Lowland 10 July 2019
Disclaimer
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
The managers of Lowland Investment Company (LON:LWI), James Henderson and Laura Foll, run a diversified portfolio of mainly UK companies, spread across a wide range of sectors. The duo are very much stock pickers and pay very little regard to the benchmark.
The team spends a large amount of time meeting and researching companies across the market capitalisation spectrum, and has a clear preference for what it views as 'quality' companies that have a unique or niche position in their market, which gives them pricing power. James doesn’t necessarily look for all of his companies to provide a high income at the time he invests – he has a clear philosophy to 'grow the capital, [in order to] to grow the income'.
In recent times the managers' style approach has been out of favour, causing the trust to underperform the benchmark in three of the past four years. Much of this has been due to the trust’s tilt to smaller companies, as they have been hit particularly hard since the referendum vote in 2016. The value tilt to the strategy has also not been helpful. With this said, the trust has long been characterised by periods of outperformance and underperformance and the trust's long-term performance figures are exceptional. Over the past ten years the trust has delivered NAV returns of 306.7%. In comparison, the FTSE All Share has returned 166.8%, and the IA UK Equity Income and the AIC UK Equity Income sector have returned 159.1% and 223.9% respectively.
LWI yields 4.3%, considerably above the weighted average for the UK Equity Income investment trust peer group (3.9%). Over the past five years, the dividend has been grown at a compound rate of 9.7%, and the most recent full year dividend was almost in line with this, increasing revenue earnings and total dividends by 10.3% and 8.9% respectively.
The past three years have seen the trust predominantly trade on a discount between -4% and -10%. Currently the discount sits at 8%, and this is close to 3% wider than the trusts one-year average of 5.2%. Relative to peers this is reasonably wide, and the AIC UK Equity Income sector has a weighted average discount of 4.9%.
Fund History
