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TR European let down by widening discount

TR European let down by widening discount – TR European Growth has published results for the year ended 30 June 2020.  Over the period it delivered a return on NAV of 3.0%, ahead of the 0.3% return posted by its benchmark (Euromoney European Smaller Companies (ex UK) Index), but the share price fell as the discount widened from 14.2% to 19.2% and returns to shareholders were -2.5%.

The board is proposing a final dividend of 14.20p. Together with the interim dividend of 7.80p this brings the total dividend for the year to 22.00p, keeping the dividend in line with last year.

Extract from the managers’ report

In the year ending June 2020 the Company benefited from its exposure to early stage growth stocks that are maturing into structural growth names. Food delivery platform HelloFresh was the top contributing name that benefited from consumers shifting to home delivery of groceries, a trend accelerated by the global lockdowns that have occurred. Swiss online pharmacy company Zur Rose was another benefactor of this trend and was given an additional boost by liberalisation of the pharmaceutical prescription process in Germany. The Company further benefited from owning German specialty pharmaceutical wholesaler Medios, a company that had been cheap and neglected by the stock market, but whose terrific attributes were revealed with the oxygen of increasing sell side coverage over the course of the year.

Detractors from performance were typically in unfashionable and more cyclical sectors such as industrials and banks, or the rare holding suffering from stretched balance sheets. Dutch private bank Van Lanschot Kempen struggled as interest rate cuts hit net interest income and regulators prevented the bank from distributing dividends despite a rock solid balance sheet. We view the shares as very cheap and the dividend as delayed rather than dead. French flooring manufacturer Tarkett suffered from raw material headwinds that abated into the severe slow down caused by Covid-19, which, combined with a large but not unmanageable debt burden, has left the stock largely ignored by investors. We see value and a clear path to balance sheet repair so have maintained our holding. Spanish media conglomerate Promotora de Informaciones also suffered after the anticipated disposal of Media Capital fell through leaving the balance sheet stretched as Covid-19 hurt revenues. The business has adequate liquidity and is at a substantial discount to the underlying sum of the parts so we maintain our holding.”

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