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Sanditon’s NAV benefits from uplift in its holding in Sanditon Asset Management

Sanditon Investment Trust has announced its annual results for the year ended 30 June 2016. During the year, the company provided an NAV total return of 2.7%, modestly outperforming the FTSE All-Share, which returned 2.2%. However, a narrowing of is premium to NAV, from 3.4% at 30 June 2015 to 1.0% at 30 June 2016, saw the trust provide a share price total return of -0.1%. In comparison, the trust’s hurdle rate (RPIX + 2%) was 3.7%.

The trust’s initial announcement does not include a report from the investment manager (there will be included in the full published report later) and there is little in the way of performance attribution, which means that we cannot report them here. However, the trust’s chairman, Rupert Barclay, describes the first six months of the year as being poor, but says that the board has agreed a methodology for valuing the trust’s stake in Sanditon Asset Management and they’re now able to report the first uplift in this valuation.

In terms of valuing the trust’s stake in Sanditon Asset Management (SAM), the Board has decided to use a simple average of 1% of SAM’s year end assets under management (AUM) and 5x after tax profits (adjusted to exclude any performance fees earned and any associated staff bonuses paid – SAM’s policy is to pay out a maximum of 50% of performance fees earned to staff). The board say that SAM finished its financial year with AUM of just over £595m and adjusted after tax profits of £1.515m. This resulted in the Directors approving an uplift in your Company’s holding in SAM from the book cost of £200,000 to £1,353,000.

In terms of revenue generation, the company says that the yield of its long book has continued to trade at a significant premium to the yield of its short book and so, despite a broadly market neutral structure through the year, the portfolio has generated an income surplus of 1.19p per share. Reflecting this, the Board is recommending an annual dividend of 1.10p per share, which is a 144.4% increase on last year. The company says that the £150,000 dividend received from the trust’s holding in SAM represented about 15% of total income.

In terms of outlook, the trust’s chairman says that, in his view, negative interest rates, elevated asset prices and anaemic global growth remain a significant hurdle for all investors. Furthermore, the United Kingdom’s decision to vote to leave the EU at the end of the period has created another layer of uncertainty which is likely to create extra volatility as governments and investors work out the implications. He says that we can but hope that common sense prevails and this vote does not usher in a period of protectionism but, Brexit or no Brexit, these are very challenging times for all investors. He believes that we will all have to get used to an era of low (or no) returns.

Sanditon’s NAV benefits from uplift in its holding in Sanditon Asset Management : SIT

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