The Lowland Investment Company (LWI) announced its annual report for the period ended 30 September 2023. The company saw an NAV total return of 17.2% compared to a benchmark total return of 13.8%. Shares were up 8% with the company’s discount now sitting at around 13%. Dividends grew 2.5% to a yield of 5.3%.
The company, a blend of small, medium and large UK companies, benefited from a a modestly better than expected UK economy, although the managers remained frustrated that current valuations are not a fair reflection of the quality of companies in the underlying portfolio, or the broader UK market.
Commenting on the outlook, managers James Henderson and Laura Foll noted;
“When we were writing last year’s annual report the expectation was that 2023 would be a recession year. This has not proven to be the case. While 0.4% real GDP growth in ’23 (expected at the time of writing) cannot be classed as stellar it needs to be viewed in the context of interest rates rising to a decade high level and inflation coming down from over 10%.
“When we look ahead to 2024 we continue to see pessimism reflected in both company valuations and economic growth forecasts. The best remedy for this pessimism is to meet company management teams, who serve as a reminder of the dynamism and innovation that exist in the UK. The consumer is enjoying real wage growth, with unemployment remaining low. Corporate balance sheets are, on the whole, conservative. Yet company valuations continue to reflect a deep scepticism about the sustainability of earnings. We disagree. The challenging backdrop of recent years (COVID, the Ukraine war) has forced companies to look hard at their cost base and run leanly. On any pickup in sales, it is therefore our expectation that the boost to earnings will be meaningful.
“The best returns can be made at times when earnings have the potential to grow and valuations are starting from a low base. It is hard to argue that we are not in those times currently.”
LWI : Outperformance for Lowland despite UK struggles