CT UK High Income Trust (CHI) has recently released its half year report, for the six-month period ending 30 September 2022. We remind readers that CHI operates with two share classes, ordinary and B.
Over the period CHI generated a NAV total return of -11.8%, compared to the -8.3% return of its benchmark, the FTSE All-Share Index. The ordinary shares generated a share price total return of -9.1%, and its B shares returned -5.0%.
While CHI has underperformed over the six-month period, the chairman, Andrew Watkins, is encouraged by the board’s discussions with Philip Webster, the investment manager, and his conviction that the investment portfolio is in a better position today than at any time under his tenure. CHI’s underperformance was due to the headwinds facing Philip’s investment approach, where for example, has no exposure to BP, Shell and AstraZenea, which have been amongst the best performing companies within CHI’s benchmark.
There has been some portfolio activity over the period, with Philip utilising the underperformance of the UK mid-cap sector to initiate new positions in Hargreaves Lansdown, Rotork and following the period end, One Savings Bank. Positions in Prudential, Jupiter, Haleon and Just Eat Takeaway.com have been exited.
He has also reduced some of the top performers: Compass Group, Beazley and Deutsche Boerse, where yields have contracted. Positions in the higher yielding Intermediate Capital, Rio Tinto, Phoenix Group and Berkeley Group have been increased on weakness.
Three quarterly dividends of 1.32p per share have been declared so far for the 2022 financial year. As of 30 September 2022, the ordinary shares had a share price yield of 7.1%, and the B shares a 6.7%yield, compared to the benchmark’s 3.8% yield. The board’s intention is to have at least a 5.45p per share dividend paid for its full 2022 financial year.
Revenue per share declined by 10.9%, compared to its 2021 half-year level. This is primarily due to the reduction in CHI’s gearing, as well as the absence of special dividends which were paid in 2021.
Over the half-year period 100,000 Ordinary shares were bought back for treasury at an average discount of -10.3%. No B shares were bought back in the period.
Given the shift in market backdrop, the board and manager felt it prudent to unwind the gearing, reducing it to around 1-2%, with Philip now having the option to redeploy gearing at depressed valuations.
CHI’s previous chairman, John Evans, retired following the AGM on 20 July 2022. He was replaced by Andrew Watkins, with the board adding a new non-executive director, Angus Pottinger.