REG-BlackRock Greater Europe Investment Trust Plc: Portfolio Update

Blackrock Greater Europe Investment TrustAnnouncement

19/03/2024 11:45

 

 

 

BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC (LEI - 5493003R8FJ6I76ZUW55)

All information is at 29 February 2024 and unaudited.

Performance at month end with net income reinvested
 

                              One Month  Three Months  One Year  Three Years  Launch (20 Sep 04)  
                                                                                                  
 Net asset value (undiluted)  8.7%       16.9%         21.3%     31.3%        814.5%              
 Share price                  10.5%      19.8%         21.8%     24.0%        784.3%              
 FTSE World Europe ex UK      2.7%       7.4%          10.7%     32.7%        431.2%              

Sources: BlackRock and Datastream
 

 

At month end

 Net asset value (capital only):      658.36p      
 Net asset value (including income):  658.44p      
 Share price:                         629.00p      
 Discount to NAV (including income):  4.5%         
 Net gearing:                         7.4%         
 Net yield 1 :                        1.1%         
 Total assets (including income):     £662.8m      
 Ordinary shares in issue 2 :         100,663,851  
 Ongoing charges 3 :                  0.98%        

 

1  Based on an interim dividend of 1.75p per share and a final dividend of
5.00p per share for the year ended 31 August 2023.

2  Excluding 17,265,087 shares held in treasury.
3  The Company’s ongoing charges are calculated as a percentage of average
daily net assets and using the management fee and all other operating expenses
excluding finance costs, direct transaction costs, custody transaction
charges, VAT recovered, taxation, write back of prior year expenses and
certain non-recurring items for the year ended 31 August 2023.



                         
 Sector Analysis         Total Assets (%)  
 Industrials             23.5              
 Consumer Discretionary  23.2              
 Technology              22.9              
 Health Care             15.0              
 Financials              8.5               
 Basic Materials         4.8               
 Consumer Staples        1.2               
 Net Current Assets      0.9               
                         -----             
                         100.0             
                         =====             
                                           
                                           
                                           
                                           
                                             
 Country Analysis        Total Assets (%)  
 France                  22.1              
 Netherlands             20.1              
 Switzerland             16.8              
 Denmark                 12.8              
 United Kingdom          6.7               
 Sweden                  5.8               
 Ireland                 5.2               
 Italy                   3.8               
 United States           2.4               
 Belgium                 1.7               
 Germany                 1.7               
 Net Current Assets      0.9               
                         -----             
                         100.0             
                                           
                                           

 

 


 

 Top 10 holdings    Country         Fund %  
 Novo Nordisk       Denmark         8.8     
 ASML               Netherlands     7.3     
 LVMH               France          6.2     
 RELX               United Kingdom  6.2     
 BE Semiconductor   Netherlands     4.9     
 Hermès             France          4.3     
 Ferrari            Italy           3.8     
 Safran             France          3.8     
 ASM International  Netherlands     3.5     
 Partners Group     Switzerland     3.4     
                                            
                                            

 

Commenting on the markets, Stefan Gries and Alexandra Dangoor, representing
the Investment Manager noted:

 

During the month, the Company’s net asset value (NAV) rose by 8.7% and the
share price was up by 10.5%. For reference, the FTSE World Europe ex UK Index
returned 2.7% during the period.

 

Robust corporate earnings combined with decent outlook statements and support
from reasonably resilient macroeconomic data drove markets higher. Generally,
this backdrop supported cyclical assets whilst defensives underperformed –
although largely due to industry specific issues. Consumer discretionary,
industrials and technology delivered the strongest performance in the market.
Real estate, utilities, energy, and consumer staples fell in absolute terms.

 

Our constructive outlook remains intact as the consumer and corporate balance
sheet remain strong, inflation is easing, and we are starting to get more
evidence of parts of the economy turning. While there may be some areas of the
market still working through pockets of weakness, we generally expect company
messaging to be more positive on the 6–18-month view. Overall, we retain our
core exposure to companies with predictable business models, higher than
average returns on capital, strong cash flow conversions and opportunities to
reinvest that cash flow into future growth projects at high incremental
returns.

 

The Company outperformed its reference index during the month, driven by
positive sector allocation and stock selection.

 

In sector terms, the Company particularly benefited from its higher weights in
cyclical assets such as consumer discretionary, technology and industrials. A
lower weight to utilities and energy aided relative returns as the sectors
continued to suffer under collapsing gas prices. The portfolio’s underweight
exposure to consumer staples was also positive as many companies within the
sector, particularly within food and spirits, experienced weaker trading.
Elsewhere, an underweight to telecoms and real estate aided active returns.

 

A number of the semiconductor names, including BESI, ASML and ASMi, were
amongst the best performers having reported strong results themselves and also
enjoying tailwinds from capex increases to fund the Artificial Intelligence
infrastructure across the tech sector. Another set of strong results from US
chip name NVIDIA also moved the industry higher. Our holding in BESI was the
top performer over the month providing a strong attribution effect, with
shares gaining nearly 20% in the month. The company reported Q4 results
including a 7% beat on revenue and 18% beat on EBIT versus consensus
expectations. Although their Q1 2024 guide came out below consensus, investors
looked past the immediate term, focusing instead on positive comments around
the speed of adoption for hybrid bonding which is a key long-term catalyst for
earnings growth.

 

A solid contribution came from the consumer discretionary sector as the
Company’s luxury names rebounded strongly after some pressure over the
second half of 2023. Our position in Hermès contributed positively following
strong quarterly results. Sales were up over 17% versus 14% consensus during
Q4 and management hinted at strong momentum in 2024 so far.

 

Elsewhere in the sector, shares in LVMH continue to perform strongly on the
back of better-than-expected results posted in January. Luxury sportscar maker
Ferrari also once again impressed with strong results as the brand continues
to see strong demand worldwide across models. Net revenues for 2023 came in at
€6bn and cash flow remains strong. The order book is full giving investors
earnings visibility out to 2026, whilst revenue from personalisation options
is hitting record highs.

 

The portfolio’s health care positioning was supportive with positive
attribution from holdings in Chemometec and Novo Nordisk, as well as from
avoiding more defensive pharma names such as Roche. Chemometec reported
encouraging results and outlook commentary. Despite market fears management
reiterated guidance for 2024, noting an improving outlook and early signs of
recovery in the cell and gene market. Recent calls with management and expert
networks suggest demand for their products remains incredibly strong.

 

Shares in Adyen also rallied in the month gaining over 25%. The company posted
H2 2023 results including a 10% beat on total payment volume and 7% beat on
EBITDA versus consensus estimates. Management guided for margin improvement to
continue in 2024.

 

A holding in DSV was the largest detractor. The company’s Q4 results
included a 4% EBIT miss versus consensus driven by their Air and Sea division
which was impacted by ‘other’ costs which some brokers flagged as IT
related. The leadership change announced last year also went into effect
during the month with the former COO stepping into the CEO role. Finally,
speculation around a potential large M&A deal ramped up again following the
CFO’s presentation on their conference call which included similar buy-back
and treasury management strategies seen carried out preceding previous deals.

 

 

 

Outlook

 

We remain fairly constructive on European equities as the set-up should be
positive: inflation is on a downwards trajectory and the economy appears
relatively robust. Eurozone inflation figures have fallen and whilst there may
be volatility in month-to-month data, the economy can handle these levels of
inflation. This also means that we have come to, or are close to, peak rates
and at some point it is fair to assume interest rates will come down. We have
already started to see a positive impact on falling mortgage rates in many
European countries.

 

The corporate sector in Europe is healthy. There is limited corporate debt,
margins are strong, there is no need for major layoffs and the end of
destocking across most industries is in sight. This in turn is good news for
the consumer: a supply chain and energy crisis that is largely done, combined
with high employment numbers and falling inflation, suggest that the
cost-of-living crisis has cooled off. This puts the region in a much better
position compared to a year ago.

 

Nevertheless, the asset class has been under-owned ever since the Russian
invasion of Ukraine in February 2022. As always in Europe, it is key to remain
selective. Assessing the economy from the bottom-up can uncover areas for
greater optimism than traditional economic indicators may suggest. Our regular
contact with management teams helps us understand whether the direction of
earnings and cashflows on a medium to long-term view for the companies in our
portfolio remains on track.

 

Long-term structural trends and large amounts of fiscal spending via the
Recovery fund, Green Deal and the REPowerEU plan in Europe can also drive
demand for years to come, for example in areas such as infrastructure,
automation, innovation in medicines, the shift to electric vehicles,
digitization, or decarbonisation.

 

Valuations are attractive versus history and especially versus US equities.
Overall, evidence of a resilient consumer, healthy corporate sector and decent
outlooks underpinned by green stimulus, give us confidence that many of the
companies in our portfolio can continue to weather the storm.

 

 

 

 

 

 

19 March 2024

 

  

ENDS

 

Latest information is available by typing www.blackrock.com/uk/brge on the
internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3
(ICV terminal).  Neither the contents of the Manager’s website nor the
contents of any website accessible from hyperlinks on the Manager’s website
(or any other website) is incorporated into, or forms part of, this
announcement.



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