The advent of social media has led to an increase in activism of all types, the like of which has not been seen since the penny press changed the course of American history in the 1800s. From #MAGA to the Arab Spring, platforms such as Facebook have had a profound effect on politics and society. Everywhere, we are invited to support campaigns on social media. Where once it would have taken a petition (which requires a pen, frayed paper, and someone to hand it around at the very least), it is now as easy as “liking” at the touch of a button any cause on Facebook to lend your support. As a result, individuals in society are ever more expected to engage on topics and issues that affect them (and even those that do not). In a further extension of democracy, rather than have our elected representatives debate and decide issues on our behalf, technology enables us to engage ourselves in the argument and help contribute to the decision-making process. And having tasted the forbidden fruit, it seems unlikely that things will ever be the same again. We are all becoming activists in one way or another. Absolutely, we may not have the same passion for a subject that the leader of a campaign might have. But we are increasingly happy (or indeed desirous) to have our views sought, and vote taken. In the same way, leaders of organisations are having to adapt. No-longer can they make decisions and feel insulated from the people who gave them the mandate. There is now a much wider grey area they have to navigate, and woe betide them if they alienate their electorate!
Companies: TPOU AGT AJOT
Third Point applies an opportunistic approach to investment. Its objective is to provide consistent long-term capital appreciation; to achieve this, the managers look across global credit and equity markets for what they view as the best risk adjusted returns. Daniel S. Loeb is the portfolio manager, overseeing all investment activity supported by a lean investment team of approximately 35. Daniel invests in both long and short opportunities, but over longer time periods it is expected the portfolio will exhibit an element of market directionality. Third Point reports that the team have increasingly been adding exposure to activist or ‘constructivist’ positions. Their track record in activism is strong, having delivered a gross annualised return of 23% since 2011 in this part of the strategy. Third Point believes that it is well placed to continue to invest profitably in this way; especially given the management company's significant size (in terms of AUM) and experience. The team notes that activism cannot be replicated in an environment where quant and systematic strategies are arbitraging away traditional sources of stock-picking alpha. Since Third Point Offshore Investors Limited (TPOIL) listed on 25th July 2007, the US shares of the company have delivered NAV total returns of 160.5%; versus an S&P 500 return of 106% in USD terms (source: Morningstar). The shares have also displayed lower volatility than US equities (12.4% versus 14.7%). In contrast to the long-term outperformance of the strategy, however, TPOIL has lagged the equity index over the past five years. Given that TPOIL’s net equity exposure has been less than 100%, we demonstrate that the degree of underperformance is not so large after all. Perhaps as a result of the apparent underperformance, TPOIL has traded on a wide discount; having last traded on a premium to NAV in 2015. The discount has prompted several initiatives from the board and manager including: merging its share classes into one, a significant management fee cut, and a move to a premium listing on the LSE. In September 2019 the board announced that it was seeking to buy back up to $200m worth of shares over the next three years. This announcement caused the discount to narrow by several percentage points; though the current discount of 21.2% remains wide in absolute terms.
Companies: Third Point Offshore Investors
There was palpable shift in sentiment over the third quarter with the cautionary undertone perhaps best reflected by gold’s resurgence. Ongoing trade jockeying between the US and China did not help the mood and neither did the Argentine debt default in August. At the real economy level, manufacturing output has been trending lower across some of the major global economies.
Companies: AEMC BIOG SIGT IBT JEFI MHN MERI MTE PSHD RSE SIR FJV LTI MVI SEQI SONG SLI EGL SUPP VNH CSH VSL BRLA UTL ADAM SOHO GPM TPOU LEAF JRS JLEN SEC IGC MPO LIV INTU THRL
2018 saw the first negative calendar year for the S&P 500 and the Dow Jones since 2008 and, despite a subsequent rally, sentiment remains divided between those who believe the US market has more room to run, and those who think the longest bull market in history will soon come screeching to a halt. Instinctively, it feels like a correction must be due and, indeed, a recent survey of Kepler Trust Intelligence readers showed the majority feel that there are choppy waters ahead. Among those who felt that the outlook was negative, the concern raised most often was the impact of any escalation in the ‘trade-war’ talk between China and the United States, while the national ‘black dog’ that is Britain’s constant companion – Brexit – continues to weigh on investor spirits closer to home. However, there are many other indicators which suggest the bull market could continue, making this a difficult time for investors wondering which way to jump. Against this confusing backdrop we look at three different scenarios for the US over the next year, and identify a number of trusts which are positioned well for each.
Companies: USA ATT GVP JUSC BRNA IBT JAM TPOU
At Hardman and Co, we try to answer the questions of why to invest in a company and what the risks are in doing so. For many investors, simply having a deep discount to NAV is a good enough answer to the first question. However, investors need to appreciate the risks and, in particular, the reasons why the shares are at a discount. Having understood those risks, investors need to be convinced that there is a catalyst for change on the part of the manager and how long (if at all) it will take for market sentiment to reflect this in a lower discount. In this report, we examine the companies with the largest discounts and review those very issues.
Companies: ADAM BC12 BGHL CGI HAN JZCP LMS MPO MVI MHN NSI NAS OCI PSHD RSE SIHL TFG TPOU UTL VIN ELTA ELX
Civitas Social Housing – Update on Westmoreland | Third Point Offshore – Share buybacks | GCP Asset Backed Income – Proposed placing
Companies: CSH TPOU GABC
John Laing Infrastructure – Interims to 30 June 2018 | BBGI – Interims to 30 June 2018 | Third Point Offshore – Interims to 30 June 2018 | Carador Income – Interims to 30 June 2018 | Phaunos Timber – Stafford Rayonier response
Companies: PTF TPOU BBGI JLIF CIFU
Research Tree provides access to ongoing research coverage, media content and regulatory news on Third Point Offshore Investors.
We currently have 10 research reports from 6
AFH interim results have shown resilience in a tough period. Revenues grew by 5% yoy and Adj. EPS is up 8% yoy. We reduce our FY20 EPS forecast by 8% to reflect the wider market falls and slower new business due to the lockdown. This reduction in earnings is significantly less than peers, highlighting the defensive nature of the business and the prudent temporary cost measures being introduced in FY20. The improved FCF of the business should lead to a re-rating, particularly as AFH now trades on 9.3x CY20 P/E, a significant discount to peers. Our reduced target price of 524p implies 81% upside. Re-iterate BUY.
Companies: AFH Financial Group
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
Companies: AGY ARBB ARIX DNL GDR NSF PCA PIN PHNX PHP RE/ RECI STX SCE SIXH TRX SHED VTA
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
Hipgnosis Songs Fund (SONG LN) has today announced a trading update for the full year ending 31 March 2020. The unaudited NAV has risen 13% YoY to 116.7p, up 14.3% since the last published NAV of 102.2p as at 10 January 2020. This represents a like for like valuation uplift of 11.4%. All equity has been fully deployed and shareholder approval has been sought to increase net debt from 20% to 30%. Revenue is strong with £64.7m generating an EPS of 10.7p (more than 2x the annual 5p dividend target). NAV growth has been driven by revenue statements which were up 2%, and an increase in streaming growth rate assumptions by the independent valuers. The portfolio comprises 54 catalogues, with 13,291 individual songs, now valued at £757m which was acquired at purchase price of £697m on an acquisition multiple of 13.9x – now valued on 15.0x historical earnings.
Companies: Hipgnosis Songs Fund
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
TCS has confirmed it will pay the previously announced interim dividend of 3.25p. A number of mitigating actions to preserve cash ensures that this is affordable. We estimate the £1.7m payment is less than 10% of cash and available facilities, which should be little changed from the April update. Rent collection levels of 75%, or 86% including deferrals, is resilient under the circumstances. There are also optimistic signs from Europe that people will be shopping in material numbers from 15 June. TCS will have all locations safely open from that date. We lower our NAV forecasts c.2%, mostly for the dividend payment, but also for a tougher outlook for CitiPark. Official guidance understandably remains withdrawn. The shares currently price in a c. 30% decline in underlying property values, which we think is excessive. On this basis, we see upside to the share price, setting it at 235p, still a c. 25% discount to NAV while short-term visibility is low. BUY
Companies: Town Centre Securities
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
Today’s FY update reports that the decisive action taken at the outset of the COVID crisis has protected returns. Revenues held up through to the May year end. Aided by cost savings, adj. EBITDA is expected to be 20% ahead. We expect a more modest final dividend to protect the capital surplus. Additional savings have been outlined, which we overlay on a conservative “flat market/fewer new clients” scenario for FY21e – where we hope outperformance is possible. Updating EPS forecasts: FY20e +25%, FY21e -10% and FY22e -7%; also incorporating the Hurley Partners acquisition (+8%). We consider MW a high quality core holding with long term potential.
Companies: Mattioli Woods
Tetragon Financial Group (TFG, Tetragon) achieved a 13.6% NAV/share total return and a 13.4% ROE in FY19, in line with its long-term target of 10–15%. The main driver of Tetragon’s performance was its asset management business (TFG Asset Management), which comprises managers with a total AUM attributable to Tetragon of US$27.4bn and generated an EBITDA of US$59.5m in FY19 (up 51% y-o-y). The late-2019 investment activity left Tetragon with a relatively low net cash position (4.1% of NAV at end-April). The shares trade at a three-year average discount to NAV of 44% (currently at 62.7%), which is relatively wide compared to peers given the company’s track record of delivering a 16% NAV TR pa over the last 10 years. The recent market sell-off has so far resulted in a 5.1% decrease in NAV (ytd to end-April 2020).
Companies: Tetragon Financial Group
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
MJ Hudson has confirmed that it expects to achieve profits in line with expectations for FY20E. This is a good result linked to new client wins during the COVID-19 disruption and timely cost management. Whilst much of the group's activities are proving resilient, uncertainty remains and in line with most of the peer group, MJ Hudson is withdrawing guidance for FY21E. We similarly withdraw our FY21E forecasts until visibility improves, moving our rating to Under Review. Meanwhile, the shares are now down 30% since their pre-COVID-19 highs, which is beyond that seen at outsourcing peers (Sanne, JTC). Whilst COVID-19 is presenting challenges for many businesses, we believe that: 1) the structural growth drivers in alternatives that underpin MJ Hudson's growth will continue to remain highly relevant, and 2) its strong balance sheet gives it a relative advantage.
Companies: MJ Hudson Group
Today's update confirms Equals delivered another quarter of significant revenue growth YoY, delivered by organic and acquisitive means. Performance across the product range has varied unsurprisingly and we expect these trends to continue over Q2/20E. Given the great uncertainty over the duration and severity of COVID-19's impact on the group, we withdraw FY20-21E forecasts and place our recommendation Under review, awaiting further clarity. Equals is supported by a strong, debt-free, balance sheet and is undertaking measures to further conserve cash.
Companies: Equals 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
Seneca Global Income & Growth Trust (SIGT) is managed by a four-strong team at Seneca Investment Managers, seeking undervalued securities across multiple asset classes in order to diversify the trust’s risk and return drivers. Its UK equity portfolio was particularly negatively affected by the coronavirus-led market sell-off in March, given its focus on domestic, mid-cap value stocks, which performed relatively poorly. However, these holdings could stand SIGT in good stead during an economic recovery. The trust’s board has committed to continue paying quarterly dividends, using reserves where necessary if income falls short, which seems likely given the number of dividend cuts announced by corporates in response to the global pandemic.
Companies: Seneca Global Income & Growth Trust