“What a difference a quarter makes”, as Dinah Washington’s accountant used to sing. When last we updated on our investment trust picks for 2020 at the end of March, it is fair to say that collective optimism was thin on the ground. However, we all retained ultimate conviction in our selections (or else had grown so despairing at the market environment that we had settled into a kind of other-worldly fatalism), keeping faith that our initial logic had been ultimately sound. This has proved a good decision, with widespread rallies in financial markets and strong performance subsequently from the majority of our investment trust picks. All it took was a little optimism and long-termism from us, not to mention untold trillions of stimulus from governments and central banks around the world. It is fair to say that whoever wins this competition at the end of the year will be primarily thanking Jay Powell… Indeed, so strong has been the rally that two of us are actually in profit for 2020, without – even indirectly – enriching Elon Musk (thus meeting your author’s definition of an ethical investment). We can see below the contrast between Q1 and Q2 returns. They say understatement is a billion times better than exaggeration, so suffice to say there have been some fairly large divergences between the two quarters! And yet some discount opportunities seem to remain, with an average discount of 23.4% across our picks (albeit skewed somewhat by the massive 61.3% discount on Tetragon).
Companies: BRWM IEM JRS OCI TFG NBPU JMI
2020 has so far proven to be the latest episode in a long period of technology outperformance, as we observed in this article. Over the past decade, technology-related companies have tended to perform like consumer staples or defensives on the downside, and like high-growth discretionary stocks on the upside: an ideal combination from the investor’s point of view. As a result the indices (and fund managers’ portfolios) are increasingly correlated to ‘big tech’. How do investors who want a diversified portfolio deal with this, and how can they introduce more diversification into their portfolios, without reducing the potential for growth? The first step, of course, is to use specialist funds to diversify one’s holdings of individual technology stocks. Allianz Technology Trust (ATT) and Polar Capital Technology Trust (PCT), for instance, are both run by tech specialist managers. But ATT differs from PCT in that the portfolio is significantly more concentrated and, at times, has greater exposure to mid-caps. This combination of features means that ATT can be more volatile and deviate from the benchmark to a greater extent, from time to time. Nonetheless over the last five years, these two aspects of ATT have paid off for its shareholders – having outperformed PCT by a total of 15% in NAV terms. While both trusts have delivered strong returns relative to their Dow Jones World Technology benchmark, both of their fortunes are also inextricably linked to big tech. If the biggest technology companies catch a cold, then the wider technology sector will likely catch it in the short term. At the same time, as we conclude in this article, there are good reasons why the quality characteristics which technology stocks display give them the potential to outperform for years to come. But nothing lasts forever and, while we wouldn’t bet against technology performing strongly in absolute terms over the medium term, it might be that sector leadership could pass elsewhere.
Companies: ATT PCT SMT BBH UKW IBT MHN IEM BERI MWY
Impax Environmental Markets (IEM) seeks to invest in companies which will profit from the transition to a more sustainable economy; a concept that is now firmly accepted but has not always been. Underpinned by strong earnings growth from the underlying portfolio, NAV performance has been strong historically. Over five years the trust has delivered NAV total returns of 82%, compared to the MSCI ACWI total return of 70.7%. 2020 has been something of a rollercoaster ride, and IEM has not been exempt from the impact. The managers note that the trust’s underperformance during February and March was due largely to small and mid-cap exposure; but also to cyclical exposures in locked down industries, especially automotive, as well as underweight healthcare and the US dollar. Positives have been the exposure to renewables, software and energy efficiency. As we note in the Portfolio section, lessons learned from managing the trust over the past 18 years have enabled the team to hold their nerve in the volatile conditions, and helped the trust to rebound more strongly than the market. IEM’s portfolio has a definite growth bias. However the managers are valuation-driven in their stock picking approach. The market volatility enabled them to initiate positions in several new companies, which previously had valuations that the team considered too rich. A combination of new holdings, as well as sticking to fundamentals, has enabled IEM to bounce back strongly – which we discuss in the Performance section. The managers believe that COVID-19 provides more long-term support for environmental protection, as demands for ‘Building Back Better’ seek to embed low carbon energy systems and cleaner air in cities.
Companies: Impax Environmental Markets
We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT KKVX FAIR ICON RSE CRS GWI USF DIGS
An Englishman, an Irishman and a Scotsman walk into a bar. But they can’t get past the front door because it’s been boarded up. And then they get floored by a soldier in a hazmat suit who is now part of a unit patrolling London because there’s a ban on public gatherings. It’s funny because it’s true, right? We aren’t quite at the stage where troops are patrolling London’s streets, but back in January, when we published our ‘top picks for 2020’, nobody could’ve predicted that by now we’d be locked in our homes, banned from meeting our friends and relatives, and facing the indefinite cessation of most economic activity until further notice. When all’s said and done, it’s been one hell of a month. In any sort of broad market move, some share prices move outside of what we might consider a rational boundary. As investment trust experts, it is our job to try and point these out. Clearly the advent of the apocalypse has made this job harder; the minute a share price or discount reaches a particular level, by the time we are in a position to publish anything, time (and prices) have moved on. So, with our feeble excuses made, we now return to the selection of trusts we put forward in January as our ‘top picks for 2020’; when we were all bored of headlines about Brexit, and snug behind the magical wall that protects us from respiratory conditions found only in far-flung parts of the Orient. Readers of a delicate constitution are advised to look away now.
Companies: IEM TFG NBPU BRWM OCI
Last year the five-strong team at Kepler Trust Intelligence – including analysts and mere mortals – chose a trust each as our personal ‘top pick’ for 2019 and we will be reporting back on the performance of those trusts in early January, once the final numbers are in for this tumultuous year. In the meantime I can reveal that an investment of £5,000 spread equally across our selections, made on 1st January 2019, would at the time of writing be worth a cool £6,349 today and that performance puts us comfortably ahead of an equivalent investment in a passive fund; the iShares MSCI World ETF being our example, £5,000 invested there being worth £6,280 today. And so, buoyed by that success and a surfeit of mince pies and Babycham, the team at KTI – our ranks now swelled to seven – are back with more predictions for 2020, like lucky first-timers, staggering drunk on glory to the next roulette table with a pocket full of chips, confident in our mastery of the great game. For the benefit of those who take life too literally, it should be noted that this is a light-hearted article and these selections do not represent advice or any form of prediction. Don’t buy these trusts and then blame us if they don’t perform well – we aren’t telling you that they will and this isn’t ‘proper’ research.
Companies: JMI IEM TFG BRWM
The central investment thesis behind Impax Environmental Markets is that the global economy is in transition from a depletive economic model (growth which ignores negative social and environmental costs), to a sustainable one, in which growth is achieved with improved social and environmental outcomes. Impax believes that companies which help solve these huge, global problems should outperform those which don’t. IEM’s objective is to achieve strong financial returns from it’s investments. It has not been designed as an ESG fund, but shares many to ESG-thematic funds. Aside from the investment thesis and specialist sector focus, the managers also integrate ESG fully into their investment process. As we discuss in our new ESG section, the managers see ESG analysis as one of the most effective ways of mitigating risks in investments. They observe that the speed of change in markets is accelerating, and so fully understanding the environmental, social and governance risks is one of the key contributors towards finding successful long-term investments. IEM’s portfolio companies must have at least 50% of their revenues exposed to what the Impax team view as “environmental markets”. Currently around half of the portfolio is invested in energy efficiency and water infrastructure sectors. These are two key pillars of Impax’s investment thesis. Several countries and global companies (with Nestlé being the latest) have declared that they will be net zero emitters of carbon dioxide by 2050. Any attempts to achieve this will require significantly enhanced efficiency of our current energy consumption. Cape Town last year, and Chennai this year are both cities which have experienced unprecedented droughts and prolonged water shortages, illustrating the need to improve the conservation and efficiency of water supplies around the globe. Impax believes that many of its investee companies will be the ones that help alleviate many of these problems. Underpinned by strong earnings growth from the underlying portfolio, NAV performance has been strong. Over five years, the trust has delivered NAV total returns of 81.1%, against the MSCI ACWI total return of 76.6%. Shareholders have actually done significantly better than this, on account of the discount having narrowed, which means that the share price total return has been 109.2% over the same period. The trust currently trades on a premium of 1.7% (11 September 2019). IEM has seen a significant improvement in demand for shares, such that the board has felt able to bring in its discount target from 10% to an expectation that it will seek to maintain the share price at or close to NAV (in normal market conditions).
Whilst not everyone is yet declaring a “climate emergency”, most people now recognise that the global economy is not on a particularly sustainable trajectory. Recent news from Nestle – that they aim to be “net-zero” greenhouse gas emissions by 2050 - shows that what might have seemed a “fringe” idea a few years ago, is now mainstream. According to a 2018 YouGov survey, 62% of people believe Government are doing too little to prepare for and adapt to the impacts of climate change. 71% believe fossil fuel companies should help pay for damage caused by extreme weather events, and (perhaps of most immediate relevance to our readership) 62% of people are interested in a pension fund or financial institution that considers the environmental impact of the companies it invests in (Source: YouGov 2018). At the same time, consumers are increasingly aware of their buying power, and the influence it can have on companies’ corporate behaviour and supply chains. Allied to this, investors also recognise the effect their investing behaviour can have on companies they invest in. Increasingly, they look to the managers of the funds they invest in to engage with company management and see this as a mechanism by which positive change in investee companies can be brought to bear. Many established funds and ETFs offer “ethical”, “green” or another shade of socially responsible investment. However, these labels don’t in our view really reflect the full range of what is potentially on offer. We understand the broad concept as “ESG Investing” – environmental, social, governance. As a theme or concept it is clearly rising in popularity - Google searches for ‘ESG investing’ have risen rapidly over the past decade, with a compound annual growth rate of 73%, almost double that of ‘passive investing’ (42%). Many fund managers (or their marketing departments) have been jumping on the bandwagon, and ESG now features in many presentations where perhaps as recent ago as last year, there had never been any mention! Despite its apparent popularity, many investors do not have a fixed idea of what they really mean when they say they want funds with better ESG credentials. For example, some investors may mean that they want a very narrow focus in the types of companies they invest in – for example supporting renewable energy, and thereby generate strong returns but also help finance the shift to a less carbon intensive economy. Others may want to invest in companies which are leading the way in reducing (or actively addressing) the harmful effects of their business operations’ externalities, meaning that they are comfortable investing in companies and industries that pollute – but only if they are “getting their act together”, trying to reduce negative externalities, or are “best in class” in trying to minimise their negative effects. Others may want their fund managers to actively engage with company managements, and try to influence the strategic direction the company is taken on. Lastly, investors may only want to own companies with what they see as a correct gender-balance, or have policies which prevent child labour within their supply chains. There are many different ways of interpreting what ESG really means. The job of investors looking at ESG must be to find a fund or investment trust which is aligned with their own specific values, irrespective of the marketing document or industry sector it belongs to. We believe an increasing number of “mainstream” funds will be suitable for ESG investors, depending on what their requirements are. How, then, do investors find them?
Companies: IEM UKW MNP
“Active ownership” is one part of this strategy that crops up across all three of the broad ESG strategies and is an increasingly “hot topic”. Traditionally, many institutional investors have neglected to engage with corporates, but with a growing awareness that owners of businesses have responsibilities not only to the ultimate underlying investors, but also to other stakeholders. As described above, it involves the use of shareholder rights to support good practices, normally through proxy voting and corporate engagement. Ultimately, “engagement” is taken to its fullest extent where the investment manager owns a majority of a company, such as with private equity, of which there are plenty of listed vehicles. An example of a trust that utilises ESG engagement is ICG Enterprise. ICG, the manager of ICG Enterprise, believes that companies which are successful in managing ESG risks while capturing ESG opportunities will outperform over the longer term and the ICG Enterprise investment team include ESG screening in their due diligence on new managers and co-investments before they invest. One of the higher profile trusts which fit many of the “impact” strategies is Impax Environmental Markets. The trust has been managed by the same individuals since launch, co-managed by Bruce Jenkyn-Jones and Jon Forster. The trust seeks to invest in companies which will benefit from the ever- increasing need for resource efficiency, focusing on companies which operate in the water, energy, waste management and food / agriculture sectors. Impax aim to “anticipate the second bounce of the ball” and enable investors to benefit from superior earnings growth generated by companies exposed to resource efficiency, but also benefit from a re-rating from being early into specialist small and mid-cap companies located all around the world. A byproduct of their investment is the impact that is felt, illustrated by the graphic below.
Companies: ICGT IEM PAC
Impax Environmental Markets (IEM) seeks to invest in companies which will benefit from the ever- increasing need for resource efficiency, focusing on companies which operate in the water, energy, waste management and food / agriculture sectors. IEM’s manager, Impax Asset Management celebrated its 20-year anniversary in 2018, and IEM was launched fairly early on in the company’s history. With global populations rising, Impax was founded on the thesis that companies which help humanity achieve more with less will benefit from a long-term secular tailwind. Impax aims to “anticipate the second bounce of the ball”, and enable clients to benefit from superior earnings growth, but also a re-rating from being early into specialist small and mid-cap companies located all around the world. IEM’s portfolio companies must have at least 50% of their revenues exposed to what the Impax team view as “environmental markets”. Current themes in the portfolio include connectivity within manufacturing processes (aka Internet of Things) and Biochemicals. Another emerging trend that is rapidly becoming mainstream is that of electric vehicles (EV). Many generalist investors aim to play this theme, but in many cases use rather “blunt” instruments – such as Tesla shares – which the Impax team view as too expensive for their valuation driven investment methodology. For Impax, this is part of a much larger electronics theme which they have been investing in for three years through electronic controls, and energy efficiency. Impax Asset Management’s thesis is reflected in the numbers. According to Impax their “Environmental Stocks” universe have grown earnings over the past five years by 7.9% pa, compared to average earnings growth for the MSCI ACWI of 3.3% pa. Moreover, forecast 12-month earnings growth for the IEM portfolio is 11.3%, against MSCI ACWI growth of 5% (Source: IEM Factset 31st Dec 2018). Underpinned by strong fundamentals, NAV total return performance over the last 15 years has been very strong. Within this, there have been several distinct periods of outperformance, in 2015, 2016 and 2017. The trust currently trades on a premium of 1.2% (21st March 2019). IEM has seen a significant improvement in demand for shares, such that the board have felt able to bring in their discount target from 10% to an expectation that they will seek to maintain the share price at or close to NAV (in normal market conditions). With cash of c 2%, the current level of net gearing is 4%, according to Morningstar, reflecting the manager’s positive outlook on prospects, underpinned by their expectation of strong earnings growth from the underlying portfolio companies.
“The single greatest edge an investor can have is a long-term orientation”, according to Seth Klarman, the American billionaire hedge fund investor. On the Hargreaves Lansdown platform the number of people with more than £1m in their ISA has increased from just three in 2012 to 168 today. However while this sounds very impressive, £1m doesn’t seem that fanciful given full historic contributions to PEPs and ISAs since 1987 would have added up to more than £291,000. We calculate that an investor would “only” have to have generated an IRR of 7.74% on every year’s subscription to have generated a seven-figure sum today. ISAs offer an excellent way to grow capital and benefit from compounding (that eighth “wonder of the world”) over the very long- term entirely free from the clutches of HMRC. Investments are tax neutral within the ISA wrapper, and in contrast to a SIPP, there is zero tax payable on the entire amount when capital or income is withdrawn. Another contrast to a SIPP is that there is no size limit – under current legislation an individual’s ISA can be as big as it gets. Whilst building an ISA pot of £1m is clearly a huge achievement, our analysis suggests that many investment trust managers would have delivered significantly more. There are around 48 trusts for which we have meaningful statistics going back to 1987 which have had broadly the same strategy and/or elements of the same management team over this time. Of these, an incredible 34 trusts would have delivered a total ISA value (share price returns net of fund fees, but before the ISA wrapper fees) of over £1m, if an individual had put their entire PEP / ISA subscriptions in the same trust every year.
Companies: SMT IIT JEO IEM JEO ICGT OCI SUPP ATST LWI FGT
Generating good long-term investment returns is often predicated on long term thinking. Impax Environmental Markets’ investment objective is unequivocally aligned to this. The team seek to exploit their informational edge in small and mid-cap stocks in the energy, water, waste & resource recovery, and food and agriculture sectors. By being specialists in niche areas, Impax often find themselves very familiar with the investment universe and already fully invested, at a point that a “new” investment theme arrives on the horizon for mainstream managers. As such IEM offers exposures that are unlikely to be found in a material way in any generalist global funds or trusts One such company, held at launch and in the portfolio today is Tomra. Tomra is now the dominant supplier of machinery to tackle the “war on plastics”. Reverse Vending Machines (RVMs) are probably the only way for countries to achieve EU targets for 90% recycling under the EU Plastics Strategy. Tomra’s R&D efforts have meant that they are now world leaders in robotic vision and sensing equipment, which has seen them expand their end markets significantly. Tomra is a good illustration of an Impax owned stock. As at 31st Dec 2006 Impax was the 16th biggest investor in the company, at a point when 34.9% of the company was held by “foreign” (ie non-Norwegian) entities. As at 31st Dec 2017, Impax was the tenth biggest investor and 77.3% of the company was owned by “foreign” entities. IEM has been a strong performer for much of the last five years. The NAV has performed relative to the MSCI ACWI, but also relative to global generalist peers in the investment trust and open-ended sectors. Until January this year, the trust was outperforming both the benchmark and peer groups. However, during 2018 IEM has struggled thanks to a combination of small-cap underperformance (especially a lack of large cap tech), being overweight industrials and no healthcare, as well as being underweight $US. The portfolio has also experienced weakness in the lighting and water utilities sectors which have contributed to the benchmark headwinds. IEM recently adjusted its gearing arrangements, replacing a flexible revolving credit facility with a fixed rate loan. It now has a five-year fixed rate loan of £15m and US$20m, with interest rates on the loans of 2.910% and 4.504% per annum respectively. The current level of net gearing is 4%, according to Morningstar. IEM’s discount continues to narrow. Having bought back 10m shares over the first half of 2017, the board have not had to enter the market since then. The discount has narrowed in considerably of its own accord, and the shares now trade at a premium to NAV of 2.3%.
Impax Environmental Markets (IEM) is a strongly performing investment trust, which invests in small and mid-cap stocks around the world that in the managers’ view fit an “unambiguous” long-term growth story. The investment thesis rests on the ever-increasing focus on resource efficiency and ever tighter environmental regulations applied around the world. The managers believe they better understand the impact of new regulations and new technologies than the generalist competition and seek to exploit their edge in the energy, water, waste & resource recovery, and food and agriculture sectors. As such they aim to be ahead of the curve when new investment themes arrive on the horizon for more mainstream managers. As we discuss in this article the world continues to electrify. Impax’s portfolio is positioned to benefit from major themes such as the rise of electric vehicles (EVs), and energy efficiency. Within EVs, IEM has nearly 10% of NAV exposed to critical components within the EV supply chain, which the managers believe have a durable competitive advantage and more attractive valuations than the likes of Tesla. 37% of the trust’s portfolio is invested in “energy efficiency”. This encompasses companies in a wide range of areas including hardware and software as well as power networks and industrial automation. IEM has outperformed the MSCI AC World index for the past three calendar years, and over five years has outperformed the average global investment trust and open-ended fund, as well as the MSCI AC World index. The managers believe that much of the outperformance has come from portfolio earnings growth being ahead of the wider market. Over the shorter term, performance had been strong in absolute terms until the market wobbles at the end of January. The team tell us that the majority of the underperformance relative to the benchmark so far in 2018 is due to IEM’s water utilities exposure, as well as not having any financials in the portfolio. IEM has experienced a dramatic rerating over the past six months, on the back of the strong performance that the managers have delivered over the last three years. The discount of 6.6% is narrower than the 10% level that the board have historically targeted, but wider than the 3.6% average discount for global investment trust peers. The portfolio has a cyclical tilt, which introduces some risk according the trajectory of the global economy. However, the managers remain optimistic on their companies continuing to deliver stronger earnings growth than the wider market, and expect continued M&A activity within the sectors they favour.
Long-term secular trends provide a strong tailwind to investment returns. One of the most talked about themes in recent years, a clear beneficiary of which has been Tesla’s share price, is the potential for a shift toward electrification. However, far from being a ‘one stock’ story, we believe that there are widespread implications across many sectors, and in this research we identify a range of trusts which have exposure to them.
Companies: IEM UEM UKW IEM BRWM
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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
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
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
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
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.
Companies: Randall & Quilter Investment Holdings Ltd.
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
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
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.
Secure Trust Bank’s (STB) Q3 trading update disclosed that Q3 was stronger than expected and FY20 earnings are likely to be well ahead of consensus forecasts. Loan repayment holidays in its Motor Finance and Retail Finance divisions were down remarkably and credit quality is not deteriorating. Loan demand is strengthening after the lockdown. Capital and liquidity remain good. The bank remains cautious due to continued COVID-19 and Brexit uncertainty and is still not providing formal guidance. We are upping our earnings forecasts and fair value from 1,704p to 1,756p. In our view, the valuation remains depressed compared to fundamentals with banking stocks still out of favour. STB trades on an FY20 P/BV of 0.53x, yet it has a strong track record of value creating returns (ROE above COE), a good capital base and liquidity. The Q3 good news reinforces our view that we are unlikely to see book value deterioration during this downturn to justify any NAV discount.
Companies: Secure Trust Bank 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
There was an eclectic mix of property companies to feature in the top price movers for September. Top of the tree was private rented sector and residential development specialist Sigma Capital Group, with a 34.2% rise. The group launched a £1bn joint venture with EQT Real Estate, the real estate platform of global investment firm EQT, to deliver 3,000 private rental homes in Greater London. Micro-cap investor Panther Securities also hit double-digit gains, while Macau Property Opportunities saw an uplift in its share price after announcing debt refinancing and a disposal. CLS Holdings, the investor in offices in Germany, France and the UK, continued to see a recovery in its share price – which has risen 15.1% in the last three months. Off the back of solid results, Berlin residential landlord Phoenix Spree Deutschland saw its share price gain 7.2%. Schroder REIT’s share price rose 6.6% in the month as it embarked on a share buyback programme, while Irish commercial property investor Yew Grove REIT also saw positive shareholder reaction to amending its investment strategy to increase its target loan to value ratio to 40%.
Companies: SUPR DIGS CRC PSDL ASEI TPON RLE UKCM BREI BCPT RGL SIR SLI TOWN CAL
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
Whilst there are some bright spots, such as payments companies, which are beneficiaries of the shift to online shopping, fears about the potential impact of COVID-19 have hit valuations across much of the financial sector. The fall in Polar Capital Global Financials Trust’s (PCFT’s) NAV reflects this situation.
Companies: Polar Capital Global Fincls Trust
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
To achieve YoY revenue growth over H1/20A despite the challenges of Covid-19 and its impact on the travel sector is testament to Equals' resilience and increasing focus on B2B and International payments services. While weaker gross profit and EBITDA margins have impacted profitability in H1/20, we see potential for an earnings recovery in H2/20 given cost reduction measures currently being undertaken. This should lead Equals to cash breakeven in Q4/20 and FCF positive by early FY21.
Companies: Equals Group Plc