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BlackRock Income (BRIG)

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Wednesday 24 October, 2018

BlackRock Income

Portfolio Update

BLACKROCK INCOME AND GROWTH INVESTMENT TRUST PLC (LEI:5493003YBY59H9EJLJ16)
All information is at 30 September 2018 and unaudited.
Performance at month end with net income reinvested

   

One
Month
Three
Months
One
Year
Three
Years
Five
Years
Since
1 April
2012
Sterling
Share price -3.4% -4.1% 2.0% 24.3% 47.4% 86.5%
Net asset value -0.1% -1.0% 5.2% 30.1% 57.2% 81.5%
FTSE All-Share Total Return 0.7% -0.8% 5.9% 38.4% 43.5% 74.0%
Source: BlackRock

   

BlackRock took over the investment management of the Company with effect from 1 April 2012.

   

At month end
Sterling:
Net asset value - capital only: 206.22p
Net asset value - cum income*: 210.30p
Share price: 197.00p
Total assets (including income): £54.8m
Discount to cum-income NAV: 6.3%
Gearing: 4.6%
Net yield**: 3.4%
Ordinary shares in issue***: 24,156,168
Gearing range (as a % of net assets) 0-20%
Ongoing charges****: 1.1%

   

* includes net revenue of 4.08 pence per share
** The Company’s yield based on dividends announced in the last 12 months as at the date of the release of this announcement is 3.4% and includes the 2017 final dividend of 4.10p per share declared on 20 December 2017 and paid to shareholders on 9 March 2018 and the 2018 interim dividend of 2.50p per share declared on 25 June 2018 and paid to shareholders on 3 September 2018.
*** excludes 8,777,764 shares held in treasury
**** Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 31 October 2017.

   

Sector Analysis Total assets (%)
Oil & Gas Producers 10.8
Pharmaceuticals & Biotechnology 9.3
Banks 9.1
Support Services 6.2
Tobacco 5.9
Food Producers 5.6
Financial Services 5.4
Media 5.3
Life Insurance 5.1
Industrial Engineering 4.4
Nonlife Insurance 4.1
Household Goods & Home Construction 3.8
Construction & Materials 3.2
Food & Drug Retailers 2.8
Travel & Leisure 2.5
Forestry & Paper 2.4
Mining 2.4
Gas, Water & Multiutilities 2.2
General Retailers 2.0
Chemicals 1.5
Personal Goods 1.4
Electronic & Electrical Equipment 0.9
Software & Computer Services 0.7
Net Current Assets 3.0
------
Total 100.0
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Ten Largest Equity Investments
Company Total assets (%)
Royal Dutch Shell 'B' 6.1
British American Tobacco 5.0
RELX 4.2
Unilever 3.8
BP Group 3.7
John Laing Group 3.6
Lloyds Banking Group 3.6
GlaxoSmithKline 3.4
AstraZeneca 3.4
Prudential 3.2

   

Commenting on the markets, Adam Avigdori and David Goldman representing the Investment Manager noted:
 
The UK equity market traded with no clear direction over the summer months as the political scene remained in thrall to Brexit negotiations. The Chequers agreement led to high profile resignations from the Cabinet but the Prime Minister was able to retain sufficient support to continue discussions, albeit with little or no visible progress. European economies have their own issues with sentiment turning against Macron in France and the Italian government setting a higher-than-expected budget deficit.  On the global scene, US-China trade tensions escalated further although the direct impacts to date appear muted. The oil price rose as US supply growth encountered capacity constraints, hence the sector continued to strengthen.  Pharmaceuticals also made progress despite growing pressure on US pricing. HSBC led weakness in the Banks sector owing to lower market activity and fears of margin compression.  The success of Juul in the US vaping market led to additional pressure on the Tobacco sector.  M&A activity continued to make headlines in the UK market with the conclusion of the auction for Sky and Coca-Cola’s purchase of Costa Coffee from Whitbread.

Over the quarter the Company delivered a return of -1.0%, underperforming the FTSE All-Share which delivered a return of -0.8%.

TP ICAP shares have fallen significantly following a disappointing statement. The recent market volatility we have been seeing has failed to come through to revenue growth for TP ICAP as was expected but the real issues are on the cost side. The expectations for cost saving synergies have been revised downwards and interest and broker compensation costs are increasing. Inchcape suffered as a slowdown in pre-registration activity put pressure on new and used car margins in the UK. Strength across parts of Europe helped to offset declines in the UK but this wasn’t enough to put the brakes on the challenging back-drop for new car vehicle margins. Inchcape’s distribution business remains a high-quality business with a net cash balance sheet and modest growth expectations. Rentokil results were in line with expectations in that they delivered a modest slowdown in organic growth due to the continued impact of last year’s hurricanes on Puerto Rico as well as the cold weather in March and April delaying the pest season. M&A continues to contribute to revenue and profit growth.

John Laing shares rose as the company provided a strong update with an increase to net asset value after a large gain on the disposal of one of their assets. The pipeline for new investments continues to look encouraging for the remainder of the year. Ferguson has continued to perform well, boosted by strength in the US economy, market share gains and the benefits from bolt-on acquisitions. It has also taken capital out of less attractive markets, such as the Nordics, where it was unable to earn such attractive returns; these proceeds have been returned to shareholders. Hiscox has recently reported strong results with an improving outlook for the London market business as prices gently rise in a sustainable way. The opportunity in the retail business remains the largest driver of growth and returns for the group.

During the quarter we purchased a new position in Superdry which is trading on a depressed valuation given a number of issues, both self-inflicted and otherwise. The business is cash generative with a healthy balance sheet and we expect to see growth in the underlying business. We have also purchased new positions in BHP Billiton, Phoenix Group Holdings and Associated British Foods. We have added to positions including in United Utilities, Prudential, GlaxoSmithKline and De La Rue. We have reduced exposure to Ferguson, Rentokil, Admiral and Accesso Technology and sold our holding in DS Smith, ITV, Next and Direct Line.

We are broadly constructive on global markets and expect a continuation of the global growth that we have seen over the last few years, albeit in a less synchronised fashion across the G7 nations as this year brings more political and economic uncertainty. The trend of steady growth has provided a solid backdrop for equity market returns, which have also been helped by loose financial conditions from supportive governments and central banks. However political uncertainty is rising, which combined with tightening financial conditions means that we expect volatility to return to markets. This provides us, as active managers of a concentrated portfolio, with a great opportunity to identify high-quality cash generative businesses, with robust balance sheets, that can weather various market cycles and help to deliver long term capital and income growth for our clients.

We continue to like cash generative consumer staple companies, especially those exposed to the emerging market consumer given the prevalent demographic trends in certain markets. These companies often generate substantial cash flow which allows them to invest in innovation, marketing and distribution to ensure the longevity of their brands while also paying attractive and growing dividends to shareholders. We have also sought exposure to infrastructure and construction spend, which remains well below long-term averages and initiatives to boost this spend features prominently in politicians’ manifestos, particularly in the US and Europe. We also note that inflationary pressures are starting to build and therefore we seek those companies with sufficient pricing power and efficiency potential to withstand rising costs.  As the last few months have demonstrated, it is crucial to be selective and to focus on those companies that are strong operators, that provide a differentiated service or product and that boast a strong balance sheet.
24 October 2018

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