Majedie Investments PLC
Half-Yearly Financial Report
31 March 2022
The Half-Yearly Financial Report for the six months ended 31 March 2022 can be found on the Majedie Investments PLC website:
https://www.majedieinvestments.com/reporting
Financial Highlights
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Half Year ended 31 March 2022 |
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Total shareholder return (including dividends): |
-12.5% |
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Net asset value (NAV) total return (debt at par including dividends): |
-8.2% |
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NAV total return (debt at fair value including dividends): |
-7.7% |
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NAV per share (debt at par value): |
257.0p |
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NAV per share (debt at fair value): |
253.2p |
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Revenue Return per share: |
2.7p |
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Interim Dividend: |
4.4p |
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Realised gain on the sale of the investment in Majedie Asset Management Limited: |
£20.2m |
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Total assets*: |
£157.0m |
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* Total assets are defined as total assets less current liabilities. |
Investment Objective and Policy Statement
Investment Objective
The Company's investment objective is to maximise total shareholder return whilst increasing dividends by more than the rate of inflation over the long term.
General
The Company invests principally in securities of publicly quoted companies worldwide and in funds managed by its investment manager, though it may invest in unquoted securities up to levels set periodically by the Board, including its investment in Majedie Asset Management Limited (MAM). Investments in unquoted securities, other than those managed by its investment manager or made prior to the date of adoption of this investment policy, (measured by reference to the Company's cost of investment) will not exceed 10% of the Company's gross assets.
Risk Diversification
Whilst the Company will at all times invest and manage its assets in a manner that is consistent with spreading investment risk, there will be no rigid industry, sector, region or country restrictions. The overall approach is based on an analysis of global economies sector trends with a focus on companies and sectors judged likely to deliver strong growth over the long term. The number of investments held, together with the geographic and sector diversity of the portfolio, enable the Company to spread its risks with regard to liquidity, market volatility, currency movements and revenue streams.
The Company will not invest in any holding that would, at the time of investment, represent more than 15% of the value of its gross assets save that the Company may invest up to 25% of its gross assets in any single fund managed by its investment manager where the Board believes that the investment policy of such funds is consistent with the Company's objective of spreading investment risk.
The Company may utilise derivative instruments including index-linked notes, contracts for difference, covered options and other equity-related derivative instruments for efficient portfolio management and investment purposes.
Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described above.
Asset Allocation
The assets of the Company will be allocated principally between investments in publicly quoted companies worldwide, in investments intended to provide an absolute return (in each case either directly or through other funds or collective investment schemes managed by the Company's investment manager) and the Company's investment in MAM itself.
Benchmark
The Company does not have one overall benchmark, rather each distinct group of assets is viewed independently. Any investments made into funds managed by the Company's investment manager will be measured against the benchmark or benchmarks, if any, whose constituent investments appear to the Company to correspond most closely to those investments. It is important to note that in all cases investment decisions and portfolio construction are made on an independent basis. The Board however sets various specific portfolio limits for stocks and sectors in order to restrict risk levels from time to time, which remain subject to the investment restrictions set out in this section.
Gearing
The Company uses gearing currently via long term debentures. The Board has the ability to borrow up to 100% of adjusted capital and reserves. The Board also reviews the level of net gearing (borrowings less cash) on an on-going basis and sets a range at its discretion as appropriate. The Company's current debenture borrowings are limited by covenant to 662/3%, and any additional indebtedness is not to exceed 20%, of adjusted capital and reserves.
Chief Executive's Report
In the six months ended 31 March 2022 the NAV at par and the NAV at FV (net asset value with debt at par and fair value) fell by 8.2% and 7.7% respectively, on a total return basis. The share price fell by 12.5% over the period, also on a total return basis. Over the six months the FTSE All-Share index rose by 4.7% and the MSCI All Country Index rose by 3.4% in sterling terms.
The sale of Majedie Asset Management (MAM), in which the Company had a stake of 17.6%, to Liontrust Asset Management PLC (Liontrust) was announced in December 2021, went unconditional in March 2022 and completed on 1 April 2022. Following the sale, the investment team responsible for the management of the Company's assets have joined Liontrust as its new Global Fundamental Team, retaining their flexible investment process based on detailed company research.
As a result of this transaction, the Company received a combination of shares in Liontrust and cash which was valued at £22.4m on the announcement date, compared with the valuation of the Company's holding in MAM at 30 September 2021 of £25.2m. Subsequent to the announcement the share price of Liontrust has fallen and at 31 March 2022 the transaction value had reduced by £6.3m to £16.1m. Excluding the Company's investment in MAM (now Liontrust) the managed portfolio, which represents 90.2% of total assets, fell by 1.5%.
Stock markets performed well in the final quarter of 2021 as the global economy recovered more strongly than expected as the impact of COVID-19 faded. Inflation, though a concern, was thought to be transitory and was expected to weaken in the second half of 2022 as supply side bottlenecks eased and Central Banks tightened their expansionary monetary policy. The invasion of Ukraine, apart from the horrendous human cost, has changed that optimistic outlook. It has proved a major shock to the global economy as commodity prices, particularly oil and wheat, have spiked. It is evident that inflation is now more persistent and that Central Banks were behind the curve. They have signalled a more hawkish stance and some commentators are concerned that the global economy is moving towards stagflation, a period of elevated inflation accompanied by low economic growth. Stock markets reacted by de-rating growth stocks as their valuations appeared stretched in a world of higher interest rates. The UK Market, in which the Company has an overweight position, has performed well and continues to do so due to its relatively large exposure to commodities and low exposure to highly valued technology stocks.
Results and Dividends
The Company had a capital loss for the six months to 31 March 2022 of £13.7m which includes the loss on the holding in MAM.
Total income received from investments fell to £2.0m compared to £3.7m in the six months to 31 March 2021. This was due to a smaller dividend from MAM of £1.2m compared to £2.8m for the six months to 31 March 2021. Total administrative expenses and management fees of £0.8m were unchanged as were finance costs of £0.8m. The net revenue after tax was £1.4m compared to £3.1m in the six months to 31 March 2021.
The dividend from MAM has, in recent years, represented a significant proportion of the Company's total income that will not be fully replaced by the income from its Liontrust shares or other assets. Notwithstanding this, the Board has decided to maintain the interim dividend at 4.4p pence per share. The Board notes the Company's substantial revenue reserves of £22.0m and understands the importance placed on dividend payments by many of its shareholders.
The dividend will be payable on 24 June 2022 to shareholders on the register at 6 June 2022 and the shares will go ex-dividend on 1 June 2022.
Management Arrangements
As a self managed trust, Majedie has managed its holding in MAM in addition to allocating the Company's assets between the various MAM/Liontrust funds.
Following the sale of MAM to Liontrust, the Board is considering the Company's investment objective together with the range of assets that should be considered for inclusion in the Company's portfolio, as well as its own responsibilities for portfolio allocation. The Board will update shareholders on this matter later in 2022.
The Board is in discussion with Liontrust regarding the terms of the locked up Liontrust shares received as part of the transaction.
Allocation of Total Assets at 31 March 2022
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Value |
% of Total |
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UK Equity Segregated Portfolio |
63,450 |
40.4 |
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Global Equity Fund |
42,413 |
27.0 |
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International Equity Fund |
12,235 |
7.8 |
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Tortoise Fund |
23,575 |
15.0 |
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Liontrust |
8,424 |
5.4 |
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Net cash/realisation fund* |
6,888 |
4.4 |
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Total Assets |
156,985 |
100.0 |
*Net cash and realisation fund does not include cash held in funds.
The sale of MAM has resulted in a higher cash position than usual as the Company received a pre completion cash payment of £6.5m in addition to shares in Liontrust. The Company has no overall benchmark, rather each fund has its own benchmark and it is expected that performance will be generated by stock picking at the fund level. The allocation to the Tortoise Fund, an absolute return fund is to reduce the downside volatility of the overall return for the Company, as the fund can short individual stocks and indices. The International Equity Fund gives overseas exposure particularly to developed markets and emerging markets excluding North America. The monthly factsheets of the relevant Liontrust Funds are available on the Company's website as are the Company's monthly factsheets which show the allocation between funds and the top twenty holdings on a look through basis. The Company's total assets were £157.0m at 31 March as defined on page 1.
Discount
The Board continues to monitor the Company's discount to NAV and will take action when appropriate. The Company bought back 7,092 shares in the six months to 31 March 2022.
Outlook
Stock markets volatility has continued and growth stocks, in particular, have suffered a further de-rating. Investor sentiment is unsurprisingly low, faced with the headwinds of inflation, hawkish Central Banks, a slowing economy and war in Europe. Markets are rated at 30% below their peak last year and, apart from the US, are below their long term medians. In general corporate earnings, thus far, have been resilient and though earnings revisions have sharply decelerated from last year, they remain positive. It seems likely that there will be a significant slowdown in the second half of 2022, the only question is the magnitude.
The current volatility reflects the wide range of outcomes that could occur for the global economy and earnings. In such an uncertain background fund managers such as the Global Fundamental Team at Liontrust, that focus on detailed, research based stock selection, should thrive. Their flexible approach allows them to invest in companies that are significantly mis-priced and avoid the rigid selection criteria that style based managers face.
In terms of asset allocation it is encouraging the UK equity market has continued its relative good performance as investors recognise its low relative and historic valuation. Takeover bids from corporates and private equity remain a feature and validate the attractive valuation. The company retains a relatively high exposure to the UK. The holding in the Tortoise Fund remains a key differentiating factor for the Company and as a Global Equity Long/Short Fund with a value bias it has successfully navigated the volatile markets and continues to perform well.