Half-year Report

Majedie Investments PLC

30 May 2024

 

30 May 2024

MAJEDIE INVESTMENTS PLC

HALF-YEAR FINANCIAL REPORT

Majedie Investments PLC ("Majedie" or the "Company") is pleased to present its Half-Year Financial Report for the six months ended 31 March 2024.

The Half-Year Financial Report can be found on the Company's website at www.majedieinvestments.com or by contacting the Company Secretary on telephone number 0131 378 0500.

Financial Highlights

	Six months to 31 March 2024	Year to 30 September 2023	Change
Net asset value per share	270.0p	241.7p	+11.7%
Share price	249.5p	196.5p	+27.0%
Discount	7.6%	18.7%	-
Dividend per share	3.9p	7.2p	-
Net asset value total return	13.3%	14.1%	-
Total shareholder return	28.1%	26.2%	-
Total assets	£165m	£151m	+9.3%

Net asset value is calculated on a cum income basis and with debt at fair value. Dividends are paid quarterly at 0.75% of NAV.

Highlights:

·      +13.3% Net asset value total return for the six months, with all three constituent parts of the portfolio contributing to growth. Total shareholder return for the period was 28.1%.

·      External Managers (56% of the portfolio) contributed +9.1%, led by the Helikon Long/Short Equity Fund (European Special Situations) and Paradigm BioCapital (small and medium sized Biotech).

·      Direct Investments (24% of the portfolio) contributed +3.7%, the strongest returns coming from Westinghouse Air Brake Technologies Corporation (Industrials) and Alight Inc. (Software) offset by Basic-Fit NV (a European budget gym operator).

·      Special Investments (10% of the portfolio) contributed +1.1%. Particularly strong performance from Project Bungalow (a co-investment in the public equity of Shake Shack Inc.) and Project Cauldron (a co-investment in the public equity of Alkami Technology Inc.) offset by Project Diameter (a co‑investment in the public equity of Concentrix Corporation).

·      The transition to quarterly dividend payments of approximately 0.75% of NAV has led to declarations of 1.9p and 2.0p during this Interim period, progressing from the payments of 1.8p during the prior period.

Christopher Getley, Chairman, commented:

'Majedie's Liquid Endowment strategy has delivered a good return for shareholders in the first half of the year, consistent with achieving its long-term goal of CPI plus 4%. Marylebone Partners have demonstrated the strength of the model with each of the three constituent parts of the portfolio adding value during the period.

The breadth of ideas that has contributed to this performance is key to the Board's confidence in the repeatability of this strategy. Returns have been generated from positions in areas as varied as biotech, software, Chinese and copper stocks as well as credit opportunities.

The Board has noted the reduction in the discount at which Majedie shares trade from 18.7% to 7.6% and continued evolution of the shareholder base during the period and is working with Marylebone Partners to build on the marketing progress that has been achieved. In particular the Board looks forward to the Majedie Investments PLC Investor Day at the Royal Institution on Tuesday 11 June 2024.

During the period the Board has also appointed a new Auditor in Edinburgh-based Johnson Carmichael and welcomed Heinrich Merz as a new Board member. Heinrich's deep experience as a leading practitioner in the absolute return and alternative investment industry has already made a significant contribution to the Majedie Board.'

Dan Higgins, Partner at Marylebone Partners and Investment Manager of Majedie commented: 'We are pleased with the performance in the first half of the year, which is driven by our exposure to external funds, but where all three elements of our portfolio have contributed to the growth in NAV and strong total shareholder returns.

Despite some potential risks such as a record number of global elections, some signs of stress in commercial real estate and the geopolitical situation in the Middle East, the financial backdrop is broadly supportive. However, inflation is seemingly under control, the global economy is in reasonable shape and corporate earnings are fairly robust and we can see why markets could rise further over the course of 2024. We believe that the best way to mitigate any risks while staying fully invested is to focus on our best ideas, demand a wide margin of safety and maintain discipline across the portfolio.'

For further information please contact:
Majedie Investments PLC   William Barlow	[phone]
J.P. Morgan Cazenove  William Simmonds Rupert Budge	[phone]
TB Cardew (PR Adviser to Majedie Investments) Tania Wild Will Baldwin-Charles	[phone] [phone] [phone]

About Majedie Investments PLC:

Majedie Investments PLC is an investment trust whose objective is to deliver long-term capital growth whilst preserving shareholders' capital and paying a regular dividend. The performance target is to achieve net annualised total returns (in GBP) of at least 4 per cent. above the UK CPI, over rolling five-year periods.

The Majedie Investments PLC portfolio features a combination of hard-to-access special investments, allocations to funds managed by boutique third-party managers, and direct investments in public equities.

LEI: 2138007QEY9DYONC2723

About Marylebone Partners:

Marylebone Partners LLP is an independent investment manager, owned by its principals. We help families, charities, endowments, trusts and private investors to protect and grow their wealth in real terms.

Our defining characteristic is an ability to access differentiated fundamental investments, many of which never come onto the radar screen of other allocators. We believe this capability will be the key to delivering superior performance outcomes over the years ahead.

Our partnership was founded in 2013 with the vision of bringing a distinctive investment approach to clients who sought a relationship based on trust and transparency. This remains our sole purpose today. We invest our own capital alongside our clients.

Marylebone Partners LLP is authorised and regulated by the Financial Conduct Authority.

INVESTMENT MANAGER'S REPORT

THE PORTFOLIO

Special Investments

We introduced four new Special Investments during the first half of the year and have made two additional allocations since the end of the quarter, bringing the weighting to over 13% at the time of writing. We expect the Special Investments allocation to grow as we identify compelling bottom-up ideas that meet our stringent criteria. Our recent co-investments follow a pattern that has been successful in the past. In each case, an identifiable 'issue' has weighed heavily on the share price of a publicly listed company which an investor in our network believes can be addressed through their engagement.

The following investments were added to the portfolio in the last six months. Project Cauldron a co-investment in the public equity of Alkami Technology Inc. a specialist software business, Project Sherpa a co-investment in the public equity of VF Corporation an established consumer products business, with a collection of globally recognised brands, Project Diameter a co-investment in Concentrix Corporation, a market leader in 'customer service experience' and finally Project Fibre a co-investment in the debt and public equity of Frontier Communications.

External Managers

The External Managers component was broadly unchanged in the last six months and currently stands at 56% of the total portfolio. Roughly one-half of this allocation is to managers with an equity-centric profile. Each is a specialist in extracting alpha from a structurally inefficient sector or region or operates with a very distinctive style. The position overlap between these funds - and with our direct investments book - is minimal, and statistical cross-correlation remains low. This suggests we have achieved risk diversification without diminishing return potential.

We have allocated the other half of the External Managers allocation to five specialist credit funds, again with differing regional or style biases. These managers are mindful of an evolving dynamic within the credit markets and have made some corresponding portfolio adjustments over the past quarter. They point out that whereas a yield of around 8% on riskier U.S. corporate bonds might appear attractive, the excess spread on high-yield bonds compared with Treasuries has narrowed in recent months. In other words, risk appetite amongst allocators has returned before interest rates have come down.

Although the environment remains opportunity-rich, we cannot over-emphasise the importance of undertaking fundamental credit analysis. According to JP Morgan, the par-weighted default rate on US high-yield and loans looks set to rise, and much the same can be said in Europe[1]. Elevated refinancing activity may have addressed the 2025 needs of many corporations, but certain troubled borrowers are finding conditions far from straightforward.

This explains why our specialist credit managers have anchored their portfolios in (a) defensive, short-duration and senior-secured paper that provides attractive carry and (b) event-driven situations with potential for yield compression, restructuring upside, and/or cash returns. Several of these managers are reinvesting a portion of the carry earned on long positions into alpha shorts and hedges, which should cushion performance in the event of a potential sell-off. For credit managers with the requisite skills and resources, this remains an attractive environment.

Direct Investments

As of the end of March, Direct Investments comprised 24% of the portfolio. Recently, we introduced three new ideas. Two are out of favour European stocks (Cancom SE and Basic Fit NV), while the third is a US Healthcare Solutions company (Evolent Health Inc). These purchases were funded by the sale of our positions in Sage Group PLC, Coats Group PLC and Pernod Ricard SA.

We initiated a new position in the Global X Copper Miners ETF (COPX) to express a positive view on the metal that is underpinned by a projected imbalance between demand and supply whilst mitigating the risk associated with exposure to individual mining companies.

Outlook

We can see reasons why markets could rise further over the rest of 2024. Inflation is seemingly under control, the global economy is in reasonable shape, and corporate earnings are fairly robust. Moreover, financial conditions are broadly supportive, and allocators are more sanguine about the economy even as they adjust to a more realistic outlook for interest rates.

However, this is no time for complacency. Potential risks on the horizon include a record number of political elections, signs of stress in Commercial Real Estate, and the troubling geopolitical situation in the Middle East.

Although valuation alone is rarely the trigger for a new bear market, headline multiples for equity markets are full once again. This leaves some 'long-duration' growth stocks susceptible to a de-rating if inflation proves stickier than expected.

We believe the best way to mitigate these (and other) risks whilst staying fully invested is to focus on our best ideas, demand a wide margin of safety, and maintain discipline. For example, when one of our direct investments appreciates to a valuation that no longer provides sufficient asymmetry, we sell it and recycle the proceeds into other opportunities. Our external managers do the same within their portfolios, and moreover we will trim back the position in any fund that reaches the upper end of its sizing band.

We have designed this ongoing process of 'wash, rinse, repeat' to reduce the likelihood of mean reversion and keep the portfolio fresh and non-consensual. It depends upon a productive pipeline of new opportunities, which we continue to replenish by sifting through areas that have been left behind in the narrow rally of the past 18 months. Most of the recent ideas that meet our criteria have an equity-centric profile. As we have redeployed capital into them, the portfolio's beta-adjusted net exposure has consequently risen above 70%. However, these situations are attractive precisely because they are overlooked and undervalued. Hence, we do not believe that a market momentum reversal would have a disproportionate impact on performance.

Our willingness to look off the beaten track has a secondary benefit, which is that an investment in Majedie Investments should be highly complementary to its shareholders' other allocations. This is illustrated by the observation that the portfolio has only two material holdings in the 50 largest components of the MSCI ACWI index, amounting to less than 3% of its NAV. While equities lie at the heart of our 'liquid endowment' proposition, we are absolute (not relative) return investors. At Marylebone Partners, we do not fixate on the composition of index benchmarks that have become increasingly lopsided and unrepresentative of our mandate.

Portfolio as at 31 March 2024

		Market Value (£000)	% of Total Assets
Direct Investments
Global X Copper Miners ETF		5,556	3.4%
KBR Inc		3,610	2.2%
Weir Group PLC		3,048	1.8%
Computacenter plc		3,026	1.8%
UnitedHealth Group Inc		2,842	1.7%
SS&C Technologies Holdings Inc		2,833	1.7%
Westinghouse Air Brake Technologies Corporation		2,679	1.6%
Alight Inc		2,574	1.6%
Heineken NV		2,505	1.5%
Evolent Health Inc		2,124	1.3%
Breedon Group PLC		2,027	1.2%
Thermo Fisher Scientific Inc		1,723	1.1%
Basic-Fit NV		1,689	1.0%
Other Direct Investments		3,061	1.9%
		39,297	23.8%
External Managers
Helikon Long/Short Equity Fund ICAV		10,402	6.3%
Silver Point Capital Offshore Fund, Ltd		9,688	5.9%
Millstreet Credit Offshore Fund, Ltd		9,647	5.9%
Contrarian Emerging Markets Offshore Fund, Ltd		9,344	5.7%
Paradigm BioCapital Partners Fund Ltd		8,120	4.9%
Praesidium Strategic Software Opportunities Offshore Fund, LP		7,552	4.6%
Keel Capital S.A., SICAV-SIF - Longhorn Fund		7,291	4.4%
CastleKnight Offshore Fund Ltd		6,842	4.2%
CQS Credit Multi Asset Fund		6,516	4.0%
Perseverance DXF Value Feeder Fund, Ltd.		6,339	3.9%
Eicos Fund S.A. SICAV-RAIF		6,288	3.8%
Engaged Capital Flagship Fund, Ltd		3,024	1.8%
Other External Managers		1,198	0.7%
		92,251	56.1%
	Underlying	Market Value (£000)		% of Total Assets
Special Investments
Project Fibre	Frontier Communications	3,239	2.0%
Project Uranium	Cameco Corporation	2,798	1.7%
Project Challenger	Metro Bank Snr Non Pref	2,597	1.6%
Project Bungalow	Shake Shack Inc	1,994	1.2%
Project Sherpa	V.F. Corporation	1,955	1.2%
Project Diameter	Concentrix Corporation	1,343	0.8%
Other Special Investments		2,057	1.2%
		15,983	9.7%
Fixed Interest
United Kingdom Gilt 2.75% 09/07/2024		7,927	4.8%
United Kingdom Gilt 1% 22/04/2024		4,441	2.7%
		12,368	7.5%
Other Investments		92	0.1%
Total Investments		159,991	97.2%
Cash and cash equivalents		4,333	2.6%
Trade and other receivables		287	0.2%
Total Assets		164,611	100.0%

Dan Higgins

Marylebone Partners LLP

29 May 2024

FURTHER INFORMATION

A copy of the Half-Year Financial Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism, in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

END

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

LEI: 2138007QEY9DYONC2723

---

[1] Current levels of 2.5%and 3.2% are broadly in line with their respective 25-year averages.

 

END