Standard Life UK Smaller Companies (SLS) is managed by Harry Nimmo at Aberdeen Standard Investments (ASI). He has a long-term record of meaningful outperformance versus the trust’s benchmark. The manager has a clearly defined investment process, focusing on quality, growth and momentum, and uses a proprietary screening tool known as the Matrix to sift the investible universe of c 500 companies. Nimmo retains his disciplined approach regardless of the macro background; he says this has served him well across several market cycles. SLS’s board has a progressive dividend policy and aims for a maximum 8% discount in normal market conditions.
Companies: Standard Life UK Small Co's Tst
Standard Life UK Smaller Companies offers investors an actively managed, concentrated portfolio of high-quality growth stocks, with the aim of delivering long-term capital growth. The manager, Harry Nimmo, looks to achieve this goal through a combination of quantitative and qualitative research; incorporating a proprietary scoring system called ‘the matrix’. The matrix assesses numerous metrics, narrowing down the number of companies which Harry will meet and enabling him to interrogate management and investigate the strength of the company’s business model. The end-result of Harry’s efforts is a portfolio of between 50 and 60 stocks, currently 54. The trust has a bias towards the upper end of the small-to-medium market cap range of companies, principally due to Harry’s preference for well established companies and his propensity to run his winners. Over the long run, Harry’s track record is excellent. The past ten years has seen SLS outperform the benchmark in eight, including in both rising and falling markets. This strong performance has continued into recent times, and over the past 12 months the trust’s NAV has comfortably outperformed the sector and index. Over this period SLS also saw considerable levels of volatility, however; H219 was the strongest six months in NAV total return terms since the manager was appointed in 2003, while H119 was the worst since 2008. SLS has seen a complete turnaround in sentiment over the past six months. Starting Q3 of 2019 on a discount of nearly 10%, the trust narrowed relentlessly to a premium by the year-end. This has since slipped and currently the trust is trading on a discount of 5.2%.
Standard Life UK Smaller Companies (SLS) has a long-term record of significant outperformance versus its benchmark. Manager Harry Nimmo says that his disciplined investment process, which focuses on quality, growth and momentum, also provides an element of resilience in periods of market weakness. He is encouraged by the trust’s growing level of income, which is allowing SLS to employ a progressive dividend policy, and argues that over the long term, investors have been well served by an allocation to smaller UK companies as they have outperformed the broader UK market. The trust’s board actively employs a discount control mechanism, and has recently been repurchasing shares as SLS’s discount has bumped up against its 8% target maximum.
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
Standard Life UK Smaller Companies (SLS) is managed by experienced UK smaller-cap specialist Harry Nimmo. He is somewhat cautious on the near-term outlook for UK equities, citing ongoing Brexit uncertainty, lower US earnings growth and the US/China trade dispute. The manager continues to follow his tried-and-tested investment process, seeking high-quality firms that can grow their businesses regardless of the stage of the economic cycle. He notes that SLS’s portfolio companies are generally trading well, showing good earnings momentum and beating expectations, which he expects will lead to higher dividend payments. The trust currently offers a yield of 1.6%.
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
Standard Life UK Smaller Companies is a relatively concentrated portfolio of quality growth stocks held for the long run, with a long-term track record of outperformance. The manager, Harry Nimmo, has run the strategy since 1997 for the trust’s sister open-ended fund and since 2003 for the trust itself. Historically, much of his outperformance has come in falling or flat markets. Stock selection leans heavily on quantitative screens, with Harry analysing the output of a proprietary scoring system, called the Matrix, which assesses numerous metrics, and then meeting company management and investigating the strength of the company’s business model. The last 12 months have seen the trust outperform in NAV total return terms, despite the sell-off in the autumn hurting some of the trust’s largest positions disproportionately. At 8%, the discount is tighter than the sector average, as has been the norm, although it is wide compared to its own recent history. The board targets 8% as a lower limit and has been active with buybacks when it has gaped wider. The yield is 1.7%, but dividend growth has been strong over ten years, and the manager aims to continue to grow it year on year.
Standard Life UK Smaller Companies (SLS) is managed by Harry Nimmo at Aberdeen Standard Investments. He has followed the same investment process since he took over management of the trust in 2003, through a number of economic cycles, and considers it to be stable, predictable and well defined, while providing an element of resilience during periods of stock market weakness. He also believes that the investment process is optimal for running large amounts of UK small-cap money. Nimmo has a long-term record of outperformance – SLS’s NAV total return is ahead of its blended benchmark over the last one, three, five and 10 years, and above the averages of its larger peers in the AIC UK Smaller Companies sector over one and five years, and broadly in line over three years.
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
Standard Life UK Smaller Companies has a relatively concentrated portfolio of quality growth stocks held for the long run, with a long-term track record of outperformance, particularly in falling or flat markets. The manager, Harry Nimmo, has run the strategy since 2003 on the trust and since 1997 on the sister open-ended fund. Stock selection leans heavily on quantitative screens, with Harry analysing the output of a proprietary scoring system, called the Matrix, which assesses numerous metrics, and then meeting company management and investigating the strength of the company’s business model. The last 12 months has seen continued strong performance from the trust, and over ten years it is the top-performing smaller companies trust, with the lowest volatility and the highest Sharpe ratio. At 6.5%, the discount is tighter than the sector average, as has been the norm, although it is wide compared to its own recent history. The trust recently saw the redemption of convertible unsecured loan stock which may have contributed to that by creating a stock overhang. The yield is low at 1.3%, but dividend growth has been strong over ten years, and the manager aims to continue to grow it year on year.
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
Standard Life UK Smaller Companies Trust (SLS) is managed by Harry Nimmo, who aims to generate long-term capital growth from a portfolio of smaller-cap UK equities. The trust has a strong performance track record; it has meaningfully outpaced its benchmark over one, three, five and 10 years. SLS has also outperformed the majority of its peers over these periods, ranking second out of 10 funds over one and three years, fifth over five years and first over 10 years. The trust has recently changed its benchmark to include AIM stocks, reflecting SLS’s increasing exposure to this area of the UK stock market, as the board and manager consider the quality of these companies has improved in recent years.
Standard Life UK Smaller Companies Trust (SLS) has been managed by Harry Nimmo since 2003. He aims to generate long-term capital growth from a diversified portfolio of smaller-cap UK equites. While a little more cautious on the near-term outlook for small caps given, their strong start to the year and Brexit-related uncertainty, Nimmo remains very positive on the longer-term outlook. He suggests that the portfolio’s companies have potential earnings growth of 10-15% pa, which bodes well for SLS’s dividend growth. The trust has a very strong performance track record; it has outperformed its Numis Smaller Companies ex-Investment Companies Index benchmark over one, three, five and 10 years. Over the last 10 years, SLS’s dividend has compounded at an annual rate of 23.5%; its current yield is 1.5%.
Standard Life UK Smaller Companies Trust (SLS) aims to generate long-term capital growth from a portfolio of high-quality smaller-cap UK equities. Manager Harry Nimmo follows a long-standing, consistent investment process to construct a relatively concentrated portfolio of c 55 high-conviction holdings. SLS’s NAV total returns are ahead of the benchmark Numis Smaller Companies ex-Investment Companies index over three, five and 10 years and SLS leads the pack versus peers over 10 years. SLS’s annual dividend has compounded at an average annual rate of 23.5% over the last 10 years.
Standard Life UK Smaller Companies (SLS) is an actively managed UK small- and mid-cap focused trust with a quality-biased portfolio. Manager Harry Nimmo has followed a consistent approach to stock selection since taking responsibility for the portfolio in 2003, seeking companies with resilient business models and the potential to deliver sustainable growth. SLS’s NAV total return has been ahead of its benchmark over one, three and 10 years, with notably strong outperformance over the last 12 months against the background of a decline in the broader UK market. Recent market volatility has pushed the discount towards the recently introduced 8% target level for the share buyback policy.
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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