2017 a better year for BlackRock Latin American’s shareholders – after a disappointing 2016, the performance of the NAV of BlackRock Latin American (BRLA) was ahead of the benchmark in 2017 but the discount remains stubbornly high.
Over the year ended 31 December 2017 the company’s NAV returned 29.0% in US dollar terms (17.7% in sterling terms) compared with a benchmark return of 24.2% (13.4% in sterling terms). The share price returned 31.3% (19.9% in sterling terms). The company’s average discount to NAV over the same period was 13.4% [and today it is 13.5%) ].
Due to lower revenue as a result of not generating income from option premiums in 2017, the dividend is to be lower than 2016 at 13.03 cents per share (2016: 17.89 cents per share). It should be noted that, without the option premium, the dividend growth from the underlying asset portfolio was approximately 17%.
Performance triggered tender offer
The board and the investment managers want to tackle the discount. The company has a performance triggered tender offer for 24.99% of the ordinary shares in issue (excluding treasury shares) to be implemented in 2018 if:
- The continuation vote in 2018 is approved by shareholders;
- The company has underperformed the benchmark index on a cumulative US Dollar total return basis by more than 1% per annum over the previous two financial years ended 31 December 2017; and
- The discount to the cum income NAV has on average exceeded 5% over the same two year period.
As the NAV achieved its performance measure over two years, the tender offer will not be invoked in 2018, although the discount is far wider than the target.
However, the board and the investment managers agree that the period of two financial years is too short and should therefore be changed to four years. The performance target is to be moved from not greater than 1% underperformance to outperforming the benchmark by 1%. The target of the discount not being greater than 5% is to be moved to 12% [Quoteddata opinion: the board’s emphasis on taking a long-term view is understandable but there may be some shareholders who feel that four years is a long time to wait for a return of capital if the discount stays as wide as it is. The board will be hoping that their frustration does not boil over.]
Use of gearing
Over the past year the board have agreed with the manager that the performance target and risk profile of the underlying asset portfolio should be increased and that gearing should be used more actively. The board view that 105% of net asset value is the neutral level of gearing over the longer term and that gearing should be used actively in an approximate range of plus or minus 10% around this as measured at the time that gearing is instigated.
BRLA : 2017 a better year for BlackRock Latin American’s shareholders