Results analysis from Kepler Trust Intelligence

Edinburgh Investment Trust PLC

29 May 2024

 

Edinburgh Investment Trust (EDIN)

29/05/2024

Results analysis from Kepler Trust Intelligence

Edinburgh Investment Trust (EDIN) has published its full year results for the 12 months ending 31/03/2024. Over the period, the trust saw NAV total returns of 13.4% and a share price total return of 8.9%, outperforming the FTSE All-Share Index total return of 8.4%. Performance continues to be driven by stock selection, with a diversified set of stocks contributing to the portfolio's excess returns over the period. Notably, three key positions - Marks & Spencer, BAE Systems and Centrica - stood out.

The board has recommended a final dividend of 6.9p per share, which, if approved in the July AGM, would bring the total dividend to 27.2p, representing a 3.8% increase from the previous year's total dividend of 26.2p. While the dividend for the year has increased, the revenue generated by the portfolio has fallen by 7.9%, largely due to a reduction in special dividend payments, particularly from the banking sector. With the expected total dividend of 27.2p, the dividend is uncovered by 3.3p per share, although the revenue reserves remain healthy, covering 1.17 times the 2024 dividend.

Kepler View

These are good results for Edinburgh Investment Trust (EDIN), with NAV total returns outperforming the FTSE All-Share Index by 5 percentage points and a total dividend increase to 27.2p, from 26.2p the year prior, representing a yield of 3.7%, at the time of writing.

Imran Sattar and Emily Barnard stepped into their lead and deputy portfolio manager roles in February this year. Both worked closely with their predecessors for over four years and remain committed to delivering strong total returns to shareholders. They continue to emphasise a balanced approach, seeking companies offering both growing dividends and capital growth potential, preferring not to prioritise one over the other or get stuck chasing a higher yield. In our view, their focus on balancing stocks offering above-average earnings potential as well as some latent recovery has underpinned EDIN's total return approach over time, so we are encouraged to see this focus continue. While the focus remains the same, the new managers have got to work and reorganised around 16% of the portfolio in the first three months of the calendar year. They anticipate a similar level of degree of change over the rest of 2024.

Amid current valuations, the managers initiated a new position in Rotork, an electronic and electrical equipment manufacturer, given its exposure to attractive long-term growth drivers such as oil and gas upstream electrification, and industrial process automation. Additionally, they also made a several purchases in larger companies on valuation grounds, including Rentokil and Autotrader. These changes were funded selling positions in companies likes WPP, an advertising firm, and Standard Chartered Bank.

In terms of wider changes, there has been a cut to the management fee. Effective as of 01/04/2024, there will be a charge of 0.45% per annum on the first £500m of market capitalisation, 0.40% on the next £500m and 0.35% on the remainder. Based on EDIN's market cap at the year-end, the restructuring is expected to reduce the pro-forma management fee by approximately 11%, compared to the old management fee structure.

In our opinion, EDIN continues to offer investors exposure to quality companies, spanning diverse sectors, and which have strong earnings growth potential which should feed into rising dividends. Furthermore, we believe that it's well-positioned to be a core holding for investors seeking a balance between capital growth, current income and income growth. If the strong run of performance persists and dividends continue to grow year-on-year, then we see potential for the discount to narrow, providing an additional boost to shareholder returns.

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