Merchants Trust reports a 2.8% return on net assets for the six months ended 31 July 2015 and a -1.1% return to shareholders as the discount widened from 0.4% to 4.3%. The return on the FTSE100 Index for the period was 1.2%. Dividends for the first half totalled 12p, 1.7% higher than the pervious year.
The manager’s report says several of the Trust’s recovery situations and medium sized companies performed well, with the largest positive drivers coming in consumer sectors, such as travel & leisure and general retail.
At Mothercare, improved trading in their troubled UK operation gave investors confidence that the recovery is on track, highlighting the significant value in their overseas franchise operation. The shares rose 50% in the period.
Other strong consumer stocks included Carnival Corporation and Cineworld which both delivered strong results. Elsewhere, they saw good growth at the staffing firm SThree, despite a slowdown in recruitment in the energy sector, and gains from the construction and building materials companies Kier and CRH. Inmarsat shares remained strong, as hopes built for their next generation satellite communications network. Standard Life also outperformed as they returned capital after selling their Canadian business. The portfolio also benefited from not owning the mining company, Rio Tinto and the pharmaceutical firm, AstraZeneca, which both fell and held back the index return.
The main negative performance contributors were stocks that were not owned, or underweight, in the portfolio but which performed well, helping to boost the index return. Two banks, Lloyds and Barclays, as well as BG headed the list. Investor sentiment towards the domestic UK banks has been recovering as the industry gradually emerges from a prolonged period of restructuring under increasing regulatory scrutiny. BG was boosted by an agreed takeover offer from Royal Dutch Shell. Elsewhere Shire, Vodafone, Reckitt Benckiser and BT were also strong performers that were not owned by the Trust. A few portfolio shares were weak. The copper miner Antofagasta impacted performance as the shares continued to slide, with the weak copper price, after their initial purchase. Persistent trading difficulties also hit Tate & Lyle shares, whilst the Pennon share price gave back some of last year’s strong performance.
MRCH : Widening discount holds back Merchant Trust’s returns