As luck would have it, the Association of Investment Companies published its latest list of “dividend heroes”, those companies that have increased their dividends for 20 years or more, yesterday. One was Witan Investment Trust, just three days after its latest results showed an 11.8 per cent rise to 19p a share.
This was the 42nd consecutive year of dividend increases, a rare achievement even in the investment trust world. Witan — the name refers to the “wise men” who advised the monarch in Anglo-Saxon times — is a little different from the average trust. For the past 12 years it has used about a dozen external fund managers to pick most of its investments, firing one each year or so to encourage the others.
This means the selection of its biggest holdings is not in Witan’s control, though it also invests directly in separate investment trusts for about 10 per cent of the portfolio. This allows it access to parts of the market not covered by those external managers and explains the presence of Princess Private Equity, Blackrock World Mining, Apax Global Alpha and Syncona on the list.
The last is unusual. Wellcome Trust late last year injected its own portfolio of early-stage healthcare investments into what was the Battle Against Cancer IT. The holding by Witan allows exposure to those investments which Wellcome, now the largest investor, intends to take to market and make viable rather than allow them to be bought out by overseas investors too early, the fate of other UK start-ups.
Witan’s approach has paid off. It uses a customised benchmark to compare its performance rather than one of the usual indices, based on its own balance between the various investment markets around the world. Witan’s total return of 22.9 per cent last year was pretty much equal to this benchmark, while over the past five years it has achieved a total return of 108 per cent.
Witan shares, up ½p at 960p, were trading at well below their net asset value after the referendum. It attempts to manage this by buying back shares and is currently doing so, though that discount has narrowed to a bit more than 4 per cent.
The trust’s record suggests that outperformance against the market as a whole is set to continue.
My advice Buy
Why Witan’s record on dividend and asset value growth is well established, while its multi-manager strategy is working well
Clarkson
The purchase by Clarkson of RS Platou, its Norwegian counterpart, in 2015 may have looked like odd timing as world shipping weathered one of the biggest downturns in decades, but it appears to be coming right.
Platou, which has a bigger banking operation for the shipping industry, was behind a sharp increase in Clarkson’s financial earnings from £1.2 million to £6.8 million in 2016, which helped to balance an £8.9 million downturn in traditional broking operations to £40.2 million.
Clarkson was still required to post a fall in underlying pre-tax profits of £5.7 million to £44.8 million. The company thinks there are tentative signs that the shipping and offshore oil and gas markets are beginning to recover, and it is certainly well enough placed to benefit.
Against this optimism should be set the recent decline in the oil price and indications that there is still a glut, and the uncertainties for world trade under a Trump administration.
Clarkson has the advantage of strong cashflow, almost £46 million last year, which allowed net balances to climb by almost £30 million to £74.8 million despite the repayment of a £23.3 million loan note taken out for the Platou acquisition.
A similar amount is due out this year, but with the cash piling up Clarkson has indicated that it will be returned to shareholders as special dividends in due course.
That is promising enough, but with the shares, up 83p at £25.83, almost 18 per cent ahead this year and on 22 times earnings, this would seem to be in the price.
My advice Avoid
Why The market seems to be taking recovery into account
Hutchison China Meditech
Investors in Hutchison China Meditech have had to be patient, but their patience is beginning to pay off. Half of the business is selling established compounds into the Chinese market; this saw sales up by 43 per cent to a record $180.9 million for the year to the end of December, and net income was ahead by 19 per cent in real terms to $29.9 million ahead of a property gain.
The group as a whole scraped into an $11.7 million net surplus despite raising R&D spending from $55.8 million to $76.1 million. A listing on Nasdaq in New York raised $95.9 million, leaving plenty of cash to develop the other side of the business, finding new drugs.
Successful phase III trials for its fruquintinib treatment for colorectal cancer mean this should be launched in China some time next year, the first drug to market. There are another four phase III trials completing this year and four more starting, so the news flow should start to look more promising.
The shares, up 175p to £25.87½ and largely recovered from their sharp dip at the start of last year, do not sell on any meaningful multiple but further patience should be rewarded.
My advice Hold
Why The news flow should provide stability in future
And finally...
Numis Securities has added its voice to the bewilderment among some analysts at the huge valuation the market is putting on Metro Bank. The broker has been sceptical before, while its rival Panmure Gordon, on starting coverage last month of the banks newly arrived on the stock market, compared Metro unfavourably with Virgin Money. Numis says Metro’s valuation of 3.7 times net tangible assets compares with an average of 1.2 times for the sector and its analysts remain “baffled” by Metro’s £2.8 billion market worth.
