Standard Life Equity Income reports on strong first half

Standard Life Equity Income Trust is publishing its half year results for the six months ended 31 March 2015. The total return on net assets came in well ahead of the return in the benchmark (FTSE All-Share Index) at 12.8% vs. 5.3%. The share price return though was 5.7% – still ahead of the benchmark but not so much as the discount widened from 1.0% to 6.3%. The first quarterly dividend was maintained at 3.2p but the second one has been increased to 3.4p.

The manager’s report  says the strong NAV performance can be attributed to the strength of various mid-cap holdings, combined with the avoidance of various underperforming large-cap stocks. Cineworld performed well as the company provided upward guidance on its profit, driven by strong cinema admission growth and cost savings from its acquisition of Cinema City International. Howden Joinery also performed well as the market responded favourably to evidence of increased demand, allowing investment in new depots at the same time as significant dividend growth. The holding in Rightmove also contributed to performance as the market responded favourably to evidence of its resilience in the face of new competition. Packaging firm DS Smith was a  strong performer. This company is benefiting from the cyclical recovery taking hold in its key European markets, while it continues its strategy of consolidating the European corrugated packaging industry. The acquisition of the remaining Eastern European assets of Austrian peer Duropack was well received. Shares in chemicals business Synthomer responded to the arrival of a new chief executive, who revealed a strategy to boost returns through acquisitions, whilst continuing to release cash in the form of dividends. Having limited exposure to the Oil & Gas and Mining sectors at a time of widespread declines in commodity prices also helped relative performance. The decision to avoid Royal Dutch Shell was particularly helpful, as the market began to price in the impact of the low oil price on the cash flows of its upstream division, which was underscored by an announcement that the company would reintroduce the scrip dividend programme from Q1 2015. Royal Dutch Shell has subsequently announced a takeover proposal for BG, which further increases its gearing to the oil price.

On the downside, the holding in Soco International declined on the announcement of a downgrade to its reserve estimates, stemming partly from lower future investment assumptions linked to the plans of one of its field partners. The holding in Babcock also detracted from performance as the market became nervous about the outlook for recently acquired business Avincis, which provides mission-critical aviation services to a number of industries, including the offshore oil industry.

SLET : Standard Life Equity Income reports on strong first half