Jupiter European Opportunities (JEO) offers investors exposure to a portfolio of European companies that offer good prospects for capital growth; irrespective of short-term economic trends and the business cycle. The portfolio is run by Alexander Darwall, one of the most successful fund managers in the investment trust space in recent years. The results of Alexander’s long-term, high conviction view and stock-picking approach can be seen in the performance numbers. Over a five year period, JEO boasts an alpha of 6.25 and a Sharpe ratio of 1.08. In NAV terms, JEO remains amongst the best performers in the European equities investment trust peer group over three, five and ten years. JEO has consistently traded at a premium rating relative to the rest of its peer group. Recent uncertainty relating to its continuing management arrangements has, however, resulted in a small discount of 2.5% as at the time of writing.
Companies: Jupiter European Opportunities Trust
The most terrifying words in the English language are, or were at least according to the late president of the United States Ronald Regan: "I'm from the government and I'm here to help." and for investors in global smaller companies, this could be prescient. Most investors into smaller caps are attracted by the prospect of exponential business growth. Young companies with innovative products are supposed to offer a disruptive threat to established companies, with huge potential markets to grow into. However, developments in society and politics could be calling into question the ability of smaller companies to generate the same excess returns in the coming decades. The chief issue is regulation: while regulation is often mooted as in the interest of society at large, there is evidence that in recent years the chief beneficiaries of regulation have been the large players in existing industries, who are better able to adapt to the increasing costs. In this study we consider how the regulatory burden is affecting markets around the world and what it means for investors in the various regions.
Companies: JUS USA JEO MINI AJOT
In our recent research, Measure for Measure, we discussed the importance of a manager’s activeness and the difficulties involved in gauging it. As we have highlighted before, the chance of generating alpha generally rises with how active a manager is, and the UK closed-ended universe has become significantly more active in response to the challenge of cheap passive products. In that article we took a look at a range of measures for assessing the ‘activeness’ of a manager and their strengths and weaknesses. In this article we take a deep dive into the numbers, using tracking error, concentration, gearing and sector movements to look at how active the managers are across the major closed-ended equity sectors; the UK All Companies, UK Equity Income, Global, Global Equity Income, Japan, Europe and North American sectors. We rank the trusts based on each individual metric, but also relative to the rest of the sectors. Finally, we discuss which trusts stand out across the different metrics, and establish an overall ranking for each trust which shows how ‘active’ they are. As always, we are not recommending anything here, and this ranking should not be construed as anything other than a scale showing how ‘active’ each fund is relative to the other funds in the study, according to the metrics we have used. Neither are we suggesting that being very active is, in itself, meritorious.
Companies: IIT LTI SMT JEO FSV BGEU SCF JMF DIG
Fees in the fund management world are a hot topic, and average fees across collective investment funds around the world have seen relentless declines. According to research from Morningstar, the average asset-weighted fee for actively managed equity funds has fallen by 18% since 2013, compared with a 28% decline at passive funds.
Companies: JAM ATST SUPP JEO RIV
“The single greatest edge an investor can have is a long-term orientation”, according to Seth Klarman, the American billionaire hedge fund investor. On the Hargreaves Lansdown platform the number of people with more than £1m in their ISA has increased from just three in 2012 to 168 today. However while this sounds very impressive, £1m doesn’t seem that fanciful given full historic contributions to PEPs and ISAs since 1987 would have added up to more than £291,000. We calculate that an investor would “only” have to have generated an IRR of 7.74% on every year’s subscription to have generated a seven-figure sum today. ISAs offer an excellent way to grow capital and benefit from compounding (that eighth “wonder of the world”) over the very long- term entirely free from the clutches of HMRC. Investments are tax neutral within the ISA wrapper, and in contrast to a SIPP, there is zero tax payable on the entire amount when capital or income is withdrawn. Another contrast to a SIPP is that there is no size limit – under current legislation an individual’s ISA can be as big as it gets. Whilst building an ISA pot of £1m is clearly a huge achievement, our analysis suggests that many investment trust managers would have delivered significantly more. There are around 48 trusts for which we have meaningful statistics going back to 1987 which have had broadly the same strategy and/or elements of the same management team over this time. Of these, an incredible 34 trusts would have delivered a total ISA value (share price returns net of fund fees, but before the ISA wrapper fees) of over £1m, if an individual had put their entire PEP / ISA subscriptions in the same trust every year.
Companies: SMT IIT JEO IEM JEO ICGT OCI SUPP ATST LWI FGT
Jupiter European Opportunities (JEO) typifies a fund run by an investor who takes a long-term view, and applies that view with high conviction. As a result of Alexander Darwall’s stockpicking, JEO has reigned supreme for the past decade in both consistency and the extent of its outperformance – even despite the recent falls in the share price of the trust’s largest holding Wirecard. Since 2000, Alexander has invested JEO’s capital in the same manner – by owning what he sees as exceptional companies, expected to grow thanks to long-term structural trends largely uncorrelated to the wider economic environment / stock market cycles. He expects to hold these companies for the long term, and has demonstrated that he runs winners. His low turnover and high conviction approach mean that currently there are four holdings within the portfolio (currently accounting for 24% of NAV by value) which have been part of the portfolio for twelve years. Alexander has a high degree of flexibility to manage the portfolio as he sees fit. That he runs winners means that the portfolio concentration is much greater than one would normally find, with the top ten holdings representing 78% of NAV at the last month end. Additionally, he has full latitude to invest outside of European-listed companies, the requirement only being that most companies held will undertake a substantial proportion of their business activities within Europe. Currently c. 26% of assets are invested in UK-listed companies. By the managers’ calculations less than half (45%) of the portfolio’s companies’ sales come from Europe. The results of Alexander’s stock-picking and his high conviction approach can be seen unambiguously in the performance numbers. Despite recent travails with Wirecard - the trust’s largest holding as at 31st January 2019 - on a total return basis, JEO remains amongst the best performers in the European peer group in NAV terms over one, three, five and ten years. Since 2001 (the first full year of being manager) Alexander has only underperformed the benchmark (FTSE World Europe Ex-UK Index) in two years – 2008 and 2016. The compounding effect of Alexander’s outperformance has meant that the trust has delivered stellar results for shareholders. Over the last ten years (to 13th February 2019) the trust has delivered NAV total returns of 543% against a benchmark return of 160%, and the Morningstar Europe investment trust peer group average return of 212%. Relative to peers, according to Morningstar’s “style” analysis, JEO has the purest “growth” portfolio of the investment trust peer group. It is also the only trust which has any significant exposure to UK stocks, and whilst over the long run the NAV has similar volatility to that of its peers, over the past one and three years it has been the most volatile. Gearing has over the long term averaged around 10%, according to the Morningstar. The manager tends to deploy gearing when he sees opportunities at a stock level. During the summer of 2018, gearing reached a relatively low level (by historic standards) of 3%. Following the sell-off from September 2018 into the year end, gearing was increased to its current level of c 6%. JEO has consistently traded at a premium rating relative to the rest of the Europe investment trust peer group, and for much of the past year traded on a premium in absolute terms. The recent volatility in NAV – largely thanks to Wirecard - has meant that the discount has once again widened out to 5%.
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 JAI BEE SDV BRIG AAIF HFEL SCF SIGT BRFI IVPG CTY HINT JCH NAIT
It was only last year that Europe was considered one of the hottest sectors, and we produced research (‘En Garde!’) highlighting the sheer pace at which the discounts were narrowing, and how the sector was witnessing its highest inflows since 2015. Over a one-year period, to the end of July 2017, the average trust in the sector had delivered NAV total returns of 26% which – supported by that closing discount – translated to share price total returns of 39%. To put that in context, the average fund in the sector outperformed the average fund in any and all of the Investment Association’s OEIC sectors over the same period. However, this has all but completely been forgotten and, rightly or wrongly, Europe is now one of the most out of favour geographical sectors in the world. We believe it is likely to be ‘wrongly’, and having met with multiple European fund managers, we feel there may be a discrepancy between the opportunities in Europe, and the sentiment of investors. We look at a range of investment trusts and examine the case for Europe.
Companies: FEV BEE JEO
Research due to be published in the CFA’s Financial Analysts Journal claims to demystify Warren Buffett’s astonishing long-term success, and shows how he has achieved his incredible run of returns. In a nutshell, the Buffett “secret sauce” is leveraging up low beta, cheap, high quality stocks. This approach has allowed Buffett to generate a high information ratio - a ratio used by analysts to show risk-adjusted returns relative to a benchmark - over a multi-decade career, and returns which have generated significant value over a passive investment strategy. Using the same analytical ratio as a starting point - albeit over a shorter time period - we identify investment trust managers in the UK who have generated returns with similar characteristics, and then examine their investment style. We then consider whether Buffett’s “secret sauce” is past its sell by date; could it be that the approach which worked so well for him in the past is dated now, in a world where innovative disruption is occurring at an ever-faster pace?
Companies: BGFD HNE BGS JEO SJG THRG
When comparing performance across the investment trust sector as a whole, Jupiter European Opportunities (JEO) has delivered a consistently strong performance, stumbling only twice - in 2008 and 2016; both highly unusual years for reasons which are well known. Since 2000, Alexander Darwall has invested JEO’s capital in the same manner – by investing in what he sees as exceptional companies, expected to grow irrespective of the wider economic environment or stock market cycles. He sets great store by company meetings with management, trying to identify the twin pillars of “the right company” and “the right management” which underpin his disciplined approach to stock selection. Having identified these companies, he looks to identify long-term structural trends which will help the company grow. Alexander has a high degree of flexibility to manage the portfolio as he sees fit. For example, the portfolio concentration is much greater than one would normally find with the top ten holdings representing 75% of NAV. Additionally, he has full latitude to invest outside of continental European listed companies, the requirement only being that most companies held will undertake a substantial proportion of their business activities within Europe. Currently c. 25% of assets are invested in UK listed companies. In the managers view, their investee companies are increasingly global, but are unified by their common roots as being driven by European expertise. Compared to the AIC Europe peer group, JEO has been the best performer over one, three, five and 10 years. Since 2001 Alexander has only underperformed the benchmark (FTSE World Europe Ex-UK Index) in two years – 2008 and 2016. The compounding effect of Alexander’s outperformance has meant that the trust has delivered a strong result for shareholders. Over the last ten years the trust has delivered NAV total returns of 440% against a benchmark return of 135%, and a return from the average IA European (inc. UK) fund of 148%. Relative to peers, according to Morningstar’s “style” analysis, JEO has the purest “growth” portfolio of the investment trust peer group. It is also the only trust which has any significant exposure to UK stocks, and whilst over the long run the NAV has similar volatility to that of its peers, over the past three years it has been the most volatile. Gearing has over the long term, averaged around 10% according to the Morningstar. Gearing was ramped up quite significantly in 2016, when the manager saw new opportunities emerging in the wake of Brexit, and started 2017 at 17%. The managers use gearing in a highly tactical fashion, however, and the level of gearing fluctuates significantly - the current level of gearing is in the region of 3%. JEO has consistently traded at a premium rating to the rest of the investment trust peer group and has been trading on a premium of c.3% in recent times.
At the latter stages of a bull market, enthusiasm can sometimes get the better of all of us. Investors always find ways to justify prices for companies at any stage in the cycle. To contrarians, the fact that the price of something has gone up tenfold doesn’t necessarily make it more attractive. However, momentum (as it is now called) is popularly touted as a sustainable investment strategy for the long term. Have the proponents of the ‘ever the greater fool’ theory had a re-brand? Within the world of investment trusts, ‘excessive optimism’ is more easily measured in terms of premiums to net asset value (NAV). This is particularly the case where the majority of a trust’s assets are themselves quoted. Of the 90 trusts (or investment companies) which currently stand on premiums, 55% have illiquid and/or unlisted assets representing greater than 50% of their portfolios. With these trusts, overenthusiasm is perhaps a little less easy to gauge – it is entirely possible that either valuations have moved on since the last official valuation, or that the board is being conservative in its valuations. Either way, each is likely to have its own story and a premium is not necessarily an indicator of excessive optimism. We list below the trusts which have greater than 50% of their assets in listed or publicly traded investments, yet trade at significant premiums. One of the common themes observable is that of strong relative performance over recent times. However, whether you are a contrarian or not (or a follower of momentum as a strategy), we believe that paying anything over a very modest premium is setting yourself up for a fall. Premiums are very rarely sustainable and tend to evaporate at inflection points, exacerbating a poor period of performance from a manager in absolute or relative terms. Indeed, the table below shows how quickly a premium can be eroded, with a corresponding effect on shareholder returns, irrespective of manager performance.
Companies: MAJE SUPP IBT SLPE ICGT IIT SEC JEO SYNC III
Since the launch of the first index fund in 1976, passive investing has proven to be a successful investment strategy for both institutional and retail investors. The first of its kind, the Vanguard 500 Index fund, has delivered an annualised rate of return of 10.01% totalling to a return of over 1,500% since 1989. Whilst good in absolute terms, in relative terms because of fees it has underperformed the index, with the S&P 500 delivering an annualised return of 10.12% over the same period. Although there is only a small difference between the two annually, we calculate that over the 42 years this equates to underperformance of c.53%. However, this difference is a declining feature, and with fees now at only 0.14%, another 42 year period would see a difference of only 6% relative to the index. On the other hand, active management hasn’t (if one looks at the performance of the average fund) covered itself with glory either in terms of outperforming benchmarks. According to the most recent S&P Indices vs Active Management (SPIVA) report, which offers information on the passive vs active debate in the US over the course of 2017, 63.1% of large-cap managers, 44.4% of mid-cap managers, and 47.7% of small-cap managers underperformed the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, respectively. Over a five-year period, the numbers look even worse for supporters of active management:- 84.23% of large-cap managers, 85.06% of mid-cap managers, and 91.17% of small-cap managers lagged their respective benchmarks. Outperformance of a benchmark is possible, but the numbers above suggest that active managers are mediocre, and that those who can achieve outperformance over the long term are therefore difficult to identify. So, what marks this small sub-set out? What are the small minority of active managers who are outperforming their benchmarks doing differently?
Companies: FGT JEO SMT ATST IIT
Fresh news from the Quirinal Palace on Saturday – with the Italian president effectively vetoing the government put forward by the anti-establishment Five Star Movement and the far-right League – has put Italy, and the future cohesion of the Eurozone, in the spotlight once again. Stocks and bonds were already under pressure before the announcement that the coalition’s preferred candidate for finance minister – Paulo Savona – had been rejected by the president, who put forward instead Carlo Cottarelli, a former IMF official, who some argue plays into populists’ hands as another example of the Italian establishment’s thrall to Brussels. The League and the Five Star Movement have previously called for Italy’s withdrawal from the Euro and both support policies which would ride roughshod over eurozone rules on budget deficits. The danger is that, by appearing to pander to Brussels, the president’s action on Saturday may backfire – fomenting even greater populist feeling among a population already deeply resentful of EU ‘meddling’. While this may seem like a return to form for the troubled Union after an uncharacteristically smooth patch, we think a sanguine approach makes sense. Italian politics works on compromise and backtracking, and the coalition documents suggest an exit from the euro is not on the cards. In fact, with the economic environment in Europe generally positive, any volatility in Europe generated by the headlines surrounding Italy could throw up some interesting opportunities. Viewed with a cooler head, little has changed in Europe since the weekend and the environment of low inflation and cheap money looks set to remain dominant. Unprecedentedly loose monetary policy from the ECB remains firmly in place, and the debate continues over whether the eurozone economy will be strong enough to allow policymakers to end the QE programme in September. President of the ECB, Mario Draghi, has recently announced that the interest rates on refinancing and on lending would remain unchanged at 0 per cent and 0.25 per cent respectively for the foreseeable future, providing technical support for European stock markets.
Companies: HNE JESC BRGE BEE JEO
Jupiter European Opportunities (JEO) is a growth-orientated portfolio of high-quality companies listed across continental Europe and the UK. Since 2000, Alexander Darwall has invested JEO’s capital in the same manner – by investing in what he sees as exceptional companies, expected to grow irrespective of the wider economic environment or stock market cycles. He sets great store by company meetings with management, trying to identify the twin pillars of “the right company” and “the right management” which underpin his disciplined approach to stock selection. Having identified these companies, he looks to identify long-term structural trends which will help the company grow. Alexander has full flexibility to invest outside of continental European listed companies. The requirement is that most of the companies held will undertake a substantial proportion of their business activities within Europe. Currently c. 20% of assets are invested in UK listed companies. In the managers view, their investee companies are increasingly global, but are unified by their common roots as being driven by European expertise. Compared to the investment trust peer group, JEO has been the best performer over one, three, five and 10 years to the end of December. Since 2001 Alexander has only underperformed the benchmark in two years – 2008 and 2016. The compounding effect of Alexander’s outperformance has meant, over the last ten years, the trust has delivered NAV total returns of 247% against a benchmark return of 80%, and the average open-ended European fund of 84.7%. Relative to peers, according to Morningstar’s “style” analysis, JEO has the purest “growth” portfolio of the investment trust peer group. It is also the only trust which has any significant exposure to UK stocks, and whilst over the long run the NAV has similar volatility as peers, over the past three years it has been the most volatile. Gearing has, over the long-term, averaged around 10%, according to the manager. However, seeing good opportunities appearing during 2016, gearing was ramped up quite significantly and started 2017 at 17%. The current level of gearing is in the region of 4%. European investment trusts across the board have recovered much of the ground lost in discount terms since the referendum, and JEO has consistently traded at a premium rating to the rest of the investment trust peer group
Active fund management has come under increased scrutiny over recent times, with a greater availability of passively managed tracker funds and a keen eye on cost have all meant groups have had to justify their fees on a consistent basis. The argument surrounding active versus passive is rather tedious, given the definitive question of ‘which is better’ will never be answered. Given you won’t find a passively managed fund in the UK-listed investment trust space, we obviously predominately focus on active management – but we fully appreciate the benefits of index trackers, exchange-traded funds and other passive offerings for certain investors. Nevertheless, our take on the debate is that while many active funds will underperform, certain managers/strategies have proven, time and time again, that they can add value. As such, while identifying a manager who can consistently outperform is challenging, but our research shows that – with the considerable caveat that the past is no guide to future returns – there are certain sectors/regions that have been more suited to an active approach that others. As we discuss below, and using rolling five-year periods for the past 25 years, we illustrate that trusts in the European sector have been the most consistent in beating equity indices across all of the major AIC and IA sectors. Again, it is worth noting that this is a review of active manager performance, not a prediction of what might happen in the future.
Companies: JEO BRGS JESC
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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.
Premier Miton have reported their H1’20 results, which have shown delivery of key operational milestones during the period and strong performance despite the COVID-19 fears. Since the end of March, markets have recovered and net flows have been positive in April, meaning AUM has reached £9.9bn. We believe this shows the resilience of the business and that the benefits of the merger are coming through. As delivery continues we believe Premier Miton will see a significant re-rating as the shares currently trade on just 9.7x CY20 P/E, a significant discount to peers and historic levels of 12.5x. We reiterate our BUY rating and DCF based target price of 152p, implying 52% upside.
Companies: Premier Miton Group
The Renewables Infrastructure Group - £120m capital raise
Marwyn Value Investors - Proposed share acquisition by manager and crystallisation of carried interest
DP Aircraft I - 5% ownership stake in Norwegian
Companies: Renewables Infrastructure Group Marwyn Value Investors
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). Aiming to continue to provide a high and growing level of income, he is adjusting the trust's portfolio in the wake of dividend cuts sparked by the negative economic effects of COVID-19. If there is an income shortfall in this financial year, MRCH is well positioned to maintain its dividend, with revenue reserves of more than 1x the last annual payment. It has not been an easy period for value managers over the last decade as growth stocks have led the charge; however, Gergel has outperformed the UK market over this period in both NAV and share price terms. The board reduced MRCH's gearing in late January 2020, which was opportune timing ahead of the recent significant stock market weakness.
Companies: Merchants Trust
Companies: AVO AGY ARBB ARIX BUR CMH CLIG DNL GDR HAYD PCA PIN PHP RE/ RECI RMDL STX SHED VTA
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
The COVID-19-related crisis further increases the top-line pressure. However, the quarter showed ongoing efficiency gains and, above all, management’s cost of risk guidance stood significantly below our stress test based projections.
Companies: Lloyds Banking Group
In this note, we analyze the indebtedness of 35 international E&Ps publicly listed in the UK, Canada, Norway, Sweden and the USA. For each company, we look at (1) cash position, (2) level and nature of debt (including covenants), (3) debt service and principal repayment framework and (4) Brent price required from April to YE20 to meet all the obligations and keep cash positions intact. We also estimate YE20 cash if Brent were to average US$20/bbl from April to YE20. While the oil demand and oil price collapse are of unprecedented historical proportions and the opportunities to cut costs much more limited than in 2014, most companies (with a few exceptions) entered the crisis in much better position than six years ago, with stronger balance sheets and often already extended debt maturities. In addition, this time around, many E&Ps have already been deleveraging for 1-2 years and are not caught in the middle of large developments that cannot be halted. The previous crisis also showed that debt providers could relax debt covenants for a certain period as long as interest and principal repayment obligations were met. This implies that as long as operations are not interrupted and counterparties keep paying their bills (Kurdistan), the storm can be weathered by most for a few quarters.
With (1) Brent price of about US$50/bbl in 1Q20, (2) reduced capex programmes, (3) material hedging programmes covering a large proportion of FY20 production at higher prices and (4) limited principal repayments in 2020, we find that most companies can meet all their costs and obligations in 2020 at Brent prices below US$40/bbl and often below US$35/bbl) from April until YE20 and keep their cash intact, allowing them to remain solvent at much lower prices for some time. In particular, Maha Energy and SDX Energy are cash neutral at about US$20/bbl. When factoring the divestment of Uganda, Tullow needs only US$9/bbl to maintain its YE20 cash equal to YE19. Canacol Energy, Diversified Gas and Oil, Independent Oil & Gas, Orca Exploration, Serica Energy and Wentworth Resources are gas stories not really exposed to oil prices and Africa Oil has hedged 95% of its FY20 production at over US$65/bbl.
Companies: AKERBP AOI CNE CNE DGOC EGY ENOG ENQ GENL GKP GPRK GTE HUR IOG JSE KOS LUPE MAHAA OKEA ORC.B PEN PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
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
AFH Financial released an AGM statement suggesting that trading for FY20 remains in line with expectations. In the first four months of FY20 AFH has continued to see inflows at Q4’19 levels. The company also expects to see continued consolidation and a growing need for financial planning. Although the current market uncertainty has hit the industry, we believe that AFH is less affected than others by market movements due to its protection broking revenues and initial advice fees totalling 40% of revenues. We leave our forecasts and TP unchanged. These show AFH trading on 10.8x FY20 P/E falling to 9.7x in FY21, and yielding 2.8% rising to 3.1%. BUY.
Companies: AFH Financial Group
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
There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
Companies: AVO AGY ARBB ARIX ASAI DNL GDR HAYD NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE TRX TON SHED VTA
TruFin is an operating company with holdings in four FinTech businesses that operate in underserved niches. The businesses have established market positions, proven routes to market and are growing fast. With this growth requiring no additional equity, and the realistic prospect of all four being profitable within our forecast horizon, we believe that executional delivery, and a resolution of the current shareholder uncertainty will result in the current discount to fair value unwinding. We initiate with a BUY rating and a 29.3p target price, implying 83% upside.
Smaller companies are usually a problematic area to invest in during significant downturns or recessions; and the sharp fall in 2020 hasn’t been an exception. In this article we assess the performance of smaller companies trusts throughout the pandemic, while identifying the factors that have differentiated the winners from the losers. This includes the impact that cash, market cap exposure, sector allocation, revenue exposure and growth or value biases have had, with some surprising results. We also ask whether now is an attractive time to invest in smaller companies, highlighting the trusts which stand out to us…
Companies: THRG GHE MINI RMMC ASIT ASL MTE TRG BRSC DSM
Despite the disruption caused by COVID, Harworth has continued to make good progress across each business area. Liquidity has also been enhanced with an increase in the RCF announced at the end of April.
Companies: Harworth Group