abrdn Diversified Income and Growth plc (the “Company”)Publication of CircularRecommended Proposals for a Managed Wind-Down of the Company and associated adoption of a New Investment Objective and Policy and Notice of General Meeting
The Company has today published a circular (the “Circular“) in relation to the recommended proposals for a Managed Wind-Down of the Company, the associated adoption of a New Investment  Objective and Policy, the reduction in nominal value of the Company’s Shares from 25 pence to one penny per Share and to cancel the entire nominal value standing to the credit of the Company’s capital redemption reserve (the “Proposals“). The Proposals are subject to Shareholder approval and, accordingly, the Circular contains a notice convening a general meeting of the Company to be held at Wallacespace, 15 Artillery Lane, London E1 7HA on 27 February 2024 at 10.00 a.m. (or such later time as is immediately following the conclusion of the Company’s annual general meeting convened for the same date at 9.30 a.m. and any adjournment thereof) (the “General Meeting“).A copy of the Circular will be submitted to the National Storage Mechanism and will shortly be available for inspection
Introduction
As announced by the Company on 14 December 2023, the Board has concluded that it is in the best interests of Shareholders as a whole to put forward proposals for a managed wind-down of the Company (the “Managed Wind-Down“).
Pursuant to the Managed Wind-Down, the Company proposes to conduct an orderly realisation of its assets in a manner that seeks to optimise the value of the Company’s investments whilst progressively returning cash to Shareholders.
Implementation of the Managed Wind-Down requires Shareholder approval to adopt the New Investment Objective and Policy reflecting the realisation strategy and the fact that the Company is ceasing to make new investments. The approval of Shareholders is also being sought to carry out a reduction in the nominal value of the Shares from 25 pence per Share to one penny per Share and to cancel the entire amount standing to the credit of the Company’s capital redemption reserve (the “Reduction“). The reserve arising as a result of the Reduction will, subject to any arrangements required for the protection of creditors and any direction given by the Court in confirming the Reduction, amount to distributable reserves for the purposes of the Companies Act and will be available to the Company to distribute to Shareholders pursuant to the Managed Wind-Down.
Background to the Proposals
On 20 June 2023, the Company commenced a strategic review process that sought to address the material discount to Net Asset Value per Share at which its Shares were trading and consider how best to deliver value to Shareholders. The strategic review culminated in the Company’s announcement of an enhanced distribution programme on 26 October 2023.
Following this announcement, further detailed discussions with Shareholders were undertaken. In the light of the feedback received during these conversations and the entrenched discount to Net Asset Value per Share at which the Company’s Shares continued to trade, the Board announced on 14 December 2023 that it had resolved to put forward proposals for a Managed Wind-Down.
Summary of the Managed Wind-Down proposals
Pursuant to the Managed Wind-Down, the Company proposes to conduct an orderly realisation of its assets in a manner that seeks to optimise the value of the Company’s investments whilst progressively returning cash to Shareholders. In particular:
§ The Board expects that approximately £115 million would be returned to Shareholders in the first half of 2024 at, or close to, NAV per Share (subject to Shareholder approval, the approval of the Court for the Company to reduce its share capital and cancel the amounts standing to the credit of its capital redemption reserve and, subject to tax advice, potentially also its share premium account (further details of which are set out in the section headed “Means of Returning Capital”) and the appropriate use of the Company’s distributable reserves) principally by means of a bonus issue of redeemable B shares where the cash returned to Shareholders would be treated as a return of capital rather than income from a UK tax perspective, with further returns of cash to follow as value is realised from the Company’s private markets portfolio in a timely and efficient manner as set out below.
§ Approximately £108.5 million of the Company’s private markets portfolio (valued as at 5 February 2024) is expected to mature between 2024 and 2027 (the “First Tranche“). It is intended that the proceeds from the First Tranche will be returned to Shareholders in a timely manner as the investments mature.
§ The remaining £84.8 million of the private markets portfolio (valued as at 5 February 2024) is expected to mature between 2029 and 2033 (the “Second Tranche“). As market conditions improve, opportunistic secondary sales of Second Tranche assets would be considered by the Company in order to realise value from these assets in a timely manner.
§ The Company will cease making new investments (save as to fund existing commitments and support the Managed Wind-Down as set out below).
§ It is intended that the Company’s debt arrangements, comprising secured Bonds with a par value of c.£16.1 million, will be repaid during 2024.
§ The Board will seek to reduce the Company’s ongoing costs.
Benefits of the Proposals
The Directors believe that the Proposals are in the best interests of Shareholders as a whole and should yield the following principal benefits:
§ implementing a managed and orderly disposal of investments should optimise the value to be realised on the sale of the Company’s assets and, therefore, returns to Shareholders, including the significant Initial Return of Capital expected to comprise of approximately £115 million (representing approximately 38 pence per Share) during 2024;
§ the Proposals will allow cash to be returned to Shareholders in a cost-effective and timely manner; and
§ the Company will continue to benefit from the expertise of the Investment Manager who the Board believes is best placed to execute the Managed Wind-Down strategy to maximise value for Shareholders (particularly in respect of the First Tranche and Second Tranche assets).
Initial Return of Capital
The Company’s liquid assets currently comprise approximately £94 million of fixed income and credit investments, £47 million of listed equities and £8 million of cash and cash equivalents. Pursuant to the Managed Wind-Down, the Board intends to return the cash generated from the sale of the Company’s liquid assets together with available cash to Shareholders in 2024, save that the Company will retain sufficient funds to meet outstanding commitments in respect of its private markets portfolio (such commitments amounting to c.£38.4 million in total), repay the Company’s secured Bonds (c.£18 million including an estimate of the repayment premium) and provide for its ongoing working capital requirements (c.£8.5 million).
The Board therefore currently expects that approximately £115 million will be available to be returned to Shareholders in the first half of 2024 (the “Initial Return of Capital“). This is however, subject to the further conditions set out in the section of the Circular headed “Means of Returning Capital”.
Please see the section titled “Means of Returning Capital” generally for further information on the proposed process for the Initial Return of Capital.
Future Realisations
The Company held approximately £193 million of private markets investments as at 5 February 2024. The First Tranche of approximately £108.5 million is expected to be realised, as the underlying funds mature, between 2024 and 2027. The proceeds received by the Company from the First Tranche realisations will be progressively returned to Shareholders throughout this period and the Board will seek to do so in a timely and efficient manner. As set out in the chart below as at 5 February 2024, the Second Tranche, comprising the Company’s remaining private markets investments valued at c.£84.8 million, is expected to mature between 2029 and 2033:

Or GRIM.

The portfolio does not need the dividends from Grid to reach

it’s fcast for 2024.

Or GRIM.

The blog portfolio does not need the dividends from Grid

to achieve it’s fcast for this year.

There was one clunker built into the plan but no room

for another. Whilst it wouldn’t be a complete disaster it

could push the target back to the end of 2025.

I intend to hold the Trust to see how things develop, especially

for any indication they are going to pay a dividend albeit at a

reduced level.

I have lost faith in the management so will leave at the earliest

opportunity, which will probably be at a loss.

Range anxiety

We look at what context we can gain from ten years of discount analysis…

Ryan Lightfoot-Aminoff

One trust in the UK Equity Income sector this analysis suggests as offering a good discount opportunity is BlackRock Income and Growth (BRIG). Managers Adam Avigdori and David Goldman look to deliver capital and income over time through a concentrated portfolio of predominantly UK companies. They have a focus on companies exhibiting quality characteristics, such as free cash flow, which allows firms to pay a growing dividend. The shares of the trust are currently trading at a wide discount to their ten-year history, at a level of 11.4% compared to a ten-year average of 4.7%, a much larger absolute gap than the average of the sector. We believe the discount looks anomalously wide at the current levels and could contribute to significant alpha should it narrow to its long-term mean.

In the property space a trust that jumps out is Balanced Commercial Property (BCPT). It currently trades at a discount of 33.2% versus a ten-year average of 12% which offers a 33% upside should the discount narrow to the long-term average. The trust is managed by Richard Kirby who has been in place since 2005, offering experience in a variety of different environments. He has a diversified underlying portfolio which he has built through active management. In the last couple of years, he has rotated the portfolio away from office and retail exposure and towards industrials and logistics. We believe this activity has demonstrated value in the portfolio, thus making the current discount look particularly compelling.

Most real asset sectors have wider discount ranges than equities, with wide ranges across almost all of the subsectors. Exceptions to the rule, that equity sectors have narrower discount ranges, are the Asian sectors. The AIC Asia Pacific sector for example is trading at a discount of 9.1%, versus a ten-year average of 4.7%. This is a gap of 4.5 percentage points, and considerably wider than the gap between the UK equity income’s current and average of 1.7 percentage points. As such, the Asia Pacific sector could contribute significant alpha should this discount level close. There is a similar trend in the Asia Pacific Equity Income and Asia Pacific Smaller Companies sectors too. We believe the negative sentiment towards China will be weighing on this, with the zero-covid policies enacted up until late 2023 causing significant harm to the economy. However, there are a number of trusts that invest in the region but are avoiding China, yet have been caught up in the negative narrative. One example is Schroder Oriental Income (SOI). Managed by Richard Sennitt, it owns a portfolio of predominantly large-cap companies that Richard identifies through a bottom-up process that looks to capture the improving dividend culture in the region. He has been underweight China for a sustained period due to structural concerns over the country, ranging from the housing sector to political interference. This has contributed to significant outperformance of the benchmark over a number of time periods. Despite this, the trust trades at a discount of c. 6.2%, wider than its ten-year average of 1.9%. Should this discount return to just the long-term average, it would contribute 4.6% to returns ceteris paribus. We believe this may prove an attractive entry point for long-term investors and appeal to those liking the structural growth story of Asia but with concerns over China.

As well as specific trusts, the data also points to a number of interesting sectors. Renewable energy infrastructure stands out. It has one of the widest ranges in the data set, though the one standard deviation range is close to the maximum values seen in the period. This indicates that there are a few outliers towards the lowest end of the data range. However, the current average discount of 18.5% is one of the outliers, being close to the lowest end of the ten-year range, as we show below. This is trumped by biotech and healthcare though, where the average discount for trusts in this sector is at their ten-year lows at the time of writing. In the table below, we show the sectors we believe stand out in terms of the current discount versus their long-term averages and compare their Z-scores. We also show the ten-year discount range, measuring the difference between the highest average premium achieved during this period, and the widest discount. In our view, this illustrates the scale of the potential discount opportunity, if history repeats itself.

Disclaimer

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

Discounts are one of the most defining features of investment trusts and a key differentiator to other investment vehicles. Following a particularly challenging 2023, discounts have blown out almost across the board leading investors to debate which pool of assets they should buy for below their underlying value. The Z-score is a popular statistical tool for identifying value, but we believe it has lost context when everything is so depressed. In the article below, we have analysed ten years’ worth of discounts to not only establish what sectors are cheap, but whether a narrowing discount will actually drive future returns.

The stats

It won’t surprise many people that investment trusts are currently cheap versus their own history. One tool often used to assess value in discounts is the Z-score. This is a statistical metric that shows the relationship between specific values and the average to demonstrate how statistically anomalous the measured value is. When applied to investment trusts, the lower the Z-score, the wider the current discount is to its historic average, ergo the shares are cheaper. On the other hand, the higher the score, the more expensive the current discount level. For the UK equity income sector, the aggregate discount is 4.8%, over one standard deviation wider than the ten-year average with a Z-score of -1.18. However, the standard deviation is very low at 1.5 percentage points, which means should the discount narrow from its current level to its ten-year average, it would add just 1.8 percentage points to NAV returns. This is not to discredit an additional 180bps of alpha; if the discounts narrowed back to their long run average, this would contribute a useful additional return over investing in a passive fund, on top of the potential alpha from active management.

However, by simply focussing on the Z-score, the context of how much a narrowing discount can potentially add to performance is lost. To see how Z-scores overlook the scale of the opportunity, contrast the UK equity income sector to the UK commercial property sector. The UK commercial property sector has a similar Z-score of -1.08, possibly suggesting that it is slightly less attractive than UK equity income. However, one standard deviation of the sector’s average discount is 11.5 percentage points, over seven times that of UK equity income over the same period. If the average discount of the UK commercial property sector were to narrow from its current level of 17.7% to its own ten-year average of 5.2%, it would contribute 15% of alpha for investors, assuming that NAVs remain flat. This means that whilst the Z-scores may indicate a similar level of attractiveness in the discount, in our view, the UK commercial property sector offers considerably more upside potential from a narrowing discount.

In the table below, we have taken ten years’ worth of discount and premium history for each investment trust sector average before performing some rudimentary statistical analysis. The aim is to show the scale of how discounts have moved over ten years. We believe this helps provide better context to the current discount, more than just whether it is cheap or not relative to its own short-term history. The inference of this is that looking forward, we can make a judgement of whether the narrowing of the discount will have a material impact on returns going forward.

In the box and whisker plot below, we have shown the maximum and minimum discount levels of each sector average, with the boxes showing the one standard deviation range, and the mean average marked by the bar in the middle of this. This shows the full range in which each sector has traded in the period, as well as the most common trading range, and compares this across all sectors and assets. If our analysis is correct, bargain hunters should be focussing on sectors which have the largest whiskers, but specifically those in which the box is towards the lower end of the range.

TEN-YEAR DISCOUNT RANGES

Source:

Morningstar

T

In the property space a trust that jumps out is Balanced Commercial Property (BCPT). It currently trades at a discount of 33.2% versus a ten-year average of 12% which offers a 33% upside should the discount narrow to the long-term average. The trust is managed by Richard Kirby who has been in place since 2005, offering experience in a variety of different environments. He has a diversified underlying portfolio which he has built through active management. In the last couple of years, he has rotated the portfolio away from office and retail exposure and towards industrials and logistics. We believe this activity has demonstrated value in the portfolio, thus making the current discount look particularly compelling.

Most real asset sectors have wider discount ranges than equities, with wide ranges across almost all of the subsectors. Exceptions to the rule, that equity sectors have narrower discount ranges, are the Asian sectors. The AIC Asia Pacific sector for example is trading at a discount of 9.1%, versus a ten-year average of 4.7%. This is a gap of 4.5 percentage points, and considerably wider than the gap between the UK equity income’s current and average of 1.7 percentage points. As such, the Asia Pacific sector could contribute significant alpha should this discount level close. There is a similar trend in the Asia Pacific Equity Income and Asia Pacific Smaller Companies sectors too. We believe the negative sentiment towards China will be weighing on this, with the zero-covid policies enacted up until late 2023 causing significant harm to the economy. However, there are a number of trusts that invest in the region but are avoiding China, yet have been caught up in the negative narrative. One example is Schroder Oriental Income Managed by Richard Sennitt, it owns a portfolio of predominantly large-cap companies that Richard identifies through a bottom-up process that looks to capture the improving dividend culture in the region. He has been underweight China for a sustained period due to structural concerns over the country, ranging from the housing sector to political interference. This has contributed to significant outperformance of the benchmark over a number of time periods. Despite this, the trust trades at a discount of c. 6.2%, wider than its ten-year average of 1.9%. Should this discount return to just the long-term average, it would contribute 4.6% to returns ceteris paribus. We believe this may prove an attractive entry point for long-term investors and appeal to those liking the structural growth story of Asia but with concerns over China.

As well as specific trusts, the data also points to a number of interesting sectors. Renewable energy infrastructure stands out. It has one of the widest ranges in the data set, though the one standard deviation range is close to the maximum values seen in the period. This indicates that there are a few outliers towards the lowest end of the data range. However, the current average discount of 18.5% is one of the outliers, being close to the lowest end of the ten-year range, as we show below. This is trumped by biotech and healthcare though, where the average discount for trusts in this sector is at their ten-year lows at the time of writing. In the table below, we show the sectors we believe stand out in terms of the current discount versus their long-term averages and compare their Z-scores. We also show the ten-year discount range, measuring the difference between the highest average premium achieved during this period, and the widest discount. In our view, this illustrates the scale of the potential discount opportunity, if history repeats itself.

NOTABLE SECTOR DATA

SECTOR	10-YR AVERAGE %	CURRENT DISCOUNT %	10-YR RANGE %	STANDARD DEV	Z-SCORE
AIC Property – UK Commercial	-5.2	-17.7	58.0	11.5	-1.1
AIC Property – UK Residential	-14.8	-45.7	62.9	15.7	-2.0
AIC UK Equity Income	-3.1	-4.8	13.0	1.5	-1.2
AIC Asia Pacific	-4.6	-9.2	36.5	6.3	-0.7
AIC Renewable Energy Infrastructure	5.1	-18.6	45.0	8.0	-2.9
AIC Biotechnology & Healthcare	-0.2	-16.4	37.5	7.4	-2.2

Source: Morningstar as of 29/01/2024

Peak-ing the interest

One broad feature of the data is that equity sectors have considerably narrower ranges than real asset classes such as property. We believe one contributor to this is the confidence investors can have in underlying values. Equities are publicly traded and therefore price discovery is easily determined. As such, discounts have remained within a fairly narrow range as investors have been easily able to determine whether they offer value. Conversely, more esoteric or newly established areas such as infrastructure and renewable energy have had bigger discount ranges with one potential reason being that investors may doubt the value of assets at times, especially if there are few comparable transactions of size being reported.

Another key factor is the changing interest rate environment. The period we have analysed includes a significant amount of time where interest rates were at or close to zero. This had a significant impact on all asset classes but especially real asset classes such as property due to how these assets are typically valued, as well as their use of leverage. When interest rates were low, the yield investors could get from safe assets was relatively low. As a result, investors were more willing to accept lower yields from real assets, contributing to many trusts trading on a premium. As interest rates have risen, investors have returned to the likes of government bonds which are now delivering a higher yield. As such, many of the property and infrastructure trusts have moved to significant discounts. Furthermore, the high level of leverage often involved means the potential for a higher interest cost burden has raised questions over dividend sustainability. Whilst this has been a headwind, consensus is building that interest rates have peaked, and that monetary policy could turn from a headwind to a tailwind. If this were to be the case, we believe it could be the catalyst for considerable discount narrowing in these sectors. With discount levels where they are, this could make for a compelling entry point.

Conclusion

Exploiting discounts can be a way to generate additional alpha and, for contrarians, can at times signal compelling entry points for investment trusts. It is often one of the key attractions of investing in the asset class and a strong driver of potential returns. Whilst using common statistics such as Z-scores makes for a straightforward analysis tool, we believe our range analysis helps to provide context and illustrate the upside to the opportunity, rather than simply identifying the opportunity itself.

With this in mind, we believe areas such as property, renewable energy infrastructure, and Asian equities look particularly compelling, given their discounts are significantly wider versus their long-term history, and offer considerable upside should they narrow. Each is facing their own headwinds which has pushed them to wide discounts, but the scale of any bounce back could contribute to a bonanza of excess returns should they come.

The first quarter fcast for earned dividends is now

£2,644.00 with VPC still to declare their dividend.

Do not scale up for the yearly total.

The second quarter fcast is currently £2,000.00

I’ve bought for the portfolio a further 3693 shares in NESF.

for 3k.

I’ll wait for the dividend and re-asses but willing to hold

the shares for the long term.

A picture saves a thousand words.

I’ve sold the portfolio shares in API for a loss of £97.00

including the including the dividend earned but not received.

The price is linked to the price of Custodian Property which

has been falling, so as there are higher yields to be earned

the decision was to sell and re-invest.

Total profit in API is £325.00

It appears the safe return of cash has more appeal than

the higher risk, higher yield Investment Trusts.

Until interest rates start to fall or an expected date when

they may, the situation will remain the same.

Stick to your plan until it sticks to you.

BIOPHARMA CREDIT PLC 

(“BIOPHARMA CREDIT” OR THE “COMPANY”) 

DIVIDEND DECLARATION

2.96 CENT PER SHARE DISTRIBUTION INCLUDES 1.2 CENT SPECIAL DECLARATION

BioPharma Credit PLC (LSE: BPCR), the specialist life sciences debt investor, is pleased to declare an interim dividend in respect of the financial period ending 31 December 2023 of $0.02957930 per ordinary share, payable on 15 March 2024 to ordinary shareholders on the register as at 16 February 2024. The ex-dividend date will be 15 February 2024. The Company has chosen to designate the entire amount of this interim dividend as an interest distribution. Shareholders in receipt of such a dividend will be treated for UK tax purposes as though they have received a payment of interest. This will result in a reduction in the corporation tax payable by the Company.

The $0.02957930 dividend comprises an ordinary dividend of $0.0175 and a special dividend of $0.01207930. The Company is currently paying and continues to target a 7 cent annual dividend per ordinary share. This will bring total dividends for 2023 to 10.21 cents including special dividends totalling 3.21 cents.