- UK-focused Mercantile (MRC), the £1.5bn market cap trust, reported annual results to 31 January 2020. The company out performed its benchmark, with a total NAV return of +28.0% (shareholder’s return was +40.2%). Stock-specific highlights from the year include:
- Winners: One of the company’s largest holdings is a long standing investment in alternative asset manager Intermediate Capital Group whose shares continued their rise as it maintained its impressive asset raising performance following strong investor demand. AVEVA, the global leader in engineering and industrial software, is a top ten holding whose shares continued their ascent. The company delivered both improving recurring revenue and increasing profitability with the earlier business integration of Schneider Electric’s industrial software business yielding results. Also in the technology, MRC’s holding in Softcat, one of the UK’s leading IT value-added resellers, was another big success for MRC; this profitable, growing company has boosted its public sector business whilst delivering year-on-year growth in both revenues and profits. The JD Sports was a significant contributor to performance. The business increased sales and profitability, despite the widely reported headwinds facing retail stores in JD’s core UK market. Another significant performer was Nottingham-based Games Workshop, a manufacturer of miniature wargame figurines and a company that dominates its niche market. Its share price soared over the period as investors acknowledged its continued sales and profits growth across trade, retail and online channels.
- Losers:The most significant detractor from returns was Vesuvius, the metal flow engineering company, which faced a backdrop of deteriorating end-market conditions throughout 2019. Exposure to the company – and to the steel industry more broadly – was reduced in the period. Loans provider Amigo was the other significant detractor. It is the UK’s largest guarantor loans company, but its share price plunged over the year amidst a challenging operating environment and a substantial rise in customer complaints. Given the structural nature of the company’s problems, it is no longer held in the portfolio.
- Hipgnosis Songs (SONG) increased its debt facility after entering into an agreement with a syndicated group of lenders, with JPMorgan Chase Bank as lead arranger, to increase its revolving credit facility (RCF)from £100m to £150m. SONG noted that it may request an increase in the RCF commitment by a further £50m subject to certain conditions.
- We had annual results from NB Distressed Debt to end-December 2019. The company is made up of a number of different share classes: the Ordinary Share Class (NBDD); the Extended Life Share Class (NBDX); and the New Global Share Class (NBDG). All three share classes are currently in “harvest periods.” This means that assets of the company are being realised to gradually return them to shareholders, mostly in the form of dividends. However, the company’s structure has an indefinite life to allow for flexibility for new share classes to be added if demand, market opportunities and shareholder approval supported such a move. The company said that as of 31 December 2019, it had returned a total of $132.8m or 106.7% of NBDD investors’ original capital of $124.5m, $251.7m or 70.06% of NBDX investors’ original capital of $359.4m and £27.1m or 24.52% of NBDG investors’ original capital of £110.8m.
We also have thoughts from the Europe-focused debt fund, Alcentra European Floating Rate Income, annual results from Schroder Asian Total Return, including a view on China’s economic outlook, and BMO Private Equity.
In property, U and I Group suspended its dividend amid a halt in development. Picton Property is also reviewing its dividend level.