Troy Income & Growth (TIGT) announced its annual results for the year ended 30 September 2023. The company delivered a NAV per share total return of +6.6% and a share price total return of +6.3% over the year to 30 September 2023. Over the same period, the FTSE All-Share Index produced a total return of +13.8%. The average NAV total return for the AIC UK Equity Income sector was +12.6% for the same period.
The two most significant drags on performance were some of the company’s holdings in large, low cyclicality consumer staples companies and the two holdings in the materials sector. Sterling’s strong appreciation against the dollar was also a headwind, impacting the company’s small number of US-listed holdings as well as the predominantly overseas earnings of the portfolio as a whole.
One of the major developments for the year was the year was the proposed combination of Troy income and STS Global Income & Growth Trust which we wrote about back in November. Subject to shareholder approval, this will result in the voluntary liquidation of the company and the rollover of its assets into STS in exchange for the issue of new shares in STS. Shareholders will also be offered the option of up to 100% cash exit. The enlarged STS will continue to be managed, on the same basis as currently, by Troy Asset Management, with James Harries continuing as the lead portfolio manager, supported by Tomasz Boniek and the wider Troy investment team.
The proposals are subject to the approval of both the company’s shareholders and STS shareholders, and also to regulatory and tax approvals. In reaching this decision, the board noted a number of attractions to a combination with STS, including continued exposure to Troy’s investment ethos and process, commonality of UK investments with the addition of global income growth equities, a continuing discount control mechanism, reduced overall costs for continuing shareholders and increased liquidity. Troy has also agreed to make a significant cost contribution in the form of an eighteen-month fee waiver on the assets transferred from the Company to STS. It is intended that the documentation in connection with the proposal will be posted to shareholders in February 2024, with a view to completing the transaction by the end of March 2024.
Discussing the performance, and the outlook for the trusts, the investment manager commented:
“Markets continue to be impacted by inflation and interest rate expectations. It is encouraging therefore to see inflation peaking in the US and UK after an unprecedently steep rise in rates. We are highly conscious however that the lagged impact of meaningfully higher rates will continue to be felt by consumers and corporates. This will dampen growth and economic activity and we are intentionally defensively positioned as a result. Investors should be reassured by the portfolio’s significant exposure to relatively economically insensitive businesses that have strong balance sheets and a track record of growing dividends through the cycle. This includes Consumer Staples companies such Diageo, Healthcare companies such as GSK and subscription software and data businesses like RELX.
“Despite our caution on near-term earnings, we believe that UK equity valuations are compelling. The UK is home to various world-class businesses and over the past year we have found exciting valuation opportunities on offer. These have been across a range of sectors and has resulted in six new holdings. We believe the Company has a strong portfolio and a high-quality list of potential stocks – we are well placed to take advantage as further opportunities arise.
“Finally, despite the uncertain environment, we are reassured that the great majority of portfolio companies continue to demonstrate strong operational performance and the potential for long-term dividend growth.”
TGIT : Troy Income & Growth