Interim Management Statement

RNS Number : 2445Y

British Empire Sec & Gen Tst PLC

22 January 2014

 



BRITISH EMPIRE SECURITIES AND GENERAL TRUST PLC

Interim Management Statement - 3 months ended 31 December 2013

This investment management report relates to performance figures to 31 December 2013.

Summary NAV Performance (total return basis)

	Quarter	Financial Yr* to date	Calendar Yr to date
BTEM NAV1	2.7%	2.7%	7.6%
MSCI ACWI Ex US3	2.5%	2.5%	13.6%

*British Empire Securities & General Trust financial year commences on the 1st October.  All figures published before the fiscal results announcement are AVI estimates and subject to change.

Quarterly Investment Manager's Review

Performance
During the Quarter, the NAV per share increased by 2.7%, compared to an increase of 2.5% for the Benchmark³ index.

The largest positive contributors to performance came from a number of our European holding companies and conglomerates.  Vivendi was the largest contributor.  Its share price rose by 12.6 % over the period. The simplification of the conglomerate structure is leading to a reduction in the discount and its discount narrowed from 21% to 11% as plans were announced for the separation of the media assets from the telecom business.  All of the Nordic holding companies in the portfolio performed well during the period with Aker ASA, Investor AB and Kinnevik rising by 21.3%, 13.5% and 33.9% respectively, resulting in a narrowing of discounts for all.

The share price of Sofina, the Belgian holding company, increased by 14% over the period as simplification of the ownership structure by way of a privatisation of Henex led to a narrowing of its discount. 

The main detractor from performance over the period was Turkish holding company, Dogan.  A corruption scandal and ensuing political unrest in the country have weighed on share prices and on the currency.  We believe there is significant value in Dogan which is trading on a discount of over 60% to its NAV, and where more than the entire market capitalisation of the company is represented by a US Dollar net cash balance.  Jardine Matheson also weighed on returns during the period.  Its share price fell 4.7% underperforming the regional index which fell almost 2%.

Discounts⁴
At the end of December the weighted average discount of the underlying portfolio (excluding liquidity) stood at 26.4% compared to 28.4% at the end of September.  The discount calculation is a measure of how much the share price of each stock in the portfolio is below our estimate of its net asset value.  The trend in the weighted average discount can be seen in the chart below:

Weighted Average Discounts in the underlying portfolio of
British Empire Securities & General Trust (ex liquidity) 

http://www.rns-pdf.londonstockexchange.com/rns/2445Y_-2014-1-22.pdf

Source: Asset Value Investors Ltd

Activity
A number of new investments were made during the Quarter. In France we added two new holdings.  Bouygues is a family controlled conglomerate active in telecoms and construction.  It was trading on a discount to its NAV of 20% and had a dividend yield over 5% when it was first purchased.  We also invested into Rallye, a family controlled holding company that is the dominant shareholder in Casino, the French listed food retailer with stores across Europe, South American and Asia.  Rallye was on a discount of 30% when we first invested and had a dividend yield of over 6%.  We also invested into ThyssenKrupp, the German industrial conglomerate that is coming under pressure from investors to restructure and dispose of underperforming businesses in order to boost shareholder returns.  The final significant new purchase was Immofinanz, an Austrian listed property investment company with assets across Germany and Central & Eastern Europe.  This was trading on a discount of 40% and had a dividend yield over 4%.

The largest sale was our exit from Orkla where we had held a position for several years as the company underwent a restructuring process that saw the disposal of most of its non-core assets.  With that process largely complete, the shares were no longer trading on a meaningful discount and we sold out entirely. We have also been taking partial profits from our investment in Kinnevik, the Swedish holding company with an interest in e-commerce businesses such as Zalando.  Having invested in the company on a discount of over 30% we have been selling out at prices above current NAV and on a share price more than double the original investment price.

On balance, these transactions reduced our cash position from 14.6% to 8.5%.

Share Buybacks

We bought back 1,873,130 shares in British Empire during the period at an average price of 490.4p.  The shares were purchased at an average discount of 12.9%.

Financial Performance to 31 December 2013

Statistics

	Value (GB pence)	1 qtr %	1 yr %	3 yr %	5 yr %
Price Total Return (£)2	485.0	2.3	5.1	7.9	63.6
Net Asset Value1	544.8	2.1	5.5	1.5	48.5
Net Asset Value Total Return1		2.7	7.6	11.1	68.3
MSCI ACWI ex US3		2.5	13.6	11.4	62.2

Annual Returns (%)	2013	2012	2011	2010	2009
Price2	5.1	17.8	-12.8	18.5	27.9
MSCI ACWI ex US (£)3	13.6	12.5	-12.1	11.8	29.2

1 Source: Morningstar.

2 Source: Morningstar. Share price total return is on a mid-to-mid basis, with net income re-invested.

3 From 1^st October 2013 the lead benchmark was changed to the MSCI ACWI ex US (£) Index.
The investment management fee was changed to 0.7% of net assets and the performance related fee eliminated.

4 Discounts are AVI estimates

Top Ten Equity Holdings	% of total assets 31/12/13
Vivendi	7.93
Investor AB	5.88
Jardine Matheson	5.64
Groupe Bruxelles Lambert	4.79
Aker	4.57
Sofina	3.79
First Pacific Co	3.34
Dundee Corp	2.82
NB Private Equity Partners	2.53
Gagfah SA	2.49

Geographic Breakdown (% of total assets)

	31/12/13	30/09/13
Europe	39.1	33.7
Americas	24.6	22.8
Pacific ex-Japan	18.6	19.3
EMEA	5.3	6.6
United Kingdom	3.6	2.5
Liquidity	8.5	14.6

~ Liquidity is held primarily in UK and US Government Securities

Sector Breakdown (% of total assets)

	31/12/13	30/09/13
European Holding Companies	22.4	24.4
Conglomerates	14.4	8.4
Asian Holding Companies	15.1	15.7
Closed-End Funds	18.4	16.5
Property	13.8	11.6
Other	1.9	1.6
Resources & Mining	0.8	1.8
N. American Holding Companies	2.8	3.0
EMEA Holding Companies	1.5	1.8
Liquidity	8.5	14.6

Major Movers over the Quarter to 31/12/13

Largest Risers	% change in Price	% of Assets at 31/12/13
Investment AB Kinnevik-B Shs	15.51%	1.45%
Dream Unlimited-CL A Sub Vot	11.62%	1.67%

Largest Fallers	% change in Price	% of Assets at 31/12/13
Dogan Sirketler Grubu Hldgs	-14.29%	1.53%
Hudson's Bay Co	-12.75%	1.88%

Further Information Investment Manager - John Pennink and Joe Bauernfreund, AVI Ltd. [phone]       [e-mail] The share price can be found under 'INVESTMENT COMPANIES' in The Financial Times, The Times, The Daily Telegraph, The Scotsman and The Evening Standard. Information may be found on the following websites. www.british-empire.co.uk or www.assetvalueinvestors.com

Risk Factors you should consider before investing Investment in the British Empire Securities and General Trust plc (the "Trust") carries risks, which are more fully described in the Key Features Document.  Listed below are some of the key risks: Investors are reminded that past performance is not a guide to future performance and that their capital will be at risk and they may therefore lose some or all of the amounts that they choose to invest in the Trust. The Trust utilises gearing techniques (leverage) which exaggerate market movements both down and up and which could mean sudden and large falls in market value. Movements in exchange rates can impact both the level of income received and the capital value of your investment.  If the currency of your residence strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will reduce and vice versa. As with all stock exchange investments the value of investment trust shares will immediately fall by the difference between the buying and selling prices. Where investments are made in emerging market, unquoted securities or smaller companies, their potential volatility may increase the risk to the value of, and the income from the investment.

All figures as at the period under review unless otherwise stated.  All sources Asset Value Investors Ltd unless otherwise stated.  Asset Value Investors Limited ("AVI") is authorised and regulated by the Financial Conduct Authority ("FCA").  This document does not constitute an offer to buy or sell shares in the British Empire Securities and General Trust plc (the "Trust").  The contents of this message are not intended to constitute, and should not be construed as, investment advice. Potential investors in the Trust should seek their own independent financial advice.  AVI neither provides investment advice to, nor receives and transmits orders from, investors in the Trust nor does it carry on any other activities with or for such investors that constitute "MiFID or equivalent third country business" for the purposes of the FCA's rules. British Empire Securities and General Trust plc, Springfield Lodge, Colchester Road, Chelmsford, Essex CM2 5PW.  Registered in England & Wales No: 28203

 

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