IP Select UK Equity Shares portfolio (IVPU) invests in UK equities with a highly active value strategy. The manager, James Goldstone, takes a contrarian approach, aiming to identify companies which in his view are under-appreciated by the market. James’ current main focus has been on companies exposed to the UK economy and consumer, which he thinks have been egregiously undervalued thanks to worries about Brexit, particularly among overseas investors, leading to indiscriminate selling of UK-facing companies. However, this exposure is balanced out by holdings with international, mainly dollar earnings, which James thinks are undervalued for other reasons, which we explain in the portfolio section of this note. The oil and gas producers are a key example.
Companies: Invesco Perpetual Select Trust
IP Select Balanced Risk Allocation share’s (IVPB) objective is to provide an attractive total return in differing economic and inflationary environments, with low correlation to equity and bond markets. The trust has a benchmark of LIBOR +5% per annum, which has been met over almost all periods, with volatility of around two-thirds of that of equity markets since the strategy was adopted in 2012. In contrast to ‘active’ total return funds (such as Ruffer, Personal Assets etc.) the managers have a systematic process to shift tactically around an otherwise relatively static long-term allocation to three asset classes: debt securities, equities and commodities. The team has been running the strategy since 2008, and currently manage over $25bn for various mandates. IVPB invests through highly liquid futures, and looks to allocate risk (rather than capital) equally across the three asset classes. By overweighting the allocations to the less volatile asset classes (such as bonds) and underweighting the allocations to the more volatile asset classes, an equally risk weighted (‘risk parity’) portfolio is created. IVPB sits within the AIC Flexible sector, which as one might expect, has a fair variety of strategies in it. We compare performance relative to some of the better-known trusts that exhibit low equity correlation and find that over the past three years, IVPB has generally been amongst the better performing, behind only Capital Gearing Trust in our sub-set of trusts. IVPB has achieved these returns with correlation to the MSCI ACWI index of 0.75. The board has a zero-tolerance discount policy, which has successfully prevented the discount from deviating far from the board’s target of +/- 2% of NAV. At the time of writing, the shares currently trade on a discount of 0.6%. An additional feature is the ability of shareholders in any of the IP Select Trust's share classes to switch into another IP Select share class on a quarterly basis (UK Equity, Global Equity Income and Cash). This is conducted on or around 1 Feb, 1 May, 1 Aug and 1 Nov each year and is deemed a non-taxable event by HMRC as regards capital gains tax.
Invesco Perpetual (IP) Select Trust has an unusual structure, which is almost unique in the investment trust universe. It has four different share classes which shareholders can periodically (every 3 months) convert between without crystallising a taxable event. In practical terms, this means that any capital gains can be rolled up, whilst enabling investors to change the risk profile of their investment over time. In this way, and used accordingly, IP Select Trust and its four underlying share classes might be viewed by some investors as a Do It Yourself ‘target date’ fund, which we examine in more detail in this article.
IP Select UK Equity shares owns an actively managed portfolio of UK equities held for the long term, with the manager, James Goldstone, aiming to identify undervalued companies and take advantage of the under-pricing. James has repositioned the UK equity portfolio since taking over in October 2016, and the focus is on companies exposed to the UK economy and consumer, which James thinks are currently undervalued. However, this exposure is balanced out by holdings with international earnings, although these positions are all held because of the manager’s conviction in them as businesses and the attractiveness of their valuations, rather than simply risk-management tools. The trust has underperformed this year due to the exposure to domestic earnings, with the UK market being unloved thanks to the uncertainty around Brexit. However, negotiations over the UK’s exit from the EU are nearing a conclusion with the “divorce” scheduled for the first quarter of next year. Gearing has remained at the upper end of the permitted range under James’ management. However, this debt is not structural but reflects the valuation opportunity the manager sees in the UK market. The company tends to trade quite closely to NAV, supported by a strong buyback policy, and in fact traded on a premium prior to the June 2016 referendum. The dividend yield is 4%, paid quarterly, and the board’s intention is to at least maintain the dividend in each year going forward. It has backed this up by using capital reserves to pay when necessary.
Income has for a long time been top priority for British investors, stripped of the traditional source of income that a savings account once represented by a decade of negligible interest rates. But with bonds in a parlous state and the wheels finally coming off the buy-to-let bubble, the range of options available is increasingly narrow. Equities have for some time now been the beneficiary of this search for yield and equity income funds have done very well on the back of this, attracting huge inflows. However, as we have highlighted in the past, many of them are investing in just a small range of companies and those companies are themselves increasingly stretching for yield - putting this refuge for the income seeker on somewhat thin ice. With all this behind us, and mounting uncertainty about the current rally in front of us, where then is a sensible place to find it?
Companies: JCH IVI EDIN BRIG IVPU SOI BEE
IP Select UK Equity shares have an actively-managed portfolio of UK equities held for the long term, with the manager, James Goldstone, aiming to identify attractive businesses which he feels are undervalued. The portfolio is actually one of four share classes which make up Invesco Perpetual Select Trust. A key differentiator of IP Select Trust is that it is split into four share classes, each pursuing different strategies, and each led by a different manager but sharing the costs of the structure. Alongside the UK Equity shares, the others are Global Equity Income, Balanced Risk Allocation and Managed Liquidity. Investors in the trust can switch between the share classes on a quarterly basis. This profile focuses only on the UK Equity share class. Investors can switch between share classes each quarter without incurring capital gains tax, meaning they can manage their asset allocation dynamically within the closed-ended structure. James has refashioned the portfolio since taking over in October 2016, and the focus is on companies exposed to the UK economy and consumer, which James thinks are misvalued. However, domestic risk on the portfolio is balanced out by holdings with international earnings and gold miners, although these positions are all held because of the manager’s conviction in them as businesses and the attractiveness of their valuations rather than simply risk-management tools. This positioning is yet to be rewarded, with some poor data from the UK in the first quarter increasing consumer nervousness about the market. The trust has remained significantly geared under James. However, this debt is not structural but reflects the valuation opportunity the manager currently sees in the UK market. The company tends to trade quite closely to NAV, supported by a strong buyback policy, and in fact traded on a premium prior to the June 2016 EU referendum. The dividend yield is 3.5%, paid quarterly, and the board’s intention is to at least maintain the dividend in each year going forward. It has backed this up by using reserves to pay when necessary.
UK equities are among the most unloved investments globally, with domestic-facing stocks particularly out of favour. Valueorientated investors may be asking themselves if there is an opportunity here, or if the ‘Brexit discount’ is justified. The Bank of America Merrill Lynch fund manager’s survey of global allocators saw weightings to the UK reach a historic low in March, and the country has been one of the least favourite locations all year amongst respondents. James Goldstone, manager of the Invesco Perpetual Select UK Equity and Keystone trusts, tells us US investors are on a “buyer’s strike”. Amongst domestic investors the data shows a similar pattern: the Investment Association reports that the open-ended UK All Companies sector was the worst-selling in March, as it was in four other months of the past 12. The UK equity income sector was the worst-selling in two months over the same period. We examine a number of trusts which have managers who believe they may benefit from a resurgence of interest in stocks exposed to the UK domestic story.
Companies: ASIT HOT IVPU SUPP
We have for some time argued that traditional equity income funds are too heavily dependent on a narrow range of stocks, and that the stocks themselves are perhaps looking overstretched in terms of the dividends they pay compared to their underlying earnings. In November last year we published research showing that 25.1% of the capital in the AIC UK Equity Income sector is invested in just ten stocks, and across those companies the average dividend cover is 1.17x. We found that open-ended funds are even more heavily concentrated, with just under 30% of assets invested in ten stocks, among which the average dividend cover is just 1.04%. The mood amongst investors seems to be changing as awareness of this concentration grows, not least because of articles like this one in the Times warning of a ‘squeeze’ ahead for investors and, where once UK Equity Income was regularly the top selling Investment Association sector, outflows have been building steadily for some months. In fact the IA UK Equity Income sector saw bigger retail outflows in January this year than any other bar the Specialist sector. Even after recent outflows, however, the sector remains one of the largest overall with assets of more than £62bn under management – accounting for roughly ten percent of all assets invested in open-ended funds. Among investment trusts, assets amounting to £10bn are held in UK Equity Income trusts. Income still commands a strong pull, then, and within the Investment Trust sector, the practise of boosting income by paying out a proportion of capital profits has become increasingly common as a means to attract new investors. The appeal of this practice from a fund manager’s point of view is obvious. Many investors clamour for income, so introducing a yield can encourage greater demand for shares. International Biotechnology Trust (IBT), which we cover in detail here, announced plans in September 2016 to convert some of the capital it generates into income, aiming for a yield of 4%. As the chart below shows, the discount has come in sharply since it did so, moving to a premium earlier this year having previously rarely traded inside a double figure discount for a large proportion of its lifetime. Invesco Perpetual UK Smaller Companies (IPU) saw a similar re-rating when the board announced plans to pay a significantly enhanced dividend partly funded by the capital account in September 2016. Like IBT, the trust, which yields 3.5%, has seen its discount tighten up sharply, moving in from a consistently wide double-digit discount to trade in single figures since the enhanced dividend was introduced. Looking at these share price movements, we thought it might be interesting to examine the broader investment trust sector and see whether a correlation exists between discount and yield.
Companies: IVPU IBT MVI MUT DIG EDIN PLI BEE BRWM IVI SCF AAIF PLI
IP Select’s Global Equity Income Shares (IVPG) portfolio is run by a group of regional managers from the Henley on Thames offices of Invesco Perpetual, and aims achieve a growing level of income return each year, and capital appreciation over the long term, through investment in a diversified portfolio of equities worldwide. The trust actively uses the unique advantages of the closed-end structure to do this, including gearing, an enhanced dividend policy and an active discount control policy which has historically prevented the trust’s shares from slipping to a significant discount to NAV. A key differentiator of IP Select Trust is that it is split into four ‘share classes’, each pursuing different strategies, and each led by a different manager but sharing the costs of the structure. Alongside the Global Equity Income shares, the others are UK Equity, Balanced Risk Allocation and Managed Liquidity. Investors in the trust can switch between the share classes on a quarterly basis. This profile focuses only on the ‘Global Equity Income’ share class. IVPG’s portfolio is run by a committee of regional managers from the Henley office of Invesco Perpetual who form the “Global Income Group” (GIG). They aim to achieve a growing level of income return each year, and capital appreciation over the long term, through investment in a diversified portfolio of equities worldwide. The portfolio is relatively concentrated and is comprised of approximately 50 stocks. The GIG management team look to invest in high quality companies at attractive valuations, offering attractive yields, sustainable income and capital upside. The trust currently has significant exposure to oil companies and banks, with the majority of assets geographically split across the UK (18.4%), US (34.1%) and Europe (35.7%). Over the past year (to the end of February 2018), the trust’s NAV return has outperformed the MSCI World (6.0%), delivering 9.9%. Over five years, the NAV total returns are 83.4%, outperforming the average trust in the Morningstar IT Global Equity Income sector (48.46%) and the MSCI World NR index (83.1%).
Individuals often have set periods over which they hope to achieve an investment objective. Saving for retirement is the obvious one, but a planned house purchase in the future, school fees, or a ‘once in a decade’ holiday or celebration are others. In the current low interest rate environment and assuming the ‘target event’ is far enough away (say 10 years), investors might seek to look to the stock markets to put their capital to work and optimise the amount of capital before they need to use it. However, what could investors do to prepare themselves as this date approaches? How exposed do they feel as the investment period comes to an end, and the time before they need cash in their investments gets ever nearer? How should they react? The volatility of recent weeks is a reminder that remaining fully invested to the last minute can cause heart-stopping moments, and may materially affect the purchasing power of a nest-egg put away for such a purpose. We highlight a unique investment trust which could be used for such a purpose.
The Balanced Risk Allocation share class portfolio is managed by Scott Wolle and the Global Tactical Asset Allocation team in Invesco’s Atlanta office. They aim to provide an attractive total return in differing economic environments, with low correlation to equities and bonds. The NAV has met the performance target of LIBOR +5% over almost all periods since 2012, with volatility of around two-thirds that of equity markets. In contrast to ‘active’ total return funds (such as Ruffer, Personal Assets etc.) the managers have a systematic process to shift tactically around an otherwise relatively static long-term allocation to three asset classes: debt securities, equities and commodities. This systematic investment process means that, compared to a more active strategy, investors should be able to have a good understanding of how the strategy will perform in different environments, and therefore offers an interesting complement to many of the popular balanced, or low equity correlation, total return funds. The share class offers investors an exposure to almost all of the developed world’s liquid investable assets which offer a ‘risk-premium’, encompassing indices in equities, bonds and commodities. Because each asset class earns a risk premium over the long term, and they are uncorrelated to each other, the combination results in a portfolio with significantly improved risk / return characteristics than when compared to any one asset class. Over five years the shares have delivered a total NAV return of 26.8% (five years to 31/01/18) compared to the MSCI All Country World index return of 88%, and the average for the lower beta trusts in the AIC Flexible sector total NAV return of 31.9%. It has achieved these returns with around two thirds of the volatility of equities at 6.5% (compared to the MSCI ACWI volatility of 9.3%), and a relatively low correlation to the index of 0.62.
James Goldstone took over responsibility for the UK Equity share class in October 2016. He is responsible for managing one other UK investment trust (Keystone), as well as the in-house Invesco UK Equity Pension fund. He manages IP Select’s UK Equity share class portfolio in an unconstrained manner, with little regard for benchmark weightings. He looks for UK listed businesses, with what he views as strong balance sheets, high barriers to entry and the ability to expand market share, with the potential to deliver a compelling total return, comprising both income and capital growth. In doing this, he has a strong focus on valuation, and invests in those companies which he views are undervalued. Currently James views the spectre of inflation in the UK to rise, particularly driven by wage growth. At the same time, stocks exhibiting growth characteristics and the ‘bond proxies’ are trading at historically high valuations relative to ‘value’ characteristics. James believes that if the perceived wisdom that the low growth, low interest rate environment is permanent proves erroneous, sector rotation and the resultant correction in share prices could be dramatic. As a result, whilst maintaining diversification across the portfolio, he has tilted the portfolio towards companies that in his view offer undervalued exposure to a better domestic out-turn than is generally expected. These include companies within the Financials sector as well as those exposed to UK consumption, which stand to benefit if the consensus outlook for continued negative real wages and resultant weak demand fails to materialise. The share class offers investors’ exposure to UK listed companies which the manager has selected. As a result investors have less direct exposure to different currencies as well as economies than with the Global Equity Income share class, although given the international feel of many of the companies that James holds, this will still be a feature. James took over management of the Trust from Mark Barnett in 2016 but both sit within the same team. Over five years the shares have outperformed the FTSE All Share index with a total NAV return of 90.9% (five years to 31/01/18) compared to the index return of 49.3%. It has achieved this with a similar level of volatility 9.7%, and a relatively low correlation to the index of 0.63.
The fund aims to generate a return equivalent to cash. The managers aim to achieve this by investing in the Invesco Perpetual Money Fund and the Sterling Liquidity Portfolio of ShortTerm Investments Company (Global Series), each of which invests in a diversified portfolio of high quality sterling denominated short-term money market instruments. The share class offers investors exposure to very liquid cash instruments which the manager has selected. Over five years the shares have delivered a total return of 0.36%, with volatility of 0.44%, and very low correlation to the MSCI All Country World index of 0.15.
IP Select Balanced Risk Allocation share’s (IBRA) objective is to provide an attractive total return in differing economic and inflationary environments, with low correlation to equity and bond markets. The trust has a benchmark of LIBOR +5% per annum, which has been met over almost all periods since the strategy was employed in 2012, with volatility of around two-thirds of that of equity markets. In contrast to ‘active’ total return funds (such as Ruffer, Personal Assets etc.) the managers have a systematic process to shift tactically around an otherwise relatively static long-term allocation to three asset classes: debt securities, equities and commodities. The team has been running the strategy since 2008, and currently manage $24.6bn for various mandates. IBRA invests through highly liquid futures, and looks to allocate risk (rather than capital) equally across the three asset classes. By overweighting the allocations to the less volatile asset classes (such as bonds) and underweighting the allocations to the more volatile asset classes, an equally risk weighted (‘risk parity’) portfolio is created. Because each asset class earns a risk premium over the long term, and they are each uncorrelated to each other, the combination results in a portfolio with significantly improved risk / return characteristics than when compared to any one asset class. IBRA sits within the AIC Flexible sector, which as one might expect, has a fair variety of strategies in it. We compare performance relative to some of the better-known trusts that exhibit low equity correlation and find that IBRA has generally been amongst the better performing, aside from during 2015 when the strategy struggled both in absolute and relative terms due to the weakness of the commodity market. Subsequent to 2015, IBRA has made up more than all of the lost ground relative to the peer group, and is on a par with Capital Gearing Trust in being the best performer in the sub-set of trusts over five years. IPBR has achieved these returns with the lowest correlation to the MSCI ACWI index of the sub-peer group below over five years, at 0.62. The board have a zero-tolerance discount policy, which has successfully prevented the discount from deviating far from the board’s target of +/- 2% of NAV. As a result, the company’s shares might be considered to have lower discount risk compared to most other investment trusts, particularly when compared to those trading at high premiums to NAV. An additional feature is the ability of shareholders in any of the IP Select Trust’s share classes to switch into another IP Select share class on a quarterly basis (UK Equity, Global Equity Income and Cash). This is conducted on or around 1 Feb, 1 May, 1 Aug and 1 Nov each year and is deemed a non-taxable event by HMRC. The systematic investment process means that, compared to a more active strategy, investors should be able to have a good understanding of how the strategy will perform in different environments. As it is, aside from 2015, it has performed well with volatility of 6.5%, relative to the target of 8% and equities of c.10%. With allocations to equities, bonds and commodities, IBRA has delivered an impressive return stream within a relatively smooth path. It has delivered lower volatility than equity markets and, given the novel approach, offers an interesting complement to many of the popular balanced, or low equity correlation, total return funds.
The recent volatility in financial markets has highlighted the importance of flexibility in reacting to a changing investment landscape. With four independently managed share portfolios, the Invesco Perpetual Select Trust plc offers the opportunity for shareholders to gain exposure to a wide range of asset classes and markets. But it’s not the only way in which the trust offers flexibility and diversity: the Balanced Risk share portfolio provides exposure to equities, bonds and commodities, with the aim of providing an attractive total return in differing economic and inflationary environments. Most asset classes gained value over 2017, benefitting our risk balanced funds. However, market environments can turn as easily as the weather, and I believe it is important to be prepared for potential rough seas ahead. In August 1628, Sweden was at war with Poland and built the most powerful warship in the Baltic named Vasa. Tragically, Vasa sank on its maiden voyage just one nautical mile out of the port of Stockholm upon encountering only moderate wind gusts. An extensive inquest determined that faulty construction and engineering was to blame: Vasa’s hull was imbalanced. For over 300 years, Vasa lay in a cold, silty and unknown grave at the bottom of Stockholm harbour. Then, a complex salvage operation ensued and Vasa was brought into port almost fully intact. A museum was constructed around her, and she is now regarded as a Swedish national treasure born out of tragedy.
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AFH interim results have shown resilience in a tough period. Revenues grew by 5% yoy and Adj. EPS is up 8% yoy. We reduce our FY20 EPS forecast by 8% to reflect the wider market falls and slower new business due to the lockdown. This reduction in earnings is significantly less than peers, highlighting the defensive nature of the business and the prudent temporary cost measures being introduced in FY20. The improved FCF of the business should lead to a re-rating, particularly as AFH now trades on 9.3x CY20 P/E, a significant discount to peers. Our reduced target price of 524p implies 81% upside. Re-iterate BUY.
Companies: AFH Financial Group
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
Companies: AGY ARBB ARIX DNL GDR NSF PCA PIN PHNX PHP RE/ RECI STX SCE SIXH TRX SHED VTA
Burford has announced its results for 2019. As previously indicated, these were lower than in the previous year. Revenue fell 17% from $430m in 2018 to $357m. Profit after tax, on Burford’s basis, declined 31% from $329m to $226m. As announced earlier, there will be no final dividend so only the interim dividend of ¢4.17 was paid for FY19. Unusually, Burford has also released a trading update for early 2020 alongside its main figures. Court results and arbitral awards have been obtained that would generate some healthy profits. Most notable is $200m in income ($300m in cash receipts) regarding which further legal review is unlikely.
Companies: Burford Capital
Hipgnosis Songs Fund (SONG LN) has today announced a trading update for the full year ending 31 March 2020. The unaudited NAV has risen 13% YoY to 116.7p, up 14.3% since the last published NAV of 102.2p as at 10 January 2020. This represents a like for like valuation uplift of 11.4%. All equity has been fully deployed and shareholder approval has been sought to increase net debt from 20% to 30%. Revenue is strong with £64.7m generating an EPS of 10.7p (more than 2x the annual 5p dividend target). NAV growth has been driven by revenue statements which were up 2%, and an increase in streaming growth rate assumptions by the independent valuers. The portfolio comprises 54 catalogues, with 13,291 individual songs, now valued at £757m which was acquired at purchase price of £697m on an acquisition multiple of 13.9x – now valued on 15.0x historical earnings.
Companies: Hipgnosis Songs Fund
Aside from its FY 19 earnings presentation, British Land has adopted a more cautious anticipation about Offices in the City of London. We share this pessimism and have been surprised by the recent share’s bump. The latter is the opportunity to turn negative, again, and update our divestment case.
Companies: British Land Company
TCS has confirmed it will pay the previously announced interim dividend of 3.25p. A number of mitigating actions to preserve cash ensures that this is affordable. We estimate the £1.7m payment is less than 10% of cash and available facilities, which should be little changed from the April update. Rent collection levels of 75%, or 86% including deferrals, is resilient under the circumstances. There are also optimistic signs from Europe that people will be shopping in material numbers from 15 June. TCS will have all locations safely open from that date. We lower our NAV forecasts c.2%, mostly for the dividend payment, but also for a tougher outlook for CitiPark. Official guidance understandably remains withdrawn. The shares currently price in a c. 30% decline in underlying property values, which we think is excessive. On this basis, we see upside to the share price, setting it at 235p, still a c. 25% discount to NAV while short-term visibility is low. BUY
Companies: Town Centre Securities
Ramsdens has reported a strong set of trading results in the last twelve months to March 2020. COVID lockdown has led to store closures, which will lead to weaker trading over the following months. However, Ramsdens has a very solid balance sheet, is diversified and is well positioned to re-open stores and continue its growth. We use an 8x multiple on last 12 months to March 2020 earnings as a reflection of a normalised earnings base which reduces our target price to 162p from 180p. At this target price Ramsdens would trade on a CY20 P/B of 1.5x. This target price offers 15% upside and we re-iterate BUY.
Companies: Ramsdens
Today’s FY update reports that the decisive action taken at the outset of the COVID crisis has protected returns. Revenues held up through to the May year end. Aided by cost savings, adj. EBITDA is expected to be 20% ahead. We expect a more modest final dividend to protect the capital surplus. Additional savings have been outlined, which we overlay on a conservative “flat market/fewer new clients” scenario for FY21e – where we hope outperformance is possible. Updating EPS forecasts: FY20e +25%, FY21e -10% and FY22e -7%; also incorporating the Hurley Partners acquisition (+8%). We consider MW a high quality core holding with long term potential.
Companies: Mattioli Woods
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP BOXE ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGR CSH ESP DIGS IHR LXI PHP RESI SIR SUPR THRL SOHO BBOX SHED WHR
Tetragon Financial Group (TFG, Tetragon) achieved a 13.6% NAV/share total return and a 13.4% ROE in FY19, in line with its long-term target of 10–15%. The main driver of Tetragon’s performance was its asset management business (TFG Asset Management), which comprises managers with a total AUM attributable to Tetragon of US$27.4bn and generated an EBITDA of US$59.5m in FY19 (up 51% y-o-y). The late-2019 investment activity left Tetragon with a relatively low net cash position (4.1% of NAV at end-April). The shares trade at a three-year average discount to NAV of 44% (currently at 62.7%), which is relatively wide compared to peers given the company’s track record of delivering a 16% NAV TR pa over the last 10 years. The recent market sell-off has so far resulted in a 5.1% decrease in NAV (ytd to end-April 2020).
Companies: Tetragon Financial Group
Today's update confirms Equals delivered another quarter of significant revenue growth YoY, delivered by organic and acquisitive means. Performance across the product range has varied unsurprisingly and we expect these trends to continue over Q2/20E. Given the great uncertainty over the duration and severity of COVID-19's impact on the group, we withdraw FY20-21E forecasts and place our recommendation Under review, awaiting further clarity. Equals is supported by a strong, debt-free, balance sheet and is undertaking measures to further conserve cash.
Companies: Equals Group
MJ Hudson has confirmed that it expects to achieve profits in line with expectations for FY20E. This is a good result linked to new client wins during the COVID-19 disruption and timely cost management. Whilst much of the group's activities are proving resilient, uncertainty remains and in line with most of the peer group, MJ Hudson is withdrawing guidance for FY21E. We similarly withdraw our FY21E forecasts until visibility improves, moving our rating to Under Review. Meanwhile, the shares are now down 30% since their pre-COVID-19 highs, which is beyond that seen at outsourcing peers (Sanne, JTC). Whilst COVID-19 is presenting challenges for many businesses, we believe that: 1) the structural growth drivers in alternatives that underpin MJ Hudson's growth will continue to remain highly relevant, and 2) its strong balance sheet gives it a relative advantage.
Companies: MJ Hudson Group
Picton Property Income has completed a new £50m revolving credit facility (RCF) to replace two existing facilities that were due to expire in June 2021. Although initially undrawn, the facility maintains operational and financial flexibility, for a longer duration, at a slightly reduced cost. We expect FY20 results to be released later in June, although no date has been confirmed, including an update on the impact of COVID-19. The company entered this period of acute economic and sector uncertainty with a strong and liquid balance sheet and material internal asset management opportunities to support income and capital values.
Companies: Picton Property Income
In the past month the group has made significant progress in pivoting its business away from its traditional face-to-face model. Although lending levels remain appropriately subdued, it has achieved an impressive collections performance, with its largest business running at about 90% of pre-lockdown levels. This, combined with the group’s high risk-adjusted margins has enabled it to generate £3m of FCF in the first three weeks of April, taking its net cash position to £38.7m as of 21 April. This strong financial position, combined with the group’s innovative approach to product development puts it in an extremely strong position to serve its clients and win share when the current government restrictions are eventually lifted. Reflecting this positive outlook we reiterate our BUY rating.
Companies: Non-Standard Finance
