Funds on the Watch List this week include: SMT, SLFR, AUGM, CRS, RTW, BSRT, LMP, LXI, ORIT, AERI, MVI, INPP, EGL, BRIG, PRSR, MRCH
Welcome to this week’s Watch List where you’ll find golden nuggets on trust discounts, dividends, tips and lots more…
ByFrank Buhagiar•27 Dec, 2023•
BARGAIN BASEMENT
Discount Watch: six
Our estimate of the number of investment companies whose discounts hit 12-month highs over the course of the week ended Friday 22 December 2023 – eight less than the previous week’s 14.
Three of the six were on the list last week: Digital 9 Infrastructure (DGI9) from infrastructure; NB Distressed Debt (NBDD) from debt; and Tufton Oceanic Assets (SHIP) from leasing.
That leaves three new names: JPMorgan Japanese (JFJ) from Japan; International Biotechnology (IBT) from healthcare; and Third Point Investors (TPOU) from hedge funds.
ON THE MOVE
Monthly Mover Watch: No change
At the top of Winterflood’s list of monthly movers in the investment company space. That means SLF Realisation Fund (SLFR) takes the Christmas number one spot thanks to a monthly gain of 48.2%. The shares have been in buoyant mood ever since November’s announcement that the fund would “…return an amount of 1.5 pence per share to Ordinary Shareholders, being £5.3m based on the current number of shares in issue…by way of an issue of redeemable B shares…”
In second, Augmentum Fintech (AUGM) which moves up from fourth after its share price gain on the month increased to 27.3% from 17.5%. Still no material news out from the fintech investor since those well-received half-year numbers at end of November.
Three new names in the final top-five slots. In third with a gain of 20.6%, Crystal Amber (CRS). Shares have been on the up ever since the company announced a share buyback programme in early December. RTW Biotech (RTW), another fund that has been buying back its shares this month – a 19.9% monthly gain enough to take fourth place. That leaves Baker Steel Resources (BSRT) in fifth having risen 15.9% over the last month. No material news out so put that one down to the fabled Santa Rally?
Scottish Mortgage Watch: +9.1%
The monthly share price gain at Scottish Mortgage (SMT) as at Friday 22 December 2023, an increase on last week’s +7.7%. Similar story with NAV – up 4.5% compared to 3.9%. And with the wider global IT sector – the monthly gain increased to 4.3% having previously been up +4.0%.
THE CORPORATE BOX
Combination Watch#1: LondonMetric Property (LMP) & LXI (LXI)
Confirmed “…that they are in discussions regarding a possible all-share merger of the two companies, pursuant to which LondonMetric would acquire the entire issued and to be issued ordinary share capital of LXi (the ‘Possible Merger’)…The Possible Merger would result in…A UK-focused triple net lease REIT of scale with a pro forma gross asset value of approximately £6.4 billion and market capitalisation of approximately £3.9 billion which is expected to provide improved share liquidity and better access to capital…” Furthermore, the new entity would have a “…combined portfolio aligned to structurally supported sectors (with approximately 93% exposure to the logistics, healthcare, convenience, entertainment and leisure sectors)…”
Combination Watch#2: Octopus Renewables Infrastructure (ORIT)
Announced proposals to combine with Aquila European Renewables (AERI): “The Board of ORIT believes there is now a compelling logic to create one of the largest LSE listed diversified renewable energy investment trusts, through the combination of ORIT and…AERI…If heads of terms are agreed with AERI, implementation of the Proposed Combination through the Section 110 Scheme would require approval by each company’s shareholders, resulting in the voluntary liquidation of AERI and the rollover of its assets into ORIT in exchange for the issue of new shares of ORIT to holders of AERI shares. Octopus Energy Generation will act as the investment manager to the enlarged company.”
Comment from Jefferies: “On the face of it, this looks to be a sensible transaction, resolving AERI’s future as a second continuation vote is due to occur in September, while the portfolios are complementary with little overlap and AERI’s lower gearing level that would reduce ORIT’s leverage post completion. One potential impediment we can see, however, is that AERI holds minority stakes in some projects…with other Aquila funds holding the majority, meaning ORIT would not have full control of the acquired portfolio.”
Insider Watch: Marwyn Value Investors (MVI)
Revealed “that Samantha Corsellis, wife of James Corsellis (partner of Marwyn Investment Management LLP, the manager of the Company), purchased 300,000 Ordinary Shares in the Company at a price of 78 pence per share on 18 December 2023…the aggregate shareholding of James Corsellis and his PCA’s…is 6,028,311 Ordinary Shares, representing approximately 10.66% of the Company’s voting rights.”
Buyback Watch: £30 million
The size of International Public Partnerships’ (INPP) proposed buyback programme: “The Company has previously stated that once it has fully repaid the cash drawings under its CDF, it would be in a position to consider further measures designed to reduce the discount to the NAV at which the Company’s shares are trading. Given the anticipated full repayment of the CDF in January 2024 and the Board’s continued belief that the current share price materially undervalues the Company…the Board intends to commence a share buyback programme of up to £30 million in early 2024.”
Dividend Watch: 4.7%
The current yield at Ecofin Global Utilities and Infrastructure (EGL): “The Company’s revenue return per share increased by 9.2% year-over-year as a result of continuing strong growth in investment income even though higher rates increased borrowing costs. Due to this, and to reflect your board’s confidence in the growth prospects of EGL, we have decided to increase the quarterly dividend to 2.05p per share (8.20p per annum)…At the current share price and increased dividend rate, the Company’s shares yield 4.7%.”
4.2% – BlackRock Income and Growth’s (BRIG) yield based on the proposed full-year dividend and year-end share price: “The Board is…proposing a final dividend per share of 4.80 pence (2022: 4.70 pence) giving total dividends for the year of 7.40 pence per share…resulting in a yield of 4.2% based on a share price of 178.00 pence as at 31 October 2023.”
MEDIA CITY
Tip Watch#1: PRS REIT (PRSR)
The subject of Questor article, This property trust has bucked the trend of falling valuations but still trades at a big discount. As The Telegraph’s tipster notes “Professional investors are topping up their holdings in PRS real estate investment trust (REIT) as Britain’s biggest developer of family rental homes appears finally to be on the verge of making enough profits to cover its dividend.” Among the buyers mentioned: PRSR Chairman Stephen Smith who recently snapped up £29,000 of stock; and “Waverton, a London-based fund manager that buys investment trusts to give its clients access to specialist areas…increased its stake…to 5.9pc. Its £26.4m holding makes it the Reit’s third largest shareholder behind fund groups Invesco and Aviva.”
Questor goes on to point out that the shares have “rallied by 25pc in the past two months to 82.9p, although they remain below a peak of 114p in April last year…” Why the rally? “The stock has been buoyed recently by hopes that interest rates will fall next year, relieving some of the pressure on its finances and on property valuations.” Those finances are also getting a helping hand from the trust’s “significant scale” as well as “…strong rental growth thanks to the national shortage of affordable homes…By Sept 30 the number of completed homes had grown to 5129…”
Still some way to go until earnings cover dividends though. And “The uncovered dividend is one reason why shares in PRS, which Questor last tipped at 83.3p in October last year, stand 31pc below Numis Securities’ estimated NAV per share of 119.7p.” However, “The discount has narrowed from 45pc two months ago, when Numis analysts Andrew Rees said the valuation looked ‘undemanding given the compelling sectoral tailwinds.’ That’s an assessment with which we still agree. The trust performs a social good as well as offering a potentially decent return from this low level. The shares should climb when dividend cover is restored and the weight of higher borrowing costs eases further. Hold.”
Tip Watch#2: Don’t dismiss this ‘expensive’ investment trust. It offers excellent value for money
The title of a Questor Column article published a week or two back. The trust not to be dismissed is UK equity income investor Merchants Trust (MRCH). Why would anyone dismiss MRCH? Because unlike many trusts, MRCH doesn’t trade at a yawning discount to net assets. Not enough of a reason to be overlooked for, as Questor points out, “…trusts that trade at narrow discounts or even at modest premiums are also attractive when their records are taken into account…For example, Merchants currently trades at a 0.2pc premium to net asset value but has generated a 48pc total return over the past five years. This is more than twice the 19pc total return of its peer group…”
What’s more: “…recent performance is particularly impressive in view of its focus on British stocks at a time when they are unpopular with investors.” This could well turn into a tailwind as “…the prospects for the economy are widely forecast to improve as inflation falls to the 2pc target and interest rate cuts begin, the outlook for its holdings is likely to strengthen materially.”
And Merchants is not just about capital growth. Income is also very much part of the investment case: “the trust’s dividends have risen uninterruptedly for the past 41 years…Such reliability, tied with the prospects for future growth, gives the trust strong income appeal, not least because the dividend yield is already 5.3pc at the current share price…while there are far cheaper trusts available through which to take advantage of any upturn in British shares, Merchants’ impressive record, sound strategy and income potential make it worthy of its relatively high valuation. It therefore remains an excellent purchase for new investors.”
DOCEO
