Utilico Emerging Markets (UEM) offers a different set of exposures to the average emerging market fund, focusing on the infrastructure and utilities sectors and on Latin America rather than North Asia. The trust owns a portfolio of companies chosen for their strong positions in their industries, which should allow them to generate high shareholder returns over the long term, with an aim of harnessing the growth potential in the rise of the emerging markets middle classes. The trust has performed strongly over the long term, with five year returns ahead of the index and peer group despite not being exposed to the fashionable, higher-growth sectors of information technology and consumer discretionary. The trust has tended to do better in down markets while making less than the market in rising markets, which is unsurprising given the bias to defensive sectors. The more defensive sectors the trust invests in tend to pay higher dividends, and so the yield is significant, at 3.1%. However, the objective of the trust is to generate total returns, so income is not prioritised over capital returns. The dividend has been grown or held each year over the past decade, however. The trust trades on a discount of 12.5%. This is tighter than the average for 2018, when emerging markets were out of favour, but wider than the five-year average of 10.8%. In 2018, UEM redomiciled to the UK from Bermuda, in an attempt to make the trust more attractive to investors and close the discount. The trust has also carried out regular buybacks when the discount widens into double figures. The trust is managed by specialist fund manager ICM, and a team headed by Charles Jillings and Duncan Saville. The management team and directors have substantial shareholdings in the trust. There is a performance fee, charged at 15% of the NAV total returns in excess of 8% (or the benchmark plus 2% when that is higher). There is a high watermark and the fee was last charged in 2017.
Companies: Utilico Emerging Market
Utilico Emerging Markets Trust (UEM) has been managed by Charles Jillings at ICM Group since the fund was launched in 2005. He continues to find interesting infrastructure and utility investment opportunities in emerging markets. The manager notes that investee companies have strong earnings growth, supporting higher dividend payments; however, he says that company valuations have not kept pace with earnings growth, providing opportunities for revaluation. Jillings is constructive on the outlook for emerging market equities, and comments that a resolution to the US-China trade dispute would be beneficial for most regions. He is optimistic regarding a positive outcome, given the high importance to both parties in reaching an agreement.
Utilico Emerging Markets Trust (UEM) is a specialist fund focusing on infrastructure and utility investment in emerging market equities. In April 2018, UEM completed its re-domicile from a Bermuda-based investment company to a UK-based investment trust, in order to benefit from the UK’s increasingly supportive regulatory and tax environment. There is no change to UEM’s investment approach or dividend policy. Also, following the final exercise of its subscription shares, UEM now has a simpler capital structure. The board believes that these changes have potential to improve investor perception and, over time, lead to a narrower discount.
Utilico Emerging Markets Limited (UEM) has a portfolio of predominantly developing world equities that has a clear focus on stocks and sectors that display the characteristics of essential services or monopolies. The portfolio is managed by Charles Jillings and the sizeable team at ICM. Charles and the team are bottom-up investors who run the fund with few peers in the investment trust universe, with a portfolio that is almost entirely focused on the emerging market utilities and infrastructure sectors with a bias towards asset backed, cash generative and often monopolistic companies. In essence, Charles aims to own companies that meet the growing needs of the ever-increasing middle classes in emerging markets countries, which we discuss in this article. UEM has built up a long term track record of outperformance – particularly in flat or falling markets. Though it lagged the MSCI Emerging Markets index in 2016 when sentiment towards the developing world improved dramatically, its NAV total returns of 48.9% over five years to the end of February 2018 puts the trust considerably ahead of the index (40.7%) and its average peer in the Morningstar IT Global Emerging Markets sector (35%). There have been certain notable changes to the portfolio over the past year. Charles and the team have reduced overall concentration, shifted the portfolio away from Asia and more towards Latin America while recently reducing the overall level of gearing. The decision to increase the trust’s weighting to Latin America has had a positive impact on the dividend, which yields 3.11% at the time of writing. UEM has tended to be one of the highest yielders in the sector and the board has not cut the dividend since its launch in 2005, but due to various factors, had to fund a proportion of the 2012, 2013, 2014 and 2015 dividends from capital. However, the higher yielding nature of the Latin American stock market, has meant the trust’s revenue return per share has increased dramatically over the past two years – resulting in covered dividend payments in 2016 and 2017. This leaves the trust (as at the 2017 financial year end) with revenue reserves of 0.69x. Discounts across the AIC Global Emerging Markets sector have remained wide for some time now, and UEM is no exception, averaging a -10.69% discount over the past three years (to the end of February 2018). The board aims to mitigate the discount getting too wide and buys back shares when the discount pushes too far past double-digits. They have been very active in this regard, having cancelled 9.8m shares so far in 2018 already. The trust currently trades on a 14% discount (as of the end of February 2018), which is wider than its longer-term average.
Long-term secular trends provide a strong tailwind to investment returns. One of the most talked about themes in recent years, a clear beneficiary of which has been Tesla’s share price, is the potential for a shift toward electrification. However, far from being a ‘one stock’ story, we believe that there are widespread implications across many sectors, and in this research we identify a range of trusts which have exposure to them.
Companies: IEM UEM UKW IEM BRWM
The Board of Utilico Emerging Markets (UEM) has announced details of its proposal to re-domicile from Bermuda to the UK. Ordinary shareholders will exchange all their ordinary shares, on a one for one basis, for ordinary shares in Utilico Emerging Markets Trust plc (“UEM Trust”), a newly incorporated Investment Trust established in the United Kingdom, subject to shareholder and other approvals. The shareholder meeting is scheduled for 20 March 2018. The Board believe that this enhances the attractiveness of UEM. We continue to recommend that investors buy UEM for exposure to infrastructure assets in emerging markets.
Utilico Emerging Markets (UEM) aims to generate long-term growth in capital and income from a portfolio of 60-90 emerging market equities. Exposure is diversified by geography, with a large concentration in infrastructure, utility and related sectors. Manager Charles Jillings is bullish on the outlook for emerging market equities in 2018 due to a widespread economic improvement, which should result in another year of robust corporate profits. UEM has announced that it is proposing to change its domicile from Bermuda to the UK, which has the potential to improve investor perception and may lead to a narrower discount.
Utilico Emerging Markets (UEM), managed by a team led by Charles Jillings, has a focus on real revenue producing assets in the infrastructure space. It has generated returns which have been better than the MSCI Emerging Markets Index over the long-term, with significantly lower volatility and strong diversification benefits. We believe that this combination, coupled with UEM’s progressive dividend policy makes UEM attractive to investors looking for exposure to emerging markets and/or infrastructure assets. Since inception, it has had an annualised return of 12.1%, as at 26 June 2017. It currently has a historic dividend yield of 3%. We reiterate our Buy recommendation..
Utilico Emerging Markets (UEM) aims to generate long-term total returns from a portfolio invested primarily in operational and cash generative companies in emerging markets infrastructure and utility sectors. UEM typically holds about 60 to 90 high-conviction positions and is broadly diversified by both sector and geography; the manager has a long-term investment approach and aims to generate a 15% pa total return from each holding. More than 95% of the portfolio is invested in well-established businesses with 75% comprising companies paying a dividend. UEM has increased or maintained its dividend every year since launch in 2005.
Utilico Emerging Markets (UEM) aims to generate long-term total return from investing in emerging market equities, primarily in infrastructure and utility companies considered to have above-average growth prospects with a relatively low risk profile. More than 95% of the portfolio is invested in quoted companies, with the majority paying a dividend, which is reflected in the current fund yield of 3.3%. UEM’s NAV total return has consistently outperformed the MSCI Emerging Markets index and is ahead of the global emerging market peer group average over one, three, five and 10 years; since inception in 2005, the annualised NAV total return is 11.4%.
Utilico Emerging Markets (UEM) is a closed-end investment company with a focus on infrastructure, utilities and related companies in emerging
markets. This specialisation differentiates it from its emerging market peers, while the dividend yield of 3.9% reflects investment in cashgenerative businesses. UEM’s NAV total return is above the peer group over, one, three, five and 10 years. Investors may wish to consider using UEM to gain exposure to companies that are integral to the long-term growth of emerging markets.
We continue to remain cautious on emerging markets. Within emerging markets we recommend that investors buy Utilico Emerging Markets* (UEM), trading at a 9.8% discount (cum, fair, undiluted). UEM has just announced that it has increased its quarterly dividend payments to 1.625p, for the quarter ending September 2015, which leads us to forecast an annual distribution of 6.4p. With an expected dividend yield of 3.8%, UEM is one of the highest yielding emerging market funds. Its investment in companies which have tangible income producing assets makes it an ideal vehicle for investors looking to maintain or increase their exposure to emerging markets.
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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
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
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
Companies: AVO AGY ARBB ARIX BUR CMH CLIG DNL GDR HAYD PCA PIN PHP RE/ RECI RMDL STX SHED VTA
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
We believe RECI’s 21% discount to NAV reflects a reduction in investors’ confidence, reflecting the uncertain outlook, security values and potential impairments. When considering if this discount is excessive, we note i) a relatively low-risk profile, ii) strong liquidity means RECI can optimise recovery returns, iii) restructuring is a core competency, iv) realised losses to date are just 2.1p, v) bond valuations are expected by RECI to be repaid at par, but priced at 17% below par, and vi) borrowers have been injecting equity into their deals. The stable 3p 4Q dividend and unchanged policy show confidence and re-investment returns rising.
Companies: Real Estate Credit Investments
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
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
Trading Update – Showing Resilence
Companies: Manolete Partners
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
Given the substantial share price decline for Ramsdens in the last month, following clear risks to near term earnings, we revisit the group’s valuation and suggest a potential impact to earnings from the COVID-19 related lockdown. The analysis shows that Ramsdens has a solid balance sheet with a number of clear valuation supports and will be able to withstand the extreme conditions that are likely to occur over the coming months. We use an 8x multiple on FY20 earnings as a reflection of a normalised earnings base which reduces our target price to 180p from 258p. At this target price Ramsdens would trade on a FY21 P/B of 1.6x and yield 4.5%. This target price offers 114% upside and we retain BUY.
Mattioli Woods has issued a trading update around the impact of the ongoing COVID-19 pandemic. We are reassured to hear that trading for the first 9m of FY20e (to Feb-20) was in line with expectations. There is likely to be a revenue impact, from falling asset prices and limits to normal business activity, however, it is not possible to quantify this just yet. A number of proactive measures are being taken to adjust the cost base to mitigate the short term impact, including reduced senior management team/variable compensation. We would highlight that c.55% of MW’s revenue is not linked to the value of client assets, providing a degree of insulation to asset prices. We make no forecast changes at this stage, but will monitor events and make any adjustments when there is greater certainty
Companies: Mattioli Woods