Hansa says its net asset value produced a total return of c. 17% over the six months ended 30 September 2016 in comparison to a total return of c. 2% from its benchmark. The ordinary shares rose 20.2% and the A ordinary shares by 13.0%, after the payment of an 8.0p dividend paid in May. They point out that, over the last five years, the returns have not been particularly competitive. During the first six months of 2014, the portfolio was realigned with the sale of holdings in large international companies and reinvested in funds with a rather more focused exposure to different sectors and countries. It has resulted in improved returns, but not enough to offset the effect of the share price performance of their holding in Ocean Wilsons Holdings, affected as it has been by events in Brazil.
Ocean Wilsons Holdings
They say that the overall business of Wilson Sons, Ocean Wilsons’ subsidiary, continues to make progress in the port marine services arena, benefitting from the decline of the Real. Wilson Sons’ oil business is adversely affected by both Petrobras’ troubles and the low price of oil. Wilson Sons has announced the extension to its licence in the port of Salvador until 2050.
The Wilson Sons’ results for the second quarter were released in August and, while they show that the company continues to be affected by the difficult economic situation in Brazil, there were nonetheless some encouraging signs. The political situation in Brazil has long been challenging, but it is now hoped that, with Dilma Rousseff’s impeachment finally confirmed, the government of Michel Temer can provide some stability between now and the 2018 presidential election. It is encouraging that the market has responded positively to this year’s developments, with both Brazilian equities and the country’s currency performing positively, although the Real remains significantly below where it was in the first half of last year. The second quarter saw the company’s revenues decline by 12.4% compared to the same period last year, which was largely a result of a weaker average exchange rate, as revenues remained flat in Brazilian Real terms. Reduced activity in both Shipyards and Logistics also contributed to the decline in revenues, although Container Terminals continued to see increased activity. Overall EBITDA, including the Offshore Support Vessels joint venture, was down by 8.4% during the period to $45.8m.
Revenues from Container Terminals were 5.4% lower during the quarter compared to last year, despite an overall increase in volumes, which were up 4.0%. The currency depreciation led to higher export volumes which were partially offset by reduced imports, and cabotage was higher, as a result of stronger domestic consumption of rice and lower costs in comparison to road transport which particularly affected the brewing industry. Revenues from the Brasco oil and gas support base were up slightly to $5.9m, but this continues to operate significantly below its capacity as a result of the challenging market and low oil price. Within Towage, revenues were down 9.6% as a consequence of the devaluation of the currency, fewer harbour manoeuvres and a reduced number of special operations. However, the EBITDA margin within Towage increased to 45.9% as a result of the combination of measures to reduce costs and expenses and the increased size of the ships being attended. The quarter saw higher capital expenditure than last year following the acquisition of 14 cranes for Port Terminals operations that are due to be received late in 2016 and early 2017.
The investment subsidiary of Ocean Wilsons was valued at $234.1m at the end of June 2016, which was down 4.2% from the 31 December 2015 value of $244.4m, although during this period $3.75m was withdrawn from the portfolio to contribute to the dividend paid by the parent company. The portfolio continues to be biased towards equities, both public and private, reflecting its long–term nature.
The share price performance of Ocean Wilsons Holdings has been strong since the end of March, with the stock up 31.3% in Sterling during the first half of the financial year. This brings its return since the beginning of the calendar year to 28.8%, or 35.7% on a total return basis taking into account the dividend of 43.7p per share that was paid in June. The share price represents a discount to the look–through NAV of 33.0%, based on the market value of the Wilson Sons shares, together with the latest valuation of the investment portfolio.
The core regional funds experienced robust performance across a range of names over the quarter. The best performance was seen in the Asian and Emerging Market holdings with Schroder Asian Total Return returning 13.2%, NTAsian Discovery 14.4% and Prince Street Institutional 11.8%.
The US funds also performed well, particularly Select Equity and Vulcan Value which returned 7.2% and 11.1%, respectively.
More subdued returns were produced by holdings in Odey Absolute Return (-2.8%) and BlackRock European Hedge (+1.3%). Both funds have generated exceptional longer term returns through their ownership of quality names and cautious positioning on miners and emerging markets. The reversal in fortunes for these areas has negatively impacted performance.
Within the Eclectic and Diversifying silo two thematic funds, GAM Star Technology and JLP Credit Opportunity, performed very well. GAM Star Technology rose by some 21.2% over the quarter, having experienced rather lacklustre returns over the past couple of years, as it benefited from one of the most attractive growth/valuation ratios in the market. With many new technologies now coming to fruition, and groups such as Amazon benefiting from a ‘winner takes all’ scenario, they remain positive on the sector.
JLP Credit Opportunity has performed well since the start of the year, as investors in the stressed debt space saw value with many bonds implicitly pricing in bankruptcy, and it was up by 15.2% during the quarter. Recognising the ongoing availability of funding and with economic growth still positive, investors have taken the opportunity to invest in a sector that had previously been out of favour.
The UK stock market has bounced back sharply from its post–Brexit low, helped by a weakening pound, a cut in interest rates, and better than expected economic data. Some holdings like Galliford Try and Brooks Macdonald were caught up in the post–referendum market volatility, but have since regained most of the lost ground. Galliford Try’s final figures showed more signs of better housebuilding returns against a background of robust trading post year–end, pointing to a FY17 post–tax return on equity of 27.5% and offering a high dividend yield. Brooks Macdonald’s discretionary assets stood at GBP8.3bn at the end of June, with net inflows in the year equating to organic growth of almost 12%, reflecting the company’s position within the faster growing segments of the asset management market like SIPPs and Finance and Accounting outsourcing.
Two of the portfolio’s “problem children” appear to be finding some kind of stability in their trading patterns following end market shocks suffered in recent years. Hargreaves Services is “trading in line with expectations”, with contracts for the sale of the group’s surplus coal stocks totalling GBP11m without any impairment to book value, and encouraging progress in the Property and Energy portfolio. New management at Goals Soccer Centres is rapidly implementing its recovery plan after raising GBP16.75m to support the outcome of a strategic review, transitioning the investment case from a roll out of new soccer centres to unlocking the value of the existing asset base of 46 clubs, investing “more capital in rejuvenating our core estate in the last three months than over the last ten years”. Encouragingly for the first 11 weeks of H2 there has been a return to like–for–like sales growth.
Some companies have been clear beneficiaries of a weakening pound, enjoying the translation benefits of overseas earnings. Experian generates over half its revenue in North America, compared with only 20% from the UK, where they have seen no significant post–Brexit adverse impact on trading. Hansteen Holdings has outperformed the FTSE Real Estate sector due to a relatively high dividend yield, a 60% weighting in continental European assets and being invested in light industrial property, an asset class that appears to be resilient to Brexit. UBM and Hilton Food Group are two other holdings that derive the majority of their profits from outside the UK and are therefore likely to benefit from a weak pound. NCC Group, the independent global cyber security and risk mitigation experts, and by far their largest holding, delivered a record year of growth, boosted by acquisitions and underpinned by strong organic growth of 25% in the Cybersecurity division and 10% in Escrow. They believe that demand dynamics remain attractive in the cybersecurity market, supporting a positive outlook for growth, pricing and margins. The latest dividend was increased by 17%. The group continues to actively seek to acquire services–led businesses in both Europe and North America, to complement its geographical and technical presence.
Finally, Hansa Trust’s 6.4% holding in Altitude Group has recently sprung to life following the development of a portfolio of proprietary software applications which have been integrated into a compelling and potentially structurally changing solution for the $22bn US market for personalised and promotional products, signage and printed wearables. Altitude has announced two significant agreements with Aprinta Group and AI Mastermind which will see their “Click to Ship” solution rolled out to promotional product distributors commencing Q4 of this year. In addition, the company has a strong pipeline of opportunities with similar enterprise level partners and is seeing encouraging signs of acceptance and enthusiasm for the solutions. As a result, the Altitude share price jumped from 12.25p to 54.25p over the quarter.
HAN / HANA : Hansa – recent improved performance fails to offset lacklustre earlier returns