Lowland, managed by James Henderson (pictured), has released its annual results for the year ended 30 September 2015. In what the board describe as a difficult year, the company’s NAV total return rose 0.8%, beating its FTSE All-Share benchmark, which fell 2.3%. The share price opened the year at a small premium, but closed at a modest discount, declining by 2.2%.
The company says that many companies in its portfolio delivered robust dividend growth over the year. Revenue earnings per share for the year are 46.4p, against 39.4p for last year, an increase of 17.8%. This compares against that of the Company’s benchmark of 4.6%. Subject to shareholders approving the final dividend, the total dividend for the year will be 41p, which compares with 37p last year; an increase of 10.8%. The company says that revenue earnings for the year were boosted by special dividends which amounted to £1.7m, representing 13.6% of the total earnings. The Board increased the level of borrowings during the year from £50m to £62m, which represents gearing of 16.8%. The company says that, in a relatively flat year, the gearing only provided marginal benefit for regards capital returns, but it did have the benefit of improving the earnings, as the borrowing costs are around 1.5% while the portfolio yield is 3.5%.
In terms of attribution, among the strongest contributors to performance were non-life insurers Hiscox, Amlin and Novae. The managers say that these have been an enduring feature of the portfolio as a result of their disciplined underwriting and ability to generate high returns over the cycle. The managers also comment that, given the significant position the trust has in the industrials sector, these companies have also provided diversification, with performance more determined by the underwriting cycle rather than economic activity. Towards the end of the year Mitsui made a cash bid for Amlin at £6.70 per share and the trust has since reduced its holding.
The largest individual detractor from performance was gas-to-liquids technology provider Velocys. The company says that, having been the top contributor to performance last year, the decline in the oil price meant that securing financing for their gas-to-liquids projects became more difficult. The company also saw the departure of its long standing Chief Executive. It remains the manager’s view that the company’s technology has significant potential even if the current oil price persists, for example to provide an alternative to flaring. They say that, whilst these early-stage companies such as Velocys, IP Group and 4D Pharma are likely to be volatile performers, they are attracted by what they see as the potential to disrupt large-end markets which suggests substantial potential upside if these companies get it right.
In terms of outlook, the managers say that the level of debt in listed companies has fallen to historically low levels but that this has not been recognised fully by the market, because macro-economic worries abound. The manager also believes that the specific commercial strengths of the trust’s companies we hold have not been fully reflected in their valuations. The managers say that they are positive on the prospects of our holdings in the industrial sector, where our overweight position was detrimental to performance last year, having been a substantial contributor in the years after the 2008 downturn. The trust retains its position in the sector because of the strengths of the individual holdings rather than a macroeconomic based conviction. The managers say that these companies are generating cash and debt is low and that they have excellent products and they are genuinely competitive in the global market.
Lowland sees strong income growth from special dividends : LWI