Templeton Emerging Markets Investment Trust (TEMIT) has two experienced managers – Chetan Sehgal (based in Singapore) and Andrew Ness (based in Edinburgh). In 2019, they delivered a very strong year of performance in both absolute and relative terms, and are continuing to find attractive investment opportunities across a range of sectors and geographies. The managers are able to draw on a large and well-resourced investment team that has been refreshed in recent years, seeking quality companies that can be held for the long term. Ness says that TEMIT offers a portfolio with superior growth prospects, that is trading broadly in line with its benchmark, the MSCI Emerging Markets index.
Companies: Templeton Emerging Markets Inv Trust
Templeton Emerging Markets (TEM) invests in stockmarkets of emerging countries with a bottom-up driven, stock-specific approach. It has more of a value tilt than any of its peers in the AIC Global Emerging Markets sector, and the managers tend to take a five-year view on companies’ growth potential. The trust has outperformed a passive investment in the emerging markets over the past year, and over three- and five-year periods, thanks largely to the themes and stocks brought into the portfolio after a change of manager in 2015. We analyse the performance in detail in the Performance section below. Chetan Sehgal took over as manager in February 2018, having worked with the previous manager Carlos Hardenberg, who took over in October 2015. He was joined by Andrew Ness as co-manager in 2018. We think the changes in the management team may be one reason the trust trades on a wider discount than the sector average, despite the strong performance. The discount is currently 11.6%. Although the trust focuses on capital growth, recent policy changes have seen it become more income-friendly, and the payout has increased, as we discuss in the Dividend section.
Templeton Emerging Markets Investment Trust (TEMIT) is managed by Chetan Sehgal (based in Singapore) and Andrew Ness (based in Edinburgh). They draw on the broad resources of the Franklin Templeton Emerging Markets Equity (FTEME) investment team, seeking quality companies trading at a discount to their intrinsic value that can be held for the long term. Despite increased stock market volatility in recent quarters, the managers have built on TEMIT’s solid long-term track record; it has outperformed its MSCI Emerging Markets index benchmark over the last one, three and 10 years, and is broadly in line over the last five years.
Templeton Emerging Markets Investment Trust (TEMIT) has recently appointed Andrew Ness as portfolio manager alongside Chetan Sehgal. Ness is based in Edinburgh, providing investors with a more accessible presence in the UK. The managers are constructive on the outlook for emerging markets in 2019, as they believe corporate earnings growth in the regions will surpass that in developed markets and emerging market equity valuations are attractive. TEMIT has outperformed its benchmark in NAV terms over one, three and 10 years, while its share price has also outperformed over five years. The trust now pays a semi-annual, rather than single year-end distribution, and currently yields 2.0% (based on the FY18 dividend).
Templeton Emerging Markets invests in emerging markets equities on a global basis, aiming to maximise total returns over the long run with a value-based, bottom up approach. The manager Chetan Sehgal, who took over in April, was previously deputy manager on the trust. He is a director of emerging markets equities and has had a strong input into all of Franklin Templeton’s emerging markets funds since 2016. As a consequence, there has been no change of approach under Chetan. Returns were strong relative to peers in 2016 and 2017 thanks to overweights to the consumer discretionary and technology sectors, although 2018 has been more difficult - as it has for active managers as a whole. The trust yields 2.2% following a significant rise in revenues per share thanks to a strong 2017 as well as policy changes designed to boost the dividend. The discount of 15% has remained stubbornly wide despite board attempts to close it, and it remains on a wider discount than its peer group average.
Templeton Emerging Markets Investment Trust (TEMIT) has been managed by Chetan Sehgal since the beginning of February 2018, when he took over from prior lead manager Carlos Hardenberg. The two managers had worked closely together for a number of years and there will be no change to the investment process. Sehgal will continue to follow Franklin Templeton’s value-based, bottom-up stock selection approach, aiming to generate long-term capital growth. The manager is optimistic on the outlook for emerging market equities, citing above-average earnings growth with below-average valuations versus global equities. TEMIT has recently announced its FY18 results (ending 31 March); its NAV and share price total returns of 12.4% and 13.7% respectively were ahead of the 11.8% total return of the benchmark MSCI Emerging Markets index.
After a difficult time in 2015, emerging markets have enjoyed some welcome respite over the past few years. Throughout 2016, the MSCI Emerging Markets Index delivered NAV returns of 32.6%, and 2017 saw similarly strong returns of 25.4%. Many of the factors that originally attracted investors to emerging markets seem to be coming back into play, including improving earnings growth, higher economic growth and robust consumer trends. As an additional tailwind, the weak dollar has helped the commodity exporting countries like Russia, Brazil and Chile continue to grow while at the same time encouraging investors to chase higher yielding EM countries.
Companies: Templeton Emerging Markets Inv Trust Blackrock Latin American Inv Tst
Templeton Emerging Markets Investment Trust (TEMIT) aims to generate long-term capital growth from a portfolio of emerging market equities that is diversified by geography and sector. Carlos Hardenberg took over as lead manager on 1 October 2015, since when there has been a noticeable improvement in performance. TEMIT has outperformed its MSCI Emerging Markets Index benchmark by c 11pp over the last 12 months and has the best performance versus its peers by a considerable margin. Due to its substantial revenue reserves, the trust was able to maintain its FY17 annual dividend at 8.25p per share and a change in expense allocation will boost revenue returns from FY18; its current yield is 1.1%.
Templeton Emerging Markets Inv. Trust (TEMIT) aims to generate long-term capital growth from a diversified portfolio of emerging market equities. Since the change in manager in October 2015, there has been a notable improvement in TEMIT’s relative performance – over the last 12 months, its NAV total return has outperformed its MSCI Emerging Markets index benchmark by 10.2%. TEMIT has historically run a small cash balance, but in January 2017 announced it had entered into a new £150m credit facility; if fully drawn down, it would take gross gearing to c 7.0% of net assets.
Templeton Emerging Markets Investment Trust (TEMIT) aims to achieve long-term capital gains through investing in companies operating in emerging markets. Even though these markets have shown modest signs of picking up recently, there has been pronounced relative weakness over five years leaving valuations at attractive levels compared with developed markets. The potential for volatility needs to be acknowledged, but this could represent an opportunity for investors with a long-term view. TEMIT itself has a relatively focused portfolio, is managed with a long-term, fundamental approach and has outperformed its benchmark over five and 10 years.
Templeton Emerging Markets Investment Trust (TEMIT) invests in emerging market-listed equities or in companies listed elsewhere where the majority of their revenues are derived from emerging markets. Since 1 October 2015, TEMIT has been managed by Carlos von Hardenberg, who has broadened the trust’s exposure; he aims to generate long-term capital growth by investing in a portfolio of c 90 companies diversified by sector and geography. The manager has a value bias and stocks are selected following thorough fundamental analysis. Although performance in 2015 was challenging, the trust has outperformed its benchmark over 10 years and 2016 performance to date has shown a marked improvement.
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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.
ULR’s finals were in line with on EPRA NAV and earnings a little better than expected. Valuations remain stable and full rent collection has been achieved for the current quarter. We see fundamental quality and resilience in the (now expanded) portfolio – ULR has already invested nearly £100m in the first two months of the new year following the £136m equity raise. We make no material changes to forecasts. Current valuation points to an 7%+ annualised return, with upside remaining from deployment of funding headroom, active management and potential for valuations to improve.
Companies: Urban Logistics REIT
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
Aside from its FY 19 earnings presentation, British Land has adopted a more cautious anticipation about Offices in the City of London. We share this pessimism and have been surprised by the recent share’s bump. The latter is the opportunity to turn negative, again, and update our divestment case.
Companies: British Land Company
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
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
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
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
The positive market movements (£19.5bn) offset the net outflows of £1.3bn. The adjusted operating profit before tax reached £1,149m, down 21.9% yoy. The insurer benefited less from longevity assumption changes (£126m vs. £441m in 2018) in the Heritage business and the lower Asset Management fees margin (38bp vs. 40 bp in 2018) in the Savings and Asset Management one. The current context has led to a decrease in the Solvency II ratio by 10%, but the capital position remains resilient at 166%.
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
U+I’s post-close trading update confirms c. £16m of development and trading gains for FY20, which includes Harwell. This is broadly in line with our revised expectations. Proactive steps are being taken to preserve liquidity in the short-term, including suspending the final dividend and stopping all non-essential spend. Positively, benefits of the cost saving programme will now be realised 12 months early. The balance sheet is strong, with ample liquidity; covenant levels are a long way off. Management’s time is being spent repositioning teams to be ready when restrictions are lifted, when there will be a renewed focus on the short-to-medium term value gain opportunities, of which there are plenty. The shares currently trade at 59% spot discount to our updated NAV forecasts, vs the UK sector at a 9% discount. We leave our recently lowered 180p target price unchanged and continue to see upside from here.
Companies: U&I Group
Recent news: On 21 April CLIG’s 3Q trading update to 31 March 2020, revealed:
27% fall in Funds Under Management (“FUM”) from US$6.0bn to US$4.4bn
- with weaker Sterling, FUM in £ fell 20% from £4.5bn to £3.6bn.
In 3Q, while Diversification CEF strategies (Opportunistic Value and Developed funds) had net inflows of US$25m, the Group’s Emerging Market Funds had net outflows US$68m
The Group has an active pipeline across all its major CEF offerings with increased interest in the Diversification CEF strategies
Post COVID-19, income to FuM remains unchanged at c. 75 bps of FuM
Companies: City Of London Investment Group
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
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
We wrote on 7 May, about the shape of the music global industry following the publication of the IFPI 2019 report. Taking a deeper dive into this report we examine the prospects of further growth in streaming numbers as the nonwestern markets come online.
Companies: Hipgnosis Songs Fund