REG - Majedie Invs.PLC - Half-year Report

Majedie InvestmentsAnnouncement

30/05/2024 07:00

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RNS Number : 3635Q  Majedie Investments PLC  30 May 2024

30 May 2024

MAJEDIE INVESTMENTS PLC

HALF-YEAR FINANCIAL REPORT

 

Majedie Investments PLC ("Majedie" or the "Company") is pleased to present its
Half-Year Financial Report for the six months ended 31 March 2024.

 

The Half-Year Financial Report can be found on the Company's website at
www.majedieinvestments.com (http://www.majedieinvestments.com) or by
contacting the Company Secretary on telephone number 0131 378 0500.

 

Financial Highlights

                               Six months to 31 March 2024  Year to 30 September 2023

                                                                                       Change
 Net asset value per share     270.0p                       241.7p                     +11.7%
 Share price                   249.5p                       196.5p                     +27.0%
 Discount                      7.6%                         18.7%                      -
 Dividend per share            3.9p                         7.2p                       -
 Net asset value total return  13.3%                        14.1%                      -
 Total shareholder return      28.1%                        26.2%                      -
 Total assets                  £165m                        £151m                      +9.3%

 

Net asset value is calculated on a cum income basis and with debt at fair
value. Dividends are paid quarterly at 0.75% of NAV.

 

Highlights:

 

·      +13.3% Net asset value total return for the six months, with all
three constituent parts of the portfolio contributing to growth. Total
shareholder return for the period was 28.1%.

 

·      External Managers (56% of the portfolio) contributed +9.1%, led
by the Helikon Long/Short Equity Fund (European Special Situations) and
Paradigm BioCapital (small and medium sized Biotech).

 

·      Direct Investments (24% of the portfolio) contributed +3.7%, the
strongest returns coming from Westinghouse Air Brake Technologies Corporation
(Industrials) and Alight Inc. (Software) offset by Basic-Fit NV (a European
budget gym operator).

 

·      Special Investments (10% of the portfolio) contributed +1.1%.
Particularly strong performance from Project Bungalow (a co-investment in the
public equity of Shake Shack Inc.) and Project Cauldron (a co-investment in
the public equity of Alkami Technology Inc.) offset by Project Diameter (a
co‑investment in the public equity of Concentrix Corporation).

 

·      The transition to quarterly dividend payments of approximately
0.75% of NAV has led to declarations of 1.9p and 2.0p during this Interim
period, progressing from the payments of 1.8p during the prior period.

 

 

Christopher Getley, Chairman, commented:

 

'Majedie's Liquid Endowment strategy has delivered a good return for
shareholders in the first half of the year, consistent with achieving its
long-term goal of CPI plus 4%. Marylebone Partners have demonstrated the
strength of the model with each of the three constituent parts of the
portfolio adding value during the period.

 

The breadth of ideas that has contributed to this performance is key to the
Board's confidence in the repeatability of this strategy. Returns have been
generated from positions in areas as varied as biotech, software, Chinese and
copper stocks as well as credit opportunities.

 

The Board has noted the reduction in the discount at which Majedie shares
trade from 18.7% to 7.6% and continued evolution of the shareholder base
during the period and is working with Marylebone Partners to build on the
marketing progress that has been achieved. In particular the Board looks
forward to the Majedie Investments PLC Investor Day at the Royal Institution
on Tuesday 11 June 2024.

 

During the period the Board has also appointed a new Auditor in
Edinburgh-based Johnson Carmichael and welcomed Heinrich Merz as a new Board
member. Heinrich's deep experience as a leading practitioner in the absolute
return and alternative investment industry has already made a significant
contribution to the Majedie Board.'

 

Dan Higgins, Partner at Marylebone Partners and Investment Manager of Majedie
commented: 'We are pleased with the performance in the first half of the year,
which is driven by our exposure to external funds, but where all three
elements of our portfolio have contributed to the growth in NAV and strong
total shareholder returns.

 

Despite some potential risks such as a record number of global elections, some
signs of stress in commercial real estate and the geopolitical situation in
the Middle East, the financial backdrop is broadly supportive. However,
inflation is seemingly under control, the global economy is in reasonable
shape and corporate earnings are fairly robust and we can see why markets
could rise further over the course of 2024. We believe that the best way to
mitigate any risks while staying fully invested is to focus on our best ideas,
demand a wide margin of safety and maintain discipline across the portfolio.'

 

 

 

 For further information please contact:
 Majedie Investments PLC                        +44 (0)7880 528774

 William Barlow
 J.P. Morgan Cazenove                           +44 (0)20 7742 4000

 William Simmonds

 Rupert Budge
 TB Cardew (PR Adviser to Majedie Investments)  +44 (0)20 7930 0777

 Tania Wild                                     +44 (0)7425 536903

 Will Baldwin-Charles                           +44 (0)7834 524833

 

About Majedie Investments (https://www.majedieinvestments.com/) PLC:

Majedie Investments PLC is an investment trust whose objective is to deliver
long-term capital growth whilst preserving shareholders' capital and paying a
regular dividend. The performance target is to achieve net annualised total
returns (in GBP) of at least 4 per cent. above the UK CPI, over rolling
five-year periods.

The Majedie Investments PLC portfolio features a combination of hard-to-access
special investments, allocations to funds managed by boutique third-party
managers, and direct investments in public equities.

LEI: 2138007QEY9DYONC2723

About Marylebone Partners (https://www.marylebonepartners.com/) :

Marylebone Partners LLP is an independent investment manager, owned by its
principals. We help families, charities, endowments, trusts and private
investors to protect and grow their wealth in real terms.

Our defining characteristic is an ability to access differentiated fundamental
investments, many of which never come onto the radar screen of other
allocators. We believe this capability will be the key to delivering superior
performance outcomes over the years ahead.

Our partnership was founded in 2013 with the vision of bringing a distinctive
investment approach to clients who sought a relationship based on trust and
transparency. This remains our sole purpose today. We invest our own capital
alongside our clients.

Marylebone Partners LLP is authorised and regulated by the Financial Conduct
Authority.

 

INVESTMENT MANAGER'S REPORT

 

THE PORTFOLIO

Special Investments

We introduced four new Special Investments during the first half of the year
and have made two additional allocations since the end of the quarter,
bringing the weighting to over 13% at the time of writing. We expect the
Special Investments allocation to grow as we identify compelling bottom-up
ideas that meet our stringent criteria. Our recent co-investments follow a
pattern that has been successful in the past. In each case, an identifiable
'issue' has weighed heavily on the share price of a publicly listed company
which an investor in our network believes can be addressed through their
engagement.

 

The following investments were added to the portfolio in the last six months.
Project Cauldron a co-investment in the public equity of Alkami Technology
Inc. a specialist software business, Project Sherpa a co-investment in the
public equity of VF Corporation an established consumer products business,
with a collection of globally recognised brands, Project Diameter a
co-investment in Concentrix Corporation, a market leader in 'customer service
experience' and finally Project Fibre a co-investment in the debt and public
equity of Frontier Communications.

 

External Managers

The External Managers component was broadly unchanged in the last six months
and currently stands at 56% of the total portfolio. Roughly one-half of this
allocation is to managers with an equity-centric profile. Each is a specialist
in extracting alpha from a structurally inefficient sector or region or
operates with a very distinctive style. The position overlap between these
funds - and with our direct investments book - is minimal, and statistical
cross-correlation remains low. This suggests we have achieved risk
diversification without diminishing return potential.

 

We have allocated the other half of the External Managers allocation to five
specialist credit funds, again with differing regional or style biases. These
managers are mindful of an evolving dynamic within the credit markets and have
made some corresponding portfolio adjustments over the past quarter. They
point out that whereas a yield of around 8% on riskier U.S. corporate bonds
might appear attractive, the excess spread on high-yield bonds compared with
Treasuries has narrowed in recent months. In other words, risk appetite
amongst allocators has returned before interest rates have come down.

 

Although the environment remains opportunity-rich, we cannot over-emphasise
the importance of undertaking fundamental credit analysis. According to JP
Morgan, the par-weighted default rate on US high-yield and loans looks set to
rise, and much the same can be said in Europe 1 . Elevated refinancing
activity may have addressed the 2025 needs of many corporations, but certain
troubled borrowers are finding conditions far from straightforward.

 

This explains why our specialist credit managers have anchored their
portfolios in (a) defensive, short-duration and senior-secured paper that
provides attractive carry and (b) event-driven situations with potential for
yield compression, restructuring upside, and/or cash returns. Several of these
managers are reinvesting a portion of the carry earned on long positions into
alpha shorts and hedges, which should cushion performance in the event of a
potential sell-off. For credit managers with the requisite skills and
resources, this remains an attractive environment.

 

 

Direct Investments

As of the end of March, Direct Investments comprised 24% of the portfolio.
Recently, we introduced three new ideas. Two are out of favour European stocks
(Cancom SE and Basic Fit NV), while the third is a US Healthcare Solutions
company (Evolent Health Inc). These purchases were funded by the sale of our
positions in Sage Group PLC, Coats Group PLC and Pernod Ricard SA.

 

We initiated a new position in the Global X Copper Miners ETF (COPX) to
express a positive view on the metal that is underpinned by a projected
imbalance between demand and supply whilst mitigating the risk associated with
exposure to individual mining companies.

 

Outlook

We can see reasons why markets could rise further over the rest of 2024.
Inflation is seemingly under control, the global economy is in reasonable
shape, and corporate earnings are fairly robust. Moreover, financial
conditions are broadly supportive, and allocators are more sanguine about the
economy even as they adjust to a more realistic outlook for interest rates.

 

However, this is no time for complacency. Potential risks on the horizon
include a record number of political elections, signs of stress in Commercial
Real Estate, and the troubling geopolitical situation in the Middle East.

 

Although valuation alone is rarely the trigger for a new bear market, headline
multiples for equity markets are full once again. This leaves some
'long-duration' growth stocks susceptible to a de-rating if inflation proves
stickier than expected.

 

We believe the best way to mitigate these (and other) risks whilst staying
fully invested is to focus on our best ideas, demand a wide margin of safety,
and maintain discipline. For example, when one of our direct investments
appreciates to a valuation that no longer provides sufficient asymmetry, we
sell it and recycle the proceeds into other opportunities. Our external
managers do the same within their portfolios, and moreover we will trim back
the position in any fund that reaches the upper end of its sizing band.

 

We have designed this ongoing process of 'wash, rinse, repeat' to reduce the
likelihood of mean reversion and keep the portfolio fresh and non-consensual.
It depends upon a productive pipeline of new opportunities, which we continue
to replenish by sifting through areas that have been left behind in the narrow
rally of the past 18 months. Most of the recent ideas that meet our criteria
have an equity-centric profile. As we have redeployed capital into them, the
portfolio's beta-adjusted net exposure has consequently risen above 70%.
However, these situations are attractive precisely because they are overlooked
and undervalued. Hence, we do not believe that a market momentum reversal
would have a disproportionate impact on performance.

 

Our willingness to look off the beaten track has a secondary benefit, which is
that an investment in Majedie Investments should be highly complementary to
its shareholders' other allocations. This is illustrated by the observation
that the portfolio has only two material holdings in the 50 largest components
of the MSCI ACWI index, amounting to less than 3% of its NAV. While equities
lie at the heart of our 'liquid endowment' proposition, we are absolute (not
relative) return investors. At Marylebone Partners, we do not fixate on the
composition of index benchmarks that have become increasingly lopsided and
unrepresentative of our mandate.

 

 

 

Portfolio as at 31 March 2024

                                                                   Market Value (£000)   % of Total Assets
 Direct Investments
 Global X Copper Miners ETF                                        5,556                 3.4%
 KBR Inc                                                           3,610                 2.2%
 Weir Group PLC                                                    3,048                 1.8%
 Computacenter plc                                                 3,026                 1.8%
 UnitedHealth Group Inc                                            2,842                 1.7%
 SS&C Technologies Holdings Inc                                    2,833                 1.7%
 Westinghouse Air Brake Technologies Corporation                   2,679                 1.6%
 Alight Inc                                                        2,574                 1.6%
 Heineken NV                                                       2,505                 1.5%
 Evolent Health Inc                                                2,124                 1.3%
 Breedon Group PLC                                                 2,027                 1.2%
 Thermo Fisher Scientific Inc                                      1,723                 1.1%
 Basic-Fit NV                                                      1,689                 1.0%
 Other Direct Investments                                          3,061                 1.9%
                                                                   39,297                23.8%

 External Managers
 Helikon Long/Short Equity Fund ICAV                               10,402                6.3%
 Silver Point Capital Offshore Fund, Ltd                           9,688                 5.9%
 Millstreet Credit Offshore Fund, Ltd                              9,647                 5.9%
 Contrarian Emerging Markets Offshore Fund, Ltd                    9,344                 5.7%
 Paradigm BioCapital Partners Fund Ltd                             8,120                 4.9%
 Praesidium Strategic Software Opportunities Offshore Fund, LP     7,552                 4.6%
 Keel Capital S.A., SICAV-SIF - Longhorn Fund                      7,291                 4.4%
 CastleKnight Offshore Fund Ltd                                    6,842                 4.2%
 CQS Credit Multi Asset Fund                                       6,516                 4.0%
 Perseverance DXF Value Feeder Fund, Ltd.                          6,339                 3.9%
 Eicos Fund S.A. SICAV-RAIF                                        6,288                 3.8%
 Engaged Capital Flagship Fund, Ltd                                3,024                 1.8%
 Other External Managers                                           1,198                 0.7%
                                                                   92,251                56.1%
                                  Underlying                       Market Value (£000)                % of Total Assets
 Special Investments
 Project Fibre                    Frontier Communications          3,239                 2.0%
 Project Uranium                  Cameco Corporation               2,798                 1.7%
 Project Challenger               Metro Bank Snr Non Pref          2,597                 1.6%
 Project Bungalow                 Shake Shack Inc                  1,994                 1.2%
 Project Sherpa                   V.F. Corporation                 1,955                 1.2%
 Project Diameter                 Concentrix Corporation           1,343                 0.8%
 Other Special Investments                                         2,057                 1.2%
                                                                   15,983                9.7%
 Fixed Interest
 United Kingdom Gilt 2.75% 09/07/2024                              7,927                 4.8%
 United Kingdom Gilt 1% 22/04/2024                                 4,441                 2.7%
                                                                   12,368                7.5%
 Other Investments                                                 92                    0.1%
 Total Investments                                                 159,991               97.2%
 Cash and cash equivalents                                         4,333                 2.6%
 Trade and other receivables                                       287                   0.2%
 Total Assets                                                      164,611               100.0%

 

 

Dan Higgins

Marylebone Partners LLP

29 May 2024

 

 

FURTHER INFORMATION

A copy of the Half-Year Financial Report will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) , in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.

 

END

Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.

 

LEI: 2138007QEY9DYONC2723

 1  Current levels of 2.5%and 3.2% are broadly in line with their respective
25-year averages.

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