The Invesco Perpetual UK Smaller Companies Trust (IPU) management team has been in place for many years, with Robin West joining long-term manager Jonathan Brown in 2014. Over the cycle they aim to achieve top quartile performance with below average volatility compared to their peers. The team aim to achieve this through a diversified portfolio and fundamental stock picking, and by applying a consistent investment philosophy. The UK’s smaller companies equity market was hit harder than most during Q1 2020. As we discuss in the Performance section, IPU declined slightly less than most peers but has not rebounded as strongly. This trend is in line with what shareholders might expect, based on previous cycles. With reference to the lockdown and expected economic downturn, the managers have closely reviewed their portfolio. As we discuss in the Portfolio section, they view the majority of holdings as ‘low’ and ‘medium’ risk to COVID-19 related issues. The 13% that the managers classify as ‘high’ risk are companies within the retailing and leisure sectors. Overall Jonathan and Robin believe they are well placed to support any investee companies that require additional financing, having gone into the crisis with cash of around 6-7%. Their preference for well financed businesses means they believe that 76% of the companies in their portfolio are unlikely to need equity financing to get them through the crisis. IPU recently announced that the 2020 dividend will be held at last year’s level. However, in view of current circumstances, the board will pay a dividend for the current financial year of no less than 2% of the 31 January 2021 share price.
Companies: Invesco Perpetual UK Smlr Cos Inv Tr
In January 2019 we unveiled our new quant rating system for investment trusts, identifying both the top 20 trusts for capital growth and the top 20 trusts for income by using a quant screening system. We believe this is the first quant rating system for closed-ended funds to be based on NAV returns, which reflects the performance of the manager much more purely than the share price, which is a far noisier signal. We aimed to reward consistent long-term outperformers within the metrics we chose and the five-year time period over which we assessed them. In the New Year we will be rerunning our screens and rebalancing our ratings, but for now we are pleased to be able to report that in the first ten months since we revealed our selection, subsequent performance has been strong across both lists.
Companies: FEV TRY THRG IPU
Jonathan Brown and Robin West are fundamental stock pickers, with a strong valuation discipline. Within their peer group, they aim to achieve top quartile performance with below average volatility. As we discuss in the Returns section, they have consistently achieved this aim – largely through the application of the same investment process year after year, cycle after cycle. Jonathan and Robin try not to take macro views, and they rely on fundamental bottom-up stock analysis. In terms of market-cap exposure, the trust tends to sit in the middle of the pack relative to peers – neither particularly heavily weighted to mid-caps nor to micro caps. The companies that the managers tend to invest in have both 'quality' and 'growth' characteristics. They look for businesses that have the potential to double in size over the next five years, and in typical Invesco Perpetual style, hold them for the long-term – their typical annual turnover is c. 25%. The trust has now achieved five consecutive years of outperforming the benchmark. So far in 2019, IPU is ahead of the benchmark by 9.5% (to 2 October), and therefore on track for the sixth straight year of outperformance. The team has a preference for finding high quality businesses that are growing revenues and profits, and likes to buy them at what it sees as the 'right' valuation. When we spoke to the managers recently – consistent with their usual pattern of activity – they reported that they have been selling down more highly rated companies and recycling capital into smaller, less expensive stocks. As a result, with worries about growth faltering, IPU has been better protected and maintained its lead over the benchmark and peers. With a yield of 3.6% on a historic basis, IPU pays amongst the highest level of dividend yield in the UK smaller companies sector. It is important to note that this yield is not achieved by the managers investing in companies which themselves provide a higher yield, but because the income from the portfolio is supported by capital reserves. The managers believe that their portfolio of good quality businesses with multi-year growth trajectories will stand them in good stead. Jonathan believes that sticking to their principles is the only way to ride out the current difficult political backdrop.
There is a problem with the UK’s core crop of income funds. UK equity income trusts are highly concentrated in a few big names, which we think is a potential cause for concern for income-seeking investors. It is also a good reason to diversify one’s sources of income. This concentration is particularly worrying when you consider that many of the largest yielders in the index have an uncertain future, and there are question marks over the sustainability of their dividends. Just eight companies make up over the 50% of the yield of the FTSE 100, according to Bloomberg figures, and the likes of Shell, BP and GlaxoSmithKline feature 17, 14 and ten times in the top five holdings across the 24 trusts in the UK Equity Income sector. As we discussed in our recent article, Rebel Rebel, the AIC has overhauled its sectors, aiming to make it easier for investors to identify and compare appropriate investments. However, we believe they have overlooked a potentially interesting group of trusts that could more properly be considered a sector and which might help mitigate this problem: small cap equity income. As we highlighted in Rebel, Rebel, trusts that don’t easily fit within sector definitions frequently trade on wider discounts than might otherwise be the case. We think this may be the situation with the trusts in our new sector, which offer an interesting way of diversifying an investor’s sources of income and resolving the problem of concentration in the AIC UK Equity Income sector. Although yielding less than the large cap income vehicles on average, there are some trusts with innovative structures and policies offering significant yields, and there are good dividend growth prospects from some of them too. There are other benefits to small cap equity income trusts, including the potential for capital appreciation. Here, we discuss the overlooked opportunity in small cap equity income and the benefits for income-hungry investors.
Companies: IPU SDV ASIT ASL ASCI
In January we introduced a new quantitative rating system for investment trusts. Our ratings look at NAV total return performance. They are, we believe, the first quantitative rating for closed-ended funds to do so and thereby capture the performance of the management team rather than the noisier share price movements. Our ratings aim to identify the top performers for capital growth and for income. We have designed the quants to identify those trusts which have added the greatest alpha to their benchmarks and which have displayed an attractive balance between performance in rising and falling markets. For the income ratings, we have set out to identify those trusts which have managed to generate a high yield while growing their dividends and without sacrificing capital growth. We have scored all AIC trusts on our selected metrics and awarded the top twenty in each category our growth or income ratings. We believe our ratings highlight those trusts which have displayed the most highly attractive characteristics for investors in the recent past. Pleasingly, since we launched the list the trusts have done well on average, outperforming their benchmarks significantly – particularly the capital growth trusts We will rebalance the ratings at the end of 2019, but here we give an update on the performance of the trusts we have rated and the key factors affecting performance.
Companies: FGT SLS IPU BEE JCH
It is almost three years since the UK voted to leave the EU. It seems like it might possibly happen, although we wouldn’t want to make any more precise predictions than that. The political picture still remains cloudy, and it would be a brave investor who made a decision based on these tea leaves. However, the ending of the article 50 period is a good moment to take stock and get a clearer picture of what has actually happened to the UK market since June 2016. Amidst the noise and, at times, the panic, global markets and to a lesser extent UK equities have actually made strong gains. Despite this, UK valuations, as a result of the apocalyptic headlines surrounding this never-ending fiasco, remain at rock bottom in relative terms - which makes this an interesting time to look past the headlines and discover what’s really going on.
Companies: IPU MRC KIT ASL IVI
Jonathan Brown and Robin West are fundamental stock pickers, with a strong valuation discipline. The team were taking profits in more highly rated stocks in the year to the end of Q3 2018, and from Q4 were adding exposure to companies previously viewed as too expensive, post significant share price falls. The managers aim to achieve above average returns (relative to peers) through the cycle with lower volatility. The strong performance so far in 2019 YTD with NAV returns +11.7% isn’t necessarily expected, given the historic pattern of returns where the managers typically lag very strong markets. We hazard that the strong relative performance over the past six months has been largely a result of the team’s focus on valuation and their trading activity. Jonathan and Robin aim to identify companies which have a sustainable competitive advantage, a compelling proposition in a growing market, as well as good management and balance sheet strength. They look for businesses that have the potential to double in size over the next five years, and in typical Invesco Perpetual style, hold for the long term (valuations aside) – their typical annual turnover is 25% (the latest figure from Morningstar is 27.9%). IPU’s portfolio typically comprises around 80-90 holdings, with no position allowed to get much bigger than 3% of NAV – an approach that the managers say means they can sleep at night. However, the current uncertain political environment has translated into a desire to invest in only those companies they have a high degree of confidence in. As a result, the number of holdings in the portfolio has dropped to only c 71 holdings currently. The team usually take profits in stocks which they believe are over-valued, and which trade on very high multiples. Their approach has stood them in good stead since the start of Q4 2018. The portfolio has been performing especially strongly recently, and over both the short and medium term, the trust is currently in the top decile relative to peers over most periods. Over the past five years, the trust has delivered a NAV total return of 62.3%, relative to the benchmark’s return of 30.3%, and has beaten the index in all of the past five calendar years. The managers have an alpha score of 4.6% pa over the same time frame. The degree of outperformance of the index over five years is significant, particularly so when you consider that the manager has achieved this without the use of leverage. The dividend, which equates to a yield of 4.3%, is achieved by distributing all the available income arising from the portfolio, boosted by a small proportion from capital profits. This compares very favourably with other small company funds and trusts, but also those in the equity income sector. The fact that a proportion of the dividend comes from capital means that the managers have not had to tilt their investment approach to achieve this level of income for shareholders. Relative to the index (and some peers) the trust continues to have more of a value angle, prompted by a view that Brexit has led to a global aversion to domestic UK exposure which means stocks are attractively valued. UK sales of the portfolio are currently estimated at c. 55%, relative to the benchmark of 65-70%. Reflecting their caution, the team has around 5% cash in the portfolio currently.
As the end of the financial year approaches, we enter ‘ISA season’. In the first of several articles on generating income for an ISA investment, we look at the advantages of investing in equity income trusts. We explain why investment trusts can be useful for long-term, income-hungry investors, and the myriad benefits that the closed ended structure offers. We also identify trusts that best exploit the tools that investment trusts have to offer to achieve their income objectives, and illustrate how they may provide investors with a more dependable income stream for many years into the future.
Companies: MAJE PLI ASCI CTY BEE SAIN STS IPU IVI IBT
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
Over the last few years, fees and costs have become a lightning rod in the investment world, attracting the scrutiny of regulators, the media and the public alike. Investment trusts, with their independent boards acting partly on the views of shareholders, have been quick to respond. We review the changing fee landscape among investment trusts in 2018 through proprietary analysis, and discuss those which boards have done most to reduce costs for investors.
Companies: PCT SMT HSL CTY JAM IPU MWY LWI
Jonathan Brown and Robin West are fundamentally bottom-up stockpickers, with a wide remit across UK stocks. Their cautious approach to the Invesco Pepertual UK Smaller Companies Trust (IPU) seeks to achieve above average returns through the cycle with lower volatility. The managers look for high quality businesses with growth characteristics, and have a clear preference for companies with balance sheet strength. This, and a portfolio which typically comprises around 80-90 holdings with no position much bigger than 3%, means the managers say they “can sleep at night”. Relative to the index (and some peers) the trust currently has more of a “value” angle, prompted by a view that Brexit has led to a global aversion to domestic UK exposure. The team feels that many smaller company stocks which have exhibited strong momentum are quite “crowded”, and that valuations are in some cases out of kilter. As we discuss in the performance section, this has been helpful to the trust in relative terms in the recent market ructions. Reflecting their caution, the team has around 5% cash in the portfolio currently. Jonathan and Robin struggled relative to more “growthy” peers for several months leading up to the summer, and since then have been starting to claw back their relative underperformance. In contrast, IPU has been largely outperforming the index, until the very recent bout of volatility, which has seen that outperformance over one year come back. The trust remains ahead of the benchmark both over the past 12 months and year to date. Over the past five years, the trust has delivered an NAV total return of 76%, relative to the benchmark’s return of 42%, and is so far beating the index in all of the past five calendar years (including 2018 YTD). The five-year alpha score is 5.3% pa, illustrating the managers’ strong value add through their lower volatility approach. The dividend, which currently yields 4.4%, is achieved by distributing all the available income arising from the portfolio, boosted by a small proportion from capital profits. The yield therefore compares very favourably relative to other small company funds and trusts, but also those in the equity income sector. And more importantly, the fact that a proportion of the dividend comes from capital means that the managers have not had to tilt their investment approach to achieve this level of income for shareholders.
Popular wisdom has it that, while over the long term small caps have outperformed large caps, this has tended to be at the cost of greater levels of volatility. However, our research suggests that the extent of this volatility is overstated. In fact, the last five years have seen lower volatility from small-cap stocks relative to large caps across the world. This could be due to the fact we have enjoyed an extended bull run, or that the UK government has been utilising quantitative easing to maintain artificially low interest rates. Whatever the cause, crunch the numbers and you will find that over this period the FTSE SmallCap sector has seen a lower maximum drawdown than the FTSE 100, but a maximum gain 21.6% greater than large caps. This phenomenon is not limited to the UK either. When comparing the MSCI Europe Small Cap Index to the MSCI Europe Index, the former has delivered double the annualised returns, again at a lower standard deviation. This combination of superior returns and comparable volatility is an attractive blend. Furthermore, with research on small caps likely to become even more thinly available as a result of Mifid II, the ability of small-cap managers to add alpha – a trait they’ve already shown themselves very capable of – is likely to be magnified. Against this backdrop, we consider the outlook for smaller companies.
Companies: SLS MINI IPU ASL JUSC BGS
Jonathan Brown and Robin West continue to apply the same consistent investment process that has been used for over a decade. They aim to achieve above average returns through the cycle with lower volatility. Invesco Perpetual UK Smaller Companies Trust (IPU) tends to sit in the middle of the pack relative to peers on most portfolio metrics. In terms of market-cap exposure it is neither particularly heavily weighted to mid-caps, nor to micro-caps. The managers look for high-quality businesses with growth characteristics, and a clear preference for companies with balance sheet strength. Since the start of the year, the managers report being slightly frustrated in what they view as a momentum led market, which has better suited competitors such as Standard Life and Old Mutual. However, they observe that as much as offering a strong following wind to the “winners”, the market has been “absolutely brutal” to those perceived as “losers”. Particularly badly hit has been any traditional retail exposure. Jonathan and Robin have been taking advantage of this volatility, by topslicing into strength, and adding to positions where they feel that share prices have been pushed down too far. Over the past five years, the trust has delivered a NAV total return of 105%, relative to the benchmark’s return of 68%, and has beaten the index in four of the past five calendar years. The five-year alpha score is 4% pa, illustrating the manager’s strong value add through their lower volatility approach. The dividend, which currently yields 4%, is achieved by distributing all the available income arising from the portfolio, boosted by a small proportion from capital profits. The yield therefore compares very favourably relative to other small company funds and trusts, but also those in the equity income sector. And more importantly, the fact that a proportion of the dividend comes from capital means that the managers have not had to tilt their investment approach to achieve this level of income for shareholders.
Many smaller companies managers have been shifting into micro caps in the first half of 2018, including Aberforth Smaller Companies, BlackRock Smaller Companies and JPMorgan Smaller Companies - all of which increased their weightings significantly in late 2014 too, before a strong run for this area of the market. Against this backdrop, we examine the case for micro-caps and highlight a number of trusts focused on the area, and a number which have high allocations to this segment. Micro cap stocks have shown high growth potential in the past, offer diversification benefits to a balanced portfolio and since the Great Financial Crisis (GFC) have been cheaper than the larger small caps. However, there are significant risks involved, and greater flexibility allows the manager a degree of leeway to manage them.
Companies: ASL SLS MINI IPU
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FY20A results largely reflect a period prior to the Covid-19 lockdown, yet show Duke entering a more challenging FY21E with momentum. Yesterday's trading update demonstrated another notable rise in quarterly cash receipts for Q2/21, as royalty partner trading continues to improve. As some partners' forbearance measures will expire this month, Q3/21 receipts should continue this upwardly momentum. This opens the door to a return to cash dividends at some future point. Today, Duke also confirms it is now seeking new royalty partners, alongside follow-ons.
Companies: Duke Royalty
With the sale of the Singaporean operations for £1.6bn, the new CEO, Amanda Blanc, shows her intention to focus rapidly on its preferred markets (the UK, Ireland and Canada). The next candidate for sale is the French unit. This transaction is more complicated than the previous one, with the necessity to obtain the agreement of Afer, its key partner in France. With potential proceeds of £2.9bn, Aviva could reduce its debts significantly and allocate more capital to the UK bulk annuity business.
Companies: Aviva Plc
Oil posted its first back-to-back weekly loss since April's rout with the end of the summer driving season and concern about OPEC's production compliance weighing on prices.
Futures in New York edged up on Friday, but prices fell 6.1% this week coinciding with a retreat in U.S. equities. Traders are also examining data indicating the United Arab Emirates since July has been regularly exceeding its quota under a deal between the Organization of Petroleum Exporting Countries and its allies.
The uncertainty over how much supply OPEC+ is returning to the market adds another wrench in the recovery for oil prices still reeling from the pandemic-driven blow to consumption. While U.S. supplies had grown tighter in past months and producers were expected to restrain production amid a weak financial backdrop, stockpiles rose again last week for the first time since mid-July.
Companies: XOM HES KOS JSE 88E ADV CAD CHAR ECHO ENOG EME I3E PMG RBD SQZ SOU TLW VGAS WTE PHAR
What’s new: CLIG results have beaten Zeus expectations at revenue, EPS and DPS. On 14 July CLIG provided an update which revealed $338m of net inflows (6% of opening FUM), outperformance of the Emerging Market and Developed strategies (98% of FuM) and 25% rise in FuM in 4Q to $5.5bn and an indication that the final dividend would be not less than last year. In our opinion, key features of CLIG’s full year results include:
4.4% rise in revenue to £33.3m (Zeus forecast: £32.0m);
6.1% fall in adj PBT to £10.7m (Zeus forecast: £10.3m), excluding gains/losses on seed investment 9.4% rise to £11.6m (FY19: £10.6m);
3.2% rise in adj EPS to 35.3p (Zeus forecast 32.5p);
11.1% rise in final DPS to 20.0p (Zeus forecast: 18p) with the total DPS of 30p (Zeus forecast: 28p) is 11.1% above the prior year excluding special DPS.
Net cash of £14.6m (Zeus forecast: £10.0m)
The acquisition of KMI is expected to complete on 1 October 2020.
Companies: City of London Investment Group Plc
The COVID-19 pandemic has had a significant impact globally in many areas. While primarily a health issue, it has had wide-ranging implications for stock markets, which have now rallied after the plunge in share prices in mid-March when the full severity of the emerging pandemic became more widely appreciated. Nonetheless, the FTSE 100 Index remains almost 20% off its late February 2020 figure.
Companies: AVO ARBB ARIX CLIG DNL GDR ICGT NSF PCA PIN PXC PHP RECI STX SCE TRX SHED VTA YEW
S4 Capital had an extraordinary week with strong interims and an impressive CMD accompanied by a further merger and topped off with winning its third Whopper. Interims were ahead of our expectations and we were particularly encouraged by LFL Gross Profit growth of +18% in July. The group announced the merger with Dare.Win, an award-winning digital creative agency which extends the geographical presence of MediaMonks to France. BMW and MINI consolidated its Pan-European account into a team led by MediaMonks, which is the third whopper account for S4 Capital, and notable in our view for being won in a pitch, rather than by land & expand, and being an automotive rather than technology client. The group held a three day CMD and our summary would be i) Day One demonstrated the compelling strategic logic and strict financial discipline underpinning the group ii) Day Two illustrated the already formidable partner/client list of S4 Capital, including Adobe, Amazon, Google and CAA and iii) Day Three highlighted the chemistry between the individual agencies brought together to form S4 Capital and the outstanding work that they produce. To reflect BMW and Dare.Win we raise our FY21 EPS forecast by +8% to 10.8p (was 10.0p) and continue to view 15p as a realistic target with further whoppers in prospect and the balance of the recent equity raise to deploy. On a 30x multiple, we raise our target price to 450p (was 375p) and retain our Buy recommendation.
Companies: S4 Capital Plc
Frontier IP has announced it has invested £320k in a £720k convertible loan financing of Nandi Proteins. Nandi Proteins is developing functional proteins for food ingredients aimed at reducing levels of fat, additives and gluten in processed foods addressing important social, health and environmental concerns about processed food. Frontier IP holds a 20.1% equity stake in Nandi Proteins; the last disclosed value of the holding was back in July 2017 at approx. £2.9m. Connected in part to the announcement today, we have used the opportunity to refresh our cash flow forecasts to reflect the net £2.1m proceeds of the July 2020 fundraise, the planned deployment of proceeds into bridge financing and refreshed our Sum-of-the-Parts valuation analysis to reflect the excellent portfolio progress made in FY’20. We anticipate a 50% increase in the unrealised profit on the revaluation of investments in FY’20e to £5.82m (vs. £3.0m prior estimate; £3.85m in FY’19). Applying the peer group multiple of 1.6x on Yr1 Book value of late-stage assets and incorporating the £2.1m proceeds and dilution associated with the July placing, implies an intrinsic value of 82p/share, 27% above the current share.
Companies: Frontier IP Group Plc
We believe now is an interesting time to invest in Northgate, with a new executive board and a capable management team in place who have already delivered progress on an ongoing turnaround as we await a full strategic review. The group now has a clear and well communicated capital allocation strategy in place and improved earnings quality, in our view. We believe that the growth opportunity in the UK, the value of the Spanish business and the progress made to date with the turnaround are not being reflected in the share price, which is currently 15.9% below book value (414p per share in FY19A rising to 468p in FY22E). We use a variety of valuation methods including P/B, SOTP, DDM and DCF modelling and arrive at an average implied share price of 450p, 29.0% above the current share price.
Companies: Redde Northgate Plc
Following a solid H120, HgCapital Trust (HGT) announced several portfolio transactions representing a considerable uplift to the carrying value at end March 2020 and translating into a c 12.0% ytd NAV total return (TR) to end August. On completion of these deals, HGT’s cash resources will improve significantly to £314m from £123m in early July, while its unfunded commitments will decline to £814m. Consequently, HGT’s commitment coverage ratio will improve markedly to c 39% vs 13% in early July.
Companies: Hgcapital Trust
Artemis Alpha Trust (ATS LN) has undergone a radical transformation over the past two years following a comprehensive strategic review. In April 2018, the trust held around 90 stocks with approximately 25% of NAV held in unquoted positions. Following the implementation of the review, Kartik Kumar (who has been with Artemis since 2012) was appointed lead manager alongside John Dodd remaining in place with an overseeing role. Kartik has since significantly reduced the number of stocks to a much more concentrated high conviction portfolio of just 36 stocks, and has significantly reduced the unquoted exposure to only 7%. This shift in focus has at the same time improved portfolio liquidity by moving up the market capitalisation scale.
Companies: Artemis Alpha Trust
L&G reported an operating profit from continuing divisions (excluding Mature Savings and General Insurance businesses) of £1,128m, -2.2% yoy. The COVID-19-related cost was £129m. LGR posted a growing operating profit to £721m. Net profit amounted to £290m vs. £874m a year before, being affected by the reduced discount rate used to calculate LGI reserves. The Solvency II ratio stood at 173%. The Board recommended an interim dividend of 4.93p/share, stable relative to H1 19.
Companies: Legal & General Group Plc
Avation is a lessor of commercial aircraft to a diversified airline client base. In relation to the ongoing administration process of Virgin Australia, Avation has this morning announced that following the successful placing of five of the original thirteen aircraft that were on lease to the airline (two Fokker 100s plus three ATR 72-500s, with the latter having gone to two new customers), the remaining eight aircraft will be returned to Avation, being made up of three ATR 72-500s and five ATR 72-600s. Additionally, subject to approval at a creditors' meeting scheduled for 4 September 2020, the expected return to unsecured creditors is now anticipated at between 9-13% being paid prior to 30 June 2021.
Companies: Avation Plc
Deltic Energy is entering an exciting phase in its development based on its fully funded joint-venture projects with Shell. Preparations are now underway for an exploration well to test the Pensacola Zechstein prospect in the SNS (Southern North Sea). Deltic has indicated that it expects the current contingent well commitment to become firm on schedule by December 1, 2020. Drilling, according to Deltic, should follow in H2 2021. We see scope for positive news flow over the next few months, not least from the evaluation of Shell’s recently obtained processed 3-D seismic over Pensacola. Following Pensacola, the Selene prospect is scheduled to be drilled in mid-2022. The recent 32nd Round UKCS licence awards greatly expands Deltic’s exploration potential in the CNS and particularly the SNS Carboniferous fairway. Here some highly prospective acreage has been obtained.
Companies: Deltic Energy Plc
Belvoir’s H1 results evidence both strategic progress and profits growth. Given the challenges presented by COVID-19, this bodes very well for the group’s long-term growth potential. H1 adj. EPS grew +16%, the acquisition of Lovelle contributed well and in July the group entered into a strategic alliance with The Nottingham Building Society. Cash flow remained strong and the progressive dividend policy has been reinstated, with a 3.4p interim declared plus an additional 2p, as partial compensation for the missed 2019 final. With the resilience of lettings and the current record activity levels in sales and new mortgages the Board is optimistic that full-year results will hit its pre-COVID expectations and we make no changes to our PBT/EPS forecasts. Our target price of 233p (48% upside) assumes a 10% discount to the small/mid cap market. Given the above average performance in H1 and continued evidence that the long-term growth strategy is yielding value we see good upside to this target over time.
Companies: Belvoir Group Plc
S4 Capital has reported interim results that are ahead of our expectations and indicates an acceleration in the pace of recovery in Q3. LFL Gross Profit rose +12.2% in H1, with Q1 +18.8% and Q2 +6.5%. Encouragingly, after the trough of +3% in April, recovery accelerated to +5% in May, +11% in June and July was an impressive +18% ahead. PBT and EPS were both slightly better than our forecasts, while the group delivered a particularly impressive cash performance leaving it with net cash in June even before the £113m July placing. While we maintain our FY20 LFL Gross Profit growth forecast of +14% (Q3 +12%, Q4 +18%), the strong July result makes this look conservative. Further, the group awaits the outcome of two 'whopper' pitches each worth $20m+ with one due 'very shortly' and it can now see the pathway to 20 whoppers. S4 Capital is in a growth sweetspot and has already started to deploy the funds from the July placing to build capability in eCommerce (Orca Pacific) and econometrics/media optimisation (Brightblue). There are a number of moving parts in our forecasts and overall we retain our EPS estimates of 7p for this year, rising to 10p in 2021. We believe landing the whoppers combined with further M&A as the group deploys its recent equity raise & increased debt facility could see EPS of 15p next year.