Finsbury Growth & Income has published an impressive set of results for the year ended 30 September 2015. In a year when the total return on the FTSE All-Share Index was -2.3%, Finsbury Growth & Income delivered a 12.0% return on net assets and an 11.8% return to shareholders. The dividend has ben increased by 7.1% to 12.1p. The decent performance in this and prior years led the fund to expand by almost a quarter (24.1% by number of shares in issue) over the year.
The report says the principal contributions to net asset value performance came from holdings in Sage Group, London Stock Exchange and Hargreaves Lansdown. These three added £29.5m to the value of the company or 27.1p to the NAV. The biggest fallers by contrast were Fidessa, AG Barr and Burberry, between them they cost the fund £11.6m or 10.6p on the NAV.
Nick Train talks about these (and many other companies in the portfolio) in his manager’s report. You should be able to read the full report by clicking on the documents tab on the FGT page soon.
Sage Group. A big contributor to the Company over the last 12 months – still up 12.5% in 2015. Seen as a dowdy dividend stock by UK investors, Sage’s recently announced joint ventures in “cloud” computing with Salesforce and Microsoft have reminded them that a 6 million customer base, spread across UK, Europe, USA and South Africa offers a huge untapped pool of purchasers of new software services. Secular technology growth is rare in the UK’s resource heavy stock market. Sage’s shares are still 35% below their 2000 peak – they think there’s a decent chance they will at last take that old top out in this bull market.
London Stock Exchange. Shares have quadrupled in 5 years – creating huge value for the Company’s shareholders. They trade on circa 6.0x annual revenues, in line with Deutsche Bourse. They remain a committed holder, but would love to be offered a period of consolidation before buying more.
Hargreaves Lansdown. From a peak in early 2014, Hargreaves Lansdown has become somewhat cheaper. This reflects a share price still 10% down, but also continued, strong asset and profit growth. The bears would say it needs to get cheaper still, because of the high price/value ratio, but it’s easy to forget almost all Hargreaves Lansdown’s business investment goes through the P&L, depressing earnings and making it look more expensive than it actually is. Still a “young” company, they think.
Fidessa. Shares have lost 25% this year as trading disappointed. Capacity is still coming out of European investment banking and Fidessa’s new and successful derivatives product – 35% growth, now 8% of the total – has not been enough to get the top line moving. They believe its service remains business-critical for customers (which comprise some 85% of the premier banks / brokers worldwide). They’re great supporters of management, but can’t help noting
that another UK software company, AVEVA, was bid for recently, after a period when its end markets were suffering (energy). A takeout for Fidessa on the same terms could treble the shares.
A.G. Barr. Shares have begun to tread water for the first time in years and they are again gently adding for other Lindsell Train accounts with lower weightings than the Company. A.G. Barr has a 22% share of the Scottish carbonates market and 3% in England. There is plenty of scope for key brands IRN-BRU and Rubicon to grow south of the border and the cannily conservative balance sheet is a
comfort.
Burberry Group. Modest lease-adjusted net debt of only £400m is sensible for Burberry, with its undeniable fashion and geographic risk. Notwithstanding recent fluctuations, its Asian franchise remains enviable and they expect the Chinese to cease aspiring to wear Burberry gabardine around the same time as they lose their thirst for premium cognac. We still see Hermès as the best quoted comparator for Burberry and note the French company is valued far more highly (Hermès has a price/value ratio of 35x against Burberry’s 17x and a price/value ratio of 7x against Burberry’s 2.5x). Quoted luxury/prestige brands of Burberry’s calibre are rare anywhere and unique in the UK. This rarity is valuable.
FGT : Finsbury Growth & Income expands after impressive performance