Scottish Investment Trust feels like one of those Edinburgh-based institutions that are as old as the castle, and as unchanging. Sleepy and unexciting, they plod on, but at least have the great virtue of avoiding serious wealth-destroying mistakes. Over ten years, SIT has turned £1,000 into £1,830, placing it 20th out of 36 UK-listed global investment trusts.
The results for the year to October show no sign of any pick-up in this pedestrian performance. It produced a total return of 3.7 per cent. Over the same period, world share markets produced 4.2 per cent.
There were some investment coups. Pandora, the Danish-based jewellery chain, benefited from a restructuring and strong demand for its charm bracelets. United Health was boosted by healthcare insurance consolidation in the United States. There were misjudgments, too. SIT bought into RSA Insurance after Zurich made a bid approach and lost money when the Swiss walked away. A punt on Walmart also proved a bust.
Alasdair McKinnon, the newish manager, is beginning to put his stamp on the organisation, which, in the past, seemed to take a scattergun approach to investment. Now the number of positions has been pruned from 101 to 74. He is more prepared to take investment positions that differentiate the trust from the crowd. One is a contrarian decision to push a little deeper into emerging markets, for example upping his stake in Rio Tinto and other commodity groups. Another is to take positions in companies undergoing potentially transformative restructurings. One of these is Treasury Wine Estates, the Australian group behind Wolf Blass. A third is a bit more emphasis on income stocks: SIT was able to set a special divided this year of 3.5p on top of the normal full-year total of 12.5p, up 4.2 per cent.
It also managed to keep a lid on costs, bringing its charges ratio down from 0.68 per cent to 0.52 per cent. A good effort, especially in a year when the board decided to vote itself an 11 per cent pay rise.
It’s too early to judge whether Mr McKinnon’s sharper focus will improve returns. It can’t have escaped the board’s attention that Alliance Trust, their bigger peer, was the subject of a successful shareholder coup this year. For the record, SIT’s performance has been worse than Alliance’s over one, five and ten years.
MY ADVICE Hold
WHY The new manager is trying to sharpen things up, but the approach is untested
Dividend 12.5p
Disc/NAV 8.6%
When considering the merits of 888 Holdings, it is tempting to borrow from Rudyard Kipling’s If. The online gambling operator has kept its head when all about it have been leaping into mergers; it has trusted itself when others have doubted its strategy; and it has waited for the right opportunities and not done a deal merely to follow the pack.
Its full-year trading update may not be poetry, but it is good reading, with underlying earnings forecast to be “at the top end of the range of analysts’ current forecasts” of between $69 million and $78 million. Brian Mattingley, its executive chairman, highlights strong performances in casino and sport, while analysts point to the company’s proprietary technology, which means that it is not reliant on third-party suppliers and the problems that can bring.
Not that 888 is averse to deals, having been a bidder for Bwin.party until GVC Holdings bet the house, and before that having considered — and rejected — approaches from William Hill and Ladbrokes.
The shares are not cheap (after a 4 per cent rise to 179p) and trade on 20 times expected earnings. Yet it still looks like the nag to back.
Sales aim $442m
Market cap £639m
MY ADVICE Buy
WHY The class act in a consolidating sector
There are fewer more welcome sights for a company in dire need of cash than a sultan riding to the rescue with $100 million in hard cash. That was the immediate response of shareholders in Kenmare Resources yesterday after it revealed that the sovereign wealth fund of Oman was looking to invest in the business.
Kenmare shares more than doubled at one point before ending the day at 0.58p, up 33 per cent. This was a rare bit of good news for a company whose main asset, a mine in Mozambique, has been plagued with huge debts and disruptive power outages. The price of its main product, ilmenite, an ingredient in paints and glazes, has collapsed. The Omani interest helped to counterbalance the less favourable news that a potential bidder, Iluka Resources, of Australia, had pulled out of talks that had lasted for the best part of 18 months without ever generating a proper offer.
Long-time investors in Kenmare have had a torrid time. Valued at £900 million in 2012, the company is now worth a mere £15 million.
As well as Oman’s support, Kenmare said that it had commitments from other shareholders for another $75 million in a placing and open offer.
The mine, Moma, boasts a huge ilmenite deposit and, as long as the mineral’s price recovers, is highly viable. That doesn’t mean there is value in Kenmare shares, however. The company owes $350 million and its lenders will call the shots in any restructuring. Some debt will have to be converted into equity. This will be a difficult deal to land successfully.
MY ADVICE Only for the brave
WHY More hurdles before new capital is in the bag
H/Y loss $27.9m
Debt $330m
And finally...
Walker Greenbank shares fell 7p to 210p after the fabric and wallpaper group warned that it had been hit by the weekend floods. Its only fabric printing plant was flooded. The company said there would be “an adverse impact on machinery, stock and profits”, but that it was insured for flood damage and business interruption. The factory accounts for £18 million, or 22 per cent, of group sales. It prints fabrics for third-party customers, as well as for Walker Greenbank’s Sanderson, Morris & Co and Harlequin brands.
