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New discount control mechanism for JPMorgan Claverhouse

13
2018
March

New discount control mechanism for JPMorgan Claverhouse – JPMorgan Claverhouse has published its annual results. For the year to 31st December 2017, the net asset total return was +16.2%. This compares with a total return for the same period from their benchmark, the All-Share Index, of +13.1%. During the year, the shareholder total return was +21.8%. The total dividend per share for the year was 26.0p (2016 total: 23.0p). This represents the 45th successive year in which the dividend has been raised. The Board intends to increase the first three quarterly interim dividends in 2018 from 5.5p per share to 6.0p per share, to even out dividend payments more through the year.

The board continues to be concerned that the discount has often been greater than that of many of its peer group. The directors have therefore resolved to implement a more active discount and premium management policy. In future, in normal market conditions, they intend to repurchase shares at prices representing discounts to NAV (capital only) of 5% or more, into Treasury. In response to market demand, they will sell shares from Treasury (including the existing 2.2 million shares currently held in Treasury) at a discount to NAV (cum income debt at par), subject to a maximum discount of 2%. Additionally, new shares will be available for issue at a premium to NAV (cum income debt at par), after the costs of issue. Shareholder approval is required for a sale of shares out of Treasury by the Company at a discount to NAV.

[QD comment: it is still unusual to reissue shares from Treasury at a discount, even one as small as 2%, and this may not be well received in all quarters. The move does represent a decisive shift in JCH’s discount control policy however.]

The Board has continued to support the Board Apprentice initiative that it joined in 2016. Jon Dinnis’s term will come to an end in April this year and we are in the process of interviewing candidates with the intention of appointing a replacement for Jon by the time of the Annual General Meeting.

Extract from the managers’ report

“Our most positive contributor to performance during 2017 was again our holding in the remarkable Fever-Tree, the leading player within the premium segment of the drinks mixer market, which we introduced to the portfolio in 2015. The shares doubled (again!) during the year. Whilst we remain very positive on the outlook for the company as it starts its international roll out, we thought it prudent to take some profits. Our top slicing of the position in August was in excess of GBP24.00 per share, which was exactly six times the level at which we had made our initial purchases just two years previously.

Another positive contributor was our long term holding in 3i Group. The company provides an attractive way of investing in a diversified portfolio of private equity, infrastructure and debt. The fund’s largest holding Action, the Dutch-based discount, non-food retailer continues to expand rapidly with sales up 28% in 2017 with 244 new store openings bringing the total to 1,100. The non-life insurer Beazley also had an excellent year and provided us with another handsome dividend increase and another special dividend. The equipment hirer, Ashtead had another very good year as it benefited from a booming US economy and continued to make market share gains. We were pleased with the performance of all of our more recent purchases. The shares of Morgan Sindall the specialist construction group and the electronics distributor, Electrocomponents (bought at the end of 2016) were particularly strong. We continued to benefit from our overweight position in the mining sector with Rio Tinto our biggest holding performing very well again on the back of rising commodity prices.

By contrast, the biggest detractor from performance during 2017 was again our long term position in the television broadcaster ITV. We continue to believe that this company will play a role in the consolidating global broadcasting sector. While we wait, we are happy to collect the very attractive dividend which the stock pays. On the subject of bids it was interesting to see that GKN, which performed poorly for the portfolio in 2017 was, shortly after the year end, bid for by Melrose, another of our holdings.”

JCH : New discount control mechanism for JPMorgan Claverhouse

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