Aberdeen Asian Income Fund
First, the eyes of the world were on Asia as Covid-19 emerged in Wuhan and began to span the globe. Now attention is turning back to the continent, but this time watching closely as countries initially exposed to the pandemic take their early steps towards economic recovery.
Nobody is taking a closer interest than investment trusts. With companies of all kinds and in all locales suspending or delaying dividend payments, the need to find income is a conundrum that many trusts will have to solve in the next few months. The Aberdeen Asian Income Fund is among them.
The fund was founded in 2005 with an aim to provide reliable dividend payments alongside capital growth by taking stakes in companies across the Asia Pacific region. Results for 2019 showed a 9.25p dividend, up from 9.15p in the previous 12 months. That also marked 11 consecutive years of a rising payment to shareholders from the trust. Prudently, its managers, from Standard Life Aberdeen, have been tucking away cash for the past decade, meaning that the 2020 dividend is already more than two-thirds covered if the trust needs to dip into its reserves.
Anthony Stern, an analyst at Stifel, believes that many Asia Pacific funds offer a good chance of returns, having built up reserves to see them through lean times. Speaking last month to the Association of Investment Companies, he pointed out that Aberdeen Asian Income offered a value play in the sector, with its shares at a discount of more than 10 per cent and dividend yield greater than 5 per cent.
The impact of the pandemic can be seen on the trust’s share price, which fell by more than 30 per cent before making up ground recently. The shares entered 2020 changing hands at 214p; by March 19 they were at 142½p, although there has been a recovery since then, which continued yesterday with a 3p, 1.75 per cent, rise to 174p.
Yoojeong Oh, the trust’s investment manager, who is based in Singapore, warned yesterday that the outlook remained “clouded with uncertainty” and that markets were likely to be volatile for some time. “We continue to focus on balance sheet strength and cashflow generation as key measures of both quality and ability to pay dividends,” she said. “It has been our long-held belief that good-quality companies that can emerge as winners through various market cycles are those that do not need to rely on external capital markets or short-term borrowings.
“What we have done during this volatility is to opportunistically buy more of the companies that we like that are cheaper today than they have been historically.”
The 2019 results show technology and Chinese companies among the strongest performers, while the banking sector was the biggest drag. Looking at the trust’s largest holdings in January this year compared with April suggests conviction in the portfolio, with only some modest changes. HSBC has disappeared from the top ten along with LG Chem, the South Korean chemicals and energy storage supplier. They were replaced by Ausnet, the Australian energy company, and Singtel, the telecoms conglomerate.
Ms Oh thinks that the trust’s focus on companies with low gearing and cash balances means that the risk from suspended dividend payments is reduced. “We believe that the structural growth trends in Asia will remain intact and that current valuations present opportunities for long-term investors such as ourselves,” she said.
ADVICE Hold
WHY Dividend looks steady for 2020 even if markets remain choppy. Shares look cheap by historic standards if you have confidence to invest
Capital & Counties
A merger of two central London landlords to create Britain’s fourth largest real estate investment trust looks increasingly likely (Louisa Clarence-Smith writes). Capital & Counties, which owns a large estate in Covent Garden, has agreed to buy a 26.3 per cent shareholding in Shaftesbury, whose 15-acre portfolio spans Chinatown, Carnaby Street, Soho, Covent Garden and Fitzrovia.
The £436 million purchase price, at 540p a share, reflects a 14 per cent discount to Friday’s closing price and a 45 per cent discount to Shaftesbury’s reported net asset value in September.
As analysts at Peel Hunt said, if this wasn’t a precursor to an attempted merger, wouldn’t Capco buy its own shares? A merger would offer shareholder value up front. Capco’s £2.6 billion Covent Garden estate is adjacent to Shaftesbury’s Seven Dials, offering a stronger negotiating position with tenants. Longer-term benefits would include reduced debt costs and the potential to work on redevelopments.
There is huge uncertainty around the outlook for retail and food and beverage operators. Analysts expect rental income and property values to fall sharply over the next year, but a new Crossrail station at Tottenham Court Road near by is expected to draw more visitors to the area in the longer term and there may be value in converting offices into luxury flats.
Capco’s acquisition of 64.4 million shares for £348 million in cash, representing 20.9 per cent of Shaftesbury’s shares, is expected to be completed tomorrow. A subsequent tranche of 16.3 million shares for £88 million in cash, or 5.3 per cent of Shaftesbury’s shares, is conditional on Capco shareholder approval. The deal is expected to sail through.
Even if Capco does not make a takeover approach, the deal will provide the landlord with income via Shaftesbury dividends. Shaftesbury has suspended its dividend for the pandemic. Savvy investors are finding more value in the public markets. With Capco’s shares trading at a discount of about 40 per cent to net asset value, it is a good time to buy for a longer-term investor. Capital & Counties shares rose 5½p, or 3.3 per cent, to 168¾p; those of Shaftsbury fell 1½p, or 0.2 per cent, to 625½p.
ADVICE Buy
WHY Anticipated Shaftesbury takeover approach offers cost and strategic benefits
