REG - abrdn Equity Income - Half-year Report
15/05/2025 07:00
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RNS Number : 7068I abrdn Equity Income Trust plc 15 May 2025
abrdn Equity Income Trust plc
Half Yearly Report 31 March 2025
Equity income using an index-agnostic approach focusing on our best ideas from
the full UK market cap spectrum
The Company
abrdn Equity Income Trust plc (the "Company") is a closed-end investment
company and its shares are traded on the London Stock Exchange ("LSE").
The Company offers an actively managed portfolio of UK quoted companies. The
investment approach is index-agnostic and focuses on our best ideas from the
full UK market cap spectrum.
Investment Objective
The investment objective of the Company is to provide Shareholders with an
above average income from their equity investment, while also providing real
growth in capital and income.
Performance Highlights
Net asset value total return per Ordinary share(A) Share price total return per Ordinary share(A)
Six months ended 31 March 2025 Six months ended 31 March 2025
+2.1% +4.9%
Year ended 30 September 2024 +13.3% Year ended 30 September 2024 +10.4%
Revenue return per Ordinary share Discount to net asset value(A)
Six months ended 31 March 2025 As at 31 March 2025
10.17p 0.5%
Six months ended 31 March 2024 9.05p As at 30 September 2024 3.0%
Dividend per Ordinary share Ongoing charges ratio(A)
Six months ended 31 March 2025 Forecast for year ending 30 September 2025
11.40p 0.84%
Six months ended 31 March 2024 11.40p Year ended 30 September 2024 0.86%
(A) Considered to be an Alternative Performance Measure.
Investment Portfolio by Sector as at 31 March 2025
Investment Portfolio by Sector as at 31 March 2025 31 March 2025
%
Financials 40.0
Energy 15.3
Consumer Staples 9.6
Industrials 8.4
Basic Materials 7.2
Consumer Discretionary 6.7
Utilities 5.5
Real Energy 5.4
Technology 1.9
Financial Calendar, Dividends and Highlights
Expected payment dates of interim dividends for the remainder of the financial 27 June 2025
year to 30 September 2025
26 September 2025
16 January 2026
Financial year end 30 September 2025
Expected announcement of results for year ending December 2025
30 September 2025
Annual General Meeting (London) February 2026
Financial Highlights
31 March 2025 30 September 2024 % change
Capital
Total assets(A) (m) £178.7 £180.9 -1.2%
Equity Shareholders' funds (m) £156.2 £158.4 -1.4%
Net asset value per Ordinary share 327.01p 331.54p -1.4%
Market capitalisation (m) £155.5 £153.6 +1.2%
Share price per Ordinary share 325.5p 321.5p +1.2%
Discount of Ordinary share price to net asset value(B) 0.5% 3.0%
FTSE All-Share Index capital return 4,623.62 4,511.00 +2.5%
Gearing
Net gearing(B) 13.9% 13.0%
Expenses
Ongoing charges ratio(BC) 0.84% 0.86%
Earnings and Dividends 31 March 2025 31 March 2024
Revenue return per Ordinary share 10.17p 9.05p +12.4%
Total dividends for the period 11.40p 11.40p
Dividend yield 7.1% 7.1%
(A) Defined as total assets per the Statement of Financial Position less
current liabilities (before deduction of bank loans).
(B) Considered to be an Alternative Performance Measure
(C) The ongoing charges ratio for the current year includes a forecast of
costs and net assets for the six months to 30 September 2025.
"…this puts the Company on a dividend yield of 7.1%, which is amongst the
highest of any investment trust invested in equities."
Chair's Statement
Against an unusually turbulent backdrop, I am pleased to report that our
portfolio has been resilient, the dividend income delivered by the portfolio
has grown and the discount to NAV has narrowed. The most important UK event
during the period was the UK Autumn Budget, presented by Chancellor Rachel
Reeves on 30 October 2024. This was billed as delivering initiatives that
would enhance economic stability and public services, but the decision to hike
employer National Insurance contributions to raise tax revenues was widely
regarded as counter-productive, causing bond markets to react badly, albeit
not on the scale of the Truss budget of 2022. The Autumn budget paled into
relative insignificance as Donald Trump won his second term as President of
the United States. The pace of the policy changes emanating from the White
House, following the inauguration of Donald Trump in January, has created a
very uncertain environment for the world and the volatility of markets
increased significantly as a result. Happily, for our portfolio, these events
appear to have challenged the concept of "US exceptionalism", thereby shifting
investors' attention away from US growth stocks and towards UK and European
value stocks. Our manager believes that this has helped to create a far more
favourable backdrop for our investment approach.
Performance
In the six months to 31 March 2025, the Company delivered a net asset value
("NAV") total return of 2.1% which underperformed the total return of the FTSE
All-Share Index of 4.1%, while the share price total return was 4.9%. The
first quarter of 2025 has been a challenging period for equities as an asset
class with the looming threat of US tariffs affecting the confidence of
investors. This obviously came to a head shortly after the end of the period
under review. The Investment Manager's Review on pages 10 to 15 provides a
more detailed explanation of the drivers of this performance.
Discount
The discount was generally on a narrowing trend throughout the period - the
average discount in the last month of the period was 1.4%, as compared to the
average for October 2024 of 4.1%. The discount ended the period at 0.5%.
It is encouraging to see that the Trust continues to trade at a narrower
discount than many of its peers and that since the end of the period the
shares have moved to trade at a slight premium to NAV.
Revenue
Revenue income in the six months to 31 March 2025 increased by 1.4% to £5.43
million, compared to £5.36 million for the same period last year. After
interest costs and tax, net revenue earnings were up 12.4% at £4.86 million
with the revenue per Ordinary share at 10.17 pence compared to 9.05 pence for
the same period in 2024. The difference between the increase in revenue and
the profit after tax is primarily because last year there was a withholding
tax charge on overseas dividend income of £0.45 million which was not
repeated this year. The Board monitors the revenue forecast closely and
remains confident that the full year revenue earnings will be sufficient to
cover the proposed dividend.
Dividends
The Board declared its plans for the dividend for the current financial year
in last year's annual report and the proposed schedule is unchanged at this
time. The Company currently intends to pay three interim dividends for the
current year of 5.70 pence per Ordinary Share. The first interim dividend was
paid to Shareholders on 28 March 2025, with the second and third payments
expected in June and September.
The Board announces that the second interim dividend of 5.70 pence per
Ordinary Share will be paid on 27 June 2025 to shareholders on the register on
30 May 2025 with an associated ex-dividend date of 29 May 2025. The fourth
interim dividend will be determined towards the end of the year. The Board's
current expectation remains for a fourth interim of at least 5.90 pence per
Ordinary Share, making a total payment for the year of at least 23.0 pence per
Ordinary Share, which will result in the Company extending its track record of
dividend per share growth to 25 consecutive years.
Based on the share price at 31 March 2025, this puts the Company on a dividend
yield of 7.1%, which is amongst the highest of any investment trust invested
in equities.
Gearing
The Company has drawn £22.5 million of the £30 million facility provided by
the Royal Bank of Scotland throughout the period and net gearing, allowing for
cash held, amounted to 13.9% of net assets, compared to 13.0% in September
2024. The borrowing facility is in the form of a revolving credit facility
which costs 6.1% per annum at the end of the period. Given the market
volatility the Board carefully monitors the leverage.
Share Buybacks
There have been no changes to the Company's share capital structure during the
6 months under review.
The Board continues to monitor the discount and premium and will act if a
material premium persists or if the discount is considered wide in absolute
and relative terms.
Outlook
The reporting period ended two days before President Trump declared 2 April
2025 as "Liberation Day" and initiated a week of some of the most volatile
markets we have seen in the last 15 years - the 5.0% fall in the FTSE 100
Index on Friday 4 April 2025 was the fourth largest daily drop in the market
since the global financial crisis in 2008. Investors were clearly unnerved by
the idea that "tariffs" might be anyone's favourite word. As is often the case
the initial knee-jerk reaction to an exogenous event caused a sharp drop and
then a time of reflection.
Investors adjusted to the new landscape and the UK's success in maintaining a
favourable trading relationship with the US may have contributed to the
outperformance of UK indices relative to international counterparts as
investors looked to stocks with less exposure to the US. As a consequence, at
the time of writing, we have seen the FTSE 250 Index deliver a total return of
almost 17% since the markets bottomed on 9 April 2025, outperforming the FTSE
100 and FTSE All-Share indices. Encouragingly, the Company has performed
better than all of them resulting in the NAV and the share price total returns
now both being ahead of the Reference Index for the current financial year. It
is early days, but the announcement of a US/UK trade deal on 8 May 2025 and a
US/China trade agreement on 12 May 2025 suggests that tariffs will have a less
pronounced barrier to international trade than had been forecast only one
month ago.
President Trump's tariff policies continue to evolve, raising the risk of
further equity market volatility throughout the next four years. Having said
that, these are precisely the conditions in which active management can have a
positive impact, cutting out the macro noise and instead focussing on the
corporate fundamentals. Our Portfolio Manager's Focus on Change investment
approach has the potential to benefit from market dislocations such as we saw
in the wake of the tariff announcements in April. Valuations can become
temporarily depressed and this can provide a wide range of attractive
stock-level investment opportunities. In the face of policy-induced
uncertainty, we are encouraged to see the Portfolio Manager identifying
companies that are adapting to the new normal, and in doing so delivering
attractive returns to shareholders.
Sarika Patel
Chair
14 May 2025
Interim Management Report and Directors' Responsibility Statement
Principal Risks and Uncertainties
The Board has an ongoing process for identifying, evaluating and managing the
principal and emerging risks and uncertainties of the Company and has carried
out a robust review. The process is regularly reviewed by the Board. Most of
the Company's principal risks and uncertainties are market related and are no
different from those of other investment trusts that invest primarily in the
UK listed market. These are set out on pages 19 to 21 within the Annual Report
for the year ended 30 September 2024 (the "2024 Annual Report) and comprise
the following risk categories:
· Strategy.
· Investment Performance.
· Discount / Premium to NAV
· Exogenous risks such as health, social, financial, economic and
geopolitical.
· Operational Risk.
· Governance Risk.
· Financial obligations; and
· Legal and Regulatory Risks.
In addition to these risks, the Board is conscious of the impact of increasing
exogenous risks which has also led to an increase in investment performance
risk. Conflicts in Ukraine and the Middle East continue, as well as other
growing geopolitical tensions across the globe. There has also been a
breakdown of post war alliances, leading to the UK and other European
countries reviewing their defence strategies and expenditure. President
Trump's tariffs have created a lot of market turbulence and uncertainty,
leading to both countries and companies assessing the impact and considering
their options.
The Board is also very conscious of the risks emerging from shareholder
activism in the investment trust sector and potential implications from the
FCA's proposed Consumer Composite Investments ('CCI') regime. We are
monitoring the situation on both of these emerging risks on a regular basis.
In all other respects, the Company's principal risks and uncertainties have
not changed materially since the date of the 2024 Annual Report.
Going Concern
In accordance with the FRC's Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting, the Directors have undertaken a
rigorous review of the Company's ability to continue as a going concern.
The Company's assets consist substantially of equity shares in companies
listed on recognised stock exchanges and in most circumstances are realisable
within a short timescale. The Company has adequate resources to continue in
operational existence for the foreseeable future and the ability to meet all
its liabilities and ongoing expenses from its assets.
The Directors are mindful of the principal and emerging risks and
uncertainties disclosed above, and review on a regular basis forecasts
detailing revenue and liabilities and the Company's operational expenses.
Having reviewed these matters, the Directors believe that the Company has
adequate financial resources to continue its operational existence for the
foreseeable future and for at least 12 months from the date of this Half
Yearly Report. Accordingly, they continue to adopt the going concern basis in
preparing the Half Yearly Report.
Related Party Transactions
There have been no material changes to the related party transactions
described in the 2024 Annual Report.
Responsibility Statement of the Directors in respect of the Half-Yearly Financial Report
The Disclosure Guidance and Transparency Rules require the Directors to
confirm their responsibilities in relation to the preparation and publication
of the Interim Management Report and Financial Statements.
The Directors confirm that to the best of their knowledge:
· The condensed set of financial statements contained within the Half
Yearly Financial Report has been prepared in accordance with FRS 104 Interim
Financial Reporting and gives a true and fair view of the assets, liabilities,
financial position and return of the Company for the period ended 31 March
2025.
· The Interim Management Report, together with the Chair's Statement and
Investment Manager's Report, includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position or
performance of the Company during that period, and any changes in the related
party transactions described in the last Annual Report that could do so.
The Half-Yearly Financial Report was approved by the Board and the above
Directors' Responsibility Statement was signed on its behalf by the Chair.
For abrdn Equity Income Trust plc
Sarika Patel
Chair
14 May 2025
Our Strategy
Business Model
The Company is an investment trust with a premium listing on the London Stock
Exchange.
Investment Objective
The Company's objective is to provide shareholders with an above average
income from their equity investment, while also providing real growth in
capital and income.
Investment Policy
The Directors set the investment policy, which is to invest in a diversified
portfolio consisting mainly of quoted UK equities which will normally comprise
between 50 and 70 individual equity holdings.
In order to reduce risk in the Company without compromising flexibility:
a) no holding within the portfolio should exceed 10% of total
assets at the time of acquisition; and
b) the top ten holdings within the portfolio will not exceed
50% of net assets.
The Company may invest in convertible preference shares, convertible loan
stocks, gilts and corporate bonds.
The Directors have set the gearing policy within which the portfolio is
managed. The parameters are that the portfolio should operate between holding
5% net cash and 15% net gearing. The Directors have delegated responsibility
to the Investment Manager for the operation of the gearing level within the
above parameters.
Delivering the Investment Objective
The Board delegates investment management to Aberdeen Group plc ("Aberdeen").
The team within Aberdeen managing the Company's portfolio of investments has
been headed up by Thomas Moore since 2011.
Our Strategy
The portfolio is invested on an index-agnostic basis. The process is based on
a bottom-up stock-picking approach where sector allocations are a function of
the sum of the stock selection decisions, constrained only by appropriate risk
control parameters. The aim is to apply the "Focus on Change" process by
evaluating changing corporate situations and identifying insights that are not
fully recognised by the market.
Idea Generation and Research
The vast majority of the investment insights are generated from information
and analysis from one-on-one company meetings. Collectively, more than 3,000
company meetings are conducted annually by Aberdeen. These meetings are used
to ascertain the company's own views and expectations of its future prospects
and the markets in which it operates. Through actively questioning the senior
management and key decision makers of companies, the portfolio managers and
analysts look to uncover the key changes affecting the business and the
materiality of their impact on company fundamentals within the targeted
investment time horizon.
Investment Process in Practice
The index-agnostic approach allows the weightings of holdings to reflect the
conviction levels of the investment team, based on an assessment of the
management team, the strategy, the prospects and the valuation metrics. The
Focus on Change process recognises that some of the best investment
opportunities come from under-researched parts of the market, where the
breadth and depth of the analyst coverage that the Portfolio Manager can
access provides the scope to identify a range of investment opportunities.
The consequence of this is that the Company's portfolio often looks very
different from other investment vehicles which aim to provide their investors
with access to UK equity income. This is because the process focuses on
conviction levels rather than index weightings. This means that the Company
may provide a complementary portfolio to the existing portfolios of investors
who prefer to make their own decisions and manage their ISAs, SIPPs and
personal dealing accounts themselves. At 31 March 2025 50.8% (30 September
2024: 48%) of the Company's portfolio is invested in companies outside the
FTSE-100 Index.
The index-agnostic approach, and Focus on Change process, further
differentiates the portfolio because it allows the Portfolio Manager to take a
view at a thematic level, concentrate the portfolio's holdings in certain
areas and avoid others completely. The effect of this approach is that the
weightings of the portfolio can be expected to differ significantly from that
of any index, and the returns generated by the portfolio may reflect this
divergence, particularly in the short term.
Investment Manager's Review
Market Review
UK equities advanced over the six months to 31 March 2025 as investors came to
see the asset class as a relative safe haven, rotating out of US markets due
to uncertainty over the impact of President Trump's trade policies on growth
and inflation.
The period started nervously as stubborn UK inflation doused hopes over the
pace of interest rate cuts. Fears over the UK's fiscal situation grew as tax
revenues weakened due to anaemic growth, while government debt servicing costs
rose due to elevated bond yields. This put the Chancellor of the Exchequer,
Rachel Reeves, in a challenging position as she announced her first Budget in
October 2024. A combination of tax hikes and spending increases was badly
received by the bond markets, driving up Gilt yields and leading to fears of a
rising risk premium on UK assets. An unexpected increase in employer national
insurance went down particularly badly, dampening business confidence and
leading to many companies announcing job cuts. The Chancellor subsequently
calmed nerves by indicating her preference for controlling the budget deficit
via targeted spending cuts in areas such as welfare, rather than further tax
hikes.
Sentiment towards UK equities improved in the early part of 2025 as the macro
backdrop improved. Bond yields started to decline in mid-January, reversing
the increase that had taken place in the wake of the Budget. The Bank of
England cut base rates by a quarter point in February, taking the base rate to
4.5%; the third such cut since rates peaked. Sterling bottomed out against the
US dollar in mid-January at around $1.22/£ before ending the period at
$1.29/£. At the same time, the German government announced a huge
infrastructure-spending programme, representing a major fiscal stimulus,
thereby reviving European growth prospects.
At the same time as investors were warming to UK and European assets, the
reverse was true of US assets as it became clear that the Trump administration
was planning to impose wide-ranging tariffs on its major trading partners.
This caused investors to start pricing in the adverse effects of tariffs on US
growth and inflation. It also coincided with growing doubts over the outlook
for US technology companies, as news of Chinese AI upstart DeepSeek, with its
significantly lower development costs, highlighted the competitive risks to US
dominance in technology. Overall, these events appeared to call into question
the long period of "US exceptionalism".
Over the six months, the FTSE All-Share Index delivered a total return of
4.1%, outperforming US indices in local currency terms. This positive return
was all thanks to the FTSE 100 which returned 5.9% led by large-cap sectors
such as Banks, Energy and Aerospace & Defence. In contrast, the FTSE 250
and FTSE Small Cap indices struggled due to subdued consumer and business
confidence constraining the earnings of domestically orientated companies. As
a result, these indices suffered negative total return of -6.4% and -4.6%
respectively.
Revenue Account
Total income generated by the portfolio in the period under review increased
by 1.4% to £5.43 million.
The contribution from special dividends increased from 3.0% to 11.0% of the
total cash dividend income as the holdings in Petershill and Ithaca
distributed surplus capital. Across the wider market, special dividends have
become quite rare by historical standards, while share buybacks have become
the preferred method of distributing surplus capital. This partly reflects the
view amongst management teams that unusually low valuations make these
buybacks particularly accretive to earnings. We note that 27 of the
portfolio's holdings, representing 50% of the portfolio, have undertaken a
share buyback so far in the current financial year.
Net revenue earnings for the six-month period were almost £4.86 million, or
12.4% higher than last year's
£4.32 million. This increase is not expected to be recurring because it
resulted from prior year numbers being adversely affected by a £0.5 million
withholding tax charge.
Our experience over the last 14 years is that the first half of the Company's
financial year generates around 40% of the total dividend income that the
portfolio will generate in the full year as many of the holdings declare their
final dividend for their previous financial year after the period end. We
remain confident that the second half of the year is currently on track to
deliver sufficient income to cover the dividend that the Company is aiming to
pay.
We calculate that the portfolio is expected to deliver a gross dividend yield,
before costs, of around 7.1% based on the income expected to be generated by
the portfolio over this financial year divided by the portfolio value at the
period end. This represents a significant premium to the dividend yield of the
reference index of 3.5% as at 31 March 2025. During the period, the Bank of
England cut the base rate by 0.25% three times to 4.50%. Since the period end,
there has been a further 0.25% rate cut. This has helped to restore some
cushion between the rate the Company pays for the bank loan facility (used to
finance the Company's gearing) and the dividend yield earned on the portfolio.
This is helpful for the revenue account. We note that money markets are
currently factoring in a further three rate cuts by the end of the Company's
financial year.
The dividend outlook of the wider UK equity market will be a function of
various factors, including the tendency of management teams to favour share
buybacks over special dividends, UK and global economic growth trends,
industry-level changes and the US$/£ exchange rate. At a sector level, in the
past year we have navigated a pronounced shift in dividend payments away from
Mining shares towards Financial shares. We acted early to reduce the
portfolio's weighting in the Mining sector, having observed a shift in capital
allocation priorities towards acquisitions, while at the same time recognising
the benefit of elevated interest rates on the net interest income of banks.
Against an uncertain macro backdrop, we have sought to build a diversified
portfolio of companies offering dividend yield, dividend growth and capital
growth potential. We are therefore encouraged to see the continued growth in
portfolio income during this period, strengthening our confidence in our
ability to extend the 24-year track record of dividend per share growth. We
remain convinced that UK companies generating the cash flow to pay attractive
dividends and buy back their own shares can also deliver good capital growth
for shareholders. This supports our view that the income and capital aspects
of the investment objective can be delivered hand in hand.
Portfolio Performance
The Company's net asset value ("NAV") total return was 2.1% for the period
which underperformed the total return of 4.1% for the Company's reference
index. The share price total return was 4.9%.
FTSE Index total returns
Total returns to 6 months 1 year 3 years 5 years
31 March 2025(A) % % % %
NAV 2.1 13.7 6.1 61.2
FTSE All-Share Index 4.1 10.5 23.3 76.5
Share price 4.9 26.1 9.4 74.8
(A) Considered to be an Alternative Performance Measure.
Source: abrdn plc/Morningstar/Factset
As we note in the Market Review section, the period under review saw an
unusually wide gap in performance between the FTSE 100 Index and the rest of
the market. The FTSE 100 Index returned 5.9% thanks to the strong performance
of internationally orientated sectors. In contrast, the FTSE 250 and FTSE
Small Cap indices suffered negative total returns of -6.4% and -4.6%
respectively, as subdued consumer and business confidence constrained the
earnings of domestically orientated companies. We construct the portfolio on
an index-agnostic basis, meaning that we size our positions according to our
conviction in the idea, rather than anchoring off index weightings. The result
is that it is harder for the portfolio to outperform the index when the
largest stocks in the index significantly outperform as they did in this
six-month period. In the Outlook section, we explain how this has reversed
since the period-end, to the benefit of the portfolio.
Turning to the sector and stock-specific drivers of performance, Financials
were an important driver. We benefited from the overweight position in the
sector but suffered some stock-specific issues. Conduit fell on news of larger
than expected losses from the Californian wildfires. This damaged sentiment
towards the stock, although management continues to guide to mid-teens
through-the-cycle return on equity; an outcome that we do not believe is
priced in at the current discount to net asset value. The holding in CMC
Markets retraced some of the gains it had made during 2024 as investors
reacted badly to a trading update that was in-line with expectations, but did
not provide the upgrade that had been hoped for.
On the positive side, Petershill Partners (see the Case Study on Page 21)
climbed in response to the announcement that it had sold a stake in one of its
Private Markets businesses, General Catalyst, at a significant premium to its
carrying value. This provided evidence of the gap between Petershill's
valuation and the intrinsic value of its holdings in private markets partner
firms. Consequently, Petershill has announced a special dividend; it's the
third in the past year. The holdings in Barclays and NatWest benefited from
their performance as the shares climbed in response to better-than-expected
results, supported by a rising net interest margin and robust credit quality.
Among the portfolio's Consumer holdings, Imperial Brands (see the Case Study
on Page 19) contributed strongly to performance as it delivered impressive
results and guided the market to high single digit earnings per share growth
over the 5 years to 2030, supported by an "evergreen" share buyback, alongside
its attractive dividend. The Company's performance relative to the index was
helped by not holding Diageo which fell sharply on weak spirits demand and
tariff concerns. In contrast, Berkeley Group detracted from performance
despite achieving results in line with consensus expectations, as it flagged
some frustration over the sluggish macro backdrop and the slow pace of
regulatory and planning reform.
Within the Energy sector, a backdrop of rising natural gas prices was helpful
for the portfolio's holding in Diversified Energy, while Ithaca Energy helped
performance as the shares rose sharply with better-than-expected production
results and lower than expected costs, helped by the recent acquisition of ENI
UK. These positives were partially offset by the underweight position in Shell
which performed strongly on the announcement of enhanced shareholder
distributions and upgraded returns through tighter cost and capital
management.
Activity
During the period we found a range of new investment opportunities that we
expect to help deliver on each aspect of the investment objective - dividend
yield, dividend growth and valuation re-rating.
The largest purchases during the period can be categorised into the following
groupings:
1. UK domestic companies whose low valuations do not capture their
potential:
· MONY: Price comparison platform MONY is pursuing a strategy of shifting
its customer base from transactional users to active members by launching
SuperSaveClub. This has increased customer loyalty and reduced customer
acquisition costs by curbing the need for marketing, which has historically
dragged on margins. We see the P/E ratio of 11x and dividend yield of 6% as
excellent value for this market-leading platform business.
· easyJet: Low-cost airline easyJet is making rapid progress towards its
medium-term targets, aiming to double its profit per seat through a
combination of easyJet holidays, fleet upgrades (increasing the size and
efficiency of their aircraft) and route optimisation (pushing into more
lucrative longer haul routes). The stock trades at a P/E ratio of 7x and also
trades at a discount to the value of its fleet despite having a very strong
balance sheet and strong growth prospects.
2. Change situations where structural improvement has been ignored:
· Victrex: Speciality chemicals business Victrex appears to be approaching
a trough in earnings, as demand shows signs of picking up, while inventory
de-stocking is largely complete, and their capex programme has peaked. The key
to their turnaround is their Medical division, which is the highest margin
part of the business thanks to very high barriers to entry. We see potential
for a meaningful re-rating once earnings trough.
· Balfour Beatty: Construction business Balfour Beatty has strong earnings
prospects, being exposed to growing infrastructure demand in the UK and US.
This does not appear to be priced in, with the stock trading at just 10x
earnings, with balance sheet support from its net cash position and its
portfolio of infrastructure assets.
· DCC: Distribution business DCC has conducted a strategic review,
concluding that the group should break up, disposing of its Healthcare and
Technology divisions, focusing on their Energy division which generates higher
and less variable returns. With the shares trading at a P/E ratio of just 10x,
we expect this action to drive a valuation re-rating.
3. Defensive shares whose low valuations fail to price in their resilience:
· Endeavour Mining: In buying a new holding in Endeavour Mining, we
re-established a weighting in the precious metals sector after the holding in
Centamin was subject to a takeover by Anglogold in 2024. Endeavour operates in
West Africa, an area of significant exploration potential, with rich and
relatively undeveloped geology. The mines are high quality, with a low cost
of production. On a macro level, gold is a defensive asset, being a hedge
against geopolitical chaos. The stock offers consistent dividend payouts and
share buybacks, underlining the cash generative nature of the business, while
they continue to invest in new projects. This growth is not priced in at a P/E
ratio of 10x.
· Pennon: With the publication of the latest water industry regulatory
framework (AMP 8), Pennon now has clarity on its returns outlook, allowing it
to proceed with a rights issue. Trading at around 1x its regulatory asset
base, the stock now looks attractively valued relative to the returns they are
expected to make.
The largest sales during the period can be categorised into the following
groupings:
1. Reducing exposure to Mining and Industrial sectors:
· BHP/Rio Tinto/Glencore: We reported in the FY24 report that we had
reduced the portfolio's weighting in the Resources sector, and we continued
this reduction in the last six months. We are conscious of the impact of a
slower Chinese economy on commodity demand, and we also observe a general
shift in capital allocation priorities towards M&A, away from
distributions. The effect of this reduction has been to diversify the
portfolio's sources of income.
· Smurfit Westrock: We sold the holding in paper and packing business
Smurfit Westrock in February 2025 following a period of strong performance
since initial purchase in May 2024. The share price had responded positively
to the successful delivery of merger synergies and excitement about its US
exposure following the Presidential election.
2. Moderating large positions in Utilities:
· National Grid: We reduced the holding in National Grid, using it as a
source of funds for new investments, having become a very large holding
following its rights issue.
· SSE: We continued to trim SSE where we see some risks on the returns
of their renewables business given the possibility of regional electricity
pricing and delays in their capital expenditure programme.
3. Eliminating holdings that lack the catalysts necessary for a re-rating:
· Crest Nicholson: We sold the holding in Crest Nicholson following the
decision by Bellway to walk away from bid discussions. Despite its low
valuation, we have a preference for other housebuilders with lower operational
risk and more attractive dividends.
Outlook
The key event of the period under review was undoubtedly the US Presidential
election and subsequent policy action. The direct impact of President Trump's
trade policies is to drive concerns about US economic growth and inflation.
The Federal Reserve's Beige Book highlighted that uncertainty over tariffs is
causing business leaders to delay investment decisions. The second-round
impact is on financial markets, causing investors to question their acceptance
of "US exceptionalism", as demonstrated by a sudden decline in the US dollar
and sell-off in US equity and bond markets. This period has coincided with
growing doubts over the outlook for US growth shares as new competition
emerges in rapidly changing technologies such as AI. Altogether these events
provide the catalyst for an asset allocation rotation out of US equities into
other asset classes, including UK equities. It could also drive a shift within
equity markets out of growth shares into value shares, including higher yield
UK shares, many of which offer dividend yields in excess of 6%, with buybacks
on top. We therefore see this backdrop as increasingly favourable for the
portfolio.
Valuations help provide an indication of the level of investor expectations
over a company's growth prospects. High valuations can imply a burden of
expectations that can become a problem if those expectations are not met.
Given the earnings risks caused by tariffs and technological change, US shares
appear at greater risk of a valuation de-rating than their UK peers. The
S&P 500 index trades at a Price to Earnings ("P/E") ratio of around 20x,
significantly more expensive than the FTSE All-Share index which trades at a
P/E ratio of just 12x. Investor surveys indicate that asset allocators are
recognising that they can mitigate this valuation risk by rotating out of
expensive US shares into cheap UK and European shares.
Within the UK equity market, investors have for some time favoured the
constituents of the FTSE 100 Index. As noted in the Market Review section,
large-cap shares significantly outperformed small and mid-cap shares again
during the period under review. The portfolio comprised 49.2% of FTSE 100
shares at the end of the financial period, with many of these large-cap
holdings doing their job by acting as safe havens during a period of intense
macro turbulence.
Looking ahead, we see a growing opportunity among small and mid-cap shares,
with potential for a catch-up as investors broaden their allocations away from
large-cap shares. One part of this opportunity is the valuation differential,
as evidenced by the gap between the P/E ratio of the FTSE 100 Index(12x) and
the P/E ratio of the FTSE 250 Index (11x). This may not appear to be a large
difference, but the FTSE 100 Index has rarely traded at a premium to the FTSE
250 Index in the past 20 years, reflecting the view that the large
multi-national companies that make up the FTSE 100 Index are more mature than
their smaller and nimbler FTSE 250 peers. This argument turned on its head
when investors became negative on the prospects for the UK economy. It
therefore makes sense that as domestic economic conditions begin to improve,
with UK bond yields reducing and UK economic data generally surprising
positively, we have started to see some early signs of a revival in investor
interest in small and mid-cap shares. Whilst only a short period of time, it
is noteworthy that the FTSE 250 and FTSE Small Cap indices have outperformed
the FTSE 100 Index since the end of March.
The scale of the valuation opportunity can be seen from the gap between the
valuations of the portfolio's holdings and those of the wider market. At the
time of writing, the portfolio has a median P/E ratio of 8.6x and a median
Price/Book ratio of 1.2x which compares favourably with 11.6x and 1.5x
respectively for the FTSE All-Share (ex-Investment Trusts) Index. Later in
this report we provide two examples of our investment process in action, where
we expect positive news flow to drive share price, as well as attractive
dividends.
President Trump's tariff policies have acted as a reminder to European
politicians of the need to resolve structural issues and drive-up economic
growth. This is most evident in Germany, but it is also visible in the UK
where defence spending is being prioritised over welfare spending, planning
rules are being eased in an effort to lift housebuilding volumes and
regulators are being tasked with removing red tape. All of these policies fit
into the Government's agenda to make economic growth the number one priority.
The portfolio is a "go-anywhere" portfolio, taking an index-agnostic approach
to selecting shares, rather than anchoring off index weightings. The result is
that we are poised and ready to invest in the most attractive shares, right
across the UK market, as conditions evolve. We see this index-agnostic
approach as a key advantage, giving us the flexibility to pounce on winning
ideas right across the market cap spectrum. This advantage is harder to
perceive when market leadership is dominated by a handful of large-cap shares,
but it becomes far clearer when market leadership broadens out, as now appears
to be happening. Since the end of the period, the portfolio has outperformed
the Reference Index meaningfully as many of our mid and small-cap holdings
surge on fading tariff concerns, providing evidence that we are now being
rewarded for sticking to the investment process that we set out.
We have carefully constructed the portfolio to deliver a combination of
dividend yield, dividend growth and capital growth. We are encouraged by the
growth in portfolio income we have achieved in this period, strengthening our
confidence in our ability to cover the dividend, build reserves and deliver a
25(th) consecutive year of dividend per share growth. We have been consistent
in our view that UK companies generating the cash flow to pay attractive
dividends and buy back their own shares can also deliver good capital growth
for shareholders.
Policy uncertainty from the Trump administration will remain a constant,
creating bouts of volatility, but we see the current market environment as
conducive to our investment process, generating an unusually large number of
attractive income opportunities and contributing to the acceleration in
performance that we are now seeing.
Thomas Moore
Portfolio Manager
14 May 2025
Ten Largest Investments
As at 31 March 2025
Imperial Brands BP
Imperial Brands is a global consumer goods company that manufactures, markets BP is an oil and petrochemicals company. The Company explores for and produces
and distributes tobacco products across approximately 120 markets. oil and natural gas, refines, markets, and supplies petroleum products,
generates renewable energy, and manufactures and markets chemicals.
HSBC British American Tobacco
HSBC is a banking and financial services company. The Company's segments British American Tobacco sells combustible tobacco products in more than 50
include Wealth and Personal Banking, Commercial Banking and Global Banking and countries around the world, as well as a growing portfolio of non-combustible
Markets. products such as vapour and tobacco heating products.
Petershill Partners Barclays
Petershill Partners is an investment company that owns stakes in around 20 Barclays is global financial services provider engaged in retail banking,
private markets partner firms, providing UK investors with access to this credit cards, wholesale banking, investment banking, wealth management and
fast-growing and profitable sector. investment management services.
Galliford Try Berkeley Group
Galliford Try is a leading UK construction business focused on three areas - Berkeley Group is a UK homebuilder specialising in large-scale residential led
Building, Infrastructure and Specialist Services. brownfield redevelopment projects with a particular focus on the London,
Birmingham, and south of England housing markets.
Legal & General TP ICAP
Legal & General is a leading UK financial services provider, offering life TP ICAP provides financial markets infrastructure and data solutions. Their
insurance, pensions, retirement and investment services. platforms connect institutional buyers and sellers, providing liquidity and
pricing data, supporting the effective functioning of efficient and liquid
wholesale markets.
Investment Portfolio
At 31 March 2025
Market Market
value value
Company Sector £'000 %
Imperial Brands Tobacco 9,533 5.4
BP Oil, Gas and Coal 9,047 5.1
HSBC Banks 7,502 4.2
British American Tobacco Tobacco 7,346 4.2
Petershill Partners Investment Banking and Brokerage Services 5,824 3.3
Barclays Banks 5,780 3.3
Galliford Try Construction and Materials 5,395 3.1
Berkeley Group Household Goods and Home Construction 5,167 2.9
Legal & General Life Insurance 5,085 2.9
TP ICAP Investment Banking and Brokerage Services 4,937 2.8
Top ten investments 65,616 37.2
M&G Investment Banking and Brokerage Services 4,809 2.7
Ithaca Energy Oil, Gas and Coal 4,339 2.4
OSB Group Finance and Credit Services 4,178 2.4
NatWest Group Banks 4,035 2.3
Shell Oil, Gas and Coal 3,928 2.2
Chesnara Life Insurance 3,742 2.1
Conduit Holdings Non-life Insurance 3,707 2.1
Rio Tinto Industrial Metals and Mining 3,672 2.1
Diversified Energy Oil, Gas and Coal 3,460 2.0
Mony Software and Computer Services 3,330 1.9
Top twenty investments 104,816 59.4
Quilter Investment Banking and Brokerage Services 3,263 1.9
Assura Real Estate Investment Trusts 3,181 1.8
CMC Markets Investment Banking and Brokerage Services 3,046 1.7
Balfour Beatty Construction and Materials 3,030 1.7
National Grid Gas, Water and Multi-utilities 2,967 1.7
Victrex Chemicals 2,959 1.7
International Personal Finance Finance and Credit Services 2,872 1.6
Endeavour Mining Precious Metals and Mining 2,743 1.6
Drax Electricity 2,710 1.5
Sabre Insurance Non-life Insurance 2,600 1.5
Top thirty investments 134,187 76.1
DFS Furniture Retailers 2,326 1.3
Energean Oil, Gas and Coal 2,298 1.3
Pennon Group Gas, Water and Multi-utilities 2,242 1.3
EasyJet Travel and Leisure 2,236 1.3
Real Estate Investors Real Estate Investment Trusts 2,169 1.2
Barratt Redrow Household Goods and Home Construction 2,103 1.2
Thungela Resources Oil, Gas and Coal 2,036 1.2
Standard Chartered Banks 1,985 1.1
Harbour Energy Oil, Gas and Coal 1,942 1.1
Johnson Matthey Chemicals 1,924 1.1
Top forty investments 155,448 88.2
DCC Industrial Support Services 1,909 1.1
BAE Systems Aerospace and Defence 1,883 1.1
SSE Electricity 1,841 1.0
Phoenix Life Insurance 1,742 1.0
Man Group Investment Banking and Brokerage Services 1,724 1.0
LondonMetric Real Estate Investment Trusts 1,692 1.0
Close Brothers Banks 1,654 0.9
Sirius Real Estate Real Estate Investment Trusts 1,420 0.8
Inchcape Industrial Support Services 1,401 0.8
BHP Industrial Metals and Mining 1,296 0.7
Top fifty investments 172,010 97.6
Speedy Hire Industrial Transportation 1,254 0.7
Litigation Capital Investment Banking and Brokerage Services 1,063 0.6
CLS Holdings Real Estate Investment and Services 1,050 0.6
Ashmore Investment Banking and Brokerage Services 958 0.5
Total portfolio 176,335 100.0
Investment Case Studies
Imperial Brands
Imperial Brands is the largest holding in the portfolio and the fourth largest
tobacco company in the world. Having languished under its previous management
team, Imperial Brands has defied its sceptics by emerging as one of the most
reliable consumer staples stocks in the UK market. The turnaround can be
attributed to the strategy adopted by the new management team, namely
increased focus on their largest markets and brands, in order to drive
sustained delivery of cash flows and capital returns. Our holding in Imperial
Brands dates back to December 2018, but we only made it a meaningful-sized
holding in 2022 when we became convinced in the turnaround strategy being laid
out by the newly appointed CEO, Stefan Bomhard.
The Portfolio Manager attended a Capital Markets Day hosted by the company in
March 2025. At this event the CEO outlined new targets which reinforced the
Portfolio Manager's conviction in the Company's determination to deliver
consistent cash flows and shareholder distributions. The core message was
"more of the same" as Bomhard aims to build on the firm foundations he has
laid in his first five years in charge. For an industry that is widely
regarded to be in decline, the financial performance being achieved by
Imperial Brands is impressive. This strong performance is justifiably
converting an increasing number of investors who had hitherto viewed the stock
with scepticism. This revival comes at a time when other consumer stocks,
including Beverages and Luxury Goods stocks, have struggled due to the
realisation that demand patterns are far more cyclical than investors had
anticipated.
Let's start by looking back at Imperial Brands' accelerating financial
performance since Bomhard took the reins. Under the previous management team,
in 2017-2020 the Company had achieved revenue growth averaging +0.7%, but
earnings per share declined by an average of -1.1% during this period due to a
lack of control over costs. In the past few years, the Company's increased
focus has helped them to deliver an acceleration in revenue growth (+4.6% in
2024). Coupled with firmer cost control and a large share buyback, this has
translated into a sharp acceleration in earnings per share growth (+10.9% in
2024). Looking ahead, the Company is guiding to high-single-digit earnings per
share growth. The traditional Combustibles business remains an attractive cash
cow, guided for low-single-digit revenue growth, while the Next Generation
Products business provides some growth optionality with guidance of
double-digit revenue growth. The maths behind the investment case remains
compelling with £2.2 billion to £3.0 billion of cash flow annually
representing circa 9-12% Free Cash Flow yield. These strong cash flows give
management the confidence to guide to progressive DPS growth and an
"evergreen" buyback, with £1.25 billion being forecast for 2025. The 5.5%
dividend yield + 5% share buyback are proving to be a winning formula for
shareholders.
The next phase of the strategy will involve applying the consumer-led approach
that has worked for Imperial Brands in its traditional Combustibles business
to build scale in Next Generation Products. The strategy is to get closer to
their consumers and build differentiated brands by investing in their people,
technology and data. They use data to identify growth potential in priority
markets and categories. They aim to use this data to become faster and more
agile in their decision making. At the same time, they are building a
performance-based culture, with more rigorous performance management through
monthly business reviews. This is key to helping them drive market share
gains. Imperial Brands describe their vision as "to build a strong challenger
business powered by responsibility, focus and choice".
Their Next Generation Products include Vapour, Heated Tobacco and Modern Oral.
Demand for each of these products varies across markets, with significant
country differences in terms of product preferences, affordability, tax and
regulation, requiring them to use data to take rational decisions according to
local conditions. Rather than risking shareholder returns by taking large
bets across all these new products, the CEO is choosing to be highly
selective, prioritising markets where they see an established category
presence and an existing route to market. They also see their ESG priorities,
including Consumer Health, as aligned with their commercial goals, citing +64%
growth in potentially reduced-harm Next Generation Products since 2021. We are
conscious that all tobacco companies need to navigate a complex regulatory and
litigation landscape, but we expect established companies like Imperial Brands
to become seen as part of the solution as governments around the world take
action to reduce the influx of unregulated Chinese vape products.
Overall, the Portfolio Manager believes that Imperial Brands has earned its
position as the largest holding in the portfolio, demonstrating real
resilience during turbulent conditions for the global economy and markets. The
Portfolio Manager's focus on stocks generating attractive cash flows has
helped us to identify an under-appreciated FTSE 100 business with a clear plan
for ongoing success.
Petershill Partners
Petershill Partners is the fifth largest holding in the portfolio. It is an
investment company that owns stakes in around 20 private markets partner
firms, providing UK investors with access to this fast-growing and profitable
sector. We took part in their IPO in 2021 and added to the existing holding in
the portfolio on weakness in 2023 and 2024. The Company is operated by Goldman
Sachs Asset Management, with an independent board chaired by former CEO of JP
Morgan Cazenove, Naguib Kheraj.
The growth rate of this FTSE 250 firm is impressive, with their Assets Under
Management (AUM) having grown at a compound annual growth rate of +22% since
2018, outpacing the wider industry. Management is guiding for another $20
billion to $25 billion of fundraising in 2025, continuing their strong growth
track record. Since their IPO in 2021, Petershill's partner firms have raised
$118.6 billion. This is built on both sector trends and company-specific
attributes.
Starting with the sector trends, private markets is expected to play a
significant role in the asset gathering of the asset management industry as
institutional investors such as pension funds and sovereign wealth funds
increase allocations to the sector. This is supported by a deepening of
private markets as younger companies choose to stay private for longer, while
some public companies de-list and become private companies. The growth in
private equity AUM means that companies can raise larger amounts of capital in
private markets than was previously possible and it also means that private
equity firms can deploy larger pools of capital.
In terms of company-specific attributes, Petershill has a particular focus on
investing in mid-market firms which is an under-served segment within the
private markets sector. In addition, Petershill benefits from its access the
Goldman Sachs platform, providing it with the ability to source attractive
acquisition opportunities.
Petershill has been active since its IPO, acquiring $1.2 billion of mid-market
private markets firms and divesting of $1.3 billion at a 40% uplift to
carrying value. As a provider of strategic capital to alternative asset
managers, Petershill can acquire stakes in partner firms at a lower entry
multiple than listed peers would need to pay when acquiring control or a
similar business. This is especially true when a partner firm sees Petershill
as a platform that can accelerate their growth and development via access to
Petershill's growth capital and expertise. Petershill is also proving to be
successful at divesting stakes in partners firms at significant uplifts to
carrying value, with significant activity in the past 18 months allowing the
payment of 3 special dividends to shareholders. The total amount of capital
returned since IPO is $1.2 billion via a combination of ordinary dividends,
special dividends, tender offer and buybacks.
The share price fell sharply after the IPO due to fears of the impact of
rising interest rates on the fund-raising activity of Petershill's partner
firms. At one point in 2023 the stock was trading at a 60% discount to its
book value despite ongoing fund-raising success. Rather than giving up and
crystallising losses, the Portfolio Manager intensified research efforts and
concluded to add to the existing holding. Since that decision, the stock has
gone on to deliver some strong performance for the portfolio. The Portfolio
Manager believes Petershill Partners exemplifies the bargains that can become
available among under-researched mid and small-cap stocks.
Condensed Statement of Comprehensive Income (unaudited)
Six months ended Six months ended
31 March 2025 31 March 2024
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Net losses on investments at fair value - (717) (717) - (1,264) (1,264)
Currency losses - (1) (1) - (4) (4)
Income 2 5,433 - 5,433 5,360 - 5,360
Investment management fee (129) (301) (430) (122) (285) (407)
Administrative expenses (224) - (224) (245) - (245)
Net return before finance costs and taxation 5,080 (1,019) 4,061 4,993 (1,553) 3,440
Finance costs (220) (512) (732) (224) (522) (746)
Return before taxation 4,860 (1,531) 3,329 4,769 (2,075) 2,694
Taxation 3 - - - (447) - (447)
Return after taxation 4,860 (1,531) 3,329 4,322 (2,075) 2,247
Return per Ordinary share (pence) 4 10.17 (3.20) 6.97 9.05 (4.35) 4.70
The "Total" column of this statement represents the profit and loss account of
the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all
gains and losses are recognised in the Condensed Statement of Comprehensive
Income.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of the financial statements.
Condensed Statement of Financial Position (unaudited)
As at As at
31 March 2025 30 September 2024
Notes £'000 £'000
Fixed assets
Investments at fair value through profit or loss 176,335 177,978
Current assets
Debtors 2,945 1,411
Money-market funds 779 1,311
Cash and short-term deposits - 591
3,724 3,313
Creditors: amounts falling due within one year
Overdraft (20) -
Bank loan (22,473) (22,462)
Other creditors (1,317) (414)
(23,810) (22,876)
Net current liabilities (20,086) (19,563)
Net assets 156,249 158,415
Capital and reserves
Called-up share capital 6 12,295 12,295
Share premium account 52,043 52,043
Capital redemption reserve 12,616 12,616
Capital reserve 7 69,630 71,161
Revenue reserve 9,665 10,300
Equity Shareholders' funds 156,249 158,415
Net asset value per Ordinary share (pence) 8 327.01 331.54
The financial statements on pages 23 to 30 were approved by the Board of
Directors and authorised for issue on 14 May 2025 and were signed on its
behalf by:
Sarika Patel
Chair
Statement of Changes in Equity (unaudited)
Six months ended 31 March 2025
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2024 12,295 52,043 12,616 71,161 10,300 158,415
Return after taxation - - - (1,531) 4,860 3,329
Dividends paid 5 - - - - (5,495) (5,495)
Balance at 31 March 2025 12,295 52,043 12,616 69,630 9,665 156,249
Six months ended 31 March 2024
Share Capital
Share premium redemption Capital Revenue
capital account reserve reserve reserve Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2023 12,295 52,043 12,616 62,735 10,184 149,873
Return after taxation - - - (2,075) 4,322 2,247
Issue of own shares from treasury 6 - - - 402 - 402
Dividends paid 5 - - - - (5,447) (5,447)
Balance at 31 March 2024 12,295 52,043 12,616 61,062 9,059 147,075
Notes to the Financial Statements
For the year ended 31 March 2025
1. Accounting policies
Basis of accounting. The condensed financial statements have been prepared in
accordance with Financial Reporting Standard 104 (Interim Financial Reporting)
and with the Statement of Recommended Practice (SORP) for 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts', issued
in July 2022 (The AIC SORP). They have also been prepared on a going concern
basis and on the assumption that approval as an investment trust will continue
to be granted.
The interim financial statements have been prepared using the same accounting
policies as the preceding annual financial statements.
2. Income
Six months ended Six months ended
31 March 2025 31 March 2024
£'000 £'000
Income from investments
UK investment income
Ordinary dividends 3,975 4,070
Special dividends 595 158
4,570 4,228
Overseas and Property Income Distribution investment income
Ordinary dividends 829 979
829 979
Total income from investments 5,399 5,207
Other income
Money-market interest 34 67
Stock dividends - 82
Bank interest - 4
Total other income 34 153
Total income 5,433 5,360
3. Taxation
The taxation charge for the period, and the comparative period, represents
withholding tax suffered on overseas dividend income.
4. Return per Ordinary share
Six months ended Six months ended
31 March 2025 31 March 2024
p p
Revenue return 10.17 9.05
Capital return (3.20) (4.35)
Total return 6.97 4.70
The figures above are based on the following figures:
Six months ended Six months ended
31 March 2025 31 March 2024
£'000 £'000
Revenue return 4,860 4,322
Capital return (1,531) (2,075)
Total return 3,329 2,247
Weighted average number of Ordinary shares in issue(A) 47,781,522 47,751,741
(A) Calculated excluding shares in treasury.
5. Dividends
Six months ended Six months ended
31 March 2025 31 March 2024
£'000 £'000
Ordinary dividends on equity shares deducted from reserves:
Final dividend for 2024 of 5.80p per share (2023: 5.70p) 2,771 2,724
First interim dividend for 2025 of 5.70p per share (2024: 5.70p) 2,724 2,723
5,495 5,447
6. Called-up share capital
As at As at
31 March 30 September
2025 2024
£'000 £'000
Issued and fully paid:
Ordinary shares 25p each
Opening balance of 47,781,522 (2024: 47,646,522) Ordinary shares 11,946 11,912
Issue of nil (2024: 135,000) Ordinary shares - 34
Closing balance of 47,781,522 (2024: 47,781,522) Ordinary shares 11,946 11,946
Treasury shares
Opening balance of 1,397,245 (2024: 1,532,245) Ordinary shares 349 383
Issue of nil (2024: 135,000) Ordinary shares from Treasury - (34)
Closing balance of 1,397,245 (2024: 1,397,245) Ordinary shares 349 349
12,295 12,295
During the period, no Ordinary shares (2024:135,000) were issued from Treasury
for a consideration of £nil (2024: £403,000). The total shares held in
Treasury is 1,397,245 (2024: 1,397,245).
7. Capital reserve
The capital reserve figure reflected in the Condensed Statement of Financial
Position includes investment holdings losses at 31 March 2025 of £10,092,000
(30 September 2024: losses of £7,062,000) which relate to the revaluation of
investments held on that date and realised gains as at 31 March 2025 of
£79,722,000 (30 September 2024: £78,223,000).
8. Net asset value per Ordinary share
As at As at
31 March 2025 30 September 2024
Attributable net assets (£'000) 156,249 158,415
Number of ordinary shares in issue(A) 47,781,522 47,781,522
NAV per ordinary share (p) 327.01 331.54
(A) Excludes shares in issue held in treasury.
9. Transaction costs
During the period expenses were incurred in acquiring or disposing of
investments classified as fair value through profit or loss. These have been
expensed through capital and are included within gains on investments in the
Condensed Statement of Comprehensive Income. The total costs were as follows:
Six months ended Six months ended
31 March 2025 31 March 2024
£'000 £'000
Purchases 180 149
Sales 16 17
196 166
10. Loans
On 23 June 2023, the Company agreed a three-year £30 million revolving credit
facility with the Royal Bank of Scotland International Limited, which expires
on 23 June 2026.
At 31 March 2025, £22,500,000 had been drawn down (30 September 2024:
£22,500,000) at a SONIA rate of 6.044% (30 September 2024: a SONIA rate of
6.45%).
The loan is shown in the Condensed Statement of Financial Position net of
amortised expenses of £27,000 (30 September 2024: £38,000).
11. Fair value hierarchy
FRS 102 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy shall have the following
classifications:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the assets or liabilities, either directly (ie as prices) or
indirectly (ie derived from prices); and
Level 3: inputs for the assets or liabilities that are not based on observable
market data (unobservable inputs).
All of the Company's investments are in quoted equities (30 September 2024
:same) that are actively traded on recognised stock exchanges, with their fair
value being determined by reference to their quoted bid prices at the
reporting date. The total value of the investments has therefore been deemed
as Level 1 (30 September 2024: same).
12. Half Yearly Report
The financial information contained in this Half Yearly Report does not
constitute statutory accounts as defined in Sections 434-436 of the Companies
Act 2006. The financial information for the six months ended 31 March 2025 and
31 March 2024 have not been audited.
The information for the year ended 30 September 2024 has been extracted from
the latest published audited financial statements which have been filed with
the Registrar of Companies. The report of the auditors on those accounts
contained no qualification or statement under Section 498 (2), (3) or (4) of
the Companies Act 2006.
This Half Yearly Report was approved by the Board on 14 May 2025.
Alternative Performance Measures
Alternative performance measures are numerical measures of the Company's
current, historical or future performance, financial position or cash flows,
other than financial measures defined or specified in the applicable financial
framework. The Company's applicable financial framework includes FRS 102 and
the AIC SORP.
The Directors assess the Company's performance against a range of criteria
which are viewed as particularly relevant for closed-end investment companies.
Where the calculation of an APM is not detailed within the financial
statements, an explanation of the methodology employed is provided below:
Dividend yield
Dividend yield measures the dividend per share as a percentage of the share
price per share.
31 March 2025 30 September 2024
Share price 325.50p 321.50p
Dividend per share 23.00p 22.90p
Dividend yield 7.1% 7.1%
Discount & premium
A discount is the percentage by which the market price of an investment trust
is lower than the Net Asset Value ("NAV") per share. A premium is the
percentage by which the market price per share of an investment trust exceeds
the NAV per share.
31 March 2025 30 September 2024
Share price 325.50p 321.50p
Net asset value per share 327.01p 331.54p
Discount 0.5% 3.0%
Net gearing
Net gearing measures the total borrowings less cash and cash equivalents
divided by Shareholders' funds, expressed as a percentage. Under AIC reporting
guidance cash and cash equivalents includes amounts due from and to brokers at
the period end as well as cash and short-term deposits.
31 March 2025 30 September 2024
£'000 £'000
Total borrowings a 22,493 22,462
Cash and short-term deposits - 591
Investments in AAA-rated money-market funds 779 1,311
Amounts due from brokers 947 -
Amounts payable to brokers (899) -
Total cash and cash equivalents b 827 1,902
Gearing (borrowings less cash & cash equivalents) c=(a-b) 21,666 20,560
Shareholders' funds d 156,249 158,415
Net gearing e=(c/d) 13.9% 13.0%
Ongoing charges ratio
The ongoing charges ratio has been calculated in accordance with guidance
issued by the AIC, which is defined as the total of investment management fees
and recurring administrative expenses and expressed as a percentage of the
average net assets throughout the period. The ratio reported for 31 March 2025
is based on forecast ongoing charges for the year ending 30 September 2024.
31 March 2025 30 September 2024
£'000 £'000
Investment management fees 871 840
Administrative expenses 454 459
Less: non-recurring charges(A) - (1)
Ongoing charges a 1,325 1,298
Average net assets b 158,323 150,930
Ongoing charges ratio (excluding look-through costs) c=(a/b) 0.84% 0.86%
Look-through costs(B) d 0.00% 0.00%
Ongoing charges ratio (including look-through costs) e=c+d 0.84% 0.86%
(A) Comprises professional fees not expected to recur.
(B) Calculated in accordance with AIC guidance issued in October 2020 to
include the Company's share of costs of holdings in investment companies on a
look-through basis.
Total return
NAV and share price total returns show how the NAV and share price has
performed over a period of time in percentage terms, taking into account both
capital returns and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended competitors, and the
Reference Index, respectively.
Share
Six months ended 31 March 2025 NAV Price
Opening at 1 October 2024 a 331.50p 321.50p
Closing at 31 March 2025 b 327.01p 325.50p
Price movements c=(b/a)-1 (1.4%) 1.2%
Dividend reinvestment(A) d 3.5% 3.7%
Total return c+d +2.1% +4.9%
Share
Year ended 30 September 2024 NAV Price
Opening at 1 October 2023 a 314.60p 314.00p
Closing at 30 September 2024 b 331.50p 321.50p
Price movements c=(b/a)-1 5.4% 2.4%
Dividend reinvestment(A) d 7.9% 8.0%
Total return c+d +13.3% +10.4%
(A) NAV total return involves investing the net dividend in the NAV of the
Company with debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net dividend in
the share price of the Company on the date on which that dividend goes
ex-dividend.
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