Rights and Issues Investment Trust’s full year results revealed a NAV total return of 8.8% in 2024 compared to 5.5% for its benchmark, the FTSE All-Share Index. The share price increased by 11.7% over the year, and at the end of the year the discount to NAV had narrowed to 6.4%, a reduction from 8.9% at the end of the prior year, and averaged 9.7% over the course of the year.

Given the concentrated nature of the company’s portfolio, relative performance is largely a result of individual stock returns. Some of the most significant contributors and detractors to performance for the year included:

Contributors

• Eleco (+83%)

Building design and management software company Eleco experienced strong profit growth following a strong transition from a mainly licence-based business model to one more focused on subscription income, which was rewarded by the market. The manager said that it sees considerable scope for further growth.

• Renold (+35%)

For the second year running, industrial chain manufacturer Renold was one of the top contributors to fund performance. The company delivered a series of profit upgrades driven by strong operational performance and attractive acquisitions. After the share price peaked towards the end of the first half, it drifted back through the balance of the year. As such, the manager believes that the valuation remains compelling.

Detractors

• Videndum (-58%)

Content creation product manufacturer Videndum detracted from performance for the second year in a row as its end markets took longer to recover than expected following strikes in Hollywood and a consumer downturn. Management was changed towards the end of the year and the manager says that it will wait to hear the plans of the new team before taking a view on the future of the investment.

• Spirax Group (-35%)

Industrial thermal energy and fluid products business Spirax Group was a major detractor from performance for the year. Weakness in end markets drove a series of profit downgrades and undermined confidence, resulting in a de-rating of the shares. The manager says that it believes that recovery may now take longer than the market expects and has therefore sold the position completely.

Portfolio changes

In 2024, the manager made four complete exits, while adding five new positions to the portfolio.

As well as Spirax Group, as mentioned above, the company exited agricultural supplies and industrial business Carr’s Group due to its belief that recovery in Carr’s end market may take longer and be less complete than the market expects. Software business Gresham Technologies and telecoms testing company Spirent also left the portfolio as each received takeover bids.

New stocks added to the portfolio during the year included: Jet2, the airline and tour operator, due to its differentiated model and customer proposition; identity verification and fraud prevention business GB Group, due to its attractive valuation; alternative asset manager Foresight Group, which holds strong positions in the infrastructure and regional private equity niches; Norcros, the designer and distributor of bathroom hardware through brands such as Triton and Vado; and Sthree, a global recruitment business with a focus on contract (rather than permanent) placements, which the manager says is currently experiencing a deep and prolonged downturn that it believes has created an attractive valuation opportunity for long term investors.

Other highlights

The board has proposed a final dividend of 32.00p per share which, if approved, would result in total dividends for the year of 44.00p per share, an increase of 2.3% over the previous year’s dividend.

During the year the company bought back 778,881 shares in the market at a cost of £17.7m. Subject to shareholder approval of the share buyback resolution at the forthcoming annual general meeting, the current buyback programme will run until July 2025.

Over the course of 2024 the board consulted with a number of major shareholders to hear their views on a potential share split. Whilst there was some continued support for this initiative on the basis that it was thought it might help increase liquidity, the clear and significant majority thought that at this time the costs of such an exercise far outweighed any potential benefits to shareholders. Consequently, the board has decided to call an indefinite pause on these plans.

There were also some shareholders that thought a change of name might help promote the company. Again, a clear and significant majority of shareholders that were consulted were of the view that the potential distraction of such an exercise far outweighed any likely benefits.

Chair Andrew Hosty comments:

“For small cap industrials and this investment trust which focuses on them 2024 can perhaps best be described as a year of two quite distinct halves. The first half of the year saw the continued effects of economic policy decisions on containing and reducing energy led inflation. This was combined with increasing levels of investor confidence helping to support the FTSE All-Share index to gain 7.4%. This was followed by a second half largely driven by the post UK election sentiment where we saw government trying to manage economic expectations downwards. Thus, despite inflation remaining steady and two reductions in bank base rates, investor confidence weakened with a corresponding reduction in demand. Consequently, progress in the overall market was more subdued, with gains of only 1.9% in the second half. The timing and results of the US elections and the UK Government’s autumn budget may also have played a role in making investors more cautious towards the year end. These factors, as well as competitive pressures, will continue to test the management of our portfolio companies. Our Investment Manager will continue to monitor closely their ability to maintain market share and margins.

“As we look forwards into 2025 it is fair to say that we expect to see continued volatility in the markets, with the completion of the elections in the UK and USA in 2024 potentially mitigating some of this. So, whilst there are some signs that energy prices, inflation and interest rates may have peaked, we are now seeing rising gilt yields and, in the UK where we focus, higher employment taxes to contend with. As a Board we are very mindful of these factors. These and other factors will provide opportunities as well as challenges. Accordingly, we will continue to encourage our Investment Manager to seek investments in differentiated companies operated by good management teams that they believe to be fundamentally underpriced. The Board believes that our team at Jupiter have the skills and knowledge to identify these and so continue to be well placed to deliver for your Company into the future.”