Worsley Investors (WINV) announced the release of its annual report for the period ended 31 March 2023. The company saw solid returns for the year given the circumstances with NAV growing 10% and shares up 1% with the discount widening to 34% at last close. The total annualised return on the capital invested over the period in the equity portfolio was 31.1%. Both of these compare very favourably to the wider market returns on UK equities and real estate investment companies and particularly on smaller company equities, which significantly underperformed larger company shares over both the second half and the full year. Over the year to 31 March 2023, the total return on the FTSE All Share Index was +2.9%; on the FTSE Small Capitalisation Index, -9.0% and on the FTSE Real Estate Investment Trust Index, -31.0%.
The company was overall happy with the performance for the year, highlighting the recovery in the second half in particular with shares rising 20.7%.
Regarding the outlook, chairman W. Scott added:
“Inflation and interest rates will be key to market returns and the performance of the wider economy over the coming years. While those components of inflation related to many of the commodities directly affected by the Ukrainian war have either plateaued or have begun to decline as was to be expected, others such as retail food prices remain elevated for now as the effects of the primary commodity and energy prices are taking time to work through the supply chains. This, of course, has led to other sources of contribution to inflation, such as increasing demands for compensatory wage and salary increases, and, as homeowners will need to refinance mortgages at much higher interest rates than those of a few years ago, rises in bank rate themselves become in the short-term contributors to the very consumer price inflation which they are intended in the longer term to combat. In this latter regard, there is significant tightening already in the system, so to speak, even if Bank of England base interest rates were to remain flat for a period. We have always expected that Bank of England rates would reach a level higher than they currently are and it seems that the wider market is also now of that view. Whether its expectations or those of the Bank of England’s Monetary Policy Committee overshoot, as has often been the case in past market cycles, remains to be seen but until the market can begin to anticipate that process is over, it is difficult to see wider UK market indices making strong progress. That all of this is happening in parallel with the electoral cycle is a further source of uncertainty.
“I note in passing that bond yields are in general similar to the levels which destabilised the Truss administration when the Bank of England was forced to intervene in markets with liquidity on a massive scale to ensure stability. This is a powerful illustration that in markets it is often not the absolute level but the rate of change that has the greatest effect. It remains the case that the prospect of rising taxes, lower growth and squeezed living standards will inevitably restrain general market performance for the UK smaller company sector which tends to have a greater domestic exposure than, for example, the FTSE100.
“However, we should again remind ourselves that we do not invest in market averages but rather in specific companies and so we remain confident that, whether general indices struggle or not, the scope for positively-differentiated performance by Worsley Investors Limited remains. With Curno, we are fortunate to enjoy a very strong cash flow and have no debt to service and consequently no covenants with which to adhere. A prospective income yield approaching 13.7% from a good security with a long lease and continuing upward-only inflation protection should provide a return in excess of general market levels until such time as confidence returns to local potential purchasers who value the secure cash flow as we do.
“The sustained operational performance of our investee companies and the compounding of their share price returns, together with the strong cash flow from Curno, continues to validate the Worsley strategy and therefore our confidence for future prospects. The company’s share price performance has begun to close the gap on its NAV, albeit the discount to NAV remains wider than we should wish, and represents, we believe, a compelling value proposition.
“Once again, and on behalf of the board, I would like to thank our Investment Advisor, Worsley Associates LLP, for the steady progress they have made in developing our portfolio and to thank you, our shareholders, for your continuing support.”
WINV : Strong second half drives returns for Worsley in 2022.