TR European Growth beat its benchmark by more than 5% over the year to the end of June 2015, returning 5.3% on net assets against a -0.4% return on the Euromoney Smaller Companies Index (ex UK). Shareholders got the benefit of a narrowing of the discount from 12% to 7.6% as well – meaning that the return to shareholders was 10.8%. The final dividend was increased from 6.7p to 7p and the company is also proposing to pay a 2.5p special dividend. The only “negative” in all this is that TR European Growth’s peer group did even better, managing to post a 6.3% return on net assets.
The manager says the trust’s performance cannot be explained by broad themes, beyond participation in some successful Italian IPOs that have been very good at growing, such as those of the asset gatherers Anima and FinecoBank or the fashion retailer OVS. Instead performance has been derived from stock specific factors.
Dutch semiconductor equipment company BE Semiconductor was the biggest contributor to performance as the market cottoned on that it was gaining market share and that its cost savings programme was yielding better results than hoped for. Outdoor and online advertising company Stroeer Out-Of-Home Media was another strong contributor to performance as German advertising recovery drove increases in earnings forecasts. Danish ferry company DFDS also did well as the market began to appreciate the cost discipline and return on capital focus of the management. Swedish medical equipment company Aerocrine, that makes equipment for measuring the severity of asthma was subject to a bid by London listed Circassia Pharmaceutical. Spanish pulp and renewable energy business, Ence, took advantage of a crisis when Spanish electricity subsidies were cut to slash costs, refocus its business and improve cash flow and return on capital. Belgian specialty chemical company, Tessenderlo Chemie, has done well as the market has begun to believe in the benefits of its restructuring programme.
Conversely, the stocks that burdened performance did so for thematic reasons: either due to the falling oil price or the failure to manage change. For instance the holdings of oil and gas companies were hurt by the collapse in the oil price such as Kvaerner, Fugro and Schoeller-Bleckman. OW Bunker was a Danish IPO in the marine fuel sector that they sold immediately after a profit warning having decided the company was not what the management claimed it to be. Selling at a loss was painful, however, it proved the right thing to do as the company subsequently declared bankruptcy after alleging fraud against two employees. French directory and internet company Solocal suffered as the turnaround of the business proved slower than management had hoped. German laser company LPKF Laser & Electronics also disappointed after large customers delayed orders hurting company profitability. German retailer Tom Tailor floundered as management struggled with weather and with the digestion of a company called Bonita that it had acquired. EVS Broadcast Equipment missed numbers having failed to see any upturn in its industry.
TRG : TR European beats benchmark by more than 5%