Temple Bar (TMPL) has held its top spot in the UK Equity Income sector after generating a total 14.2% investment return in the first half of the year to beat the 9.1% gain in the FTSE All-Share index.
A bid for Direct Line and other successful value-style stock picks of Redwheel fund managers Ian Lance and Nick Purves boosted the portfolio in the six-month period. As word got out, and as the low valuation of UK stocks attracted international investors, the shares re-rated to deliver an even better total return of 19.9% to shareholders.
This was helped by the discount, or gap, between the share price and the net asset value (NAV) of its investments narrowing to just 2% at 30 June. The discount has subsequently disappeared with the £980m trust currently standing at “par” in line with NAV as the shares have continued to do well.
Chemicals company Johnson Matthey, banks Barclays, NatWest, Standard Chartered and ABN Amro, insurers Aviva and NN Group, electrical retailer Currys, asset manager Aberdeen and BT all contributed to the trust’s strong performance, half-year results today showed.
As we’ve already highlighted, WPP weighed slightly on returns as the advertising group struggled with the impact of AI and economic uncertainty, though the managers believe much of its problems are self-inflicted and await to see what the new chief executive will do.
New positions included Smith & Nephew, the struggling medical devices provider, and, using the ability to invest up to 30% outside the UK, French food retailer Carrefour and Korean banks Hana Financial and Woori, which the managers say “enjoy steady loan growth in a growing economy, are efficiently run and have strong capital ratios”.
Earnings per share rose 12.3% to 8.2p per share. Under its new enhanced dividend policy, Temple Bar tops up quarterly payouts with 0.75p per share of capital gains to reflect the return of capital from share buybacks by its portfolio companies. In the half year it paid two dividends totallling 6.75p per share, up 35% from 5p a year ago, putting the shares on a prospective yield of 4.4%.
Figures from the company show that over one and three years Temple Bar ranked number one in its sector with total underlying investment returns of 21.5% and 61.7%, and shareholder returns of 29.1% and 66.1%. These also beat the FTSE All-Share’s 11.6% and 35.5% returns.
Figures from Deutsche Numis extend the analysis. Since Redwheel replaced Ninety One as fund manager in October 2020, the previously underperforming trust has delivered a total underlying asset return of 157%, equivalent to 22.4% a year, against just 79% or 12.7% a year from the All-Share index. This impressive term was helped with Lance and Purves’ arrival happily coinciding with the “vaccine rally” after the pandemic.
Despite this great recovery, including strong results last year, the managers believe their stocks continue to look very undervalued as the UK stock market gradually comes back into favour after four years in the cold.
Lance and Purves acknowledge that the economic outlook is challenging and that all investment approaches inevitably suffer bumps in the road. Nevertheless, they said: “In an uncertain world, our approach is and has always been to think long term and invest in what we believe to be fundamentally sound businesses that for one reason or another are valued at a significant discount to their true economic worth.
“This is on the basis that eventually that true economic worth will be reflected in a higher share price,” adding, “with this at the forefront of our minds, we feel confident that through the disciplined application of a proven value investing strategy, the trust can continue to create long-term value for its shareholders.”
You can hear more of these views when Ian Lance speaks to QuotedData’s James Carthew on this Friday’s In The Hot Seat show at 11am. Register here.
