Brunner matches benchmark in 2015

Brunner says that over the course of 2015, on a total return basis, its NAV increased by 1.7%, slightly underperforming its benchmark which returned 1.8%. The total dividend payment for 2015 was 15.3p, an increase of 2.0% on last year.

There was no report from the managers in the announcement but, looking at the full annual report, Mothercare, Fresenius SE, Tullet Prebon, Microsoft and a number of other technology holdings were the top contributors.

Mothercare recovered strongly after its disappointing performance last year. Global healthcare company Fresenius SE gained steadily through the year, helped by strong results and positive forward guidance. Tullet Prebon also recovered nicely, benefiting from cost cutting and the announcement in November that the company had agreed to merge its voice broking business with ICAP, thus providing needed consolidation in the sector. Microsoft was a top contributor as quarterly results consistently surprised on the upside throughout the year. Operating margins have been expanding and the quarterly dividend was increased more than expected as the company balances shareholder interests with growth initiatives.

Not owning Glencore also helped performance. They have had major concerns about the company’s high debt levels, commodity exposure and opaque business model. While the company has taken steps to strengthen its balance sheet, given the difficult resources environment we continue to find better ideas elsewhere.

The most significant underperformers were Petroceltic International, Brammer and CCR.

Petroceltic, along with other energy companies, has been hit hard by the steep decline in oil and gas prices. The company is now undergoing a strategic review of its assets and operations with a view to consider “all options to maximise value for shareholders and stakeholders.” There is little doubt that Petroceltic’s exploration portfolio is high quality and offers great potential. Unfortunately it appears that the long-term monetisation of these assets may largely accrue to the acquirers of the assets although they are hopeful that these will be sold at a premium to the current market price.

Brammer, a European maintenance, repair and overhauls products distributor, was negatively impacted by its exposure to Rolls Royce and deteriorating trading conditions in continental Europe. The company is taking measures to reduce its working capital requirements primarily by reducing inventory. Management is also re-emphasising pricing discipline over growth, which should protect operating margins. Valuations are currently very depressed and any signs of a turnaround could lead to a significant re-rating.

CCR is a Brazilian toll road operator that has been impacted by Brazil’s weak economy and lower toll road traffic. Currency weakness also had a negative effect. The company cut its interim dividend, partly as a precautionary measure against a protracted economic recession, and partly to retain firepower for new infrastructure projects, such as highways, airports and subways. These projects typically generate attractive long-term returns. CCR is a high quality company that should do better once the macroeconomic environment and market sentiment stabilise.

Credit card processor Cielo also detracted due to the weak Brazilian currency. Operationally, the company continues to do well as the domestic credit and debit card markets remain underpenetrated. They remain positive on the secular growth prospects for the company, which should perform even better once the economic situation stabilises.

 

 

 

BUT : Brunner matches benchmark in 2015