Law Debenture (LWDB) smashed the UK stock market rally in the first half of the year with its investments and professional services businesses both firing on most cylinders.
Interim results today showed the £1.3bn UK equity income trust made a 15% underlying return in the six months to 30 June, beating the 9.1% advance in the FTSE All-Share index.
With the company continuing to trade close to net asset value on the back of its sector-leading 10-year returns of 178%, shareholders saw a total return of 14.2% in the period.
The £1bn portfolio run by Janus Henderson UK value fund managers James Henderson and Laura Poll benefited from big gains in defence-related stocks. Rolls Royce (RR), Babcock (BAB) and BAE Systems (BA) soared 64%, 108% and 60% respectively amid a surge in worldwide military spending.
Banks also did well as, despite the subdued UK economy, bad debts remain low with Barclays rising nearly 26% on the back of forecast-beating results.
While the managers took profits and reduced holdings in Rolls Royce and Babcock, they were net investors in the UK, ploughing £35m into a stock market that still looks cheap with portfolio companies Spectris (SXS), Renold (RNO) and Dowlais (DWL) all receiving takeover approaches.
New positions in Greencoat UK Wind (UKW) and HICL Infrastructure (HICL) helped to take their domestic allocation to a record high of 89% and reflected the “unjustifiably large” discounts at which both high-yielding investment companies trade, currently 16% and 19% below net asset value.
The managers also added fund management group Aberdeen (ABDN) believing its 7% yield meant they were being paid to wait while the market wakes up to the hidden value in its retail investment platform Interactive Investor.
Ceres Power (CWR) was their biggest faller, with shares in the electrolyser manufacturer almost halving after Bosch, the German engineering group, ending a strategic partnership in February. The managers are holding on, saying Ceres has licensing deals with other companies and net cash on its balance sheet.
The unique asset sitting on Law Debenture’s balance sheet is the £230m group of specialist financial services businesses overseen by chief executive Denis Jackson. These include roles as a bond trustee, corporate pension adviser and company secretary which, while accounting for just 18% of Law Deb’s valuation, generate around one third of dividends.
Their revenues rose 7.7% to £28.2m, contributing 5.36p of income per share that took the group’s total to 20.15p. These comfortably covered quarterly dividends of 8.37p, putting the 3.4%-yielder on track to deliver a 47th year of rising payouts this year. Last year Law Debenture won QuotedData’s “Investors’ Choice” award for long-term income.
Chair Robert Hingley was pleased with the “excellent performance” against a difficult market backdrop of US tariffs and geopolitical tensions. “The share price total return of 14.2% exceeded our benchmark by over 5% and we are proud that our long-term record of benchmark outperformance remains strong.”
Analysts at Deutsche Numis said: “We believe Law Debenture is an attractive fund and is one of our equity investment companies recommendations.”
