Rights & Issues Investment Trust (RIII) released its annual results for the 12 month period ending 31 December 2023.
- Over the year RIII generated a NAV total return of 2.4%, compared to the 3.8% of its benchmark, the FTSE All-Share Index. However, thanks to a material reduction in RIII’s discount, it generated a much higher share price total return of 15.0%.
- The top three contributors to RIII’s NAV returns were Renold, Hill & Smith, and Macfarlane Group. Renold is a manufacturer of industrial chains and transmissions, and was RIII’s largest contributor, up 64% on the year. Its performance was driven by both positive trading results from the company, as well as rising interest rates helping to mitigate the company’s pension deficit. Hill & Smith is a provider of infrastructure-related products and services, and has begun to see the benefit of both increased government spending and a trend to ‘onshoring’ of manufacturing. The company was up 67% on the year. Macfarlane Group was the third largest contributor up 16% on the year. Macfarlane Group is a market leading distributor of value-added packaging in the UK, as well as a packaging manufacturer in its own right, and delivered strong operating performance in 2023, despite weakness in its end markets.
- RIII’s largest detractor over the year was Videndum, a manufacturer of products used in content creation, which was down 66%. Its share price fall was the result of the writers’ and actors’ strikes in the USA, as well as weak demand from consumers. The RIII team does note that after completing an equity raise to fund its high levels of debt, the company is in a much stronger position to capitalise on the rebound in filming activity post-strike.
- RIII bought and sold five holdings over 2023, reducing the concentration of the trust in the process, with its top 10 holding accounting for 68% of the trust, down from 76%. The five new purchases were: OSB group, the UK’s largest specialist buy-to-let mortgage lender; Spirent, a global provider of testing equipment and software for the telecommunications industry; Gresham Technologies, a software business tightly focused on the market for advanced data reconciliation; Marshalls, one of the UK’s leading providers of heavy building materials; and Oxford Instruments, a global leader in the design and manufacture of highly specialist electronic equipment.
- Over the year RIII saw its discount narrow from 17.2% at the end of 2022 to 8.9% at the end of 2023. Over the year RIII bought back 545,305 shares in the market at a total cost of £10.6m.
- RIII has proposed a final dividend of 31.25p per share, which will make a total dividend of 43.0p per share for its 2023 financial year.
RIII’s managers, Dan Nickols and Matt Cable, commented:
“It has been a busy year for the Company and we are pleased that the investment portfolio is now broadly in the shape we intended. We believe we have added some attractive long-term investments which will complement the existing collection of quality businesses the Company owns and add thematic balance. We continue to look for potential new holdings and will add to the portfolio as appropriate and according to the team’s established investment process.
“While it is too early to say for certain that inflation is under control, there have been encouraging recent signs of a return towards central bank targets. This in turn should allow interest rates to moderate towards long-term norms and hence remove a source of significant uncertainty for companies and markets alike. While we are more confident in this outlook than we were six months ago, we do not expect a straight-line recovery and recognise the scope for significant bumps along the road. As such we continue to feel that a degree of balance is appropriate in portfolios and will continue to reflect this in the Company’s holdings.
“Looking further ahead, we believe that the UK mid- and small-cap equity market is attractively valued and hence offers an exciting opportunity for long-term investors as it emerges from this period of volatility.”