Month: March 2024 (Page 18 of 19)

A 360 view of the latest results from EOT, JGGI, MWY, RICA, UKW, MYI
According to Murray International’s investment managers, what “evolves without its delusions and the psychological baggage of false entitlement”? Answer in Part 2 of this week’s round-up of investment company results and broker commentary…

By
Frank Buhagiar

Part two

Evolution of the week
“Unburdened by aging demographics, excessive systemic debt and free to benefit from prudent, long-term orthodox economics, the Developing World evolves without its delusions and the psychological baggage of false entitlement.” Murray International (MYI) Investment Manager’s Report.

We expect them to deliver
European Opportunities Trust (EOT) outperformed over the half year courtesy of a 4.3% NAV total return and 7.7% share price total return, both comfortably ahead of the 3.5% posted by the MSCI Europe Index. Chair Matthew Dobbs writes: “The six months under review saw the Company modestly outperform its Benchmark, initiate a 25% tender offer that was completed in January and continue to buy back shares in accordance with the Board’s discount management policy. The portfolio’s outperformance can be attributed to stock selection.” The Chair expects more of the same: “Looking ahead, our Investment Manager anticipates that the earnings growth of the portfolio in 2024 will be superior to that of the Benchmark, providing a solid foundation for continued relative outperformance.”

The investment manager sounds positive too: “The outlook for the portfolio is, we think, improving. Our portfolio is less exposed to weaker consumer demand and the risk of higher input costs. The extent to which the portfolio delivers is much less macro related, and more driven by individual companies crystalising their transformational opportunities. Concluding successful clinical trials, continued innovation, resiliency of business models, and geographic expansion are some of the outcomes that we anticipate from our investee companies this year. These companies have the necessary ingredients for success: we expect them to deliver.”

Winterflood points out: “Managers expect portfolio company earnings growth of +10% YoY for 2023, compared with +2% for MSCI Europe Index.”

Lesson of the week
“What’s the lesson of the last couple of years? Some would say ‘HODL’ (Hold on for dear life), ignore the noise, have a long time horizon. We take a different lesson. 2022 gave a taste of what the new regime might look like. The illusion of diversification hurt portfolios with stocks and bonds positively correlated whilst falling, many alternatives were just duration in disguise. It’s no longer conjecture that conventional portfolios are insufficiently protected and diversified.” Ruffer (RICA) Investment Manager’s Report.

Exposed to a number of long-term trends
Another half-year report, another outperformer to report, this time JPMorgan Global Growth & Income (JGGI). Over to Chairman Tristan Hillgarth “…our strong performance continued over the six months to 31st December 2023, with the Company ending the period comfortably ahead of its benchmark, the MSCI AC World Index (in sterling terms)…The total return on the Company’s net assets was +9.2%, compared with the Benchmark return of +7.0%. The return to shareholders over the same period was +10.0%. It is particularly gratifying to note that the drivers of this strong performance were broadly-based across many sectors and stocks, which illustrates the consistency of the Portfolio Managers’ disciplined approach to stock selection and overall management of the portfolio. This consistency – and the skills of the Company’s Portfolio Managers – are further demonstrated by the Company’s long-term track record…The Board is very pleased that the Company has delivered returns in excess of the Benchmark over the three, five and 10-year periods ended 31st December 2023.”

Looking ahead, the investment managers are cautious: “…we believe near-term macroeconomic uncertainties remain elevated. In our view, European industrial production has entered a prolonged decline and consumer and business confidence readings in Europe and the US are signalling a contraction ahead. We therefore remain cautious about the outlook for global growth and believe market expectations of increasing profit margins are unrealistic and headed for disappointment…In sum, the Company remains exposed to a number of long-term trends which will drive market gains over time, while also being well-positioned to cope with any adverse near-term macro developments. But whatever market conditions we encounter, we will continue our search for companies that offer superior quality earnings and growth which outpaces the market, at similar or lower valuations. We still see many opportunities to acquire such companies across our broad investment universe, so we are confident our process and philosophy can keep on delivering excess returns to shareholders.”

Numis is impressed: “The fund has built a strong following with retail investors helped by its yield (4% of opening NAV) and the record of outperformance. The outperformance was particularly impressive in 2023 given market performance was driven by a small number of US tech stocks, and the approach seeks to combine ideas in both ‘growth’ and ‘value’ styles. The fund has grown substantially in recent years, through consolidation, tap issuance and strong performance. The fund has seen rollovers from Scottish IT and JPMorgan Elect, while a merger with JPMorgan Multi-Asset has been proposed. The fund now has the size and trading liquidity to attract a range of investors, with a market cap of c.£2.4bn. It is one of few funds that has retained a premium rating in recent years and during 2023 it was the largest issuer amongst the conventional equity ICs…This trend of issuance has continued, and earlier this month JGGI raised a further £34.5m through a placing and retail offer.”

Phrase of the week
“We seem to live in a world of the ‘dog that didn’t bark’. That phrase, used by Sherlock Holmes in a short story called Silver Blaze, rather accurately sums up the relative silence that has followed the very dramatic rise in global interest rates.” Mid Wynd International (MWY) Chairman Statement.

Bearing fruit
Can Mid Wynd International (MWY) make it a hat trick of half-year outperformers? Yes, it can, at least on a share price total return basis. Chairman Russell Napier has the numbers: “The Company’s share price rose 9.7%, on a total-return basis (with dividends assumed to be re-invested). This compares to a total return from the MSCI All Country World Index (GBP) of 7.0%…NAV…per share rose 6.8% on a total-return basis.” As the Chairman explains: “Our new investment manager, Lazard Asset Management Limited…assumed responsibility for the management of our assets with effect from 1 October 2023. The approach of the new Manager is bearing fruit and the total return from our investments has marginally outperformed our comparator index for the three months ended 31 December 2023, albeit covering a very short period. On a total-return basis, during this period, the Company’s share price rose 6.5%, compared with a 6.3% rise in the comparator index. The NAV increased by 6.8% during this time.”

The Chair goes on to remind investors that “Mid Wynd invests in companies and not economies. The balance sheet of any company can be radically different from that of the economy in which it operates. It can sell products and/or services the demand for which remains resilient in even the toughest of economic circumstances. In selecting our investee companies our Manager looks for companies that can continue to generate high returns on invested capital even in more difficult economic climes. As long as they can continue to do so and we have not paid too much to own the shares these companies are particularly well placed to weather any coming economic storm and, over the long term, produce good total returns for investors. Total returns from global equities have been driven by a rise in the US stockmarket and from a select band of US listed equities, known to some as ‘the magnificent seven’, and the rise in our NAV, in-line with the comparator index, since Lazard re-organised the portfolio is reassuring.”

Comment from Numis: “The interim results are Mid Wynd’s first under the stewardship of Lazard… The managers have put their stamp on the portfolio, retaining just six positions that were in the portfolio prior to the manager change. The portfolio now comprises c.40 businesses the managers believe will generate consistently high returns on capital, possess sustainable competitive advantages and can outperform by delivering consistently high financial productivity for longer than the market expects. They are differentiated from other quality growth approaches through ensuring the sources of competitive advantage are widely diversified, including brands and technology, as well as other factors such as scale, strong position in niche industries, providing critical low-cost components or regulation.”

Call of the week
“Our Investment Manager said in the interim report this time last year: ‘we go into the year set up for an uncomfortable ride’. They were right. It was.” Ruffer (RICA) Chairman Statement

Dangerously benign
Half-year Report from Ruffer (RICA). As Chairman Christopher Russell writes: “…NAV…total return (NAV TR) per share for the six months to 31 December 2023 was +0.6%, and share price total return +0.3%.” That means “…the twelve-month numbers were -6.2% and -10.6% respectively – the worst twelve calendar month returns in the history of RICL…” And something of an outlier, as “Over any other annualised calendar year period to 31 December 2023 since inception…NAV TR has been positive. Since inception of the Company in 2004, the annualised NAV TR to end-December 2023 was 7.0%.” But as the Chairman explains: “Whatever the absolute return numbers, the pattern of returns has remained important to portfolios which contain RICL shares…the RICL portfolio has continued to contribute diversification characteristics which have eluded conventional portfolios. This pattern of returns has not only provided diversifying offset for multi-assets portfolios which contain RICL shares but has continued to offer long-term asset returns comparable to those of competitive long duration assets but at a lower level of volatility.”

And despite the difficult year, the trust is sticking to its guns: “While 2023 was the year in which the financial hurricane failed to materialise and RICL suffered from the offsets in protecting asset returns, today markets are more vulnerable and the offsets are cheaper than a year ago. Inflation volatility remains a core concern and expectations which are priced into longer duration assets are dangerously benign. Ruffer continues to believe that tighter liquidity conditions present a significant risk to markets and it is too early to declare the soft landing that is implied in forward rates and current valuations.”

Winterflood writes: “The largest detractor from performance was the protective positioning, including credit protections, index puts and VIX exposures. Equities contributed positively, helped by small holdings in Amazon and Meta. Over H2 2023, credit and volatility protections detracted. Equities were the single largest contributor in the period, while Oil exposure was also positive. As at 31 December, the portfolio had 11% allocated to Inflation strategies, 64% to Protection Strategies and Cash, and 25% to Growth.”

Cost of the week
“In an ‘all weather’ portfolio, when one prepares for a hurricane but the barometer sets ‘fair’, the aftermath sees only the cost of the insurance premium on the house which was not blown away.” Ruffer (RICA) Chairman Statement.

Over £1 billion of dividends
Full-year numbers from Greencoat UK Wind (UKW). Chair Lucinda Riches writes: “I’m pleased to present the results of another significant year for the company. With investment of £821 million into Dalquhandy, London Array, South Kyle and Kype Muir Extension wind farms, our portfolio has surpassed 2GW of net generating capacity. We remain one of the largest owners of wind farms in the UK. We are proud to have generated approximately 1.5% of the UK’s electricity demand last year, and the portfolio was generating enough electricity to power 2.3 million homes and avoid approximately 2.5 million tonnes of CO2 emissions through the displacement of thermal generation by the end of 2023.”

As for returns: “With the final dividend for the year, our investors will have received over £1 billion of dividends since listing. With our continuing strong cash flow and dividend cover, we can confidently target a dividend of 10p per share with respect to 2024, extending our track record of attractive dividends and returns. We are now delivering net returns to investors of 10% on NAV, and we remain confident in our ability to continue to meet our objectives of dividend growth in line with RPI and capital preservation in real terms.”

Jefferies is a buyer: “2023 was a year in which UKW’s operating model was once again tested, withstanding declining power prices and low wind resource to still produce over 2x dividend cover. This offers the fund significant capital allocation flexibility, even before any potential disposals.”

So too is Liberum: “The results were solid given the very difficult environment in 2023 with discount rates increasing throughout the year at the same time as lower wind speeds and low wind prevalence cut into cash generation. Nevertheless, a dividend cover of 2.1x was achieved which we think is excellent and it is expected to remain strong over the next five years at >2x, which gives capital allocation optionality. £19.9m of the £100m share buyback has been completed as at 27 February 2024 and should provide technical support to the shares…Sensitivity to changes in inflation rates, power prices etc. have increased in 2023 but remain overall sensible. At the same time, the asset manager projects total NAV returns for 2024 of 10% which compensates investors well for the relatively moderate risks in the investment. We remain BUYers of the fund with a TP of 170p.”

And Numis: “With a meaningful market position in the UK wind segment and a robust total return outlook, we continue to view the current share price of 135.2p (18% discount to 31 December NAV) and prospective 7.4% yield as attractive and would expect the market to be comforted by the power price stress testing on earnings, and market position of the fleet delivering – 1.5% of UKs electricity demand.”

And Investec: “Whilst forward power prices have reduced materially over recent months, forecast cash generation and dividend cover remains strong. UKW expects to generate surplus cashflow in excess of £1bn over the next five years, which provides the Board and Manager with flexibility and options in respect of capital allocation and the ability to reinvest into new assets, increase share buybacks and/or pay down debt. We reiterate our Buy recommendation.”

And JPMorgan: “We like UKW’s simple model that is unchanged since IPO and its peer group leading disclosure on its power price assumptions. We remain Overweight.”

Naivety of the week
“Deep down, do global equity markets really believe speculative excesses accumulated over decades can be painlessly erased by simply reigniting credit growth? Such naivety beggars belief.” Murray International (MYI) Investment Manager’s Report.

More tangible variables
Annual Report from Murray International Trust (MYI). Chair Virginia Holmes writes: “…NAV posted a total return for the year (i.e. with net income reinvested) of 8.6%. Although the Company does not use a benchmark, it is worth noting that over the same period the UK Retail Prices Index rose 5.2% and the Reference Index (the FTSE All World TR Index) increased 15.7%. The share price posted a lower total return of 1.1% (2022: 20.6%), reflecting a widening in the discount to NAV. Revenue return per share generated from the Company’s portfolio amounted to 12.1p for the year (2022: 12.0p…enabling the ongoing improvement in the total level of dividend. The Manager’s investment focus continues to emphasise both geographical and sector diversification across a broad range of quality companies in order to deliver both income and capital growth. Such characteristics tend not to be represented in more concentrated indices where fashionable growth stocks are inclined to dominate.”

The Chair believes: “Trying to make sense of financial markets is difficult even at the best of times. Contradictions invariably present themselves…It is not surprising that attempts to predict the future are so often doomed to failure. The outlook for your Company is rooted in the more tangible variables of corporate fundamentals. This means identifying the key drivers of businesses across a broad and diversified range of sectors, focusing on key concepts such as positive cash flows, robust earnings, growing dividends and strong balance sheets, and then investing from a ‘bottom up’ basis, in good quality, growing companies that are held for the long term to maximise potential positive upside. Through the vagaries of numerous business cycles, global catastrophes and financial market dislocations this investment style has served the Company well. Despite mounting global uncertainties…the Manager remains deeply committed to the Company’s investment strategy, believing such a proven investment process will continue to identify appropriate opportunities to deliver the Company’s objectives.”

Numis adds: “Martin Connaghan and Samantha Fitzpatrick were appointed as co-PMs when Bruce’s retirement was announced in August 2023. We note that both have significant experience and have managed global equity portfolios for over 15 years…We note that the new managers are well engrained in the investment process, however naturally they will want to put their own stamp on the portfolio once Bruce retires. Ultimately, time will tell if they are able to execute on the strategy, but we believe that the ‘quality growth’ investment approach will perform well if economic conditions remain uncertain and rates remain elevated. The shares currently trade on a c.11% discount to NAV, close to the widest that it has traded over the last decade. We believe that the discount in part reflects Bruce’s pending retirement, coupled with recent disappointing performance.”

Interpretations of the week
“Whilst economic fundamentals generally tend to reflect reality, global financial fundamentals are always open to a variety of interpretations.” Murray International Trust (MYI) Chairman Statement.

Want to know which fund can claim to be the model citizen of London’s investment company community? Then all you have to do is have a read of the latest Doceo Insights…

A 360 view of the latest results from ESCT, AUSC, LWDB, SSON, BSIF, HEIT
“…it is what you do differently to others that makes you perform differently…” – wise words from Law Debenture’s Investment Managers’ Review. You’ll find plenty more wise words in part one of this week’s round-up of investment company results and broker commentary…

By
Frank Buhagiar

Owing to a flurry of results, Doceo’s Weekly 360 comes in two parts this week.

Part 1.

Inversion of the week
“Curiously, we have seen an inversion of the economic narrative on the continent, with peripheral countries such as Portugal, Ireland and Greece delivering strong performances, while core economies such as Germany and France have struggled, even as gas prices have stabilised.” European Smaller Companies (ESCT) Chairman statement.

A derivative of global growth
Half-year Report from European Smaller Companies (ESCT). As Chairman Christopher Casey reports: “NAV total return performance for the six months to 31 December 2023 was 4.7%, behind our benchmark of 7.1%. This was driven by our higher exposure to smaller capitalised companies in comparison to our immediate competitors, a cyclical bias in the portfolio and some poor stock selection. The share price total return, however, was considerably stronger than NAV growth with an increase of 8.6%, against the AIC European Smaller Companies sector of 5.2%.”

In his outlook statement, the Chairman points out that “European smaller companies have rarely traded as cheaply as they currently do. Investors have shunned the space as concerns about an impending recession, that has yet to materialise, have dominated…However, the Board is confident that the growing optimism will reach the smaller companies sector in due course. Whilst energy prices remain elevated in Europe, falling interest rates and increasing consumer optimism should help drive stock markets. We remain of the view that we are unlikely to go back to the negative/zero interest rate era that we left after the pandemic, but we do see scope for interest rates to drop meaningfully. European smaller companies are first and foremost a derivative of global growth…”

Winterflood writes: “Share price TR +8.6%, as discount narrowed from 16.4% to 13.6%; 546k shares repurchased over the period. Revenue per share 1.19p (H1 2022: 1.45p). 1.45p interim dividend, flat YoY. Gearing 13.1% (13.1% as at 30 June 2023). Underperformance driven by higher exposure to smaller-cap companies, a cyclical bias in the portfolio and bottom-up stock selection.”

Stat of the week
“…around two UK quoted companies a week are being acquired either by private equity business or other corporates, as merger and acquisition (‘M&A’) activity has increased.” abrdn UK Smaller Companies Growth (AUSC) Investment Manager’s Review.

The recessionary question mark
abrdn UK Smaller Companies Growth (AUSC) outperformed over the half year. Chair Liz Airey has the numbers: “…NAV…total return was 7.3% while the share price delivered a total return of 12.9%…The Company outperformed the total return of its reference index, the Deutsche Numis Smaller Companies plus AIM (ex-investment companies) Index…which was 5.5%…Encouragingly, on a relative basis, the NAV outperformed the reference index in four out of the six months.” The investment managers add: “Whilst across the portfolio we have not been totally immune to macro headwinds or earnings downgrades, we have been very pleased at the earnings resilience of the Company’s investments, particularly the larger holdings. At the time of writing, in the current top 10 holdings, eight had upgrades to earnings expectations when they last reported, with the other two expectations remaining unchanged.”

Staying with the investment managers: “The recessionary question mark in many geographies still looms as we move through 2024…Whilst interest rates look to have peaked, the trading environment for companies is likely to continue to be difficult given lacklustre economic growth projections.” Because of this “This is the time in the cycle to stick to ‘quality’ companies. They are more likely to be successful in navigating the more difficult macro environments and can defend earnings…looking into 2024, we hope company fundamentals return to becoming the more important drivers of returns…” Meanwhile, “The outlook for smaller companies investing remains strong, particularly given the current valuation of the market, and the interest rate and inflation environment suggest a more benign investment background in prospect.”

Winterflood notes: “Net gearing 1.9% at 31 December (2.5% as at 30 June 2023). Fund bought back 7.1m shares (8.1% of issued share capital) at average discount of 13.2%, leading to NAV per share accretion of +1.1%.”

Difference of the week
“…it is what you do differently to others that makes you perform differently.” Law Debenture (LWDB) Investment Managers’ Review.

A more flexible Portfolio
Law Debenture Corporation (LWDB), another outperformer, this time over the full year. Over to Chair Robert Hingley: “…the combination of our diversified Portfolio and another good IPS performance has enabled Law Debenture to continue to deliver on its commitment to produce capital growth over the longer term and steadily increasing dividend income. Law Debenture’s long-term record of benchmark outperformance remains strong, with share price outperformance of the FTSE Actuaries All-Share Index over the last five years of c.48%.” As for the latest full year: “Our benchmark, the FTSE Actuaries All-Share Index, delivered a 7.9% total return in 2023. The Company’s share price total return marginally outperformed this with a total return of 8.1% for 2023. The Net Assets Value (‘NAV’) with debt and the independent professional services (‘IPS’) business at fair value delivered a return of 9.4%.”

And speaking of IPS, the Chair adds: “We believe our professional services business has been a crucial differentiator in driving consistent long-term outperformance compared to other UK income funds and, the Board believes, is well positioned to continue this, with a strong platform built in recent years from which to grow further. Although accounting for only c.20% of our NAV…the IPS business has funded around a third of our dividends in the last 10 years and has now delivered a compound annual growth in profit before tax of 8.7% over the last five years. Through its strong cashflow and consistent mid-to high single digit growth rates, IPS enables our investment managers to build a more flexible Portfolio that includes both income and growth-focused stocks, rather than having to ‘chase yield’…The majority of the Portfolio is invested in UK equities…” That’s because “Companies with robust business models and supportive long-term trends are now frequently overlooked by investors who cannot see past a gloomy UK economic environment. Law Debenture is well positioned with a long-term focus and a clear emphasis on the value provided by the companies we invest in.”

Numis is a fan: “We believe Law Debenture is an attractive fund, and one of the few ICs left with a value-biased investment style. In addition, we believe the IPS business provides significant support to the dividend and has the potential to deliver further growth. The IPS business has demonstrated its resilience by delivering a strong growth in revenue, 11.8%, and earnings, 10.5%, against an uncertain macro backdrop. The valuation has increased c.4%, which we expected to add 0.9% to today’s NAV. James Henderson and Laura Foll have a clearly defined value approach and we expect a higher interest rate may be a more attractive environment of active stock-picking, as winners and losers should become apparent more quickly.”

JPMorgan is neutral: “LWDB is a unique combination in the investment trust universe, but one that works well, in our view…Overall, group costs are below average in a peer group that already has some of the lowest ongoing charges ratios…But, if we look at LWDB as a package, 80% is the listed equity portfolio managed by James Henderson and Laura Foll who are also the portfolio managers of other investment trusts, Lowland and Henderson Opportunities Trust, both of which trade at double-digit discounts to NAV…Overall, while we think IPS is a great business that has a strong management team led by Denis Jackson, it is difficult to make the case for LWDB as a whole vs the other trusts that offer access to the talents of James Henderson and Laura Foll when the discounts on those are so much wider. Therefore we remain Neutral.”

Morbidity of the week
“Our lifetime is finite. This is known by all but accepted by few, outside of possibly those who have received a terminal medical diagnosis. I don’t wish to be morbid but only to emphasise the point that what you do with your time in any given moment is an active choice to exclude every other option, as you will never have time to do everything. It is the same for constructing a concentrated portfolio. As there are only a certain number of companies we can hold at any given moment we have to exclude the tens of thousands of other companies we could own.” Smithson Investment Trust (SSON) Investment Manager’s Review.

Return to form
Smithson Investment Trust (SSON) makes it a hat trick or outperformers, at least in NAV per share terms. In her statement, Chair Diana Dyer Bartlett first talks about the five-year track record before moving on to the latest full-year period: “This is our fifth Annual Report since the inception of the Company in October 2018, and as five years is probably the minimum period one could regard as being ‘long term’, it is appropriate to comment on the Company’s performance over this period…NAV…per share has increased by 59.8%, an annualised rate of 9.4%. This represents an outperformance compared with the Company’s reference index, the MSCI World SMID Index, which has returned 47.2% over the same period, an annualised rate of 7.7%…this is the best performance of any investment trust included within the AIC Global Smaller Companies sector.” As for 2023: “…NAV per share increased by 13.3% in the year, outperforming the MSCI World SMID Index by 4.2 percentage points…This is a pleasing ‘return to form’ after the underperformance in 2022 – which is the only calendar year in which the Company has underperformed the Index…”

Looking ahead, the investment manager is sounding confident: “We end this year with significant optimism for the future. Not only is portfolio positioning the best we believe it has ever been, but the subject of much of my commentary over the last couple of years, the interest rate cycle, is almost certainly at its peak. The upward movement in interest rates has been the strongest negative force against the relative performance of small and mid-cap equities and it is perhaps worth observing that over the two years since rates started increasing, the MSCI World Small and Mid-cap index has underperformed the MSCI World Large cap index by over 10%. We wait to see what effect falling rates might have.”

Numis writes: “…it is disappointing to us to see the Board deciding not to put forward a continuation vote at the AGM, which the directors are required to consider offering if the discount is wider than 10% in a year. We believe it is best practice to put forward the vote if the condition is triggered…We continue to believe…Smithson, is potentially an attractive investment opportunity, despite an own goal by the board on the continuation vote, which raises some concerns. We added it to our Equity ICs Recommended List in mid-February. Style rotation and poor sentiment towards small cap companies has challenged the fund’s track record, while it was caught holding several stocks with high valuations, as well as some stocks with small operational issues that should have acted as red flags. We believe that positive lessons have been learnt by the manager, whilst maintaining the core of the investment process…We believe that the portfolio has sound fundamentals that place it in a strong position to outperform over the long run…”

Focus of the week
“The Board is pleased that our portfolio manager and his team remain focused on the things they can control…” Smithson Investment Trust (SSON) Chair Statement.

Robust
That’s how Chairman John Scott describes Bluefield Solar Income’s (BSIF) Interim Results for the six to end of Dec: “I am pleased to present another robust set of results which reflect continued operational progress across the Company’s portfolio. I reiterate our full-year guidance of dividend distributions for the financial year of not less than 8.8pps (2022/23: 8.6pps), which we expect to be covered approximately two times by earnings, net of debt amortisation and the EGL. Based on yesterday’s closing share price, this provides shareholders with a yield of over 8.5%. The position of the Company today is further enhanced by its high levels of regulated indexed revenues, complemented by high fixed power sales contracts, a large development pipeline, a defensive capital structure and a robust NAV.” That’s not all “…the Company is delighted to have formed a Strategic Partnership with GLIL, providing a partner with whom we can co-invest for the long term, spreading our capital resources over a greater range of investors.”

And yet, as the Chairman explains: “Despite these compelling attributes, it has been disappointing to note the Company’s share price discount to NAV widen, at times exceeding 25%. Meanwhile ample transactional evidence adds further weight to the credibility of the Company’s valuation, which is in stark contrast to the share price. We remain entirely confident that Bluefield Solar is well placed to perform the task it has executed so well for over a decade, playing a significant role in the continuing development programme that is so clearly required to expand the UK’s supplies of indigenously produced green electricity, while creating compelling growth and income for shareholders, with a total return of 110.14% since IPO.”

Numis sounds positive: “The NAV total return was 0.5% in the six months, including dividends paid of 4.4p. Revenue generated by the portfolio totalled £92m over the six months ending 31 December 2023, an increase of 15.9% compared with the same period in 2022…The solid earnings performance reflects the impact of favourable power sales contracts struck at a time of elevated UK wholesale power prices. Management continues to point to dividend cover of c.2.0x for the full year ending 30 June 2024, supporting an attractive dividend yield of 8.6%. The robust income outlook and optimised debt book, superior long-term earnings and NAV total return delivery, combined with optionality from the significant pipeline and GLIL partnership deal remain key reasons to own BSIF. Many shareholders will also welcome the recently announced £20m share buyback programme as part of a balanced approach to capital allocation.”

JPMorgan is underweight though: “It is positive to see that BSIF is focused on thinking about capital allocation and in our view it is right to prioritise paying down the RCF. BSIF also see significant value potential in its development assets and it has a significant potential development pipeline. But with the shares trading at a significant discount to NAV, the hurdle rate for new investments is high and it may be the case that the return from share buybacks makes a higher contribution future NAV returns per share than incremental investments. BSIF has committed £20m to share buybacks which is welcome and it should have additional cash available when the planned sale of the 100MW of solar assets completes. We are Underweight.”

Working hard to find solutions
Harmony Energy Income (HEIT) reported a 4.5% decrease in adjusted NAV per Ordinary Share for the full year. Chair Norman Crighton had this to say: “Our focus for this year has been on the delivery of the Company’s portfolio through construction and ramping up of operations. The Board is pleased with the progress achieved in this regard. The Company’s Pillswood site has been one of the best performing BESS (Battery Energy Storage Systems) sites in Great Britain during 2023 and the now energised 198 MWh/ 99MW Bumpers project is the joint-largest in Europe (by MWh), resulting in the portfolio moving from 0% to 70% operational within the 12 months since 31 October 2022.”

The Chair then goes on to address the elephant in the room: “It has been widely publicised that the GB BESS market, particularly post-Period end, has deteriorated. Despite this recent performance, independent market experts expect trading conditions to improve over the course of 2024. HEIT’s longer-duration 2-hour batteries have continued to outperform shorter-duration BESS. The Board and its advisers are working hard to find solutions to the challenges we, and the sector, currently face. Our key objectives looking forward are finishing construction of our outstanding projects, addressing the discount to the NAV, and maximising the Company’s income. In doing so, we will continue to prove the value of BESS as an asset class and attractive investment opportunity, as well as demonstrating why HEIT is the best vehicle to access such opportunity.”

Jefferies writes: “HEIT had pre-announced a NAV per share of 115.4p as at 31/10/23, resulting in a 2.2% NAV total return for the quarter, and -1.1% for the year. Alongside the finals today, HEIT has also announced a 31/01/24 NAV of 104.5p, resulting in a NAV total return of -8.1% for the quarter. Rolling forward the discount rate and deducting costs, our estimated NAV becomes 104.4p, to which the shares currently trade on a 61.9% discount. The absolute level of the January NAV was at £236.4m, cognisant that the fund will trigger a continuation vote if the NAV continues to be below £250m by the end of the calendar year.”

Liberum is a buyer: “We remain buyers of the fund, given the current 62% discount to NAV, though continue to prefer GSF over HEIT, owing to the geographic diversification. The near-term challenge for HEIT is the leverage and concerns have been raised over the company’s liquidity. Whilst we do not foresee any immediate concerns, particularly owing to the recent debt restructuring, it does limit HEIT’s options in terms of what it can do to improve sentiment towards the shares…On the positive side, the re-launch of the Balancing Mechanism in January and the provisional results announced yesterday for the Capacity Market T-4 Auction clearing at £65.00/kW/year should both provide a boost to the sector.”

While Numis points out: “The portfolio’s three remaining under-construction assets are due to be energised before the end of H1 2024 which will help free cash flow generation, although this will be subject to a much greater extent to an improvement in the revenue environment, principally from wider intraday spreads in the wholesale market. The Board has reiterated guidance that it is actively exploring the sale of one or more assets, which would potentially provide an interesting datapoint for the value of operational projects, given the majority of recent transactions in the wider market involve development or shovel ready assets. Harmony Energy Income’s shares are trading at a c.60% discount to NAV, which reflects the significant uncertainty over valuations and revenue generation.”

Cash for re-investment £1,275.00.

1k to be re-invested to finish the buying in RECI.

March dividends for re-investment £1,235.00.

1k most likely for FSFL as they don’t go xd until next month.

That should produce another £180 pa of cash for re-investment

as the snowball starts to gather momentum.

The remaining cash of £510.00 to be re-invested when the £538.00

of dividends from RGL/RECI are received early next month.

But like politics a week can be a very long time with investing,

so the destination for the funds is unknown.

The watch list has been amended.

The Trusts that have risen the most have been removed but

could return if their price falls.

Also Trusts that have altered their dividend policy have

been removed from the watch list.

With a dividend re-investment plan, u fail by the month.

The 2nd quarter’s expected dividends are £2,097.00.

There will be dividends earned from the 3k when it is

re-invested but there is a chance RGL will trim their dividend

again, so no dividends from re-investment are included at present.

On course for the2024 target of dividends earned of 9k.

The current blog portfolio dividends are fcast on a calendar year.

If the view is switched to the tax year which is a better reflection

of the latest period April to April the current dividend fcast is £10,887.00.

The blog will continue to record dividends for the calendar year as that’s what

is in the plan.

The current 2024 fcast is 8k, income of £21.85p a day including

weekends and bank holidays.

The target remains at 9k.

Oh, I forgot to mention u keep control of your capital instead

of surrendering it for a annuity of around 7%.