Jupiter Dividend & Growth reports that its total assets less current liabilities fell by 5.7 per cent. to GBP50,884,000 during the six months to 30 June 2016. By comparison, the benchmark index, the FTSE All-Share Index, rose by 2.1 per cent. (in capital terms) during the same period. The Net Asset Value of the Common shares decreased by 5.3 per cent. during the period under review from 134.45p to 127.32p (including income and expenses). The Net Asset Value of the Zero Dividend Preference shares (‘ZDPs’) decreased by 5.5 per cent. during the period under review from 131.73p to 124.44p*, while the discount on the ZDPs moved from 12.9 per cent. to 7.0 per cent. over the period.
Due to the Company’s geared capital structure, any fall in the Company’s total assets is borne first by the Ordinary Income shares. The effect of gearing is that in rising markets the asset value of the Ordinary Income shares benefits from any outperformance of the Company’s investment portfolio over and above the cost of the fixed entitlements of the Company’s ZDPs and Common shares. Conversely, when the Company’s total assets fall, the Ordinary Income shares suffer to the extent of any shortfall between the return on the Company’s investment portfolio and the cost of the fixed entitlements of the Company’s ZDPs and Common shares. Furthermore, when the value of the assets falls severely, the fixed entitlements of the Company’s ZDPs and Common shares may not be entirely covered.
The annual hurdle rate required to repay the ZDPs on 30 November 2017 was 12.3 per cent. as at 30 June 2016. The ZDPs were covered by a factor of 0.8.
As at 30 June 2016, there is currently a small capital value of 0.28p per share accrued to the Company’s Ordinary Income shares, due to the revenue reserves attributable to the Company which are available for distribution as future dividends.
The Company’s revenues after tax for the period amounted to GBP698,000. The revenue return per Ordinary Income share and Common share was 0.76p and 2.12p respectively. They paid two quarterly dividends of 1.26p each on the Common shares and 0.45p each on the Ordinary Income shares.
The manager says that the Company has long steered clear of mining stocks but these bounced strongly from distressed prices after a weaker dollar boosted commodity prices and led to a sector-wide bear squeeze, e.g. Glencore and Anglo American rallied 75 per cent. and 83 per cent. respectively in the quarter, while struggling supermarkets Tesco and Morrison surged 27 per cent. and 32 per cent. (before giving back their gains in the subsequent months). Jupiter Dividend & Growth owns none of these, so performance relative to the benchmark suffered during the period. The rotation came at the expense of the more reliable areas of the market which the Company does hold such as BT and Ryanair.
Tougher trading conditions hurt retailer Next, while Barclay’s surprise decision to half its dividend for the next two years also contributed negatively. That said, there were strong returns from Verizon, Imperial Brands, Royal Dutch Shell, Royal Mail and car insurer esure, where a turning of the motor insurance cycle should allow it to write more profitable business without diluting underwriting standards. They took some profits in the latter when the shares rose on a takeover rumour.
Although they had sold retirement home builder McCarthy & Stone following its initial public offering, a fair portion of the portfolio was invested in domestic UK businesses which, albeit cyclical, looked set to continue to deliver reasonable growth, especially against a background of slower and more volatile global growth. This part of the portfolio was positioned to benefit from a Remain vote which was their base expectation. Immediately following the Leave vote domestic cyclicals such as housebuilders Crest Nicholson and Galliford Try and ITV sold off sharply. This did not reflect weaker trading, it was simply fear: fear of a recession in the short term and fear of a weaker, slower-growing economy thereafter in a prolonged period of uncertainty amid fractious political negotiations. Following the quarter end, these stocks made significant recoveries as companies confirmed that their current trading appeared to be ‘business as usual’.
JDT / JDTC / JTDZ : Jupiter Dividend & Growth results reflect leave vote