European Assets hikes dividend by 20%

European Assets Trust recorded a Sterling net asset value total return for the year of +20.5% (26.9% in Euro terms), a Sterling share price return of +20.4% and a Euro dividend increase of +20.3% for the year ended 31 December 2015. The Euromoney Smaller European Companies (ex UK) Index returned 17.2% (23.4% in Euro terms). The Board has declared a total dividend for 2016 of Euro 0.912 per share (2015: Euro 0.7581 per share, net).  This represents a 20.3% increase in the 2016 dividend compared with the previous year. The 2016 dividend will be paid in three equal instalments of Euro 0.304 per share on 29 January, 31 May and 31 August.

The report says the biggest contributor to performance was one of their largest holdings, Irish Continental Group, the ferry operator, which rose +62.3%. 2015 was another year of excellent operational performance as they took advantage of a rapidly improving Irish economy and lower fuel costs. In combination with very little capital expenditure requirements this delivers excellent levels of cash generation.

Gambling stocks Paddy Power and Betsson both performed well, rising +71.9% and +72.5% respectively, having the twin benefits of high structural growth in the online betting space and corporate activity. Paddy Power reacted well to the news that it was merging with Betfair to create potentially the strongest operator in the sector. Betsson on the other hand is using their strong cashflow to buy smaller operators and improve their market position.

Amer Sports had a particularly strong year rising +63.1%. They have held stock in this company since a new management team arrived with the remit to achieve the sort of growth and levels of profitability the brands deserve. They own the skiing brands Atomic and Salomon, the latter also being a strong player in outdoor activities such as trail running, Wilson tennis, Mavic cycling, and mountaineering brand Arc’teryx. These brands should achieve good levels of profits, and 2015 saw further evidence that they were moving closer to this.

Gerresheimer, the German listed pharmaceutical packaging business, is a long standing holding that they added to during what they felt was unwarranted weakness during the previous year. At that point the valuation reflected nothing more than short term concerns over profit margins, while their detailed analysis suggested that this was a well-positioned business, run by a proven management team that should prosper over the long run. 2015 demonstrated this as they showed operational improvements whilst selling a poorer quality division and re-invest the proceeds in a value creative acquisition. This was rewarded with a return of +54.8% over the year.

Looking at the poorer performers, Origin Enterprises, another one of the largest positions, was the largest negative contributor, falling -12.6%. The company faced two main problems last year, firstly their end markets started going through a difficult period. Origin advises farmers on how to utilise their land efficiently in the UK and Eastern Europe. Because of record corn and wheat crops globally, prices are under pressure, reducing farmers’ incomes and restricting their ability to invest. Secondly, the majority owner Aryzta, reduced their 70% stake entirely to shore up their balance sheet following an acquisition. So the market had to absorb a lot of stock while the operational environment deteriorated. The shares are however trading at exceptionally attractive levels and have much better liquidity following the placement.

Within financials two bank holdings had poor years; Sparebank the regional Norwegian bank fell -30.5% and Aareal the German property lender fell -14.1%. Both stocks appear to them very attractively valued, though Sparebank’s perceived exposure to a falling oil price, and concern over Aareal’s competitive position meant that this value was not appreciated. Part of our portfolio strategy has been to identify areas of the market that had quality characteristics which were not well understood by the market which meant an attractive combination of quality and value.

In percentage terms, the worst performer was the German supplier to the car industry SHW which fell -38.6%. Their original thesis was that because car companies need to reduce their emissions they need to buy more of SHW’s products, which help them in this regard. The company would therefore benefit from above market growth, disproportional profit expansion and cash generation. While they produced better than expected revenues this translated into worse levels of profits due to a historic lack of investment in manufacturing which hindered them in delivering against this demand. This rendered the initial investment case invalid and they sold the position.

EAT : European Assets hikes dividend by 20%