Deutsche Beteiligungs – reduced earnings guidance for FY18
Lower market valuation multiples have materially affected H118 net income
Deutsche Beteiligungs (DBAG) has announced that it expects to report net income for the year to 30 September 2018 that is moderately (10% to 20%) lower than the €43.0m average of the last five financial years (the reference for previous guidance), equating to net income of between €34m and €39m for FY18. Previous guidance, first given at the time of the FY17 results and confirmed with Q118 results, was for a significant (more than 20%) increase in net income. The revised forecast is based on DBAG’s c €20m expected net income for H118, which reflects lower market valuation multiples being applied in the valuation of portfolio companies at 31 March 2018. DBAG’s guidance assumes constant market valuation multiples and so is subject to upward or downward revisions following significant market moves.
DBAG’s new guidance for €34m to €39m net income in FY18 compares to management’s previous guidance for more than €51m net income, representing a material reduction, largely reflecting the market decline in March 2018, which resulted in lower market valuation multiples being used in the valuation of portfolio companies. DBAG has noted that, within the reduced guidance, there is also a smaller negative effect from individual portfolio companies not yet achieving the planned strategic and operational improvements in the current financial year.
DBAG had already announced that Q218 net valuation gains were likely to be in the single-digit million euro range compared with the €35.4m net valuation gain reported in Q217, which reflected a significant increase in the market valuation multiples applied in the valuation of portfolio companies at 31 March 2017.
At the current share price of €36.10, DBAG’s shares are trading at a 19% premium to its last reported €30.34 NAV per share as at 31 December 2017. DBAG’s published NAV does not reflect the market value of its fund services business and we see the current c €85m premium as the valuation being attributed by the market to this business. Our previous analysis (included in our August 2017 research note on DBAG) suggested that the market was attributing a valuation of up to c €160m to DBAG’s fund services business, and we do not consider that the earnings outlook for the fund services business has altered materially since then.
DBAG is scheduled to report its H118 results in full, covering the six months to 31 March 2018, on 8 May 2018.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Edison clients win at the Investment Week Investment Company of the Year Awards
Special recognition for Foreign & Colonial IT on 150th anniversary
Investment company research clients of Edison picked up several of the honours at the Investment Week Investment Company of the Year Awards last night in London.
Foreign & Colonial Investment Trust (FRCL), the world’s first collective investment fund, which celebrates its 150th anniversary in early 2018, received a Special Recognition award. BMO Global Asset Management, which manages FRCL, also won Group of the Year.
Sector awards went to four trusts managed by Janus Henderson Investors, including Henderson International Income Trust in the Overseas Income category, and TR European Growth in Overseas Smaller Companies.
Templeton Emerging Markets was named the best emerging markets trust, while Miton Global Opportunities (MIGO) won in the Flexible Investment sector. MIGO stablemate The Diverse Income Trust picked up the award for UK Income.
In the Private Equity sector, the award went to Standard Life Private Equity, while Fidelity China Special Situations was named the best single-country fund.
The awards were judged on a combination of three-year NAV performance to 30 June 2017, and a qualitative questionnaire.
Click on the links above to see the latest Edison research on each of the winners.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
HBM Healthcare Investments top holding AAA receives takeover bid from Novartis
Tender offer for 100% of radiotherapeutic oncology specialist Advanced Accelerator Applications at 25% premium to 30 September valuation
Switzerland-based global healthcare giant Novartis has announced a takeover bid for Advanced Accelerator Applications (AAA), the largest holding of specialist investment fund HBM Healthcare Investments (HBMN). The deal values AAA, whose Lutathera treatment for neuroendocrine tumours was granted EU approval in September 2017, at US$3.9bn.
HBMN, which holds both listed and unlisted investments in its global portfolio of healthcare companies and funds, first invested in AAA in February 2014 when it was still a private company. The fund is AAA’s second-largest shareholder, with 2.4m American Depositary Shares (ADS) (down from a peak of 3.5m) representing 7.0% of the company. At HBMN’s 30 September 2017 half-year end, the shares were valued at CHF157.1m; the US$41 per ordinary share/$82 per ADS tender price (at current exchange rates) increases the value of the stake to CHF196.5m, a 25% uplift.
AAA has signed a memorandum of understanding with Novartis, which will proceed with the cash tender offer subject to AAA’s directors recommending the deal to shareholders, and a satisfactory works council consultation.
If the tender is successful, the proceeds of the takeover will increase HBMN’s NAV per share by 2.5% (based on the last reported 15 October NAV). The tender price is more than 600% higher than the average US$11.66 HBMN paid to acquire the shares.
Read our latest research on HBMN here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Witan Investment Trust announces the appointment of two European equity managers
Appointment of CRUX Asset Management and S. W. Mitchell Capital
Witan Investment Trust (WTAN) has announced the appointment of two European equity managers: CRUX Asset Management and S. W. Mitchell Capital. CRUX is a specialist asset management company with an emphasis on European equities and S. W. Mitchell is an investment boutique focused exclusively on European equities. Each manager has been allocated c 5% of WTAN’s assets (c £100m), funded by the liquidation of the pan-European portfolio that had been managed by Marathon Asset Management, plus an additional £24m from WTAN’s cash resources. Both portfolios will be benchmarked against the FTSE Europe ex-UK index. Following the transition, WTAN will have 10 external managers, each running regional, high-conviction mandates. WTAN’s executive team will continue to manage up to 10% of the trust’s assets in collective funds.
The changes to the multi-manager line-up allow WTAN to increase its exposure to actively managed continental European assets following the improvements in the economic and political environment during 2017. Both CRUX Asset Management and S. W. Mitchell Capital run concentrated portfolios with high active shares (a measure of how far a portfolio deviates from a benchmark, with 0% representing full replication of the index and 100% representing no commonality between the portfolio and the benchmark). This will increase WTAN’s European active share from c 70% to 86% and its overall active share from c 74% (June 2017) to more than 76%.
To read our latest research note on WTAN, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Qatar Investment Fund proposes broader investment remit and change of name
Proposed greater flexibility to invest across the Gulf Cooperation Council (GCC) countries rather than largely in Qatar
Qatar Investment Fund (QIF) has announced a proposed change in its investment policy to remove the current 15% limit on investment in GCC countries outside of Qatar. It has also put forward other proposals including: a tender offer for up to 10% of issued share capital; cancellation of the 2018 continuation vote, to be replaced by a 2021 vote and every three years thereafter; a tender offer in 2020 for up to 100% of issued share capital, subject to shareholder approval; and changing the company name to Gulf Investment Fund. All these proposals, with the exception of the 2020 tender offer, will be put forward at an upcoming extraordinary general meeting (EGM).
Within the broader remit, there is a proposal to invest in companies listed outside the GCC, which derive a significant percentage of their revenues from GCC countries. Existing investment restrictions will continue: no single investment in an S&P GCC Composite Index constituent company may exceed the greater of 15% of QIF’s NAV or 125% of the company’s index capitalisation; no single investment in a non-S&P GCC Composite company will exceed 15% of QIF’s NAV; and no holding may exceed 5% of the shares outstanding in any one company.
The proposed changes to the investment policy are intended to reduce the risk from having a principally single-country focus, while accessing the growth potential of other GCC countries. Investment performance will be referenced against the S&P GCC Composite index, although QIF will not adopt a formal benchmark. Qatar Insurance Company will continue to be the investment adviser and Jubin Jose will retain the role of portfolio manager; the annual investment management fee will be unchanged at 0.90% of NAV.
To read our latest research note on QIF, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Finsbury Growth & Income Trust announces new holding in Manchester United
First new purchase since 2015
Finsbury Growth & Income Trust (FGT) has announced that manager Nick Train has initiated a holding in Manchester United. He is well renowned for his low-turnover investment approach and this is the first new position in FGT’s portfolio since the purchase of Rémy Cointreau in 2015. Manchester United listed on the New York Stock Exchange in August 2012 at a price of $14 per share. Its share price subsequently rose above $19 and is currently trading at c $17. The football club has a market cap of $2.7bn and currently offers a dividend yield of 1.07%. Train believes that the value of Manchester United’s global franchise is not reflected in its current share price. He cites the recent announcement of the sale of NBA basketball team Houston Rockets for $2.2bn, suggesting that Manchester United could be worth in excess of $5bn.
FGT is currently trading at a 0.3% premium to cum-income NAV. The trust has a distinguished investment performance track record; it has beaten its FTSE All-Share benchmark over, one, three, five and 10 years. Comparing FGT to the 12 largest peers in the AIC UK Equity Income sector, its NAV total return ranks second over one year (5.3pp ahead of the sector weighted average) and first over three, five and 10 years (24.9pp, 45.7pp and 106.1pp ahead of the sector weighted averages respectively).
To read our latest research note on FGT, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Witan Pacific Investment Trust announces changes to its multi-manager line-up and allocations
Number of managers increased from three to four
Witan Pacific Investment Trust (WPC) has announced it intends to change the line-up of its external multi-managers. It will retain Aberdeen Standard Investments and Matthews International Capital Management, but Gavekal will be replaced by Dalton Investments and Robeco Institutional Asset Management. The new allocations are as follows:
Aberdeen Standard Investments 25% (previously 42%)
Dalton Investments 10%
Matthews International 40% (previously 47%)
Robecco Institutional 25%
The proposed changes are intended to increase potential outperformance of the benchmark MSCI AC Asia Pacific index (in sterling terms). Each manager has mandates covering the whole Asia Pacific region, but the new line-up is expected to increase exposure to smaller cap and lesser-known companies, which offer potential for higher growth.
Robeco is owned by Japan-listed ORIX Corporation. Its Asian equity team has been in place since 1990 and is headed-up by Arnout van Rijn; it has c $7bn assets under management. Its investment strategy focuses on finding undervalued companies, while taking into account business and price momentum. Its portfolio is actively managed on a bottom-up basis and has a high active share (measure of how a portfolio differs from its underlying benchmark).
Dalton Investments is an independent investment boutique based in California. It was established in 1999 by James B Rosenwald and has c $3.3bn assets under management. It has a fundamental value investment approach with four key elements: focus on strong businesses; that have a significant margin of safety; a strong record of capital allocation; and where managements’ interests are aligned with shareholders’. Dalton tends to invest in smaller, under-researched companies, offering the potential for significant share price upside.
The multi-manager changes are the result of the board’s continuing aim to increase the potential for WPC to outperform its benchmark, with growth in both capital and income.
To read our latest research note on WPC, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
JPMorgan Global Growth & Income raises annual dividend by 24%
Payout goes up under 4% distribution policy after year of strong performance
JPMorgan Global Growth & Income (JPGI) has announced it intends to pay dividends totalling 12.16p per share for the financial year beginning 1 July 2017. This will be the first full year of operation for the trust’s new distribution policy, under which it aims to pay out a sum equal to at least 4.0% of the year-end NAV. The proposed dividend – 4.01% of the 30 June 2017 NAV – will be paid in four equal instalments, in October, January, April and July.
The trust’s investment strategy targets capital appreciation, but the new policy has been put in place in recognition of investor appetite not just for receiving some of their return as income, but also having some certainty over the level of payout. As such the dividend may not be fully covered by portfolio income, but may be partly funded out of capital returns or the trust’s substantial revenue reserve.
JPGI’s investment process focuses on finding stocks globally that are undervalued relative to their growth prospects. While the popularity of expensively valued defensive growth stocks had weighed on relative returns in recent years, the past 12 months have been a much better period for manager Jeroen Huysinga, with NAV and share price total returns of 32.2% and 51.1% respectively for the year ended 30 June 2017. The NAV capital return for the year was 25.6%, and the proposed dividend is 24.1% higher than the payout in FY17.
During FY17, JPGI paid out a total of 9.8p per share. This was equal to 4.0% of the 30 June 2016 NAV, although 3.2p of the total was effectively a final dividend in respect of FY16.
Distribution policies that target a set percentage of NAV have gained popularity in recent years, and are employed by investment companies including European Assets Trust, HBM Healthcare Investments, BB Biotech and recent launch BB Healthcare Trust, in addition to JPGI. Investors should be aware that under such a policy, dividends will fluctuate from one year to the next and are likely to fall in years when the NAV return is negative.
Read our latest research on JPGI here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Altamir – Part-sale of Altran shares
Altamir has sold 50% of its largest holding, Altran, realising an estimated c 13% uplift to its portfolio valuation
Apax Partners and Altamir (LTA) have sold 14.8m shares in Altran Technologies, representing 50% of their combined 16.8% holding prior to the sale. In addition to the 8.4% of Altran’s share capital sold by Apax Partners and Altamir, the founding shareholders of Altran sold part of their shareholding, with a total 19.8m shares being sold, equating to 11.2% of Altran’s share capital. The shares were sold in a private placement to institutional investors at €15.0 per share, a 6.7% discount to the closing price of Altran’s shares on 21 June 2017, generating proceeds of €297m.
Altran was Altamir’s largest holding, accounting for 12.1% of its portfolio fair value at end-December 2016. Altamir’s investment in Altran was valued at €105.9m at end-December 2016 when Altran’s share price stood at €13.88, suggesting that Altrafin Participations (through which Apax Partners and Altamir hold their investment in Altran) had c €160m of debt financing. The Altran sale price of €15.0 per share implies a value for Altamir’s holding of c €120m, net of attributable debt, representing a c 13% uplift. Net of carried interest provisions and working capital, Altamir’s NAV was €790m at end-December 2016 and the implied c €14m valuation uplift would add c 1.8% to this NAV.
Assuming 50% of Altrafin’s debt financing will be repaid, Altamir’s share of the Altran sale proceeds will be c €60m, which will make a significant addition to its financial resources. At end-December 2016, Altamir had €67m net cash and a €39m undrawn credit facility, giving financial resources of €106m versus total outstanding capital commitments of €457m.
Read Edison’s most recent research report on Altamir here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Deutsche Beteiligungs – First MBO investment in Switzerland
Third investment by DBAG Fund VII within six months of the start of its investment period
Deutsche Beteiligungs (DBAG) has announced that it will invest up to €14m for a 22% interest in duagon, a Switzerland-based provider of network components for data communication in railway vehicles. The deal represents DBAG’s first management buyout (MBO) in Switzerland and the third MBO investment by DBAG Fund VII within six months of the start of its investment period. The €1bn DBAG Fund VII will be 20% invested following the transaction, which is expected to complete in July 2017.
The duagon MBO follows two €15m MBO investments that DBAG has already announced in 2017 – the acquisition of a radiology group in March 2017 and two parallel MBOs to form a convenience foods group in April 2017 – continuing the strong pace of new investment activity achieved over the previous two financial years. In addition to three investments agreed in FY16, which completed after the year-end, new investment in FY17 (year to 30 September 2017) has reached c €77m, which compares to an expected average run-rate of €60m pa. While duagon is DBAG’s first MBO transaction in Switzerland, it has already established a presence in Switzerland through its February 2016 expansion capital investment in mageba.
Founded in 1995 and based in Dietikon, Switzerland, duagon is an independent supplier of data communication network components, which are used by the majority of train manufacturers and systems suppliers. duagon’s products enable communication between individual sub-systems such as doors, brakes, air-conditioning units and the central processor via a train communication network (TCN). The components developed and produced by duagon are equipped with its proprietary software, which standardises individual data streams. This enables the operating status of railway vehicle systems to be monitored centrally by the train crew. duagon expects to generate revenues of more than CHF20m in 2017.
DBAG’s investment will support duagon’s international expansion and broader company development as it progresses along the path to becoming the independent market leader in communication solutions for on-board systems. DBAG sees duagon’s lasting customer relationships, broad technological expertise and strong competitive position in its niche market as an ideal platform for exceptional revenue and earnings growth.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
UK Commercial Property Trust acquires Sheffield office for £20m
Second purchase so far in FY17 at 5% yield
UK Commercial Property Trust (UKCM), a £1.2bn property investment company managed by Standard Life Investments, has acquired a 61,638 sq ft office building at Cutler’s Gate, Sheffield, from Ediston Property Investment Company (EPIC).
UKCM paid £20.2m for the building, which is let to Capita Business Services, reflecting a net initial yield of 5%. EPIC had purchased the offices in 2014 and had undertaken asset management initiatives including extending the lease term from 11 to 25 years. The building has 22 years to lease expiry and currently generates rent of £1.08m per annum, with annual index-linked rent increases.
Fund manager Will Fulton said that the acquisition meets UKCM’s current preference for long-term, secure and growing rents, while at the same time further enhancing the company’s dividend cover.
In its annual results for the year to 31 December 2016, published on 20 April 2017, UKCM reported that it had £75m of uncommitted cash that was available to invest during FY17, as well as access to a £50m revolving credit facility. The purchase of the Sheffield office building, together with another acquisition in February of a distribution warehouse in Burton upon Trent for £22.2m, means that UKCM has so far invested £42.4m in new properties this year, with a blended initial yield of 5.4%.
Read our initiation note on UKCM here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Polar Capital Global Healthcare investors back new strategy
£200m minimum target looks secure after tender offer
Investors in the c £250m Polar Capital Global Healthcare Growth & Income Trust (PCGH) have strongly backed a proposed continuation and strategy change at a general meeting held on 1 June. At the same time, holders of c 22% of the shares (worth c £54-55m based on the latest NAV and closing price) have chosen to exit via a tender offer for up to 100% of shares at close to NAV.
Holders of more than half of the shares voted on the proposals to extend the life of the trust, adopt a new investment strategy and issue shares to new and existing shareholders, with c 94% voting in favour. The relatively low take-up of the tender offer means PCGH is within reach of its minimum target of £200m of net assets following the tender offer and new share issue, with pro forma net assets of c £196m based on the latest NAV.
The investment trust, managed by Dr Daniel Mahony and Gareth Powell at Polar Capital, was launched in 2010 with a fixed life of seven years. However, after consulting with shareholders, the board and management felt there was still investor appetite for the healthcare sector, albeit with a different focus from the navigation of patent cliffs and resumption of research and development that had informed PCGH’s original investment approach. Detailed proposals and a prospectus were published in May setting out a new, growth-focused strategy, again with a seven-year life, based on benefiting from large-cap consolidation and small-cap technological innovation within the global healthcare sector.
The proposed change in strategy was to be accompanied by a tender offer for up to 100% of shares, at a net asset value taking into account the cost of reconstruction (c 0.4%), and an issue of new ordinary and zero-dividend preference (ZDP) shares. For the proposals to be implemented, the trust must have at least £200m of assets following the tender offer and the new share issue (excluding ZDPs). The tender price will be announced on or around 16 June, the day after the new share offer closes.
Read our initiation on PCGH here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Witan Investment Trust announces changes to its global equity managers
Number of global managers reduced from five to three
Witan Investment Trust (WTAN) has announced a consolidation of its global managers from five to three. Existing managers Lansdowne Partners, Pzena Investment Management and Veritas Asset Management will each manage c 14% of WTAN’s assets (as at mid-May 2017 versus between 10% and 13% at end-April 2017). MFS Investment Management and Tweedy, Browne Company managed 5% and 3% respectively; their accounts will be closed. MFS was appointed in September 2004, when WTAN adopted its multi-manager approach and Tweedy, Browne in December 2013. WTAN’s CEO Andrew Bell says the change is intended to increase the trust’s performance potential. As a result, WTAN’s active share (a measure of how its portfolio differs from the benchmark) will increase from 70% at end-FY16 to 74%.
WTAN is a self-managed global investment trust that adopts a multi-manager investment approach, with the aim of reducing the performance volatility that can arise from dependence on a sole manager. Following the changes to its global managers, WTAN will have nine external managers who have high-conviction investment processes in both growth and value strategies, focusing on long-term fundamentals rather than short-term momentum. Global managers were allocated c 40% of total assets as at end-FY16; they are not constrained by regional allocations. The balance of the fund is allocated to regional managers and up to 10% is invested in collective funds selected by WTAN’s executive team.
To read our latest research note on WTAN, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
HBM Healthcare Investments benefits from takeover of True North Therapeutics
Blood disorder specialist Bioverativ to pay up to $825m including milestones
HBM Healthcare Investments (HBMN), a Swiss-listed public/private equity healthcare investment company, is set to benefit from the acquisition of privately held True North Therapeutics by NASDAQ-listed Bioverativ for up to US$825m (including contingent payments).
HBMN invested US$10m October 2016 to take a 3.1% stake in San Francisco-based True North Therapeutics, a clinical-stage biopharmaceutical company specialising in rare autoimmune disorders, particularly of the blood. Its holding was valued at CHF10.2m (US$10.0m) in the latest HBMN quarterly report (31 December 2016), implying a fair value of $322.6m at that date. The investment was relatively small in the context of the overall HBMN portfolio, accounting for 6.8% of direct private equity investments and 1.1% of total net assets (CHF924.8m) at 31 December 2016.
Bioverativ is a US$5.7bn independent company, formed as a spinout of biotech giant Biogen’s haemophilia business; it is also developing treatments for blood disorders such as sickle cell disease. It has agreed to acquire all the outstanding shares in True North Therapeutics for US$400m plus assumed cash. This should result in a payment of c $12.4m to HBMN, a 24.0% uplift on the 31 December carrying value of the True North stake and on the original investment. In addition, True North investors may receive up to US$425m in additional payments, contingent on development, regulatory and sales milestones being reached. This could result in further payments to HBMN of up to c $13.2m, giving a total return on the investment of up to c 156%.
HBMN reports its full-year results to 31 March 2017 in early June. It has delivered a total share price return of 17.5% and has pre-announced an increase in NAV of 15.2% for the year, and will increase its dividend (mainly funded out of capital) from CHF5.50 to CHF5.80.
Read the latest Edison research on HBM Healthcare Investments here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Altamir – Merger of top 10 portfolio holding Melita and Vodafone Malta
Combination will create a new fully integrated provider of mobile, fixed line, broadband and TV services
Altamir (LTA) has announced the merger of Maltese telecoms operator Melita, in which it holds a 28.9% stake through the Apax France VIII fund, with Vodafone Malta to create a fully integrated communications company, which will operate under the Vodafone brand, distributing a wide range of services including Vodafone’s global portfolio of products. Announced in December 2015, the acquisition of Melita by Apax France VIII fund and Fortino Capital was completed in early 2016. At end-2016, Melita had been held in Altamir’s portfolio for less than one year and so was valued at its residual investment cost of €33.9m, representing 3.9% of portfolio fair value. At completion, Apax France VIII fund and Fortino Capital will own 51% of the combined company and Vodafone will own the remaining 49%.
The transaction values Vodafone Malta at an enterprise value of €208m, equating to 6.8x 2016 EV/EBITDA and 15.1x 2016 EV/OpFCF* , and values Melita at an enterprise value of €298m, equating to 8.9x 2016 EV/EBITDA and 15.3x 2016 EV/OpFCF*. At completion, the combined company’s net debt is expected to be c €345m, with Vodafone receiving an estimated cash payment of €120m and Melita’s shareholders receiving an estimated cash payment of €33m.
The rationale for the transaction is that the combined company will be in a stronger position to compete with the fully integrated incumbent GO, and is expected to generate cost synergies through the rationalisation of activities and greater network investment efficiency. Apax Partners MidMarket and Fortino Capital intend to appoint the current CEO of Melita, Harald Rösch, as CEO of the combined company and Vodafone intends to appoint the current CFO of Vodafone Malta, Caroline Farrugia, as CFO of the combined company.
In 2016, Melita outperformed its budget slightly, delivering 8% EBITDA growth with revenues rising by 5% to €64.8m, while the company focused on deploying new modems and decoders, and modernising its mobile (3G to 4G) and fixed-line networks. Harald Rösch, who has extensive experience in the telecommunications industry, was appointed as chairman & CEO of Melita in April 2016 and implemented several new measures, in particular to improve customer care.
Read Edison’s most recent research report on Altamir here.
Note: *OpFCF = Operating free cash flow
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Oakley Capital Investments – acquisition of Schülerhilfe from Deutsche Beteiligungs
Third new investment for Oakley Capital Private Equity Fund III within three weeks
Oakley Capital Investments (OCL) has announced a new investment in private tutoring services provider Schülerhilfe via Oakley Capital Private Equity Fund III, which has agreed to acquire the business from DBAG Fund VI, managed by Deutsche Beteiligungs (DBAG). The transaction fits Oakley Capital’s model of partnering with entrepreneurs, with Schülerhilfe CEO Dieter Werkhausen investing in the deal alongside Fund III. OCL’s share of the equity investment is expected to be around €42m, dependent on the final capital structure at completion, with the transaction being partly funded by a debt facility from Alcentra. The investment in Schülerhilfe follows Oakley Capital’s acquisitions of intellectual property and technology services provider TechInsights, announced earlier this week, and web-server management software platform Plesk, announced two weeks ago.
Established in 1974 and headquartered in Gelsenkirchen, Germany, Schülerhilfe is the leading provider of private tutoring to primary and secondary school students in Germany and Austria, providing small-group tutoring through a network of more than 1,000 branches to over 125,000 students. The business generated revenues of €63.3m and EBITDA of €16.6m in the year to 31 December 2016. Oakley Capital’s attraction to this business stems from the growing non-cyclical demand from parents for tutoring services, and this deal builds on its experience in the education sector through its investments in Educas.
TechInsights
On 15 May 2017, OCL announced a new investment of c £18.2m in technology services provider TechInsights through its interest in Oakley Capital Private Equity Fund III, which expects to invest US$49.9m to acquire a majority stake in the business. Henry Elkington, CEO of AXIO (TechInsights’ current parent company), is investing alongside Oakley Capital and will become chairman of TechInsights at completion, bringing extensive industry experience.
TechInsights is a global leader in the intellectual property and technology services market, with expertise in semiconductor reverse engineering, used to prove patent infringement and understand the technology behind everyday consumer electronics. Its customers include the top 10 semiconductor companies globally. Following a merger with its main competitor (ChipWorks) in June 2016, TechInsights generated pro-forma revenues of c US$45m and EBITDA of US$12.6m in 2016. Oakley Capital aims to leverage the company’s extensive proprietary database to accelerate the growth of its subscription business, while maintaining its leading position in project-based patent licensing work.
Plesk
On 2 May 2017, OCL announced a new investment of c £10.0m in web-server management software platform Plesk through Oakley Capital Private Equity Fund III, which is investing US$27.4m to take a 51% controlling interest in the business, at an enterprise value of US$105m. Partnering with the existing management team, Oakley Capital is acquiring the assets and operations of Plesk as a carve-out from US technology group Parallels. The transaction represents a primary, proprietary deal in one of Oakley’s core sectors, originated though its long-standing relationships within the web-hosting industry.
Plesk is one of the most widely used control panels and software platforms, providing tools to secure and automate server and website administration, including the management of domain names, email accounts, web applications, programming languages, databases and infrastructure tasks. Plesk operates on more than 350,000 servers globally, supporting the operations of over 10m websites and 18m email accounts. The business generated revenues of US$28m and EBITDA of c US$14m in the year to 31 December 2016. Growth is expected to be driven by a number of clearly identified initiatives, made possible by the separation of the business from Parallels Group.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Deutsche Beteiligungs – sale of Schülerhilfe to Oakley Capital
Strategically important first divestment by DBAG Fund VI
Deutsche Beteiligungs (DBAG) has announced the sale of private tutoring services provider Schülerhilfe to Oakley Capital Private Equity. The investment in Schülerhilfe was DBAG Fund VI’s first transaction in October 2013 and its sale marks the fund’s first divestment after less than four years. This is a strategically important transaction for DBAG as it represents the first realisation of an investment outside of the team’s traditional core sectors of expertise, confirming DBAG’s ability to complete deals successfully across a broader range of industries. The transaction price has not been disclosed but DBAG management has confirmed that the sale was at a premium to Schülerhilfe’s portfolio valuation and will contribute around €9m to DBAG’s net income in the third quarter of FY17.
The sale of Schülerhilfe follows DBAG’s divestment of Formel D, announced last week, continuing a very active period for both new investments and realisations. The sale to 3i of the automotive and component manufacturing service provider after four years in the portfolio represented the third divestment by DBAG Fund V within three months. The transaction price was not disclosed but DBAG management confirmed that the sale was at a premium to Formel D’s portfolio valuation and will contribute around €10m to DBAG’s net income in the third quarter of FY17.
The income contribution from the divestments of Schülerhilfe and Formel D was not included in DBAG’s upgraded earnings guidance issued on 9 May 2017, where management indicated that net income of more than €56m was expected for the year to 30 September 2017, significantly exceeding the €46.3m comparable income for the prior year as well as previous guidance for a moderate decline in net income. Both deals are subject to regulatory approvals and are expected to be completed within three months.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Deutsche Beteiligungs – significant uplift to FY17 earnings guidance
FY17 net income projected to exceed comparable FY16 net income by more than 20%
Deutsche Beteiligungs (DBAG) has announced that it expects to report net income for the year to 30 September 2017 that significantly exceeds the €46.3m comparable income for the prior year, equating to net income of more than €56m for FY17. Previous guidance, first given at the time of the FY16 results and confirmed with Q117 results, was for a moderate 10% to 20% decline in net income. The revised forecast is based on c €44m preliminary net income for H117, which follows DBAG’s announcement today of the divestment of its stake in Romaco Group.
DBAG’s new guidance for €56m FY17 net income compares to the €37m to €42m range implied by management’s previous guidance, representing a significant uplift, largely reflecting a strong performance in H117, which saw the divestments of Grohmann Engineering and FDG Group, and will also reflect the divestment of Romaco Group, announced today.
The pre-announced c €44m preliminary net income for H117 implies c €30m net income in Q217, following €14.1m reported for Q117, which included a €7.3m income contribution from DBAG’s divestment of Grohmann Engineering. Although DBAG has announced the divestments of FDG Group and Romaco, which will be reflected in Q217 results, the c €30m implied net income suggests a significant contribution from other investment activity during the quarter, in addition to the positive effect from rising market valuation multiples.
DBAG today announced the divestment of Romaco for more than 2.0x cost, generating a c €6m income contribution in Q217. While the divestment of FDG Group was announced in March 2017, the sale price was already reflected in its end-December 2016 valuation.
DBAG is scheduled to report its H117 results in full, covering the six months to 31 March 2017, on 9 May 2017.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Witan Investment Trust announces the appointment of a new emerging markets manager
GQG to manage a segregated emerging markets portfolio for Witan
Witan Investment Trust (WTAN) has announced the appointment of GQG Partners to manage £70m (c 4% of WTAN’s net assets). GQG is an investment boutique formed in June 2016 by Rajiv Jain. As at 31 December 2016, it had £615m of assets under management across three products: global, international and emerging market equities, with a focus on long-term, quality growth investment. GQG runs concentrated, low-risk portfolios that are benchmark agnostic. The appointment of GQG follows WTAN’s change of benchmark at the beginning of 2017, where emerging markets now represents 5%, having had a zero weighting in the old benchmark.
WTAN is a self-managed global investment trust which adopted a multi-manager investment approach in 2004, with the aim of reducing the performance volatility that can arise from dependence on a sole manager. Funds tend to be allocated to between 10 and 15 external managers who have high-conviction investment processes in both growth and value strategies, focusing on long-term fundamentals rather than short-term momentum. Global managers were allocated c 45% of total assets as at H116; they are not constrained by regional allocations. The balance of the fund is allocated to regional managers and up to 10% is invested in collective funds selected by WTAN’s executive team.
To read our latest research note on WTAN, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
HBM Healthcare Investments: two IPOs and Q316/17 results
Public offers of portfolio holdings at significant upside to carrying values
Swiss-listed healthcare investment specialist HBM Healthcare Investments (HBMN) has seen a material increase in NAV from the initial public offerings of two of its private portfolio holdings, ObsEva and Anaptys Biosciences. Both companies listed on the US NASDAQ exchange on 26 January.
ObsEva is a Swiss-based reproductive health specialist, in which HBMN first invested the equivalent of $9.9m in November 2015. Following the IPO, HBMN owns 2.4m shares in the company, valued at $28.1m. The shares closed at $11.68 on 30 January, compared with an average cost to HBMN of $7.52, an increase of 55%. The fund bought an extra 550,000 shares at the IPO price of $15 to maintain its holding in the company at c 8%.
Anaptys Biosciences, a San Diego-based company with a platform technology for developing antibodies, first entered the HBMN portfolio in July 2015 when the fund bought 940,000 shares for $7.0m. Following the IPO HBMN owns c 1m shares in the company, valued at $17m. The shares closed at $17.53 on 30 January, compared with the IPO price of $15 and an average cost to HBMN of $7.69, an increase of 127%. The fund now owns c 5% of the company, compared with 6.6% before the IPO.
Between them the two IPOs have added CHF2.30 to HBMN’s NAV per share, an increase of 1.6%.
HBMN has also published its quarterly report for the last three months of 2016 (the third quarter of the 2016/17 financial year). NAV per share was down 4.3% after a period of volatility in listed healthcare companies around the US election, while the share price was up 1.3% (all in CHF terms).
Within the public portfolio, Ophthotech reported disappointing Phase III results in wet AMD, which detracted from short-term returns. HBMN had held the position since Ophthotech was a private company, producing annualised returns of c 40% for the fund throughout the holding period. Having steadily taken profits from Ophthotech, HBMN had reduced its holding by c 90% by the time of the disappointment, and the fund has now fully exited the position. Advanced Accelerator Applications’ share price declined after a delay in approval for its new treatment for neuroendocrine tumours; however, with approval still expected to occur, HBMN’s managers say they expect the stock to bounce back.
In the private portfolio, Interventional Spine’s sale of its expandable cage technology to a subsidiary of Johnson & Johnson resulted in an upward revaluation of the holding, while Iconic Therapeutics was written down in value, and Tensys Medical was written off.
One new investment was made during the period, with $8.2m committed to San Diego-based neurological specialist Neurelis. So far $5.5m of this investment has been completed, representing 11% ownership of the company.
Read our latest research on HBM Healthcare Investments here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
The Merchants Trust announces benchmark change
Performance measure moved from FTSE 100 to FTSE All-Share index
The Merchants Trust (MRCH) has announced that it will be changing its benchmark with effect from 1 February 2017.
It currently measures its performance against the FTSE 100 index, however reflecting the change in MRCH’s exposure over the last 10 years – the percentage of the portfolio invested outside of FTSE 100 stocks has increased from 11% to 36% – the board has decided to change the benchmark. From the start of the new financial year, MRCH’s performance will be measured against the FTSE All-Share index, which the board believes more closely reflects the structure of the portfolio and the investible universe. There will be no significant changes to how MRCH is managed.
MRCH aims to provide an above-average level of income and income growth, coupled with long-term capital growth from a portfolio of mainly higher-yielding, large-cap UK equities. It has 34 years of consecutive annual dividend growth. Near-term investment performance has improved; this is partly a function of rising bond yields as investors are starting to rotate away from expensive bond proxies and towards more cyclical, higher-yielding sectors of the UK stock market.
To read our latest research note on MRCH, please click here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
European Assets Trust declares dividend for 2017
Fund pays distributions equal to 6% of year-end net asset value
European Assets Trust (EAT) has today declared its dividend for 2017. The fund has a policy of making distributions equal to 6% of year-end net asset value (in euros), paid in three instalments at the end of January, May and August.
The 2017 dividend will be a total of €0.7884 per share. Because the percentage is set, the amount of the dividend will vary from year to year and may fall as well as rise. During 2016, EAT’s euro-denominated NAV fell by c 13.5%, so the 2017 dividend is also c 13.5% lower than the €0.912 per share paid for 2016.
The weakness of sterling since the UK’s vote to leave the European Union has benefited UK-based investors in EAT, which invests in smaller and mid-sized companies across Europe. In contrast to the decline in euro-denominated NAV during the year, the sterling NAV was broadly static (+0.1%) for 2016, and the sterling NAV total return including reinvested dividends was +7.3%. Returns were behind the benchmark Euromoney Smaller Europe ex-UK index for the year (+23.3% sterling total return), largely as a result of declines in Irish holdings, which are seen as having greater exposure to the UK, following the Brexit vote. However, the fund’s performance in the second half of the year was better, with sterling share price and NAV total returns of +8.8% and +11.9% respectively, compared with +16.9% for the benchmark in the six months to 31 December 2016.
The first instalment of EAT’s 2017 dividend will be paid on 31 January. For sterling investors, the size of the payment will depend on the prevailing exchange rate at the time; the conversion will take place as close as practicably possible to the payment date. At current exchange rates the €0.7884 dividend is equal to 67p, which represents a dividend yield of 6.5% based on the 4 January closing share price of 1,034p.
Read our latest research on European Assets Trust, published on 3 January 2017, here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Tetragon Financial Group adopts IFRS reporting from 31 December 2016
Incentive fee crystallised to be paid in shares, restricted for five years
Tetragon Financial Group (TFG) has announced that it is adopting IFRS reporting for accounting periods ending on and after 31 December 2016. IFRS NAV is expected to be substantially the same as fair value NAV, which TFG has been reporting since September 2015. However, moving from US GAAP to IFRS increases the reported NAV of certain TFG Asset Management businesses, principally LCM and Polygon, to reflect their fair value, and will crystallise an incentive fee payable to TFG’s investment manager, Tetragon Financial Management (TFM). This incentive fee will be paid in shares, held in escrow until 31 December 2021, and subject to a clawback mechanism. Based on fair value NAV at 30 September 2016, the incentive fee would have been US$27.1m, as stated in TFG’s third quarter report.
While TFG’s IFRS NAV is expected to be substantially the same as fair value NAV, which already includes a provision for the incentive fee payable, the payment of the fee in shares will result in an adjustment to both NAV and NAV per share. Based on values at 30 September 2016 and a TFG share price of US$12.00, there will be a US$27.1m or 1.4% increase in NAV due to the release of the incentive fee provision, with a c 2.2m increase in the diluted shares in issue, resulting in a net 0.9% dilution in NAV per share.
The dilutive effect is due to TFG’s share price discount to NAV and, as no new shares are being issued, the share payment can be considered together with the purchase of the equivalent number of shares under the December 2016 US$50m tender offer. Taking these transactions together, there is a negligible net effect on NAV per share.
Read Edison’s most recent research report on TFG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Deutsche Beteiligungs – DBAG Fund VI final investment; DBAG Fund VII investment period starts
DBAG Fund VI will be 86% invested after Dieter Braun transaction
Deutsche Beteiligungs (DBAG) has announced that it will invest up to €5.9m for a 13.1% interest in Dieter Braun (Braun), a supplier of cable assemblies to the automotive industry (one of DBAG’s core sectors of expertise). DBAG is co-investing alongside DBAG Fund VI in the management buyout of Braun from financial investor Seafort Advisors. This represents the final investment by DBAG Fund VI, which will be 86% invested following the transaction, and therefore also marks the commencement of the investment period for newly launched €1.0bn DBAG Fund VII.
The acquisition of a majority interest in Braun will be the eleventh investment by DBAG Fund VI, bringing its investment period to an end after less than four years, a year ahead of the fund’s scheduled investment period end in February 2018. With the fund 86% invested, remaining commitments to DBAG Fund VI will be available to support the growth of portfolio companies, including potential add-on acquisitions.
Braun is a specialist cable assembly and lighting supplier to the automotive industry, providing efficient solutions involving a high degree of complexity and variable lead times. Founded in 1993, the company has grown revenues at 19% pa over the past seven years to €77m and employs a staff of 1,500. Headquartered in Bayreuth, Germany, Braun operates facilities in the Czech Republic, Ukraine, Mexico and China. The company is benefiting from the increasing volume of electrical and electronic components in vehicles as well as the trend by OEMs and suppliers to outsource production processes.
DBAG’s investment will support Braun’s capacity expansion and development of new production lines, which should enable the company to meet growing demand and strengthen its position in a fragmented market. In addition, potential is seen to expand the company’s product portfolio to include other applications as well as broadening its geographical reach.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Witan revises performance benchmark weightings from 2017
The trust’s investment approach remains unchanged
Following a review, Witan Investment Trust (WTAN) has announced changes in the composition of its performance benchmark, which will take effect from 2017. The trust’s investment approach remains unchanged and the revisions to the benchmark reflect changes in the investment universe from which the majority of portfolio holdings are selected. Witan’s composite benchmark provides a reference for performance comparison rather than a guideline for portfolio allocations. The benchmark has evolved over time, with the current benchmark in place since October 2007.
| Region | New weighting | Previous weighting |
| UK | 30% | 40% |
| North America | 25% | 20% |
| Asia Pacific (including Japan) | 20% | 20% |
| Europe ex-UK | 20% | 20% |
| Emerging Markets | 5% | 0% |
WTAN’s portfolio is actively managed and is not designed to track any index or combination of market indices. The trust’s managers select stocks on the basis of their potential to deliver above-average returns and to outperform market indices, and this investment approach remains unchanged. WTAN’s board believes the changes to the benchmark make it more comprehensive and a better reflection of the diverse investment universe to which the trust is exposed.
WTAN is a self-managed global investment trust which adopted a multi-manager investment approach in 2004, with the aim of reducing the performance volatility that can arise from dependence on a sole manager. Funds tend to be allocated to between 10 and 15 external managers who have high-conviction investment processes in both growth and value strategies, focusing on long-term fundamentals rather than short-term momentum. Global managers were allocated more than 40% of total assets as at the end of 2015; they are not constrained by regional allocations. The balance of the fund is allocated to regional managers and up to 10% is invested in collective funds selected by WTAN’s executive team.
Read Edison’s most recent research report on WTAN here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Acorn Income Fund announces rollover proposal for 2017 ZDPs
Extending life to 2022 with 3.85% pa gross redemption yield
Acorn Income Fund (AIF) has published proposals to extend the maturity of its 2017 zero-dividend preference shares (ZDPs) by five years. The ZDPs were issued at 100p in December 2011 with a maturity date of 31 January 2017 and a final capital entitlement of 138p, equating to a gross redemption yield of 6.5% pa. Following positive performance from AIF – which invests most of its assets in a portfolio of UK smaller company shares managed by Unicorn Asset Management, and a smaller proportion in a portfolio of high-yielding securities managed by Premier Asset Management – the 2017 ZDPs are set to meet their final capital entitlement in full.
The board of AIF has proposed an extension of the life of the ZDPs to 28 February 2022, with a final capital entitlement of 167.2p equating to a gross redemption yield of 3.85% pa. While lower than the yield on the 2017 ZDPs, this is still higher than the returns on offer from cash or many bond investments. It is important to note that the return is not guaranteed, although in order for the final entitlement not to be met in full, AIF’s gross assets would have to fall by 15.9% each year until February 2022. For an investor who bought the ZDPs at issue in 2011 and holds them until the new redemption date, the annual return over the whole period would equate to 5.17%.
AIF uses the ZDPs as gearing for the portfolio, and since the first ZDP issue in December 2011 has sought to maintain the ratio of ordinary shares to ZDPs at the same level (1:1.342), issuing and repurchasing ordinary shares and ZDPs in the same proportions to manage a discount or a premium. This practice will continue following the rollover of the ZDPs, and AIF has also proposed the issue of new ordinary and ZDP shares (allowing non-holders of the 2017 ZDPs to participate in the 2022 ZDPs).
Holders of the 2017 ZDPs who do not elect for the rollover will receive the final capital entitlement as cash. Investors may elect to roll over a portion of their holding and receive the rest in cash.
The proposals require the approval of ordinary and ZDP shareholders and the adoption of new articles, and will be put to an EGM and separate class meetings on 20 December 2016. Proxy votes must be received by 16 December. The rollover is contingent on a minimum issue size of 3.62m amended ZDPs. Full details are contained in the EGM circular and prospectus here.
AIF has also announced a fourth interim dividend of 4.0 pence per ordinary share for the year ending 31 December 2016, which represents an increase of 14.3% compared to the corresponding dividend for the year ended 31 December 2015. Total distributions for 2016 will be 15.50 pence compared to 13.75 pence in 2015, an increase of 12.7%.
Read our last note on Acorn Income Fund here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Standard Life European Private Equity Trust - changes to investment policy, dividend policy & fees
Proposed change of trust name to Standard Life Private Equity Trust
The board of Standard Life European Private Equity Trust (SEP) is proposing changes to the trust’s investment policy to remove the current size and geographic restrictions on private equity investments. Notwithstanding, the majority of the portfolio will retain a European focus. In addition, to maximise the returns on cash held pending investment in private equity funds, the board is also proposing to broaden the investment policy in regard to cash management to incorporate listed direct private equity investments, to be utilised opportunistically in suitably liquid investment companies. To reflect the proposed changes, to be voted on by shareholders at SEP’s Annual General Meeting on 24 January 2017, the board is recommending to shareholders that they approve a change in the name of the company to Standard Life Private Equity Trust.
Change in investment policy
Following a strategic review, SEP’s board concluded that it would be beneficial to increase the private equity opportunity set available to the investment manager by removing the current size restrictions and broadening the geographic reach on private equity investments in the trust’s investment policy. The aim of these changes is to permit the manager to invest in the leading private equity buyout funds regardless of size and with additional geographic freedom, enabling overall exposure to the private equity asset class to be enhanced. The intention is to increase the investment opportunity set without diluting the strategy and focus, and shareholders should not expect a radical shift in the composition of SEP’s portfolio, which will remain conviction-orientated with a European focus. At end-September 2016, SEP’s portfolio had 21% exposure to North America, resulting from a number of the European private equity managers investing part of their funds in stronger investment opportunities in non-European countries, principally the US.
Cash management
From time to time, SEP’s investment manager deploys a proportion of the trust’s cash in equity index tracker funds pending investment in private equity funds, although, given current market uncertainties, no such investments are currently held. At end-September 2016, SEP held £105.9m in cash, representing 20% of net asset value. Broadening the investment policy to include listed direct private equity investments should provide the manager increased flexibility, while further enhancing SEP’s overall exposure to the private equity asset class.
Change of name
The board believes that the combination of changes outlined above should, over time, help deliver strong returns to shareholders and enhance the attractiveness of the trust to new investors. To reflect this and the broader investment universe available to the manager, the board is recommending a change in the trust’s name to Standard Life Private Equity Trust.
Change in dividend policy
Although consistent with its private equity investment trust peer group, SEP’s relatively high share price discount to NAV is a frustration to the board, and the opportunity afforded by the high discount was taken to buy back 2.0m shares for cancellation at an average discount of 29.4% during FY16. In a further effort to address the scale of the discount, the board intends to more than double SEP’s annual dividend for FY17 to 12.0p per share, equating to a yield of 4.5% on SEP’s current 265p share price, and is committed to maintaining the real value of SEP’s dividend at this level, growing it at least in line with inflation, in the absence of unforeseen circumstances. SEP’s proposed FY16 total dividend of 5.4p is to be paid partly from capital and we would expect a significant proportion of the higher FY17 dividend also to be paid from capital.
New fee arrangements
The board is in the process of finalising new fee arrangements with SEP’s investment manager, SL Capital, and has negotiated the adoption of a single annual management fee of 0.95% of SEP’s net asset value. This will replace the previous arrangement, whereby SEP paid an annual management fee of 0.80% of net assets, with a 10% incentive fee payable on NAV total return in excess of an 8.0% pa hurdle rate, assessed over a five-year period. The strong growth in SEP’s NAV over the five years to 30 September 2016 exceeded the performance hurdle and triggered an incentive fee payment of £6.4m.
FY16 performance
SEP achieved an NAV total return of 24.8% for the year to end-September 2016, which compared to the 20.2% total return of the MSCI Europe index over the same period. The board has recommended a final dividend of 3.6p per share, bringing SEP’s total dividend for FY16 to 5.4p, representing a 2.9% increase on FY15’s 5.25p. FY16 ongoing charges (excluding incentive fee) were 0.99% of NAV, in line with the 10-year average of 0.98%.
Read Edison’s most recent research report on SEP here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Lowland to issue £30m of long-term loan notes
New facility will add flexibility and enable repayment of some shorter-term debt
Lowland Investment Company (LWI) has announced it is to issue £30m in sterling-denominated loan notes. The senior unsecured private placement notes will mature in January 2037 and will carry a fixed-rate annualised coupon of 3.15%, paid in two instalments in July and January.
The notes will raise LWI’s total borrowing capacity to £115m, from a previous £85m. If all of the borrowing were drawn and no cash were held, gearing would equal LWI’s maximum permitted 29.9%. However, some of the new borrowing is likely to be used to pay off shorter-term debt. At 31 October 2016 LWI had net gearing of 7%, compared with 16.7% at the 31 March half-year-end.
LWI’s board comments that the new notes will broaden the maturity profile of LWI’s debt, which currently consists of a £25m two-year loan facility and a three-year loan facility of up to £60m. The new facility will be used for investment and general corporate purposes.
Read our initiation note on Lowland here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
VinaCapital Vietnam Opportunity Fund announces divestment of major asset for at least $100m
VinaCapital Vietnam Opportunity Fund (VOF) has announced the divestment of an asset representing 7.6% of FY16 NAV, for a minimum of 65% above its most recent valuation.
The Vietnam-focused fund, which blends investment in listed and private equity with an allocation to property and an operating asset, has not disclosed the identity of the asset, which the announcement says was valued at $60m in the fund’s full-year accounts (to 30 June 2016), equivalent to 7.6% of year-end net assets. However, we believe it is likely to be the Sofitel Legend Metropole Hanoi hotel, the third-largest holding, which appears in the annual report valued at $60.357m. The purchase price represents an uplift of at least 65.7% on the 30 June valuation.
The hotel is VOF’s one remaining operating asset (previously referred to as hospitality assets), down from six stakes in the sector in 2012. It has also reduced its overall real estate exposure, much of which is owned alongside the VinaCapital-managed VinaLand fund, as the latter has moved into a realisation phase.
According to the announcement, VOF will receive minimum net proceeds of $100 million from the sale of the asset, with $37 million payable upon the signing and closing of a share purchase agreement and the balance payable in two annual instalments. The asset is being divested to a newly formed consortium, in which VOF and VinaCapital CEO Don Lam will have a continued interest.
VOF’s managing director Andy Ho said that the fund’s management team look forward to redeploying the proceeds into the many new opportunities in the Vietnamese market as well as toward the fund’s ongoing share buyback programme.
See Edison’s latest note on VOF here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Tetragon Financial Group commences US$50m tender offer
Repurchase of TFG shares at below NAV will be accretive to NAV per share
The US$50m tender offer was initially announced by Tetragon Financial Group (TFG) on 31 October in its Q316 quarterly report. It will be conducted as a “modified Dutch auction” with shareholders able to tender their TFG non-voting shares at prices ranging from US$10.80 up to US$12.00 per share. The offer is expected to expire on 8 December 2016, with the determined purchase price and any proration factor announced on 13 December 2016 and the purchase of shares settled promptly thereafter. This offer for up to US$50m follows TFG’s US$100m tender offer in June 2016 under which 10m TFG non-voting shares were repurchased.
The repurchase of shares at a price below NAV through the tender offer will reduce TFG’s net assets but will be accretive to NAV per share. TFG’s fully diluted fair value NAV per share was US$20.05 at 30 September 2016. Based on TFG’s US$1,946.3m fair value NAV and 97.1m fully diluted shares in issue at 30 September 2016, a repurchase of the maximum 4.6m shares at US$10.80 per share would result in an estimated 2.3% increase in NAV per share to US$20.51. TFG’s NAV total return was 7.8% for the first nine months of 2016 and the effect of this uplift to NAV per share would be to increase TFG’s year-to-date NAV total return to 10.3%.
Prior to announcing this latest tender offer, TFG entered into an agreement to repurchase approximately 593,653 non-voting shares of TFG held by Michael Humphries, a manager of certain Polygon funds, at a purchase price based on the volume-weighted average price (VWAP) per share for the first 10 trading days in November 2016. Based on the month-to-date VWAP of US$11.00, this share repurchase would increase NAV per share by 0.3% or US$0.06 in addition to the tender offer.
Eligible shareholders will be able to indicate how many TFG non-voting shares and at what price or prices within the specified range they wish to tender. Based on the number of shares tendered and the prices specified by the tendering shareholders, the lowest price per share within the range will be determined that will enable the purchase of US$50m in value of TFG non-voting shares, or a lower amount if the offer is not fully subscribed. All shares will be purchased at the same price in the offer.
Full details of the tender offer, including complete instructions on how to tender shares, are included in the offer to purchase which is available on TFG’s website.
Read Edison’s most recent research report on TFG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Deutsche Beteiligungs announces divestment of Grohmann Engineering to Tesla Motors
Exit will generate a positive value contribution in the first quarter of FY17
Deutsche Beteiligungs (DBAG) announced today that it has agreed the sale of Grohmann Engineering, a developer and manufacturer of plants for industrial automation, to strategic buyer Tesla Motors after almost 30 years as a portfolio holding. The financial terms of the agreement have not been disclosed but DBAG has confirmed that the sale price is higher than its most recent portfolio valuation and the exit will generate a mid-single digit positive value contribution in the first quarter of its current financial year to 30 September 2017.
DBAG’s investment in Grohmann dates from a growth financing by a predecessor company, which took a 25.1% stake through a capital increase in January 1987. DBAG assumed the entire interest in 1996 for its own portfolio; there was no parallel investment by a DBAG managed fund. Over the last 20 years, Grohmann has seen its revenues climb by over 6% pa to €123m in 2015, while the number of employees has tripled to c 700. In addition to DBAG’s 25.1% holding, Tesla is acquiring the 74.9% interest held by the company’s founder Klaus Grohmann.
Founded in 1984, Grohmann Engineering develops and manufactures production lines for industrial automation. The company has been a key contributor to developing technologies such as those required for the industrial production and assembly of lithium-ion batteries and the testing of microchips and wafers. In recent years, Grohmann has developed and implemented a number of production lines for German and international car manufacturers for producing battery cells and batteries for electric vehicles.
Grohmann is set to become the initial base for Tesla Advanced Automation in Germany, responsible for the design and production of several critical elements of Tesla’s automated manufacturing systems. Combined with its California and Michigan engineering facilities, Tesla believes the acquisition of Grohmann will make a significant contribution to improving the speed and quality of production, while substantially reducing capital expenditure required per vehicle.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
VinaCapital Vietnam Opportunity Fund announces full-year results to 30 June
Outperforms benchmark VN index by 11pp in USD terms
In its annual results to 30 June 2016, VinaCapital Vietnam Opportunity Fund (VOF) has reported positive returns both in absolute terms and relative to the VN index benchmark. Its US dollar net asset value rose by 15.3% over the period, outperforming the benchmark, which rose by 4.3%.
In March 2016 VOF moved its domicile from the Cayman Islands to Guernsey, and its listing from AIM to the Main Market of the London Stock Exchange. At the same time it also changed the currency of its shares from US dollars to sterling. Share price performance over the 12 months was +12.8% in USD terms.
VOF’s portfolio at the year-end was 47.9% invested in listed equities, 12.5% in private equity, 8.4% in over-the-counter securities (companies in the process of privatisation) and 8.2% in property, with a further 9.2% invested in a hotel in Hanoi, and the balance mainly in cash. The equity portfolio rose in value by 22.3% in USD terms over the year, boosted by strong returns from large holdings including Vinamilk (+24.8%), Phu Nhuan Jewelry (+94.9%) and Hoa Phat Group (+37.0%).
Fund manager Andy Ho notes that Vietnam was the standout economy in Asia over the 12 months, posting GDP growth of 6.7% pa, the highest in the region. However, with growth slower in the second half of the period than the first, VOF chairman Steven Bates comments that more progress needs to be made on addressing the country’s growing fiscal deficit. This could be assisted by accelerating the programme of privatisation, which would also increase VOF’s opportunity set.
Between the year-end and 30 September 2016, VOF’s US dollar NAV rose a further 8.2%.
See the last Edison report on VOF here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Tetragon Financial Group declares US$0.1675 per share Q316 dividend
Q316 dividend in line with Q216 and 3.1% higher than Q315
Ahead of releasing its results for the three months to 30 September 2016, Tetragon Financial Group (TFG) has declared a dividend of US$0.1675 per share in respect of the third quarter (Q316). The exdividend date is 31 October 2016, the record date is 1 November 2016 and the payment date is 25 November 2016.
Following a similar pattern to previous years, the Q316 dividend was held at US$0.1675 in line with the Q216 dividend, which was 1.5% higher than the US$0.1650 dividends paid for Q116 and Q415. This continues the progressive dividend policy that TFG has pursued since re-basing the quarterly dividend in 2009. TFG targets a payout ratio of 30-50% of normalised earnings (incorporating both investment income and capital gains), based on its long-term target return of 10-15% pa.
TFG to release Q316 results and host investor call on 31 October 2016
TFG is scheduled to release its results for the three months to 30 September 2016 and host a conference call for investors on Monday, 31 October 2016 at 14:00 GMT/10:00 EDT.
UK dial-in: +44 (0)80 8237 0030
US dial-in: +1 866 928 7517
Participant Pin Code: 97193613#
Link to online presentation: TFG investor call webcast
Read Edison’s most recent research report on TFG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
Deutsche Beteiligungs proposes €1.20 per share dividend for FY16
Recommended increase in FY16 dividend to €1.20 from €1.00 in FY15
Deutsche Beteiligungs (DBAG) announced today that at the Annual Meeting of Shareholders on 22 February 2017, a dividend of €1.20 per share will be proposed for the year to 30 September 2016 (FY16), representing a 20% increase from the €1.00 per share FY15 total dividend.
On 17 October 2016, DBAG announced preliminary unaudited results for FY16 that are significantly ahead of the prior year’s results, with net income of €48-52m compared with €27m in FY15. This net income translates into a dividend-adjusted return on NAV of more than 15% for FY16, compared with DBAG’s 14.3% pa average return over the previous 10 financial years. DBAG’s final results for FY16 are scheduled for publication on 15 December 2016.
These preliminary results were ahead of management’s guidance for FY16 net income to exceed the €27m reported for FY15 by at least 20%, with the anticipation that FY16 net income could reach €40m following the first quarter’s €10m contribution from the sale of Spheros and a realisation by the DBG Eastern Europe II buyout fund, which had not been included in the original guidance. Management states the primary reason for the results exceeding guidance as the improvement in stock market multiples used to value portfolio companies, noting that at the financial year end on 30 September 2016, the multiples for nearly all peer groups surpassed the levels recorded at the preceding valuation date on 30 June 2016, thereby recouping the declines recorded during the third quarter of DBAG’s financial year.
Change in dividend policy
In August 2016, DBAG announced a change in its dividend policy effective from the current financial year, with the intention of paying a stable or rising annual dividend. The policy of paying a sustainable annual base dividend of €0.50 per share from retained profits, supplemented by a surplus dividend dependent on the gains realised in each financial year has been discontinued; the board will recommend payment of a single dividend from FY16. Although a surplus dividend was paid in nine of the last 10 years, the total dividend has varied significantly, notably declining by 50% in 2015, creating uncertainty for shareholders over the dividend income they can expect to receive. Under the new policy, shareholders should expect a smoother progression of the dividend payment each year.
Read Edison’s most recent research report on DBAG here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.
HarbourVest Global Private Equity consolidates listing in London
Cancellation of Euronext Amsterdam listing
HarbourVest Global Private Equity (HVPE) has today delisted from the Euronext Amsterdam exchange, as announced in the half-year results to 31 July 2016.
HVPE was originally listed in Amsterdam at its launch in 2007, and gained a London listing on the Specialist Funds Segment in 2010. In September 2015 it moved to the Main Market of the London Stock Exchange, bringing it into contact with a broader range of investors, and converted its share price from a US dollar quote to a sterling quote. Inclusion in the FTSE 250 and FTSE All-Share indices followed in December 2015. The company reports a significant increase in the liquidity of its shares as a result of the move: in the six months ended 31 July 2016, average daily trading volume was 34,016 shares, more than double the average for the 12 months ended 31 January 2016. Index inclusion has increased HVPE’s profile and brought index-tracking funds on to its share register.
Trading volumes for the Amsterdam-listed shares had been very low. Holders of the shares will now be able to trade them on the LSE.
Over 12 months to 30 September 2016, HVPE’s sterling NAV per share rose by 25.7% and its share price in sterling rose by 23.1%.
Read Edison’s most recent research report on HVPE here.
Disclaimer - Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This document may contain materials from third parties, which are supplied by companies that are not affiliated with Edison Investment Research. Edison Investment Research has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of publication and is subject to change without notice. While based on sources believed reliable, we do not represent this material as accurate or complete. Any views or opinions expressed may not reflect those of the firm as a whole. Edison Investment Research does not engage in investment banking, market making or asset management activities of any securities. The material has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research.