The Scottish Investment Trust (SCIN) employs a high-conviction, global contrarian approach, aiming to deliver long-term, above-average returns via capital growth and rising income. It seeks to do this by ignoring the crowd, anticipating change and identifying a diversified portfolio of undervalued international stocks that will benefit when change comes. Manager Alasdair McKinnon views minimising losses during turbulent episodes as a key part of maximising long-term returns. Current positioning, implemented ahead of the severe market weakness triggered by the COVID-19 crisis, is thus intended to preserve capital and ride out the volatility. This pre-emptive approach has paid off, as the trust has outperformed during the downturn.
Companies: Scottish Investment Trust
<a href="https://www.edisongroup.com/company/the-scottish-investment-trust/2525/"><strong>The Scottish Investment Trust</strong></a> adopts a contrarian approach to investing in companies around the world, seeking to ignore the ‘madness of crowds’ and instead invest in deeply unloved areas of the stock market, where recovery potential has been overlooked by the majority of investors. It aims to reward shareholders with above-average returns over the long term and to achieve dividend growth ahead of UK inflation.
In this <a href="https://www.edisongroup.com/edison-tv/fund-manager-interview-alasdair-mckinnon-the-scottish-investment-trust/"><strong>interview,</strong></a> Alasdair McKinnon, manager of The Scottish Investment Trust, explains what being a contrarian investor means in practice and how this is facilitated by being independent of any fund management group. He also highlights some of the out-of-favour areas of the global stock market where he is currently finding attractive investment opportunities.
The Scottish Investment Trust (SCIN) seeks to ignore the ‘madness of crowds’ and invest in deeply unloved areas of the global stock market, where recovery potential has been overlooked by the majority of investors. Absolute returns have been strong year to date (1 January to 31 August 2019), with share price and NAV total returns of more than 10%. However, performance has lagged the strong rebound in global indices, which have been driven by a relatively narrow range of highly valued stocks. Manager Alasdair McKinnon is backing areas including gold miners (the outlook for gold is positive given lax monetary and fiscal policy against a worsening economic backdrop, yet miners have remained out of favour) and telecoms, which offer limited economic sensitivity and attractive dividend yields.
The Scottish Investment Trust (SCIN) seeks to provide investors with capital growth and a growing income, by investing in companies around the globe that are unloved by the majority of investors. The core of its portfolio (74% at 31 October 2018) is in ‘ugly ducklings’ – stocks that are both out of favour and operationally challenged – as lead manager Alasdair McKinnon says these can generate higher than average returns over the longer term. Because of its contrarian style, SCIN has no benchmark, and generally is not exposed to ‘hot money’ investments like US and Chinese internet stocks, instead focusing on areas such as bricks-and-mortar retail (where the manager sees the perceived threat from online competition as overdone), European and Japanese banks, ‘big pharma’ (which McKinnon sees as having stronger long-term prospects than they are currently being given credit for) and gold miners. SCIN recently announced its 35th consecutive annual dividend rise and offers one of the highest yields in its peer group, at 3.2% (2.7% excluding special dividends).
The Scottish Investment Trust (SCIN) seeks to avoid the ‘madness of crowds’, investing away from the herd in stocks that may be entirely out of favour with the market (‘ugly ducklings’), on the verge of significant improvement (‘change is afoot’), or still undervalued despite being more widely appreciated (‘more to come’). This leads manager Alasdair McKinnon and his team into areas of the market such as banks, food retail and oil companies, which have been somewhat left behind in a stock market rally that may in future be known as the ‘second internet bubble’. McKinnon reports that in spite of average market valuations being at high levels, there is still an abundance of global opportunities for contrarian investors. SCIN’s portfolio is modestly geared on a net basis and has an above-average yield compared with its close peer group.
The Scottish Investment Trust (SCIN) invests globally, with the aim of achieving capital appreciation and above-inflation dividend growth. A self-managed trust with a 130-year history, SCIN follows a contrarian investment style, with a high conviction portfolio of 50-100 stocks drawn from three categories: ‘ugly ducklings’, ‘change is afoot’ and ‘more to come’. The four-strong management team, led by Alasdair McKinnon, uses behavioural finance techniques to exploit the tendency of investors to ‘follow the crowd’. By focusing on stocks that are very unloved, those with operational improvements that have been overlooked, and more popular stocks that can continue to do better, they build in a margin of safety. There is an active discount management programme and the trust has recently announced a move to quarterly dividends from FY18.
The Scottish Investment Trust (SCIN), founded in 1887, is a self-managed global equity investment trust. It has recently taken steps to modernise and streamline its operations, and in October 2015 put in place a focused, contrarian investment process under a new management team. It aims to exploit the behavioural biases of market participants by identifying three types of company: the very out-of-favour; those where improvements have not been appreciated by the consensus; and good companies that could still do better. Recent performance has been strong, but the discount remains wider than average, perhaps reflecting a lack of awareness of the process and team changes. In H215 the trust repaid some of its long-term borrowings, further reducing costs; it now has one of the lowest expense ratios in its peer group, as well as a 34-year track record of dividend growth.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Scottish Investment Trust.
We currently have 8 research reports from 2
Litigation Capital Management has announced FY20 results with gross profit up 7% to A$21.7m and PBT of A$9.2m, slightly behind expectations albeit the Group had already flagged that delays to 3 cases during the year would result in resolutions in FY21, thereby impacting FY20 results. That said, excellent strategic progress through the year and good news flow as well as increasing scale suggests more value to come. Reiterate buy
Companies: Litigation Capital Management Ltd.
To achieve YoY revenue growth over H1/20A despite the challenges of Covid-19 and its impact on the travel sector is testament to Equals' resilience and increasing focus on B2B and International payments services. While weaker gross profit and EBITDA margins have impacted profitability in H1/20, we see potential for an earnings recovery in H2/20 given cost reduction measures currently being undertaken. This should lead Equals to cash breakeven in Q4/20 and FCF positive by early FY21.
Companies: Equals Group Plc
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
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
Sigma Capital (“Sigma”) has partnered with global alternatives manager EQT to deliver and manage a £1bn GDV private-rented sector (“PRS”) housing fund focused on Greater London. EQT will invest £300m equity, complemented by debt (including a Homes England facility), to build 3,000 homes in 5 years. Sigma will generate fee income as development manager, a recurring fee income stream from managing completed assets, as well as participation in returns via a minority co-investment (£16m) and a profit share. We estimate that the fee income alone is worth £45m to Sigma in the first five years: 50% of the current market cap. Crucially, this is a step up in AuM bringing a high quality long-term recurring earnings stream. We will reforecast following interim results (expected tomorrow) to provide full context.
Companies: Sigma Capital Group Plc
In June, faced with the task of replacing its longstanding portfolio manager, Alistair Mundy, Temple Bar Investment Trust’s (TMPL’s) board reiterated its commitment to a value style of investing. The board has now opted to hand the management contract to Nick Purves and Ian Lance of RWC Partners, two managers with considerable experience of managing income portfolios using a value-style approach. Value investing, where managers buy stocks that are valued more cheaply than market averages – based on measures such as price/earnings, price/book and yield – is deeply out of favour. The RWC team says that value stocks have never looked more unloved in the 30- odd years that they have been managing money. In their view, this makes it imperative that TMPL investors keep faith with the strategy and it also means this is an attractive entry point for new investors. One important change, however, is a cut to TMPL’s dividend to a level that the RWC team believes will be more sustainable.
Companies: Temple Bar Investment Trust
In line interim results to 30 June 2020 show the strength of this business amid a difficult environment. This is the first step in what should be an exciting growth trajectory toward a larger, scaled up business with high recurring revenues and ownership of the full supply chain in the personal injury and clinical negligence market for clients requiring long-term, risk-adjusted returns. We reiterate our TP of 50p, noting further upside potential as acquisitions are completed.
Companies: Frenkel Topping Group Plc
HSBC’s future should be clarified as soon as the US and China come back to the negotiation table. This will not happen before the US elections are over. In the meantime, HSBC will continue to be instrumentalised and its share price will remain under pressure.
Companies: HSBC Holdings Plc
Today's news & views, plus announcements from VOD, POLY, SMDS, BLND, BYG, WEIR, DC, SNR, SHI, INTU, IHR, CNC, ARE, INCE
Companies: INTU SHI INCE
The impressive full year 2019 results included some eye-catching numbers, including a record PBT of £40.1m (nearly 3x FY18 @ £14.3m), £620m of reserves acquired over 16 legacy deals, and $842m of (estimated) Contracted Premium in the Program business – on track to breach $1bn in FY20 as previously guided and $1.5bn-$2bn in 2022-2023.
Companies: Randall & Quilter Investment Holdings Ltd.
As anticipated, Record has confirmed a material uplift in AUME following the rebound in financial markets from April. We upgrade FY21E forecast EPS by +18%, with higher staff costs offsetting some of the benefit. We expect AUME growth to be more modest from herein. While no performance fees have been recognised over Q1/21 and will be harder to achieve due to Covid-19, any future recognition would have a materially positive impact on earnings. Covid has temporarily paused new client wins, but we expect further additions to come as conditions improve.
Companies: Record Plc
Mercia’s FY20 results reflect continued progress, delivering on management’s three-year strategy. AUM climbed 58% to £0.8bn, while FUM rose 73% to £658m. Following the acquisition of the NVM VCT fund management business, the company is operationally profitable on a monthly basis, with annual revenues exceeding operating costs for the first time in FY20. Net assets rose 12% to £141.5m, with the direct investment portfolio stalled at £87.5m reflecting the impact of COVID-19 fair value adjustments and a £15.7m net investment. The group remains well-placed for a downturn with £30m of unrestricted balance sheet cash and £320m of group cash. Post period end the group exited The Native Antigen Company, with £5.2m in cash (8.4x return, 65% IRR) expected. Despite the group’s progress, Mercia’s shares continue to trade at a material discount to NAV (0.60x), even before considering the embedded value of the third-party fund management business (> 4.5p at 3% of AUM).
Companies: Mercia Asset Management Plc
COVID-19 and a further cut to power price assumptions saw NAV per share fall to 309p in H120 (FY19: 337p). However, PPP performed well, bidding momentum has picked up recently and John Laing Group (JLG) expects ‘modest’ NAV growth in H2. New CEO Ben Loomes highlighted digital connectivity and energy transitions as potential future investment themes, and will set out further details in November. We cut our FY20 NAV per share forecast by 14% to 308p. The share price stands at an 8% discount to FY20e NAV per share.
Companies: John Laing Group Plc
Trident Royalties Plc (AIM: TRR) has, this morning, announced the acquisition of a 1.5% Net Smelter Royalty (NSR) over the resourcestage Lake Rebecca Gold Project located in the highly prospective Eastern Goldfields province in Western Australia. The royalty package is being acquired from a private seller for a total consideration of A$8.0 million (c. US$5.63 million), comprising of A$7.0 million in cash and A$1.0 million in new ordinary shares in Trident. The acquisition is Trident’s fifth overall and its third gold deal. As per strategic guidance the company is moving fast assembling a diversified portfolio with a paying cashflow stream from iron ore and copper production and several strategic gold royalties with the potential for near term revenues. The market is paying attention with TRR shares up 49.8% since its IPO on AIM in June this year. There is clearly more to come with c. US$7.5 million of uncommitted cash as well as the potential for debt funding and the ability to use equity as acquisition consideration. The Lake Rebecca Gold Project operated and wholly owned by Apollo Consolidated (ASX: AOP), is located 150km ENE of Kalgoorlie in the Eastern Goldfields Province of the Yilgarn Craton. The Project, envisaged as a simple open pit operation, is close to existing gold infrastructure namely Saracen Mineral Holdings Limited’s (ASX: SAR) Carosue Dam Operation whose processing plant is in the process of being upgraded to increase throughput to 3.2 Mtpa.
Companies: Trident Royalties Plc
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: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA