Helal Miah
View profile
Updated 25 Nov 2022
Save Article Download

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Edinburgh Investment Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

  • Edinburgh Investment Trust (EDIN) has released its half year results to the 30/09/2022 during which it delivered a NAV total return (with debt at fair value) of -8.2%, while the FTSE All-Share Index fell by 8.3%. Although EDIN only did marginally better than the benchmark index, James de Uphaugh and his team have built on the solid performance since they took over the management of the trust in late March 2020, since when they have generated a cumulative NAV total return of 41.2% while the FTSE All-Share Index has risen by 31.3%.
  • The share price total return was -11% over the six months, reflecting the widening of the discount from 7.7% on 31/03/2022 to 10.6% as at 30/09/2022. This is in the wider context of the heightened market volatility following Russia’s invasion of Ukraine and slowing global growth in the face of rising inflation and interest rates, while at the close of this period UK markets were still reeling from the former Prime Minister’s ‘mini’ Budget. Over the period the board repurchased 1.89 million shares, equivalent to 1.1% of the equity capital.
  • The end of this reporting period sees a significant change to the debt structure. In anticipation of the maturing of the company’s debenture on 30/09/2022, the board pre-arranged its refinancing, taking advantage of low interest rates at the time. The new debt structure with maturities up to 35 years are at weighted average interest rate of 2.44%, significantly lower than previously. Had the refinancing been agreed today, the board notes the interest rate achievable would be approximately 4.75%. The change in fair value of the debt has led to a c. 4% boost to NAV.
  • The yield on the company’s shares based on the last four quarterly dividends paid was 4.5% as at 30/09/2022 Since then the board has declared the first interim dividend for 2023 of 6.4p that is due to be paid on 25/11/2022. This is 6.7% higher than the dividend paid at the same stage last year and an ongoing improvement since the 2020 pandemic lows. The management team note that the underlying income of the portfolio has been boosted by companies that pay dividends in non-sterling currencies and sterling’s weakness, something that could reverse in time.
  • Chair of the board Elisabeth Stheeman said: “it is encouraging to see that over three years the company’s returns are now ahead of the index…. the company is in a strong position to take advantage of the attractive opportunities that are now arising, as well as to continue with the important business of working with existing holdings that underpin the income and capital value of the portfolio”

Kepler View

The strategy instigated by James de Uphaugh and the team for Edinburgh Investment Trust (EDIN) since they took over management two and a half years ago has worked wonders for the portfolio’s returns. Although this is a short period to judge success by, investors should be pleased with the significant outperformance, as they have generated cumulative NAV returns of 41.2% while the benchmark only rose by 31.3%. Understandably, the volatile and difficult market conditions have resulted in the portfolio dropping over the first half, nonetheless this was marginally better than the benchmark index.

The board believe that a well-managed, sensibly diversified equity portfolio should generate attractive returns over the medium term and as such, low-cost long-term borrowings should boost returns. In this regard we believe that the recent change to the debt structure positions EDIN very well for the long term. The board have done well to refinance maturing debt when interest rates were low, this has locked in a borrowing cost which looks extremely cheap at today’s rates and will allow the managers to invest in the portfolio when the recovery comes. When market optimism returns, the lower cost debt profile should mean a lower hurdle to jump over to generate outperformance.

EDIN’s discount has widened during these six months, we believe this is chiefly down to challenging market conditions rather than specifically a reflection on the trust. We expect that the board’s willingness to intervene and buyback shares is a positive signal, providing value to investors.  Meanwhile we note that the historic dividend yield of EDIN (c. 4.5%) is lower than the simple average of its peers, (though comfortably higher than the benchmark), we believe and agree with the board and management that a focus on generating attractive total returns through a combination of dividend income and capital growth is more sustainable and will serve investors better over the long run.

James and the team run a concentrated portfolio of around 40-50 stocks that are selected through a bottom-up fundamental analysis approach. They seek to identify companies whose medium-term earnings are mispriced. Aside from this there is no overarching style bias, making for a portfolio that can adapt to changing market conditions. James believes that UK stocks continue to trade at attractive valuations, even after a slight rotation to value stocks away from growth stocks. EDIN currently uses a modest level of gearing but the team seem intent on putting more of the cash balance to use in anticipation of UK and global markets eventually moving out of this ‘sticky’ phase. We believe that EDIN could serve as a core holding for investors looking for exposure to UK companies with the potential to deliver a mix of growth and income.

Login to read the full article...

Kepler Trust Intelligence provides research and information for professional and private investors. In order to ensure that we provide you with the right kind of content, and to ensure that the content we provide is compliant, you need to tell us what type of investor you are.

Read the full article

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.