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Securities Trust of Scotland boosts revenue with Airbus options

Securities Trust of Scotland reports that, for the six month period ended 30 September 2016, its net asset value total return was 13.7% and the share price total return was 17.6%. This compares to the peer group median performance of 14.2% over the same period. The revenue return per share for the six months was 3.07p, an increase of 23%. A second interim dividend of 1.45p will be paid on 16 December 2016 to shareholders on the register at 25 November 2016. This brings the total dividend to 2.90p, unchanged from last year.

The manager says the portfolio has benefited from strong moves in capital goods companies such as Caterpillar and Eaton in the US both of which exhibit attractive valuations and an up tick in earnings momentum.

One specific area of disappointment has been the share price performance from both Italian banks held in the portfolio. Intesa Sanpaolo & Banca Generali have been impacted by a number of issues, including the shock of the Brexit vote and the fear of other EU countries following the UK’s lead, most notably Italy. The country’s banking industry is also undergoing stress from high-legacy non-performing loans (NPLs), most notably Montepaschi, as the country’s third-largest bank tries to restructure to avoid a bail in of its bond holders. The Italian President Matteo Renzi’s referendum also looms large for the end of 2016 and his stance on resigning should he lose has also caused uncertainty. However, despite this politically charged and uncertain economic backdrop, both Intesa & Banca Generali have produced very strong operating results, with the latter in particular, taking in record net new assets.

During the period, they initiated the fund’s first derivatives positions, through the sale of put options on Airbus. The manager believes Airbus is set to benefit from an underappreciated megatrend of increased global air travel by 4 to 5% per annum until 2034. The company should double earnings and free cash flow over the coming years which is likely to create outsized dividend growth as it ramps up production to fulfil its nine years of order backlog. Both Airbus put option positions that they initiated during the period complemented our existing cash equity position and have expired having produced high levels of premium, which was added to the revenue account.

STS : Securities Trust of Scotland boosts revenue with Airbus options

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