For the year ended 30 June 2016, TR European Growth’s net asset value total return was 13.6% compared to a total return from the benchmark index (Euromoney European Smaller Companies Index (ex UK)) of 14.2%. The share price total return for the period was 1%. The Board plan to pay a total dividend of 11.50p. This represents an overall increase of 21% in the dividends paid last year.
The manager’s report says TR European Growth’s performance suffered in the wake of the UK referendum result for leaving the European Union as a consequence of being geared and a number of stocks being perceived to be “Brexit stocks” such as Irish hotel company Dalata, Irish agronomy services provider Origin Enterprises, Danish listed English Channel ferry company DFDS and Nobia owner of UK kitchen retailer Magnet. All these companies either have substantial UK revenues or have a dependency upon British customers.
Overall the performance of the trust over the course of the year was characterised by a handful of successful investments being offset by a handful of poorly performing ones and the failure to own a group of strongly performing momentum stocks. TR European Growth benefited from strong performance in: Finnish online retailer Verkkokauppa.com, Finland’s answer to Amazon; Danish ferry company DFDS that saw off Eurotunnel’s ferry business and then delivered a series of earnings upgrades; and Carl Zeiss Meditec, the German maker of ophthalmology equipment on new product releases and earnings forecast upgrades. They also benefited from a number of bids, for example French rail equipment company Faiveley, Swiss travel and visa processing business Kuoni, Swiss airline catering business Gategroup, French mobile gaming company Gameloft and French retailer Darty.
However, performance was burdened by investments in stocks such as Italian eyewear manufacturer, Safilo, where it has proved far harder to turn the business around than they expected following the loss of the Gucci license. Another noticeably poor performer was car hire business Europcar which has suffered a derating as the US listed car hire businesses such as Hertz and Avis have underperformed due to overcapacity, despite this not being an issue in Europe and despite a very different business model. Terrorism attacks in France have also weighed on sentiment. Finnish mining equipment and service company, Outotec, also hurt performance as cuts to capex budgets in the mining industry were more severe than they anticipated.
TR European also saw performance relative to the benchmark challenged by not owning certain stocks that performed very strongly in the year to June 2016. The market was characterised by a focus on momentum rather than valuation and certain stocks such as commercial steam oven manufacturer Rational, Danish pharmaceutical H Lundbeck or Irish bookmaker Paddy Power Betfair had valuations that were too steep for them, but performed well despite this due to earnings and price momentum. They also were not invested in video game company Ubisoft that has had bid speculation surround it.
TRG : TR European Growth hit by Brexit