Edinburgh Investment Trust Half Yearly Report - Flipbook - Page 6
4 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC
CHAIR’S STATEMENT
PERFORMANCE
ELISABETH STHEEMAN
CHAIR
Your Company has produced a Net Asset Value
(NAV) total return of 4.5% over the period, and
a share price return of 3.3%. These compare
with 1.4% for the comparator FTSE All-Share
Index. The majority of this outperformance
has come, as we would expect, from stock
selection. The most significant contributions
came from two of the more contrarian positions
in the portfolio: Centrica and Marks & Spencer.
There were no particular detractors of note.
The Manager expands on the market backdrop
and performance in his section of this report.
There was also a further contribution to the
NAV from the fair value of the Company’s debt:
as bond yields have continued to rise, the fair
value of the Company’s long-term borrowings
has fallen. Over the period the value of the debt
fell by £10m (see the Alternative Performance
Measures section of this report, which set out
the detail), or approximately 0.9% of average
NAV. The share price return of 3.3% was slightly
lower than the NAV return, as the discount
widened a little. I discuss the discount, and how
we are addressing it, below.
As ever, I would recommend that any
assessment of investment performance is
based on longer-term returns. The period since
March 2020, which is the full length of the
Manager’s tenure, is the longest period we can
assess. Over this three and a half year period,
the NAV total return has been 73.3%, versus a
rise in the FTSE All-Share Index of 49.5%. The
share price total return is 81.2%, reflecting a
narrowing of the discount since March 2020.
It is pleasing to be able to record that the NAV
return now also exceeds that of the index over
five and ten years, albeit modestly in the case
of the five year return. Nevertheless, this is the
first time in several years that we have been in
this position, reflecting the strong progress on
many fronts in recent years.
DIVIDEND
The Board declared a first interim of 6.7p per
share in October. The interim accounts in this
report record six month income comprising
underlying regular dividend income of £19.9m
and special dividends of £0.5m. Total income
for the period, including some welcome interest
on uninvested cash, is therefore £20.9m. This
has reduced compared with the same period
last year, but last year’s income was boosted
by several special dividends. Overall, the level
of dividend income for the portfolio remains in
line with our longer term expectations.
BORROWINGS
There have not been any changes to the
debt profile of the Company. We continue to
operate with £120m of debt in nominal terms
which is c.10% of NAV. Net gearing measured
at fair value is a more modest 4.1% of NAV. The
Company’s debt has an average of 24 years
to run and a blended cost of a fixed 2.4% per
annum. The rates of interest in the market
now are far higher: we have a competitive
advantage from having secured this debt at
such low rates.
SHARE PRICE DISCOUNT TO NET
ASSET VALUE
The Company’s shares continue to trade at
a discount. This widened slightly over the
period, reflecting wider discounts for many
equity investment trusts. This explains why
the share price return was a little lower than
that of the Net Asset Value. We monitor the
discount relative to peers as well as against
the Company’s own history. Over the period
we bought back shares actively, as did many
other investment trusts, with 3% of the
Company’s shares purchased over the period.
These buybacks should both help narrow
the discount, and be a sound allocation of
capital: buying back the Company’s shares
at a discount unarguably enhances NAV
returns for those shareholders that remain
invested. We think of share buybacks as
one of a number of factors designed to help
narrow the discount. Other factors include
generating investor confidence in a repeatable
investment process, careful management of
the balance sheet of the Company, and raising
the profile of the Company through a range of
marketing initiatives.