I once sat through a three-hour performance of Samuel Beckett’s Waiting for Godot at the Theatre Royal which, despite the best efforts of Ian McKellen and Patrick Stewart – both of whom I like very much – to this day remains one of the dreariest experiences of my life. It is on that note that we welcome 2021, with all the promise it holds, and return to our ‘top picks’ for 2020, a year which is probably best summarised (for those of us lucky enough to have been not directly impacted by the virus) by the Lord Chamberlain’s censor in his review of the first performance of Godot in 1955 – in which he described having to ‘endure hours [and hours] of angry boredom’. As always, these ‘picks’ do not represent advice, and should in no way be relied upon as such; they have been chosen on a lighthearted basis with no thought given to their suitability for your personal circumstances.
Companies: TFG IPU IEM HOT OCI BRWM JRS RICA BHMG BRLA JMI GPM MINI SMT
In Russian roulette, as in life, we’re often enjoined that: “If at first you don’t succeed, try, try and try again”. Central banks have clearly taken this dictum to heart, and remain highly committed to trying to inject inflation into the global economic system, despite repeated failures in Japan and the West. The immediate impact of the coronavirus pandemic has been deflationary. As a massive economic contraction took place, and an associated output gap opened, demand shortfalls (although buttressed by immediate government support to supply chains) fed through to lowered inflation expectations. However, by mid-summer inflation expectations began to rise for a number of possible reasons. These include the sheer quantum of monetary expansion, the increasing merger of monetary and fiscal policy, an end to the immediate threat from the global USD squeeze of Q1 and a recognition that ultimately productive capacity may be removed through mass corporate insolvencies. With the Bank for International Settlements having highlighted that inflation risks appear elevated in both directions (i.e. uncontrolled inflation or deflation), there clearly exists a need for consideration for the potential impact upon portfolios of the outcome. Many individual commodities which saw the sharpest reductions in price have rapidly rebounded, and their impact upon inflation numbers will have an additional ‘base effect’ kicking in in the coming months (more below). There are also specific dynamics within the agricultural commodities subsector with similar characteristics, and there seems to be the potential for an agricultural commodity price ‘breakout’. This will have significant economic implications, particularly for the emerging market countries which are the biggest producers – and in some cases the biggest consumers – of these commodities. And that is before considering whether this inflationary impulse continues to gather speed. Below we consider the investment implications of the likely course of inflation over the next year and discuss the countries and trusts which might benefit. We ask whether this trend could lead to a rotation in market leadership: China (and particularly Chinese tech) has led EMs this year, but could others be set to take over the reins? We think one potential straw in the wind is that the managers of Monks, an unabashedly growth trust which has invested heavily in tech in recent years, have recently opened up positions in the mining sector, saying it could be an attractive long-term growth opportunity.
Companies: JRS BRFI BEE BRLA BRWM
JPMorgan Russian Securities (JRS) aims to generate long-term total returns from investing in cash- generative businesses in Russia. Despite the fact the index is highly concentrated and volatile, managers Oleg Biryulyov and Habib Saikaly have managed to generate significant levels of alpha (2.5% annualised over the past five years, calculated on NAV performance) on top of the high returns from the Russian market in the period. Over five years Russia has considerably outperformed the general emerging markets index, as we discuss in the Performance section. However, in 2020 Russia has lagged the broader benchmark as China has outperformed and a weak energy price has weighed on the oil- and gas-heavy RTS stock market. JRS has outperformed in this period too, but remains on a considerable discount of 11.7%, although we note this is close to the level it was trading at before the crisis. Over the longer run, the Russian market has been boosted by improving corporate governance and a drive by the government to see state-owned enterprises pay out higher dividends. This has seen large companies like Gazprom, Lukoil and Sberbank pay out high dividends, and JRS’s dividend has more than doubled over the past five years – the yield is currently 5.1%. Both the management team and the board are convinced that we have seen a secular shift in culture, and that further dividend growth is to be expected. As a consequence, the trust’s objective has shifted to providing a total return rather than just capital growth.
Companies: JPMorgan Russian Securities
“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
JPMorgan Russian Securities (JRS) aims to generate long-term total returns from investing in cash- generative businesses in Russia. Managers Oleg Biryulyov and Habib Saikaly aim to identify national champions which can grow through exposure to international markets; and to avoid those areas of the market with poor corporate governance. In recent years the performance of the trust has been extremely strong in absolute terms. Over five years the Russian market has made impressive gains, massively outperforming the MSCI Emerging Markets index. This has been helped by the recovery in the oil price after its collapse in 2014, as well as pressure from sanctions proving to have a limited effect. Investors who hold only generalist funds are likely to have seen very limited benefit from this rally, as the market has shrunk to just 4% of the Emerging Markets index. JRS has outperformed the Russian market over that period (to 20 January 2020), as we discuss in the Performance section. In the managers’ view, as corporates and households have de-levered substantially, they should have the ability to spend and keep up the momentum in the economy. Despite its strong run, the managers observe that the Russian equity market still remains extremely cheap relative to peers. The forward P/E of the MSCI Russia index is 6.7, just over half that of the MSCI Emerging Markets index at 12.8. Meanwhile JRS is on an 11.2% discount, wider than the average of 9.1% in the AIC Global Emerging Markets sector. The yield on JRS’s shares is 4.6%, having been boosted in recent years by the Russian government’s demand that companies increase their payouts to shareholders. This is motivated partly by the fact that the Russian state is a shareholder in many of the largest companies in the market, and partly by a desire to counteract foreign shareholders’ concerns about investing in Russia. Both the management team and the board are convinced we have seen a secular shift in culture and further dividend growth is to be expected. As a consequence, the trust’s objective has shifted to providing a total return rather than just capital growth.
There was palpable shift in sentiment over the third quarter with the cautionary undertone perhaps best reflected by gold’s resurgence. Ongoing trade jockeying between the US and China did not help the mood and neither did the Argentine debt default in August. At the real economy level, manufacturing output has been trending lower across some of the major global economies.
Companies: AEMC BIOG SIGT IBT JEFI MHN CHRY MTE PSHD RSE SIR FJV LTI MVI SEQI SOND SLI EGL SUPP VNH CSH VSL BRLA UTL ADAM SOHO GPM TPOU JRS JLEN SEC IGC MPO LIV CCRGF THRL
Since we last wrote on JPMorgan Russian Securities (JRS), Russia has been among the best-performing equity markets globally, despite being out of favour with international investors. The RTS Index has climbed above its 2014 pre-Crimea levels, before sanctions were imposed. Although economic growth has disappointed in 2019, earnings and pay-out ratios continue to grow. At a trailing price-earnings (P/E) ratio of just 6x, the Russian market remains extremely cheap.
Since QuotedData’s last note on JPMorgan Russian Securities (JRS), Russia has been among the bestperforming equity markets globally, despite being out of favour with international investors. The RTS Index has climbed above its 2014 pre-Crimea levels, before sanctions were imposed. Although economic growth has disappointed in 2019, earnings and dividend payout ratios continue to grow. At a trailing price-earnings (P/E) ratio of just 6x, the Russian market remains extremely cheap.
Russia’s economy benefitted for much of 2018 from a recovery in the oil price and rising prices for a range of other commodities. A weaker rouble has offset the recent oil price fall. Oleg Biryulyov, longstanding manager of JPMorgan Russian Securities (JRS), has many years of experience managing Russian equities. He is comforted by prospect of rising dividends over the coming year.
When we last wrote on JPMorgan Russian Securities (JRS), we drew attention to Russia’s deteriorating relationship with the west and how this had impacted on foreign investors’ attitudes towards Russian stocks. Since this time, while sentiment has worsened; Russia’s domestically focused economy appears resilient and its corporates are generally providing good earnings growth. Valuations and yields are therefore all the more attractive.
Russia’s relationship with the West is deteriorating. A brief period of optimism that accompanied President Trump’s election proved fleeting and recent events suggest that any hope of an easing of sanctions in the short-term is ebbing away. President Putin has secured his election victory but, amid new US sanctions and fears of increasing conflict in Syria, the market suffered its largest fall in four years; who can say what Putin’s next move will be.
Weak oil prices and a deteriorating relationship with the US have weighed on the Russian market for some time. Hopes of a rapprochement with the West in the wake of President Trump’s election have fizzled out. Russia has learned to live with the environment it finds itself in and earnings growth is starting to materialise. Falling inflation has highlighted excessive real interest rates, leaving scope for further cuts.
Weak oil prices and a deteriorating relationship with the US have weighed on the Russian market for some time. Hopes of a rapprochement with the West in the wake of President Trump’s election have fizzled out. Russia is adjusting to the environment it finds itself in and earnings growth is starting to materialise. Falling inflation has highlighted excessive real interest rates, leaving scope for further interest rate cuts.
The Russian market has been rebounding on the back of a strengthening oil price but remains one of the cheapest emerging markets. The manager thinks the market could rise further from here. The economy is on an improving trend but, if President Trump eases sanctions, this could provide a significant tailwind.
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Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Today's news & views, plus announcements from KGF, JMAT, LAND, GFTU, VTY, PTEC, BME, YEW, APP, BLV
Companies: LAND APP YEW
AuM grew by +43% (+16% organic) to £29.4bn in Q3. Investment performance was strong (+£2.5bn) as COVID vaccine news propelled markets. Net inflows were maintained qoq (£792m). Sustainable was the stand out performer (+24%). AuM has broken through £30bn post-period end. Better than expected AuM drives +3% FY21e EPS and +5% in outer years. Continued distribution efforts in Sustainable, Global Equity and Multi-Asset funds stands to catalyse earnings. Alongside flow momentum, 12x FY22e PER is not reflecting this upside.
Companies: Liontrust Asset Management PLC
Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. Upon Admission to AIM, Nightcap will acquire The London Cocktail Club Limited (the "London Cocktail Club"), which is an award winning independent operator of ten individually themed cocktail bars in nine London locations and one location in Bristol. Offer TBC Due mid Jan. HSS Hire Group, HSS.L transfer from Main to Aim. Mkt Cap c. £70m. Recently raised £52.6m. Leading supplier of tool and equipment for hire in the United Kingdom and Ireland and has provided equipment hire services in the United Kingdom for more than 60 years, primarily focusing on the B2B market. Due 14 Jan. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb.
Companies: IUG CBP KAT APP RST DIS NICL BOKU CNIC HE1
Urban Logistics REIT (“REIT”) has acquired another high quality “last mile” asset in the Wirral for £16.3m (5.0% NIY). The 169k sqft site is let to a subsidiary of Culina. It is leased through to 2032 and has clear rental progression, with an uplift on commencement of a reversionary lease in 2022 and a rent review in 2027. 99% rents for the Jan-Mar quarter have already been collected – highlighting the resilience in the tenant base/income. We do not change forecasts, already assuming full deployment by year end. We estimate that c.£75m capital capacity remains. We note a 6%+ dividend yield in FY22e – a 12m period of full capital deployment – and note that the discount ignores embedded NAV growth potential.
Companies: Urban Logistics REIT plc
Hipgnosis Songs Fund, is independently valued by Massarsky, who in December chose to reduce the discount rate on the revenues generated by the portfolio from 9% to 8.5%, due to strong evidence of growth in streaming numbers and the stable nature of the revenue stream. This produced a NAV of 125.35p as at the 30 September interim period end. It is worth noting the recent publication of significant changes in the discount rate as announced by Professor Aswath Damodaran of the Stern Business School in New York for the Entertainment Industry to 4.82% from 7.83% in January 2020. Combined with recent evidence that music streaming revenues in 2020 are now larger than the entire music market in 2016, we believe this is an encouraging backdrop for potential further reductions in the discount rate being applied by Massarsky going forward
Companies: Hipgnosis Songs Fund C Shares
Henderson Opportunities Trust (HOT) has performed strongly since experiencing sharp NAV and share price declines in the Q120 market sell-off, powering to the top of the AIC UK All Companies sector over the past 12 months with an NAV total return of c 40% in the second half of 2020. Managers James Henderson and Laura Foll say performance has benefited from holding a number of ‘next-generation leaders’ in the UK. The portfolio is esoteric in its make-up and seeks to avoid being overly exposed to trends in the global and domestic economy. The managers continue to see good value opportunities across the UK market, particularly on AIM, and say their intention to maintain gearing at a ‘decent’ level (c 10–15%) is indicative of feeling the portfolio and market offer good value.
Companies: Henderson Opportunities Trust
CVC Credit Partners European Opportunities (CCPEOL) has achieved a total NAV return of 1.9% (target 8% annual return) in the last 12 months. Its index outperformance was helped by sector rotation early in the COVID-19 crisis and by staying positive on the market. The manager sees the greatest opportunity in the upper CCC and lower B segments and in structured finance. CCPEOL remains optimistic in the credit opportunities segment, despite the market recovery. It expects 2021 will bring more leveraged loan issuance from broader industrial segments, thus providing greater investment prospects. Portfolio resilience led CCPEOL to raise its annual dividend from 4p/4c per share to 4.5p/4.5c in September 2020.
Companies: CVC Credit Partners Europn Opprtnity
Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb. Moonpig, the digital greeting card company, is planning an IPO with a potential valuation of £1bln, according to multiple media reports. Further details expected to be announced over the next two weeks.
Companies: ZPHR PANR PRSM SENS CYAN G4M ITX CRCL FEN ZIN
Interim results demonstrate YoY growth and a resilient outcome that has exceeded management's expectations from the start of the Covid-19 pandemic. This is testament to the degree of recurring revenue generated across the business. FY21 trading looks to be more challenging, as notably lower new insurance sales post-lockdown will translate into lower premium income. A number of organic opportunities are being worked on to fill the shortfall. Rising UK redundancies and their impact on policyholder retentions creates great uncertainty, hence our forecasts remain withdrawn and recommendation remains Under Review.
Companies: Personal Group Holdings Plc
Redde Northgate has come through the COVID crisis in very good shape so far. We expect minimal impact on the former Northgate business from “lockdown 2.0”, a strong recovery in profits and a re-rating as normality returns and Redde reverts to mean. We could see further useful earnings upside from acquisitions such as Nationwide and revenue synergies not yet included. The Group is transforming itself into a mobility business which is higher returning, more diversified and has sustainable compounding growth prospects.
Companies: Redde Northgate PLC
RLE’s recent updates address two concerns expressed by investors: security of rent and the reliability of appraised asset values. Rent collection is arguably the key measure of portfolio performance for a REIT, particularly in a period of uncertainty and on that basis the first update is reassuring. It confirmed 89.92% collection of rent due for the September quarter (Oct-Dec), including monthly and deferred agreements, broadly in line with the two prior quarters at the same stage. That provides evidence of tenants’ ability to deliver, the durability of RLE’s rental income (and dividend cover) and demonstrates management’s ability to influence events in the short term. The second announcement relates to the sale of properties for £9.725m, all at prices at or above book value. These disposals, some of which will complete in FY21 will reduce net debt and put the group in a strong position to capitalise upon opportunities to acquire assets, which meet its criteria, at attractive prices in a distressed market.
Companies: Real Estate Investors plc
Today's news & views, plus announcements from AZN, LLOY, WEIR, TATE, GFTU, INCE, DELT, SOLG, HYVE
Companies: LLOY SOLG INCE
Upon Admission to AIM, Nightcap will acquire The London Cocktail Club Limited (the "London Cocktail Club"), which is an award winning independent operator of ten individually themed cocktail bars in nine London locations and one location in Bristol. Offer TBC. HSS Hire Group, HSS.L transfer from Main to Aim. Mkt Cap c. £70m. Recently raised £52.6m. Leading supplier of tool and equipment for hire in the United Kingdom and Ireland and has provided equipment hire services in the United Kingdom for more than 60 years, primarily focusing on the B2B market. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange.
Companies: PMI RMM SUN BOIL ITM TRMR MLVN 88E IME ANP
The PRS REIT (“PRSR”) has seen 529 completions in Q2 as momentum is sustained. 3,163 homes have been completed (£29m ERV) progressing towards the 5,200 target by FY22e. We note the Thistle Portfolio sale announced today will likely provide a positive catalyst for valuation in the next 12 months. The shares currently trade on a 24% discount to NAV with a 5%+ yield (growing to 6.5% on stabilisation). We expect progress over the next 9-12m to represent an inflection point in terms of return visibility and the discount to narrow, alongside an attractive yield and NAV progression, driving a total return profile.
Companies: PRS REIT Plc