BlackRock Greater European exploring South African listing – BlackRock Greater European says that, during the year to 31 August 2017, its net asset value per share increased by 23.0%, compared with a rise of 26.0% in the World Europe ex UK Index. The share price rose by 22.9% over the same period. The chairman’s statement says that the company lagged behind the reference index in this period principally due to sector allocation and stock selection. In April the Board declared an interim dividend of 1.75p per share (2016: 1.65p). The Board is proposing the payment of a final dividend of 3.70p per share for the year (2016: 3.65p). This, together with the interim dividend, makes a total dividend for the year of 5.45p per share (2016: 5.30p), an increase of 2.8%.
The Company continues to explore the possibility of a secondary listing of its shares on the Main Board of the Johannesburg Stock Exchange, whilst maintaining its primary listing on the Main Market of the London Stock Exchange, and the new manager has had a number of positive exploratory meetings with potential investors in South Africa. Any issue of shares would fall within the existing authorities granted by shareholders at last year’s Annual General Meeting. In the event that sufficient demand exists to make a secondary listing worthwhile, a listing is planned for the end of November and they will make an announcement in due course.
The investment managers report that, over the year, sector allocation detracted from returns. In particular, consumer services underperformed and financials, where they are underweight, proved to be the best performing area of the market. Positively, a lower allocation to health care and a higher allocation to information technology benefited performance.
Stock selection was negative overall during the period but varied by sector. A number of consumer names detracted from returns, including a holding in international food retailer group, Ahold Delhaize. While the company had relatively robust results over the period and stable margins which are poised to rise further with the synergies from the Delhaize deal, the share price suffered due to fears of food retail deflation in the US, which was also evident across a number of Ahold’s competitors. The shares suffered further towards the end of the period as the announcement came that Amazon had bought Wholefoods and, subsequently, significantly cut pricing. Whilst the current market crossover for Ahold with Wholefoods is limited, this competitive threat is concerning for the entire industry, especially in regard to online strategy; they opted to exit the position.
They also saw weaker performance from a holding in building materials group CRH. As rhetoric grew around President Trump and his potential infrastructure spending plans towards the start of the period, many construction names exposed to the US, such as CRH, saw strong performance outcomes. However, as Trump’s credibility and ability to pass policy came into question, the market witnessed an unwinding in many of these associated names. They continue to believe that CRH is an attractive investment, boasting a strong management team. The company has balance sheet capacity for M&A opportunities and has a history of executing strongly on these deals and creating value for shareholders.
More positively, they saw strong performance from a holding in Finnish industrial company Wartsila. The company has seen robust results over the period, with orders growing particularly within their marine division. Their most recent results for the second quarter of 2017 showed further evidence of marine recovery with orders up by 11% year-on-year. They believe Wartsila continues to be an attractive investment given its ability to grow aftermarket sales, which is the highest margin area of the business and also allows for strong visibility. In addition to its cost cutting programme, they believe the group will grow earnings and move to a net cash position, with potential for cash generated to be returned to shareholders.
Dental implant manufacturer Straumann has been a long-term holding and has grown its top line by c.15% over the last 18 months. This growth has been driven by new products such as bond level tapered implants. Market share in this area, relative to their other products, is low. They therefore believe that the company can improve penetration of this product and continue to support top line growth, as reflected by the company’s recent upgrade of revenue growth guidance.
In the Emerging Europe portion of the portfolio they have seen mixed outcomes over the year. They have seen strong performance from a holding in Sberbank, Russia’s largest state-owned bank. It continues to build on its restructuring strategy which has driven much of its success over the past few years, improving its services and the efficiency with which they are delivered. Positive performance also came from a holding in Poland’s largest insurance company PZU. Less positively, holdings in Gazprom and IT outsourcer Luxoft detracted. The latter fell following disappointing earnings and a lowering of guidance as the company is experiencing slowing trends from their clients on IT outsourcing.
BRGE : BlackRock Greater European exploring South African listing