REG - Utilico Emerging Mkt - Publication of monthly factsheet

Utilico Emerging Markets TrustAnnouncement

13/10/2023 11:30

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RNS Number : 0904Q  Utilico Emerging Markets Trust PLC  13 October 2023

13 October 2023

UTILICO EMERGING MARKETS TRUST PLC

(LEI Number: 2138005TJMCWR2394O39)

 

Publication of monthly factsheet

 

The latest monthly factsheet for Utilico Emerging Markets Trust plc ("UEM" or
the "Company") will shortly be available through the Company's website at:

https://www.uemtrust.co.uk/investor-relations/factsheet-archive
(https://www.uemtrust.co.uk/investor-relations/factsheet-archive)

 

Monthly commentary

 

PERFORMANCE

UEM's NAV total return increased by 2.3% in September, ahead of the MSCI EM
total return Index ("MSCI") which was up 1.0% in Sterling terms in the month.
In the six months to 30 September 2023, UEM's NAV total return has increased
by 6.0%, significantly outperforming the MSCI which was down 0.9% in Sterling
terms over the period.

 

Emerging markets equities were mostly weaker in September, as the US Federal
Reserve's "higher for longer" stance on interest rates impacted investment
flows worldwide. The surprising resilience of the US economy in the face of
rapid rate rises has led the Federal Reserve to indicate that policy will be
biased toward more restrictive policy, with fewer rate cuts now expected in
2024. This has seen the yield on 10-year US Treasury bonds reach the highest
levels since before the Financial Crisis and the DXY Dollar Index continue to
appreciate. The S&P 500 Index fell by 4.9% in September.

 

Typically, the broader impact of restrictive Federal Reserve policy is seen in
reduced supply of money in circulation as well as withdrawal of foreign
capital from what are perceived to be higher-risk jurisdictions such as EM. In
China, the Hang Seng Index declined by 3.1% and the Shanghai Composite fell by
0.3%, though market movements here were also affected by whipsawing prices in
some listed Chinese real estate companies. The slowdown in the property market
has impacted real estate developers' ability to make interest payments on debt
liabilities, with both Country Garden and China Evergrande undergoing complex
debt restructuring programs. UEM has no direct investments in Chinese property
companies. More positively, China's factory activity expanded for the first
time in six months in September, with the PMI edging into positive territory
at 50.2 from 49.7 in the previous month.

 

Weakness was also seen in Vietnam's Ho Chi Minh Index, which fell 5.7%,
Mexico's Bolsa, down 4.0%, and Chile's IPSA, down 2.9% over the month. Bucking
the trend was the Bucharest BET, up 8.2%, bolstered by the recent IPO of
Hidroelectrica, now one of the largest listed companies on the local market.
India's SENSEX Index was also notable in delivering a positive 1.5% return in
September, while Brazil's Bovespa Index managed to eke out 0.7% return
following a second consecutive interest rate cut of 50bps to 12.75%.

 

In the currency markets, the US Dollar continued to strengthen against most
currencies, while Sterling weakened materially on deteriorating growth
expectations for the UK economy. Sterling declined 3.7% against the US Dollar
and 1.3% versus the Euro, and eased 2.6% against the Brazilian Real, 3.5%
versus the Chinese Renminbi, 3.4% against the Indian Rupee and 3.8% versus the
Philippine Peso.

 

PORTFOLIO

There was one change to the top thirty holdings, with Cia de Saneamento Basico
do Estado de Sao Paulo ("Sabesp") replacing Grupo Traxion on investment and
relative performance. Sabesp is the largest listed water utility in Brazil,
with a USD 8.5bn market cap. Its concessions cover 375 municipalities in Sao
Paulo state, providing water and sewage service to 10.2m customers. Sabesp is
50.3% owned by the Sao Paulo State government that has initiated a
privatisation process, strengthening the shares which appreciated by 5.4% in
September.

 

Performance was evenly split between risers and fallers in the top thirty over
the month. A notable positive price increase was seen at Kunlun Energy, up
17.6%, following interim results which saw volume growth of 9.0% and resilient
Dollar margins, enabling EBITDA growth of 7.4% and bolstering its significant
net cash position. Trading at just 3x EV/EBITDA, Kunlun demonstrates
attractive valuations that are currently available in EM. In Romania, TTS
Transport Trade Services posted solid 1H23 results with revenues up 42% driven
by increases in volume of agricultural product, with its share price
appreciating by 11.2%. Strong share price performances were also seen in UEM's
digital infrastructure investment KINX up 10.7%, Powergrid India's share price
was up 8.6% (adjusted for a stock split), and Orizon firmed by 5.0% in the
month.

 

Weaker share price performances were seen at Vamos, down 16.5% following
lacklustre Q2 results released in August, resulting in investors questioning
visibility on 3Q23 rental contracts and yields Vamos will achieve. UEM's
Chinese investments also softened, with China Gas' share price declining 7.6%
and Datang Renewable easing 4.1%. Powergrid InvIT and Aguas Andinas' share
prices decreased by 7.1% and 6.3% respectively. Notwithstanding continued
encouraging progress towards commercialisation of its EV charging technology,
the carrying value of Petalite was reduced by 12.9% to reflect softening of
share prices at listed peers.

 

Portfolio purchases amounted to £7.5m and realisations totalled £6.8m in the
month under review.

 

DEBT

UEM's debt reduced to £11.8m from £13.5m during the month, drawn as GBP 7.5m
and EUR 5.0m.

 

OTHER

UEM's share price ended September at 222.00p, up 0.9% over the month. The
discount to NAV disappointingly widened to 15.1% from 13.9%. UEM bought back
1.2m shares at an average price of 221.13p in the month. This takes the total
shares bought back in the six months to 30 September 2023 to 4.4m, equivalent
to 2.1% of the share capital as at 31 March 2023.

 

The first quarterly interim dividend of 2.15p per ordinary share in respect of
the year ending 31 March 2024, was paid on 22 September to shareholders on the
register on 1 September 2023.

 

 

Name of contact and telephone number for enquiries:

ICM Investment Management
Limited
+44(0)1372 271486

Charles Jillings / Alastair Moreton

 

Montfort Communications

Gay Collins, Pippa
Bailey
+44(0)20 3770 7913

utilico@montfort.london

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