Keystone has published its interim accounts for the six months ended 31 March 2016. The company’s shares
gave a total return of -3.6% over this period. The underlying net asset value per share (with debt at fair value) gave a total return of +1.2%. These compare with a total return by the company’s benchmark for performance measuring purposes, the FTSE All-Share Index, of +3.5% (all these figures are with income reinvested). The discount of the share price relative to NAV (debt at fair value) increased from 4.9% to 8.7%. The Board has declared a first interim dividend of 18p per ordinary share 9unchanged from last year).
Mark Barnett’s manager’s report says Keystone’s performance benefited from its zero weighting in the banks sector, but its underweight position in the oil & gas sector, notably the absence of a holding in Royal Dutch Shell or BG Group, detracted from performance. The zero weighting in the mining sector, where share prices demonstrated exceptional swings, was on balance a positive.
Performance again benefited from the holdings in the tobacco sector. Notable amongst these was Reynolds American, which confirmed that it expects double-digit earnings growth this year and increased its dividend by 16.7%, while also planning to pay down debt sharply. The company is beginning to see the benefits of last year’s acquisition of Lorillard – with cost and revenue synergies emerging from the process of integration.
Against a market backdrop of dividend cuts, Provident Financial was another holding to announce a significant increase in its pay-out. A 23% full year increase represented a sixth consecutive year of double-digit percentage increases. A meeting with the company, now a FTSE 100 index constituent, further reassured us of the positive long term outlook for this business.
Within the fixed line telecoms sector, BT announced its strongest revenue growth in over seven years and continued its expansion into mobile telephony, with its acquisition of EE gaining approval from the Competition and Markets Authority. Shareholders received further good news as it was confirmed that the company would not have to de-merge or sell the Openreach fixed line infrastructure, as had been feared. KCOM, meanwhile, saw its shares rise on the sale of its national infrastructure (outside of Hull and East Yorkshire) to CityFibre for GBP90 million. TalkTalk Telecom, however, announced that it had been the victim of a cyber-attack. The shares were marked down in the weeks following the news, but stabilised towards the end of the period as it was confirmed that the impact of the attack had been less than originally suspected.
BAE Systems released a positive trading update, with a robust order backlog underpinning confidence in the future prospects for the business. The company also highlighted continuing strength in its adjacent commercial markets including cyber security and electronics, reiterating that defence and security remained the first priority of governments in all of its markets.
London Stock Exchange (LSE) announced a “merger of equals” with Deutsche Boerse. Its shares rose to a record high as New York Stock Exchange owner ICE said it may make a counter offer for LSE.
GAME Digital, however, saw its shares fall sharply after an update on pre-Christmas trading, which confirmed that UK sales had fallen off sharply at the most critical time of year for the company. Sales in old format content have declined much faster than expected and, while sales of new generation content have remained strong, these were not enough to offset the fall. The company’s sales in the Spanish market have remained strong.
The holding in Capita fell over the period. The company’s full year results led to a lowering of forecasts for organic growth and a higher interest charge. Most significantly in terms of the share price fall, the shares have been significantly de-rated by the stock market. The portfolio manager believes the share price reaction has been unduly harsh, with the company well positioned to deliver growth from its bid pipeline in a challenging macro-economic environment.
Also weighing on portfolio performance were the holdings in the travel & leisure sector, where sentiment has been overshadowed by terrorist events. Thomas Cook confirmed a challenging trading backdrop for 2016, although it has moved much of its summer capacity to the Western Mediterranean. EasyJet reported a reduction in revenue per seat – with French air traffic control strikes an additional headwind for the company.
KIT : Oil underweight holds back Keystone