BlackRock Income and Growth caught by Patisserie Valerie potential fraud – BlackRock Income and Growth lagged its benchmark by 3%, returning -4.5% against -1.5% over the year ended 31 October 2018. Its discount also widened, leaving shareholders nursing an 8% loss. The chairman says that holdings in Patisserie Holdings and TP ICAP held back performance. Patisserie Valerie suffered an alleged significant fraud and the shares are currently suspended. TP ICAP released a trading update where, despite a good revenue performance, the outlook for cost growth was negative and the shares fell significantly. The holding has been sold.
Total dividends for the year were 6.9 pence per share. This represents a 4.5% increase over the prior year.
Extract from the manager’s report
“Patisserie Holdings was the largest detractor for the period with an investigation having been opened in connection with alleged fraudulent accounting activity. The company has raised funds through an equity placing and secured additional loan funding from its Chairman, Luke Johnson, to improve liquidity whilst the investigation is ongoing. TP ICAP saw a significant share price decline in July ollowing a disappointing trading statement. The increased market volatility that we have seen has failed to come through to revenue growth for TP ICAP as was expected. The business has had additional issues with costs, with downgrades to cost saving synergies, and increases to interest and broker compensation costs. Inchcape has suffered as a slowdown in new and used car sales in the UK. Strength across parts of Europe helped to offset declines in the UK but this was not enough to put the brakes on the challenging back-drop for new car vehicle margins. Inchcape’s distribution business remains a high-quality business with a net cash balance sheet.
Infrastructure investor, John Laing Group, has seen its share price rise significantly over the period. Earlier in the period the company announced a rights issue to raise GBP210m for future investment and more recently they have confirmed that the pipeline for new investments continues to look encouraging for the rest of the year. The latest results demonstrated an increase in net asset value after a large gain on the disposal of one of their assets. An underweight exposure to Vodafone has helped relative performance for the period as the shares have continued to tumble. Italian competitor Iliad announced incredibly aggressive pricing which far undercuts Vodafone’s cheapest offer and competition in Spain also remains a risk to profitability. Additionally, the acquisition of Liberty’s European assets was debt funded, increasing the leverage in the business. Tesco has performed strongly over the year as the business continues to demonstrate improved cash flow and a reduction in debt levels. We believe the Booker acquisition is additive to the investment case both financially and strategically.”
BRIG : BlackRock Income and Growth caught by Patisserie Valerie potential fraud