Jupiter UK Growth is growing – Jupiter UK Growth, which was recently selected as a rollover vehicle for Jupiter Dividend & Growth, has published results for the year ended 30 June 2017, the first full year since Steve Davies took on the job of managing the company. The net asset value, with dividends added back, grew by 26.7% and the share price, on the same basis, by 25.5%. This compares favourably with the All-Share index’s 18.1% total return.
The chairman says that the portfolio benefited from its strategic lack of exposure to the oil and gas sectors and by Steve’s decision to top up his holdings in a number of domestic stocks that were marked down sharply in the aftermath of the referendum.
The chairman points out that the change in strategy last year to pursue growth in the UK equity market had implications for the timing and frequency of dividend payments. The board resolved to replace the regular quarterly dividends with a single annual dividend. The first of these payments has been set at 7.0p. This is equal to the aggregate of 7.0p paid in interim dividends in respect of the previous financial year ended 30 June 2016. The board’s ambition is to at least maintain the dividend at this level and look to grow it over time.
Steve Davies’ manager’s report says that the biggest positive contribution came from the portfolio’s sizeable holding in Sirius Minerals, which is developing a huge fertiliser resource in North Yorkshire. IAG has been another significant contributor over the past year, benefiting from a lower oil price, further improvements in cash generation and good capacity discipline across the North Atlantic. The period was not without its challenges, though, with its largest subsidiary British Airways suffering a major IT meltdown in May. One of the international holdings in the portfolio, Apple, rose sharply on market-beating results which highlighted the company’s highest ever quarterly revenues, supported by record iPhone sales and the market looking forward to the release of the new iPhone in the autumn.
One of the fund’s smaller cap holdings, Arrow Global, performed well. Arrow is a debt collection and management business (Jupiter is its largest shareholder) and it has broadened its geographical and product capabilities significantly since its IPO in 2013. The share price has almost doubled since then, but Steve still thinks that it looks attractive when compared with many of its European peers.
More recently, the portfolio’s zero weighting in the oil majors has been another strong contributor to relative performance. Steve believes the oil price remains stuck in a $40-$60 range, with the potential for that range to move lower over time. In his view, the oil majors do not offer an attractive risk/reward trade-off if that is the starting assumption. US shale producers have continued to increase production despite lower oil prices and the likes of Libya and Nigeria are also bouncing back from previous disruptions. OPEC has maintained its production cuts, but the recent political changes in Saudi Arabia may have a significant impact on how things evolve from here. He says that Mohammed bin Salman, the youthful new Crown Prince, is acutely aware that Saudi’s oil could become a stranded asset in 20-30 years’ time if demand patterns change significantly, so he is looking to reduce Saudi Arabia’s fiscal dependence on oil revenues and improve the economy’s ability to cope with lower oil prices.
The biggest detractor to returns in 2017 was Dixons Carphone. Its electrical division continues to trade well but Carphone Warehouse is struggling as consumers change handsets less frequently and EU roaming charges are falling. The shares are now extremely cheap, in Steve’s view, and he is engaging actively with the company to restore value. Another negative was TalkTalk, which reported a fall in revenue and a dividend cut that was larger than the market expected. On a relative basis the portfolio’s zero weighting in HSBC was a negative too, as the bank rose strongly alongside its sector over the year with an added benefit from currency translation as sterling weakened.
JUKG : Jupiter UK Growth is growing