager Ben Lofthouse’s value-oriented investment approach has been somewhat at odds with growth- and momentum-driven markets recently, he is finding plenty of attractive investment opportunities.
Henderson International Income Trust (HINT) has been proposed as the default rollover vehicle in the forthcoming planned liquidation of the Establishment Investment Trust, further cementing its position as a trust with a commitment to achieving the benefits of scale (its assets have grown sevenfold since launch in 2011). It has also recently locked in €30m of long-term borrowing with a low interest rate of 2.43%, which may allow the manager, Ben Lofthouse, to be more adventurous with gearing in his search for income and growth from sustainably financed non-UK companies trading at unwarranted discounts. HINT’s NAV has recovered well from the Q418 market sell-off, and the shares currently yield 3.4%.
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
Henderson International Income Trust (HINT) invests in companies outside the UK, in order to provide a source of income diversification for investors who may already have sufficient exposure to the domestic market. It is the only fund in the AIC Global Equity Income sector with a specifically ex-UK remit. Relative performance has dipped recently, largely as a result of HINT’s structural underweight to the US, which dominates the MSCI World ex-UK index. However, manager Ben Lofthouse is finding attractive opportunities in less favoured markets such as those in Europe, which could benefit from the asymmetry between their attractive fundamentals and poor investor perceptions. The portfolio is broadly diversified by geography and sector, with a mix of high-yielding stocks and those with superior dividend growth potential. HINT currently yields c 3%.
Henderson International Income is value-orientated portfolio of global dividend-paying equities that aims to deliver a growing income stream combined with attractive capital appreciation over the medium to long- term. The portfolio is managed by Ben Lofthouse, who is a valuation driven investor who focuses on undervalued companies that can generate strong free cash flow and, therefore, potentially produce a sustainable and growing dividend. Typically, he looks for companies run by strong management teams, with healthy balance sheets, have high barriers to entry and business models that aren’t too capital intensive. Henderson International Income is highly differentiated from its peers in the AIC Global Equity Income sector and the open-ended IA Global Equity Income peer group due to the fact Ben deliberately avoids the UK, arguing that most investors turn to global income portfolios in order to diversify their portfolio away from popularly-held FTSE stocks such as HSBC, Royal Dutch Shell, GlaxoSmithKline and British American Tobacco. As we note in our latest research, dependency on UK stocks for dividends is surprisingly high in the two global income sectors – meaning Henderson International Income is the only trust in the AIC Global Equity Income sector to have a 0% weighting to the UK. This positioning hasn’t negatively affected performance either, as since launch in April 2011 to the end of December, the trust has delivered an NAV total return of 112% compared to an average return of 90% across the peer group. The trust has also paid a growing and covered dividend each year since inception, though its yield has come down to less than 3% following decent share price apperception, it has produced more in total income over five years than its average peer and generated stronger annualised dividend growth than its two main rivals in the sector, Murray International and Scottish American. As a result of this performance profile and its positioning (which has made it attractive for income investors searching for greater diversification), demand for shares in Henderson International Income have been strong since its launch, with the trust (on average) having traded on a narrow 0.2% discount over the past five years. The board has used this as an opportunity to grow the trust significantly, though the merger with the now defunct Henderson Global Trust has also helped in that regard.
We have highlighted, on many occasions, the high level of concentration among UK equity income funds – in particular, the fact that many managers in the AIC UK Equity Income and IA UK Equity Income sectors rely on a small handful of mega-cap FTSE stocks for their dividends. This isn’t necessarily an issue in itself, but the fact many of these companies are fundamentally challenged due to low levels of dividend cover compounds the potential problems going forward. For example, in a piece of research we wrote in November , we showed that 10.6% of all income generation in the closed-ended AIC UK Equity Income sector comes from Royal Dutch Shell and BP – and, at the time of writing, both had dividend cover of less than 1x (suggesting that the companies are taking from last year's profits to pay this year's dividend, which isn’t sustainable). Given it is a very similar story in the open-ended IA UK Equity Income sector (whereby the five most popularly-held stocks, which have a dividend over of less than 1x, account for 20% of the total dividends paid in the peer group), many investors have been looking elsewhere to try and find a more reliable income stream. A popular destination for those investors has been the global equity income peer group, where managers literally have the whole world to choose from for income-producing opportunities. Indeed, many funds and trusts in the space market themselves as the natural home for UK income investors seeking diversification. However, as we will highlight in this report, many closed and open-ended funds in the Global Equity Income sectors also have a significant proportion of their assets and income reliant on UK dividend-paying stocks.
Companies: MYI SAIN HINT BRFI FCSS BEEP
Henderson International Income Trust (HINT) is the only global equity income investment trust offering a portfolio invested wholly outside the UK. Its aim is to provide a focused yet diversified selection of overseas companies offering attractive, sustainable yields and the potential for both dividend growth and capital appreciation. Manager Ben Lofthouse has recently increased the cyclical bias of the portfolio, seeing attractively valued opportunities in areas such as financial and consumer stocks. The trust is structurally underweight the US versus its MSCI World ex-UK benchmark, with the manager finding better growth and value dynamics elsewhere. Strong recent share price and NAV performance has been achieved with very low gearing and the trust currently yields 3.0%.
Henderson International Income Trust (HINT) seeks to provide investors with more diversified sources of income, by investing exclusively outside the UK. Managed by Ben Lofthouse, the trust received a significant boost to its assets in 2016 when it was selected as a rollover vehicle for Henderson Global Trust (HGL). Demand has remained strong, and HINT has recently raised a further £21.5m through a ‘C’ share issue, with the new shares listed on 8 May. The manager focuses on well-managed companies with strong competitive positions and sustainable dividends in order to secure income and long-term capital growth. Absolute performance has been favourable, with annualised NAV and share price total returns of 10%+ since launch in 2011.
EPE Special Opportunities saw a dramatic rise in its NAV as its largest holding, Luceco, IPOd. Alternative Liquidity’s discount narrowed a little as its share price rose after it announced an increase in its NAV. One of Polo’s investments won a court case and another’s gold mine commenced production. Menhaden’s discount narrowed. India Capital Growth had a good month, we published a note on it. It, like most of the funds on these lists, was a beneficiary of weak sterling. The Brazilian market hit a four year high during October as investors remain optimistic about a recovery in its economy. AXA Property said it hopes to sell its remaining portfolio in coming months.
Companies: HINT IGC PHI
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The sharp falls in sterling over the past few months have flattered the performance of many funds investing overseas, including Henderson International Income Trust (HINT), but have compounded problems for some UK equity income trusts. The threat of dividend cuts looms large for UK-focused trusts and now, more than ever, the yield on HINT’s overseas equity portfolio should look very attractive to UK-based investors. HINT has just raised its quarterly dividend to 1.2p, up 4.3% on the previous quarterly dividend.
The sharp falls in sterling over the past few months have flattered the performance of many funds investing overseas, including Henderson International Income Trust (HINT), but have compounded problems for some UK equity income trusts. HINT’s manager warns that the threat of dividend cuts looms large for UK-focused trusts and thinks that now, more than ever, the yield on HINT’s overseas equity portfolio should look very attractive to UK-based investors. HINT has just raised its quarterly dividend to 1.2p, up 4.3% on the previous quarterly dividend.
Henderson International Income Trust (HINT) seeks a high and growing income as well as capital growth potential; it is unusual in that it invests exclusively outside the UK. The trust has produced annualised total returns (NAV and share price) of 8-9% since launch in 2011 and is comfortably ahead of most peers over one, three and five years. Following the rollover of stablemate Henderson Global Trust (HGL) in April 2016, HINT has doubled its asset base, which should widen its appeal to some investor groups, as well as reducing the impact of fixed costs. Manager Ben Lofthouse currently favours European companies over those in the Americas and Asia, with continental stocks making up almost half the portfolio at 31 May.
Henderson International Income (HINT) has delivered the highest NAV growth in its peer group since launch, is on track to achieve 15% cumulative dividend growth over the past four years and offers investors a unique way of diversifying their dividend income outside the UK.
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Cenkos’s first half results demonstrated the benefits of its flexible operating model and strength of its client relationships. While challenges related to COVID-19 are set to continue, Cenkos’s focus is on growth companies and its fund-raising year-to-date has had a greater emphasis on corporates financing M&A and growth opportunities rather than for defensive purposes. This should prove more sustainable although, as always, the timing of transactions in the encouraging pipeline reported remains uncertain.
Companies: Cenkos Securities plc
Record’s Q221 trading update confirmed that its new $8bn dynamic hedging mandate has started and that, prior to this, assets under management equivalent (AUME) expanded by 4% in the quarter. The group continues to work on developing new products and is deploying technology to enhance its ability to deliver these and existing products cost effectively.
Companies: Record 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
Primary Health Properties (LON:PHP) is a real estate investment trust (REIT) that holds a portfolio of 510 primary health facilities in the UK (92% of the portfolio by value) and Ireland (8%). The business model is to manage the properties for rental income and to grow the portfolio over time. The
Companies: PHP PP51 PHPRF
What’s new: Today’s trading update reveals 17% rise in assets under management (AuM), double digit revenue growth, and an increasing operating margin as the business scales. The outlook is positive. Highlights are:
12.6% rise in 1H Group Revenues to £11.0m (1H last year: £9.7m);
21.9% rise in 1H adj operating profit to £5.0m (1H last year: £4.1m);
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);
3.0% rise in Paradigm Mortgage Services member firms to 1,591
2.5% rise in Paradigm Consulting member firms
Interims will be announced on Wednesday, 18 November 2020
Companies: Tatton Asset Management Plc
In another upbeat update, GHT has confirmed that the business is tracking in line, in turn being driven by strong traction with key customer, ANZ. Here, new sales have driven a 20% increase in contracted customer revenue to >£11m in FY21. As a strategic partner (deeply involved with GHT in bringing new Clareti banking services to market) this extra investment is very encouraging, as it’s indicative of these services‘ strong future potential. Also announced today – GHT state that its transition to a recurring subscription model (commenced just two years ago) is now complete and that ARR now stands at £11.9m, ~+16% annualised organic growth since FY20 y/e. In a tough new business environment, we view this as a highly credible performance. It’s also worth noting that management reference remaining pipeline opportunities, these would further benefit strong forwards visibility – already £22.4m for FY21. Given this – and also as sign of confidence – today we reinstate FY21 forecasts. We look for a reacceleration in top-line growth: +16% y/y to £28.7m at a Group level, in turn driven by c.+24% organic growth in Clareti, to £20m. For valuation – with Clareti still in its relative infancy – we continue to view a sales multiple as most appropriate. Here, we note that peers typically trade in a 5-7x range vs. GHT at 4x our FY21 estimate. This suggests 25-75% upside to fair value for this disruptive company, with a multi-year growth opportunity still ahead.
Companies: Gresham House
As expected following the US banks’ releases, Barclays’ third quarter results saw a sharp reduction in provisions build-up while the emergence of delinquencies has been delayed by the State’s supporting measures. Management continues to expect a reduction in the cost of risk next year. It remains to be seen if this guidance is capable of withstanding new lockdowns or a no-deal Brexit.
Companies: Barclays PLC
Following on quickly from its impressive full year results, these interim results confirm that our confidence for growth in the Program Management business was not misplaced.Contracted Premium increased 95% YoY (and 12% ahead of December 2019) to $925m –a stone's throw away from the $1bn 2020 guidance set in 2018. At the same time, Gross Written Premium (GWP) grew 42.6% to £247.2m, resulting in Economic EBITDA turning positive, at £0.8m compared to a loss of £0.3m in 1H19
Companies: Randall & Quilter Investment Holdings Ltd.
ANGLE plc (AGL.L): Acceptance of FDA submission | Feedback plc (FDBK.L*): Partnership agreement | Open Orphan (ORPH.L): Human Challenge Study Model contract with UK Government
Companies: AGL FDBK ORPH
Agronomics has announced it has conditionally raised £10.0m gross from an equity issue at a price of 6.0p, which represents a 6.8% premium to the most recently reported NAV per share of 5.62p. Assuming the company's post-raise cash balance is £8.15m, after repaying a £1.9m bridging facility, we estimate the new NAV per share to be c5.7p. We see significant potential in the cultivated meat sector and believe Agronomics is well positioned to support this developing sector and generate strong returns from these investments. We see upside in Agronomics' portfolio and have today initiated coverage with a Buy recommendation.
Companies: Agronomics Limited
The most pleasing aspect of Tatton’s trading update for the six months ending 30 Sep 2020 (H1 2021) was how robust its fundamental offering to clients (financial advisers) has proven to be in highly uncertain market conditions. It continued to attract strong net inflows into its asset management business while also growing its base of IFA consulting and mortgage services clients. The prospect of beating our previous FY21 forecasts looks promising. Longerterm growth prospects also look strong. We do, however, remain wary of the potential impact of further large market dips. For now, we maintain our fundamental valuation of 300p per share but see room for significant upside on that mark if Tatton continues to deliver.
Tatton has reported an in-line H1 financial performance: revenue totalled £11.0m (vs N+1Se £10.9m) and £5.0m adj. EBIT (50% N+1S FY21e). AuM grew by 3.4% to £7.8bn as net inflows continued throughout H1 (+£328m) – a positive performance given the backdrop. Paradigm, particularly in Mortgages, has been resilient post-lockdown. Having delivered 50% of our earnings forecast for FY21e, there is potential for upside. However, we leave our forecasts unchanged and a margin for safety as we remain alive to potential external risks/volatility.
Cenkos Securities plc has terminated coverage of Record Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon.
Please contact Cenkos for further information.
The interims confirmed that Covid-19 was minimally disruptive operationally in H1 20 and, ironically, may have improved both of R&Q’s divisions’ mediumterm trading outlooks. As the pandemic and other industry events have generated significant losses for insurers, they have created the current ‘hardening’ market driving demand for Legacy and Program Management.
Agronomics is an investment company building a portfolio of investments in the developing alternative protein sector. The company is focused on early stage investments, offering attractive valuations and significant upside potential. Importantly, we believe Agronomics represents an opportunity for public investors to gain access to early stage private companies, which might not otherwise be available. We expect the cultivated meat sector to be driven by a number of global mega trends that will increase public awareness of the issues the sector is aiming to overcome. We see strong upside in Agronomics' existing portfolio and initiate coverage with a Buy recommendation.