Edinburgh impacted by tobacco, Provident Financial and Capita – Edinburgh Investment Trust lagged its benchmark by some margin over the year to the end of March 2018. Its NAV total return was -5.9%, the return to shareholders was -6.7% and the return on the All-Share index was +1.2%. The dividend was increased from 25.35p to 26.6p. an increase of 4.9%.
Mark Barnett’s manager’s report says that, over the past year the tobacco sector was impacted by plans announced by the US Food and Drug Administration to launch a consultation on lowering nicotine levels in cigarettes, the weakness of the US dollar and the shift in market sentiment towards more economically sensitive sectors in a period of rising bond yields. This despite the successful completion last year by BAT of the acquisition of Reynolds American.
The holding in Provident Financial delivered negative returns over the period as a whole, despite rallying sharply in the final quarter. The company issued a profit warning last August, downgrading forecasts for its consumer credit division from a profit of GBP115m to a loss of between GBP80-120m for the year. Additionally, the business announced that its subsidiary Vanquis Bank was subject to, and co-operating with, a Financial Conduct Authority (‘FCA’) investigation into its repayment option plan ancillary product, along with the resignation of its chief executive and the cancellation of its dividend. In February of this year, earlier than expected by the market, Provident Financial announced that it had reached resolution in respect of the FCA investigation and was raising a total of GBP300m to strengthen the balance sheet – maintaining its investment grade status – and that it will return to paying dividends this year before resuming a “progressive” dividend policy in 2019.
Capita also endured a challenging year. Following the news of the bankruptcy of fellow government outsourcer Carillion (which was not held in the portfolio), the company’s board revised its view of an appropriate balance sheet structure for the business. As a result, Capita announced the cancellation of its dividend and the outline of a fund raising, without the details – creating significant pressure on the shares. The company also announced a major re-structuring. Subsequent to the period end, Capita announced a 3 for 2 rights issue raising GBP701 million.
By contrast, Burford Capita, the litigation financier, confirmed that full year profits had more than doubled from the previous year and announced a 20% increase in its dividend. There were also
positive contributions from non-life insurers Hiscox and Beazley. Some of the portfolio’s ‘Brexit hit’ stocks showed a significant turnaround in share price performance, with the holding in easyJet seeing its share price rise by over 50% over the period. Sentiment towards the real estate sector – notably those exposed to the London office market – was also negatively impacted in the aftermath of the 2016 Referendum. Derwent London saw its share price recover some lost ground, as it confirmed strong growth in earnings on the back of a record lettings year. Derwent further pleased
investors with a special dividend of 75p a share. Next confirmed that its multi channel offering allows it to see the growth of on-line shopping as an opportunity not a threat, while it can flex its
leasehold property base to take best advantage of future trends in apparel retailing. Meanwhile, its focus on shareholder returns – through special dividends and further share buy backs – underpinned earnings growth despite a challenging retail back drop and an increased investment in logistics to improve the efficiency of its on-line business.
EDIN : Edinburgh impacted by tobacco, Provident Financial and Capita