Over the course of 2021, European Assets generated a total return of 16.3% – ahead of the 14.9% return generated by the EMIX Smaller European Companies (ex UK) Index. Shareholders did even better as the discount narrowed by five percentage points. The return to shareholders was 23.2%. The dividend for 2022 (calculated at 6% of the NAV at end December 2021) has been increased by 10% to 8.8p and will be paid in quarterly instalments of 2.2p.
The chairman confirms that the company does not have any direct exposure to Russia or Ukraine.
Some history
This year the company celebrates its fiftieth anniversary. The company was created in 1972 following the acquisition of a Dutch investment company ‘Mijbeb NV’ by a consortium of United Kingdom institutional investors and the appointment of a predecessor of BMO Investment Business Limited as its manager. Initially the company was listed solely on the Amsterdam Stock Exchange. In 1983 its shares were also listed on the London Stock Exchange. Until 1982 the company was called European Community Trust NV. It was then renamed European Assets Trust NV and in 2019 following its migration from the Netherlands to the United Kingdom and de-listing from the Amsterdam Stock Exchange became, European Assets Trust Plc.
Extract from the manager’s report
“Our technology holdings had an exceptional year leading our performance, with good stock selection being the main driver. Most of our positions in this area benefit from long term structural trends such as digitalisation and while we are aware of significant volatility in the sector currently with valuations under pressure, we are confident in their long-term potential. For example, our semiconductor holdings, Nordic Semiconductor and ASM International, were the largest contributors. Nordic is the leading designer globally of low power Bluetooth chips and is benefitting from the proliferation of connected devices. In addition to Bluetooth, they have been investing in two new business areas; power management integrated circuits and cellular ‘internet of things’ microchips. Both areas saw some promising progress last year. In total the company’s order backlog improved by five times, which clearly bodes well for the future.
ASM International produces semiconductor manufacturing equipment. The semiconductor industry capital spend has increased dramatically over the last few years, driven by huge demand for technology and increased data consumption. The area has also become politically sensitive as countries attempt to break free from the reliance of extended supply chains. We therefore expect this demand to continue. ASM International also benefits from the ever shrinking size of semiconductors with their equipment being particularly relevant for smaller chip manufacturing.
Other technology holdings of note that performed well were Lectra, the French manufacturer of material cutting machines and related software, and Alten, the French listed provider of engineering R&D outsourcing. Both companies benefitted from expectations of an economic recovery and saw better demand as the industrial sectors that they depend on saw increased activity levels.
Our financial holdings also contributed well to performance. Ringkjoebing Landbobank, the regional Danish bank, continued its outstanding record of delivery and this year was no exception, though the expectation of higher interest rates, something that has been a headwind for the sector, provided an additional tailwind. This similarly helped Sparebank, the local Norwegian bank, which also benefitted from a rising energy market and the effect that this would have on the local economy. Storebrand, the Norwegian life insurance company, also performed well. Low interest rates have been a real challenge for its legacy guaranteed life business, but the prospects of higher rates, helps its transition to more profitable fee-based business. This also brought forward expectation of higher dividends.
Other stocks worthy of mention are MIPs, the Swedish safety technology business, and IMCD, the Dutch listed specialist chemical distributor. MIPs designs helmet inlays that improve injury outcomes following crashes. They produced an exceptional operating performance last year but also made good progress in growing in the safety industry, a market which is bigger in terms of revenue opportunity than the areas which they are currently exposed to. IMCD also continued their excellent track record of earnings growth, again beating market expectations. They also announced a series of acquisitions which have improved their market position and geographical reach.
Looking at where we suffered, we were a victim of a theme that emerged in the second half of the year. E-commerce, or online companies were de-rated en-masse as the market looked to sell perceived COVID-19 winners to fund investments in the post-virus recovery. Global Fashion Group was hurt particularly badly as, not only did they suffer alongside their regional competitors, but they also issued some disappointing results. A combination of a more competitive market in Latin America and a weak trading period towards the end of the year saw the shares sell off aggressively. We think this has been overdone and believe the long-term investment case remains intact, however, we acknowledge that whilst the market focuses on the impact of higher interest rates, the shares will struggle.
Just Eat Takeaway, the food delivery platform, had similar issues. However, we decided to sell the stock as we felt that the competitive position in key countries had deteriorated markedly. Although the shares hurt us over the year the decision to sell was correct as performance has continued to deteriorate. Mister Spex, an omni-channel glasses retailer, which we bought during its IPO, also struggled as COVID-19 related lockdowns impacted their bricks and mortar revenues.
Another disappointing performer was Fjordkraft, the Norwegian energy provider. Norwegian lockdowns impinged on their ability to acquire new customers, whilst they struggled to pass on rising energy prices on a timely basis. We sold our holding following a reassessment of the quality of the business model.”
EAT : European Assets had a good 50th year