RCS - Edinburgh Inv. Trust - Results analysis from Kepler Trust Intelligence

Edinburgh Investment TrustAnnouncement

29/05/2024 11:30

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RNS Number : 2928Q  Edinburgh Investment Trust PLC  29 May 2024

Edinburgh Investment Trust (EDIN)

29/05/2024

Results analysis from Kepler Trust Intelligence

Edinburgh Investment Trust (EDIN) has published its full year results for the
12 months ending 31/03/2024. Over the period, the trust saw NAV total returns
of 13.4% and a share price total return of 8.9%, outperforming the FTSE
All-Share Index total return of 8.4%. Performance continues to be driven by
stock selection, with a diversified set of stocks contributing to the
portfolio's excess returns over the period. Notably, three key positions -
Marks & Spencer, BAE Systems and Centrica - stood out.

The board has recommended a final dividend of 6.9p per share, which, if
approved in the July AGM, would bring the total dividend to 27.2p,
representing a 3.8% increase from the previous year's total dividend of 26.2p.
While the dividend for the year has increased, the revenue generated by the
portfolio has fallen by 7.9%, largely due to a reduction in special dividend
payments, particularly from the banking sector. With the expected total
dividend of 27.2p, the dividend is uncovered by 3.3p per share, although the
revenue reserves remain healthy, covering 1.17 times the 2024 dividend.

Kepler View

These are good results for Edinburgh Investment Trust (EDIN), with NAV total
returns outperforming the FTSE All-Share Index by 5 percentage points and a
total dividend increase to 27.2p, from 26.2p the year prior, representing a
yield of 3.7%, at the time of writing.

Imran Sattar and Emily Barnard stepped into their lead and deputy portfolio
manager roles in February this year. Both worked closely with their
predecessors for over four years and remain committed to delivering strong
total returns to shareholders. They continue to emphasise a balanced approach,
seeking companies offering both growing dividends and capital growth
potential, preferring not to prioritise one over the other or get stuck
chasing a higher yield. In our view, their focus on balancing stocks offering
above-average earnings potential as well as some latent recovery has
underpinned EDIN's total return approach over time, so we are encouraged to
see this focus continue. While the focus remains the same, the new managers
have got to work and reorganised around 16% of the portfolio in the first
three months of the calendar year. They anticipate a similar level of degree
of change over the rest of 2024.

Amid current valuations, the managers initiated a new position in Rotork, an
electronic and electrical equipment manufacturer, given its exposure to
attractive long-term growth drivers such as oil and gas upstream
electrification, and industrial process automation. Additionally, they also
made a several purchases in larger companies on valuation grounds, including
Rentokil and Autotrader. These changes were funded selling positions in
companies likes WPP, an advertising firm, and Standard Chartered Bank.

In terms of wider changes, there has been a cut to the management fee.
Effective as of 01/04/2024, there will be a charge of 0.45% per annum on the
first £500m of market capitalisation, 0.40% on the next £500m and 0.35% on
the remainder. Based on EDIN's market cap at the year-end, the restructuring
is expected to reduce the pro-forma management fee by approximately 11%,
compared to the old management fee structure.

In our opinion, EDIN continues to offer investors exposure to quality
companies, spanning diverse sectors, and which have strong earnings growth
potential which should feed into rising dividends. Furthermore, we believe
that it's well-positioned to be a core holding for investors seeking a balance
between capital growth, current income and income growth. If the strong run of
performance persists and dividends continue to grow year-on-year, then we see
potential for the discount to narrow, providing an additional boost to
shareholder returns.

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