Caledonia Investments has released its interim report for the six-months ended 30 September 2015. During the period, the company’s NAV total return per share was -3.8%. The share price also fell (4.4%) and, at the half-year end, the discount was 21.0%, slightly improved on the 21.5% at the beginning of the period. The company says that the portfolio continues to benefit from strong income generation, which grew 6.9% in the period, supporting a further 3.6% increase in the dividend. They also say that the unquoted pool in particular had a strong performance, returning 6.0% that included the acquisition of Seven Investment Management and the realisation of TGE Marine (at a significant premium). Furthermore, they say that weak markets have allowed them to add to our quoted portfolio, as valuations became more attractive for long term investment, in their view.
In terms of individual pool performance, the quoted pool (£476m, 31% of net assets) returned -11.4%. The managers say this has been particularly affected by the weakening sentiment in the oil and gas and industrials sectors, where they have large holdings. However, there was also some good news and positive investment performance, notably from Quintain Estates, which was the subject of a recommended takeover bid – completed after the half-year end. The managers say that they view periods of market weakness as potential buying opportunities and have taken the opportunity to build some new holdings in companies we have been following and to add to existing positions.
Unquoted pool (£518m, 33% of net assets) produced a good performance during the period, with a return of 6.0% helped by the disposal of TGE Marine at a valuation uplift of 30%. The managers say that Park Holidays saw a further advance in profitability, driving its increased valuation. Cobehold, a Belgian investment company, produced a good NAV performance. These uplifts were partially offset by a fall in valuation of Sterling Industries, which derives much of its business from the steel and oil and gas markets. They made one new investment in the half-year, purchasing 93.6% of the equity of Seven Investment Management for £74m, in a deal that valued the company at £100m. They say that Seven is a well-established investment business managing money on behalf of private individuals using institutional techniques with transparent charges.
The Funds pool (£309m, 20% of net assets), returned -2.5% for the period, with a strong performance from the private equity portfolio being offset, in particular, by the Asian funds, which the managers say were hit hard by negative investor sentiment toward the region. The managers say that a timely redemption of half of our holding in the Perlus Microcap fund, which has performed strongly for the past five years, and distributions from Capital Today China and the Close Brothers Private Equity funds have provided a healthy level of cash for reinvestment. They have made both new and follow-on commitments to various private equity funds and continue to monitor closely the performance of a number of US and Asian quoted market funds.
The Income & Growth pool (£192m, 12% of net assets) returned -6.8% during the period, which was broadly in line with global markets. The new manager, Jonathan Greig, is in the process of restructuring this pool to increase yield and reduce volatility. He has cut the number of holdings from 40 to 30 and has increased the weighting of businesses domiciled in the UK although. The managers say that, on a look through revenue basis, the portfolio remains well balanced geographically.
Caledonia bolstered by the performance of its unquoteds : CLDN