Funds on the Watch List this week include: SMT, SSIT, FSF, MNL, CHRY, BCPT, RSE, CTY, BUT, SAIN, FGT, JGGI, BSIF, FCSS, ACIC, UKCM, BBOX

Welcome to this week’s Watch List where you’ll find golden nuggets on trust discounts, dividends, tips and lots more…

ByFrank Buhagiar•19 Feb, 2024

BARGAIN BASEMENT

Discount Watch: 23

Our estimate of the number of investment companies whose discounts hit 12-month highs (or lows depending on how you look at them) over the course of the week ended Friday 16 February 2024 – five more than the previous week’s 18.

Nine of the 23 were on the list last week: VH Global Sustainable Opps (GSEO), Aquila Energy Efficiency (AEET) and Harmony Energy Income (HEIT) from renewable energy infrastructure; Digital 9 Infrastructure (DGI9) from infrastructure; VPC Specialty Lending Investments (VSL) from debt; LMS Capital (LMS) from private equity; and Custodian Property Income REIT (CREI), Regional REIT (RGL) and Life Science REIT (LABS) from property.

That leaves 14 new names: Greencoat UK Wind (UKW), Greencoat Renewables (GRP), Bluefield Solar Income Fund (BSIF), NextEnergy Solar (NESF), Octopus Renewables Infrastructure (ORIT) and The Renewables Infrastructure Group (TRIG) from renewable energy infrastructure; STS Global Income & Growth (STS) from global equity income; abrdn Equity Income (AEI) from UK equity income; BlackRock Sustainable American Income (BRSA) from North America equity income; Jupiter Green (JGC) from environmental; Residential Secure Income (RESI) from property; Schroder Asian Total Return (ATR) from Asia Pacific; Montanaro UK Smaller Cos (MTU) from UK smallers; and finally, CQS Natural Resources Growth & Income (CYN) from natural resources.

ON THE MOVE

Monthly Mover Watch: Seraphim Space (SSIT)

Still sitting pretty at the top of Winterflood’s list of top-five monthly movers in the investment company space. That’s despite further shrinkage in its monthly share price gain – up +34.1% compared to +36.5% the previous week. No meaningful releases since the space investor’s January shareholder letter, but perhaps the successful launch of the Odysseus mission to the moon is helping to keep space on the radar…

Meanwhile, last week’s second and third placees have swapped places. Chrysalis (CHRY) is now in second after extending its gain on the month to +26.1% from +20.9% previously. The private equity investor still benefiting from a well-received set of Annual Results in which the company made positive noises on the chances of one or two IPOs among its holdings this year.

In third, Foresight Sustainable Forestry (FSF) courtesy of a +19.6% monthly gain, a tad lower than last week’s +22.4%. With no news out this year, the shares appear to be still benefitting from the peak interest rate narrative which started to gain traction in December 2023.

Manchester & London (MNL) also keeps its place among the top five. A +17.4% share price rise, an improvement on the +11.6% gain seven days earlier, enough to claim fourth spot. Investors following investment manager Mark Sheppard’s lead? Mr Sheppard has been topping up his stake in the fund recently…

Finally, new entry in fifth, Riverstone Energy (RSE) up +14.4%. Not hard to find an explanation here. The launch of a US$200 million tender offer, a good enough reason for the share price rise.

Scottish Mortgage Watch: +7.9%

The monthly share price performance at Scottish Mortgage (SMT) as at close of play on Friday 16 February 2024 – an improvement on last week’s +2.5% gain. NAV near enough doubled its monthly gain to +9.7% from +4.9% the previous week. Finally, the wider global IT sector joined the party too, finishing the week up +7.4% compared to +4.9% seven days earlier.

THE CORPORATE BOX

Merger Watch: Tritax Big Box (BBOX) & UK Commercial Property (UKCM)

Announced “…a possible all-share offer…for the entire issued and to be issued share capital of UKCM at an exchange ratio of: 0.444 new ordinary BBOX shares per UKCM share…Based on BBOX’s share price of 160.2 pence per share as at 9 February 2024, the Possible Offer implies a value of 71.1 pence per UKCM share and approximately £924 million for the entire issued share capital of UKCM, which represents…a premium of 10.8 per cent. to UKCM’s closing share price of 64.2 pence per share on 9 February 2024; and…a premium of 23.0 per cent. to UKCM’s 6-month volume weighted average share price of 57.8 pence per share as at 9 February 2024.”

Raise Watch: £40 million

The maximum amount JPMorgan Global Growth & Income (JGGI) is looking to raise via a Placing and Retail Offer. Summary from broker Winterflood: “JGGI has been approached by a large wealth manager who has indicated interest in the fund’s shares. In light of this and the ongoing demand in the market, the Board has decided to undertake a placing, with shares to be issued at a 0.60% premium to cum-income NAV per share, representing a modestly lower premium than that at which the fund normally undertakes issuance…The fundraising will be for an amount up to £40m to ensure the fund has sufficient capacity to continue its ongoing premium management issuance programme. In order to allow existing retail shareholders to participate in the fundraising, JGGI is undertaking the WRAP retail offer, which will be capped at €8m (or the equivalent amount in Sterling).”

Buyback Watch: £20 million

The size of Bluefield Solar Income’s (BSIF) share buyback programme: “The Board notes the recent weakness in the Company’s share price and the significant discount that the current share price represents to the value of the Company’s assets…in the context of addressing what the Board views as the excessive discount at which the Company’s shares currently trade relative to the underlying NAV, the Board announces its intention to commence a share buyback programme. In the first instance it has allocated £20 million for the purchase of its own shares…following the release of the interims…”

Insider Watch: 25,000

The number of Finsbury Growth & Income (FGT) shares acquired by fund manager Nick Train: “…on 13 February 2024, Nick Train purchased 25,000 Ordinary Shares…at an average price of 844.00 pence per share. As a result of the transaction, Mr Train now holds interests in a total of 5,337,243 Ordinary Shares, representing an aggregate 2.8% of the Company’s issued share capital.”

Dividend Watch:

The number of consecutive years, City of London (CTY) is on course to grow its dividend by: “The Company’s diverse portfolio, strong cash flow and revenue reserve give the Board confidence that, in line with its objective to provide long-term income and capital growth, it will be able to increase the total annual dividend for the 58th consecutive year.”

52 – the number of consecutive years of dividend growth at Brunner (BUT): “…the total dividend for 2023, including the proposed final dividend, will be 22.7p. This represents an increase of 5.6% over the 2022 dividend of 21.5p and means Brunner has now reached 52 years of consecutive dividend increases, cementing its place near the top of the AIC’s ‘Dividend Heroes’ list.”

50 – the number of years in a row that Scottish American (SAIN) has increased its dividends: “The Board is recommending a final dividend which will bring the total dividends for the year to 14.10p per share, an increase of 2% over the previous year. The Company continues to meet its objective of growing dividends ahead of inflation over the long term, and the recommended dividend will also extend the Company’s record of raising its dividend to fifty consecutive years.”

MEDIA CITY

Tip Watch #1: Merger focuses minds on the tricky question of investing in China

The merger? “…the impending merger of Abrdn China Investment Company and Fidelity China Special Situations, two of the four UK-quoted investment trusts devoted to that country.” The mind that has been focused? The Times’ Tempus Column. As the article points out: “Fidelity, already by far the biggest of the quartet with net assets of over £1 billion, will dominate even more once it absorbs Abrdn China Investment’s £270 million portfolio…Its assets then will be transferred to Fidelity China Special Situations in return for that trust’s shares.”

Now, as the article goes on to say, it’s not been the best of times for the China funds: “The four China trusts’ shares have been sliding since early 2021, when Beijing began cracking down on its fast-growth internet companies, putting pressure on Ant, Alibaba and Tencent, all favourites of the UK trusts.” Despite this, “Abrdn China Investment investors should benefit from the switch to Fidelity…” which “…has returned 138.5 per cent over the past decade compared with Abrdn China Investment’s 10.5 per cent in the same period.” Furthermore, “There is a considerable overlap between the two trusts’ portfolios…”

In addition, Tempus thinks “Today’s depressed prices may look cheap in a year or two. Fidelity China Special Situations shares yield 4 per cent, compared with Abrdn China Investment Company’s 0.8 per cent, though that may turn off investors who see China as primarily a growth play…Advice: Hold”

Tip Watch #2: Balanced Commercial Property Trust (BCPT)

Tipped by The Investors’ Chronicle. In This unloved Reit is now a takeover target, the tipster first provides some background: “Balanced Commercial Property Trust (BCPT) is a generalist real estate investment trust (Reit)…As such, it is a pretty good barometer for UK real estate as a whole. In good times, such as between 2009 and 2018, its share price has performed well. However, things took a serious turn for the worse this decade as first Covid-19 and then high interest rates hit the UK. Like many Reits, BCPT is now trading at a hefty discount to net asset value, which reflects the lower returns expected by investors…BCPT’s recent performance has been poor: its share price has substantially underperformed the FTSE 350 Real Estate index and the FTSE All-Share index during the past five years.”

But it’s a different story “Over the past six months…” For “something has changed – and value and momentum investors should take note…At the time of writing, BCPT has achieved the best share price return of any of the top 45 Reits in the year to date. Once its monthly dividend is accounted for, it looks even more attractive. In other words, the stock has momentum and a generous dividend which is comfortably covered by cash…The year is still young, but BCPT looks well placed to lead the charge on any further Reit share price rally this year as interest rates stabilise and buyers return to the sector…” What’s more, while “The reversal of BCPT’s fortunes is largely due to the peaking of interest rates…underpinning its share price rally is solid trading…”

That’s because “…if you strip away valuation changes, BCPT posted an 11.2 per cent increase in core earnings. Put another way, BCPT’s rental revenue minus its day-to-day business costs – building maintenance costs, administrative procedures and asset manager costs – is rising. This non-IFRS figure is sometimes called ‘net rental income’, and the fact that BCPT’s is increasing is a sign of good asset and tenant management.” And it’s possible, “…if retail investors don’t buy into the bull case, private equity or another Reit might. Real estate takeover activity has picked up over the past two years as deep-pocketed buyers with long-term horizons have taken advantage of dire investor sentiment and heavy discounts to NAV…It’s impossible to say whether someone might have a go at buying BCPT, but the investment case for this stock is solid either way.”