Over the 12 months ended 30 September 2024, abrdn Equty Income Trust generated an NAV total return of 13.3% and a share price return of 10.4%. The NAV return was only just behind the 13.4% return posted by the All-Share Index, but the discount widened from 0.2% to 3.0%.

Revenue per share for the period was 23.05p, down from 23.43p for the prior year. The board opted to raise the dividend from 22.8p to 22.9p, adding marginally to the revenue reserve. For the new accounting year, the board expects that, in the absence of any adverse circumstances, the trust will extend its track record of dividend growth to 25 consecutive years, by paying a dividend of at least 23p. The first three interim dividends will be 5.7p, payable in March, June and September and the fourth interim will be at least 5.9p payable in January 2026.

The costs of managing the portfolio, including administration costs, were down over 12%, as a result of the change to the management fees which came into effect at the start of the financial year as well as a significant reduction in the auditor fee as a result of the move to Johnston Carmichael LLP. The ongoing charges ratio fell to 0.86% from 0.94%.

While the trust’s shares were trading at a premium in the early months of the financial year, the company issued 135,000 shares at a premium to NAV, raising just over £400,000. There were no shares bought back during the year.

Extract from the manager’s report

The portfolio saw a spike in M&A activity during the period, including bids for Hargreaves Lansdown, DS Smith, Tyman and Centamin. This underlines the benefits of our focus on valuation, as international bidders recognise the gap between share prices and intrinsic value. We observed that many UK-listed companies have struggled to close the gap with their global peers, and we had positioned the portfolio accordingly. This was the largest contributor to the performance of the Company.

Careful stock selection within defensive mega-cap companies helped performance during the period. The holding in Imperial Brands surged by over 40% as investors recognised consistent cash flow delivery by a new management team whose strategy is to focus on their key brands in their most profitable markets. Avoiding Reckitt Benckiser was helpful, as the company warned on profits. Similarly, caution on Diageo and AstraZeneca paid off, although the portfolio would have benefited if it had held Unilever.

Financial holdings were a positive driver of performance during the period. The largest contributor to performance was CMC Markets which leapt by over 200% during the period on the publication of a string of positive trading updates revealing higher than expected revenues, including an increasing contribution from institutional clients, suggesting that recent heavy investment in this area is beginning to pay off. We added to the holding near the recent trough in the share price, amplifying the impact on performance as the share price took off. Elsewhere in Financials, performance benefited from holdings in Quilter, TP ICAP and Barclays, all of which responded positively to better-than-expected results. These offset the performance drag from the holding in Close Brothers which fell on concerns over the risk of a potential sizeable customer redress following the announcement of an FCA review into historic motor finance industry lending practices before 2021.

Among the detractors to performance, Energy holdings struggled against the backdrop of falling commodity prices, as energy demand softened as a result of a weakening global economy, while commodity markets became inured to geopolitical tensions. Diversified Energy declined as a collapse in the US natural gas price impacted cash flows. The need for balance sheet flexibility, allowing it to continue to focus on accretive acquisitions, ultimately led to its decision to cut the dividend. Thungela Resources declined in response to falling thermal coal prices, while Ithaca Energy fell on
the announcement of a rise in the North Sea Energy Profit Levy.

Finally, performance relative to the Reference Index was impacted by the strong performance of lower yielding large cap growth shares Rolls-Royce, RELX, 3i and Experian.

AEI : abrdn Equity Income promises 25th year of dividend growth as fee cut boosts distributable revenue