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Finsbury Growth outperforms again

Finsbury Growth outperforms again – Finsbury Growth & Income Trust’s net asset value return per share for the year was 13.7% (2016: 20.6%) and the share price total return was 14.2% (2016: 20.8%). Both outperformed the benchmark, the All-Share Index, measured on a total return basis, which rose by 11.9%. The total dividend for the year rose by 8.4% to 14.2p.

The chairman’s statement says that the major contributors to the good performance were the fund’s investments in London Stock Exchange, Unilever and Burberry. In characteristic fashion, however, the manager takes the time to talk us through two holdings that have disappointed:

two holdings which have come to require much more patience from us and Finsbury shareholders than I originally hoped. For Daily Mail and General Trust – we know, as does the company, that the days of the print newspaper are numbered, but we still wonder if investors have properly registered the success of MailOnline in reaching a bigger and more global audience than the newspaper has, or ever could. 100 million hours every month is now spent by readers or watchers of MailOnline, which gives it, as the company says with some degree of understatement – lots of opportunity to sell advertising. And indeed advertising revenues for the combined Mail businesses are growing again, for the first time in many years, as the continuing declines for the print newspaper are more than offset by digital advertising growth. We hope this is a significant inflexion point. 

Next: Pearson. That company’s woes intensified over the last 12 months, with one result being the necessity to cut its dividend by up to 70%. This dividend cut has constrained the pace at which your Board is able to grow Finsbury’s own dividend this year and next (although this year’s dividend is up 8.4% nonetheless). I am sorry about this. Right at the heart of Lindsell Train’s investment approach is a preference for reliably cash generative companies, where dividend cuts should be inconceivable. To this extent our investment for you in Pearson has clearly been a mistake. It is what it is, though. And objectively we now have to say Pearson’s dividend cut is a good thing. It is so because it improves the chances of the company pulling through this difficult period. The cash it retains within its business, rather than pays out as dividends, will allow it to reduce debt, but also, and far more important, to continue to invest in its transition from text book publisher to a provider of digital software services to educational establishments. On balance we still think there are encouraging indications of revenue growth and market share gains for Pearson’s digital products that justify retaining the shares. But the experience has been sobering for me and I suggest you conclude from it that Mike Lindsell and I are by no means infallible and, like everyone else, will be prone to future errors of judgement too.”

FGT : Finsbury Growth outperforms again


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