Half-year Report

RNS Number : 4248U
Personal Assets Trust PLC
25 November 2019
 

 

 

To:              RNS                                                                    

From:         Personal Assets Trust plc

LEI:            213800Z7ABM7RLQ41516

Date:          25 November 2019

 

 

Interim Report for the Six months ended 31 October 2019 (Unaudited)

 

 

Financial Summary

 

Personal Assets Trust ("PAT") is an independent investment trust run expressly for private investors.

 

The Company's investment policy is to protect and increase (in that order) the value of shareholders' funds per share over the long term.

 

Over the six months to 31 October 2019 PAT's net asset value per share ("NAV") rose by 2.5% to £415.16. PAT's share price rose by £11.50 to £419.50 over the same period, being a premium of 1.0% to the Company's NAV at that date.

 

During the period, PAT continued to maintain a high level of liquidity.

 

 

 

% as at

31 October

2019

% as at

30 April

2019

 

 

 

 

 

 

US TIPS

 

32.1

27.8

 

US Treasuries

 

3.4

3.8

 

UK Index-Linked Gilts

 

3.0

3.3

 

UK T-Bills

 

14.6

18.7

 

Gold Bullion

 

9.0

8.1

 

UK cash

 

3.2

2.4

 

Net current assets / (liabilities)

 

2.2

(0.1)

 

 

Total

 

67.5

64.0

 

 

 

Over the six months PAT's shares continued to trade close to NAV. We issued 263,388 new Ordinary shares (adding £111.0 million of new capital) at a small premium.

           

 

Dividends are paid in July, October, January and April of each year. The first interim dividend of £1.40 per Ordinary share was paid to shareholders on 12 July 2019 and the second interim dividend of £1.40 was paid on 11 October 2019. A third interim dividend of £1.40 per Ordinary share will be paid to shareholders on 10 January 2020 and a fourth interim dividend of £1.40 per Ordinary share is expected to be paid in April 2020, making a total for the year of £5.60 per Ordinary share.

 

 

 

Key Features

 

 

 

As at

31 October

2019

As at

30 April

2019

 

 

 

 

Market Capitalisation

 

£1,114.1m

£976.0m

Shareholders' Funds

 

£1,102.5m

£968.6m

Shares Outstanding

 

2,655,663

2,392,275

Liquidity (see fourth bullet point above)

 

67.5%

64.0%

Share Price

 

£419.50

£408.00

NAV per Share

 

£415.16

£404.88

FTSE All-Share Index

 

3,993.46

4,067.98

Premium to NAV

 

1.0%

0.8%

Earnings per Share

 

£3.63

£4.97⁽¹⁾

Dividend per Share

 

£2.80

£5.60⁽¹⁾

 

 

 

 

⁽¹⁾ Full Year.

 

 

 

 

 

 

 

Important Developments During the Period

 

As noted in the 2019 Annual Report it is expected that Robin Angus, the Company's Executive Director, will retire following the Annual General Meeting in July 2020. The Board has therefore reached agreement to appoint Troy Asset Management ("Troy") as the Company's Investment Manager with effect from 1 May 2020. Troy has served as Investment Adviser to the Company since 2009.

 

The Board will continue to work closely with Troy, as it has done in the past, to achieve long term success for the Company. There will be no changes to the basis of fee payable to Troy or the notice period under the new arrangement and the following matters will continue to be expressly reserved to the Board: (a) the introduction

of gearing within the portfolio and the gearing levels thereafter; (b) matters relating to the buyback and issuance of the Company's shares; (c) matters relating to shareholder communication; (d) investment in any new asset class; and (e) such other matters as the Board may reasonably intimate from time to time.

 

In addition, in August 2019 the Company acquired a freehold office at 28 Walker Street in Edinburgh, having rented its current office since 1990. The property establishes a permanent presence for the Company and its subsidiary, PATAC, which employs 12 staff and provides secretarial and administrative, alternative investment fund manager ("AIFM") and discount management services to the Company and six other investment trust clients.

 

 

Directors' Responsibility Statement in Respect of the Interim Report

We confirm that to the best of our knowledge:

·   the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

·   the Important Developments During the Period and the Investment Adviser's Report include a fair review of the information required by the Disclosure Guidance and Transparency Rules ("DTR") 4.2.7R, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;

·   the Statement of Principal Risks and Uncertainties is a fair review of the information required by DTR 4.2.7R; and

·   the condensed financial statements include a fair review of the information required by DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during the period, and any changes in the related party transactions described in the last Annual Report that could do so.

 

On behalf of the Board,

Hamish Buchan, Chairman

22 November 2019

 

 

 

For further information, contact:

 

Sebastian Lyon                      

Investment Adviser

Tel: 0207 499 4030

 

Robin Angus

Executive Director

Tel: 0131 538 6601

 

Steven Davidson

Company Secretary

Tel: 0131 538 6603

 

 

Investment Adviser's Report

 

Over the half year to 31 October 2019 the net asset value per share ("NAV") of Personal Assets Trust ("PAT") rose by 2.5% while the FTSE All-Share Index ("FTSE") fell by 1.8%. After a decade of low interest rates, investors must weave a treacherous path through high valuations, low growth and heightened political risk. We continue to tread carefully. Our exposure to risk assets is modest with only a third of the portfolio committed to equities. Our preference remains for sustainable and robust business franchises which are moderately valued but offer growth in a low growth world. The dangers of too much capital chasing too few opportunities is there for all to see, be it the egregious valuations of IPOs of loss making business models like Uber and Lyft or the recent material write down of WeWork's valuation. We choose to invest in financially productive companies that pay us to invest in them.

The performance of PAT and the stock market over the past six months indicate that this has been a benign period. Despite the modest fall in the FTSE, the environment has been relatively supportive amid falling bond yields and a resilient US stock market. Performance was driven by core holdings in Microsoft, Coca-Cola, Nestlé, Procter & Gamble and Franco-Nevada. The last of these was buoyed by the rising price of gold bullion, up 18% over the period in sterling terms. Our small holding in A.G. Barr was the biggest detractor following the announcement of weaker trading. Sterling's rally from its early September lows has been a headwind, although most of our US dollar exposure is hedged back into sterling.

Portfolio turnover was modest. We chose to sell our small holding in GlaxoSmithKline into recent strength and reduce the holding in Sage Group following a very strong recovery this year. We added two new holdings in Medtronic and Alphabet (parent company of Google). We have had a longstanding preference for medical device companies over pharmaceuticals for their consistency of returns and lack of exposure to patent expiries. Demand for medical interventions such as stents and heart valves has grown steadily as populations in developed countries get older and emerging markets modernise healthcare provision. Shares in Medtronic have not taken part in the re-rating enjoyed by high quality businesses in the past five years, partly because of over-optimistic management guidance. It is evident that management have learned from past mistakes and guidance is now realistic. The company today is in good shape with a strong pipeline of products. Sales from robotics and data analytics are just beginning to be realised.

Alphabet had de-rated to just over 10x cash flow in June when we bought the shares. Revenues will be cyclical but the business has the capacity to grow at attractive rates throughout the cycle. The company has eight platforms with over 1bn users, most of which are far from being fully 'monetised'. This testifies to the company's long-term approach and its focus on its users rather than short-term financial targets. Over $100bn in cash in the balance sheet offers options other companies lack. Management have been vocal in their admiration for Berkshire Hathaway (a longstanding PAT holding); valuation sensitive buybacks seem the most likely destination for much of the cash and a $25bn repurchase is underway.

Since the end of August there has been a resurgence in structurally challenged or cyclical 'value' stocks, including those confronted by ongoing technological change and the erosion of pricing power. An upturn in the global economy could support a more sustained period of positive performance for such businesses, but as yet we see few signs of it. We have experienced these bouts of stock market rotation before, most recently in late 2016 and early 2017. Such snap-backs usually throw up opportunities for us in our favoured sectors and enable us to increase PAT's equity allocation.

As regards specific political events such as Brexit, the UK general election or the US 2020 presidential election, short-term tactical decision-making is likely to fail. We try to take account of, and protect against, substantive risks to the portfolio. This requires an appreciation and understanding of multifarious political outcomes. However, we spend a much greater part of our time identifying and analysing businesses which should perform well regardless of the wider political and macroeconomic backdrop.

Sebastian Lyon, Investment Adviser

 

On behalf of the Board,

Robin Angus, Executive Director

22 November 2019

 

 

Portfolio as at 31 October 2019                              

 

 

 

 

S/holders' Funds

Valuation

Bought/(sold) in period

Gain/ (loss) in period

Security

Country

Equity Sector

%

£'000

£'000

£'000

 

 

 

 

 

 

 

Equities

 

 

 

 

 

 

Microsoft

USA

Technology

4.3

47,095

-

4,507

Nestlé

Switzerland

Food Producer

3.0

32,760

-

3,455

Unilever

UK

Food Producer

2.8

30,846

1,970

(341)

Coca-Cola

USA

Beverages

2.8

30,339

(3,910)

3,772

British American Tobacco

UK

Tobacco

2.6

29,214

4,424

(3,048)

Philip Morris

USA

Tobacco

2.3

25,175

-

(1,389)

Berkshire Hathaway

USA

Insurance

1.9

20,931

-

(274)

American Express

USA

Financial Services

1.8

19,941

-

155

Procter & Gamble

USA

Household Products

1.8

19,860

(2,656)

3,404

Alphabet

USA

Technology

1.6

17,326

15,481

1,845

Franco-Nevada

Canada

Mining

1.2

13,374

-

3,553

Diageo

UK

Beverages

1.2

12,943

-

(280)

Medtronic

USA

Healthcare

1.0

11,865

9,544

2,321

Colgate Palmolive

USA

Personal Products

1.0

11,128

(4,328)

(348)

Imperial Oil

Canada

Oil & Gas

0.9

10,499

(1,844)

(1,937)

Sage Group

UK

Technology

0.9

10,365

(10,235)

1,030

A.G. Barr

UK

Beverages

0.7

7,392

(1,363)

(4,295)

Société BIC

France

Consumer Goods

0.5

5,366

-

(1,249)

GlaxoSmithKline

UK

Pharmaceuticals

-

-

(9,585)

(319)

Total Equities

 

 

32.3

356,419

(2,502)

10,562

US TIPS

USA

 

32.1

354,549

85,074

60

US Treasuries

USA

 

3.4

37,557

18

378

UK Index-Linked Gilts

UK

 

3.0

32,748

671

(19)

UK T-Bills

UK

 

14.6

160,422

(20,174)

-

Property

UK

 

0.2

1,628

1,628

-

Gold Bullion

 

 

9.0

99,380

6,033

14,515

Total Investments

 

94.6

1,042,703

70,748

25,496

UK cash

 

3.2

35,383

n/a

n/a

Overseas cash

 

0.0

137

n/a

n/a

Net current assets

 

2.2

24,315

n/a

n/a

TOTAL PORTFOLIO

 

100.0

1,102,538

n/a

n/a

 

 

 

 

 

 

Geographic Analysis of Investments and Currency Exposure As At 31 October 2019

 

 

UK

USA

Canada

France

Switzerland

Total

 

%

%

%

%

%

%

Equities

8

19

2

1

3

33

Inflation-Linked Securities

3

32

-

-

-

35

T-Bills

15

-

-

-

-

15

Treasuries

-

3

-

-

-

3

Gold Bullion

-

9

-

-

-

9

Cash

3

-

-

-

-

3

Property

0

-

-

-

-

0

Net current assets

2

-

-

-

-

2

Total

31

63

2

1

3

100

Net currency exposure %

76

18

2

1

3

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Group Income Statement

For the six months ended 31 October 2019

 

 

(Unaudited)

 

Six months ended

 

31 October 2019

 

Revenue

Capital

 

 

Return

Return

Total

 

£'000

£'000

£'000

 

 

 

 

Investment income

12,087

-

12,087

Other operating income

847

-

847

Gains on investments held at fair value through profit or loss

-

25,496

25,496

Foreign exchange losses

-

(3,537)

(3,537)

 

 

 

 

Total income

12,934

21,959

34,893

Expenses

(2,418)

(2,176)

(4,594)

 

 

 

 

Return before taxation

10,516

19,783

30,299

Taxation

(1,341)

1,025

(316)

 

 

 

 

Return for the period

9,175

20,808

29,983

 

 

 

 

Return per share

 

£3.63

£8.25

£11.88

 

The ''Return for the Period'' is also the ''Total Comprehensive Income for the Period'', as defined in IAS1 (revised), and no separate Statement of Comprehensive Income has been presented.

The ''Total'' column of this statement represents the Group's Income Statement, prepared in accordance with International Financial Reporting Standards (''IFRSs'').

The Revenue Return and Capital Return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

 

 

 

 

 

 

 

 

 

 

Condensed Group Income Statement

For the six months ended 31 October 2018

 

 

(Unaudited)

 

Six months ended

 

31 October 2018

 

Revenue

Capital

 

 

Return

Return

Total

 

£'000

£'000

£'000

 

 

 

 

Investment income

9,026

-

9,026

Other operating income

527

-

527

Gains on investments held at fair value through profit or loss

-

42,166

42,166

Foreign exchange losses

-

(25,110)

(25,110)

 

 

 

 

Total income

9,553

17,056

26,609

Expenses

(2,187)

(1,869)

(4,056)

 

 

 

 

Return before taxation

7,366

15,187

22,553

Taxation

(873)

557

(316)

 

 

 

 

Return for the period

6,493

15,744

22,237

 

 

 

 

Return per share

 

£2.88

£6.98

£9.86

 

 

Condensed Group Income Statement

For the year ended 30 April 2019

 

 

(Audited)

 

 

Year ended

 

 

30 April 2019

 

 

Revenue

Capital

 

 

 

Return

Return

Total

 

 

£'000

£'000

£'000

 

 

 

 

 

 

Investment income

16,180

-

16,180

 

Other operating income

1,112

-

1,112

 

Gains on investments held at fair value through profit or loss

-

63,327

63,327

 

Foreign exchange losses

-

(20,495)

(20,495)

 

 

 

 

 

 

Total income

17,292

42,832

60,124

 

Expenses

(4,477)

(3,815)

(8,292)

 

 

 

 

 

 

Return before taxation

12,815

39,017

51,832

 

Taxation

(1,400)

538

(862)

 

 

 

 

 

 

Return for the period

11,415

39,555

50,970

 

 

 

 

 

 

Return per share

£4.97

£17.20

£22.17

 

 

 

 

               
 

 

Condensed Group Statement of Financial Position

As at 31 October 2019

 

 

(Unaudited)

(Unaudited)

(Audited)

 

31 October

31 October

30 April

 

2019

2018

2019

 

£'000

£'000

£'000

 

 

 

 

Non-current assets

 

 

 

 

Investments held at fair value through profit or loss

 

 

1,042,703

 

883,355

 

946,459

Net current assets

59,835

22,874

22,120

 

 

 

 

Net assets

1,102,538

906,229

968,579

 

 

 

 

Total equity

1,102,538

906,229

968,579

 

 

 

 

Net asset value per Ordinary share

£415.16

£395.50

£404.88

 

 

 

 

                                                                                               

 

 

Condensed Group Statement of Changes in Equity

For the six months ended 31 October 2019            

 

 

 

 

 

 

 

(Unaudited)

(Unaudited)

(Audited)

 

 

Six months

Six months

Year

ended

ended

ended

31 October

31 October

30 April

2019

2018

2019

£'000

£'000

£'000

 

 

 

 

 

 

 

Opening equity shareholders' funds

968,579

858,893

858,893

Return for the period

29,983

22,237

50,970

Ordinary dividends paid

(7,018)

(6,300)

(12,850)

Issue of Ordinary shares

110,994

31,399

71,566

 

 

 

 

Closing equity shareholders' funds

1,102,538

906,229

968,579

 

 

 

 

 

 

 

Condensed Group Cash Flow Statement

For the six months ended 31 October 2019

 

 

 

(Unaudited)

(Unaudited)

(Audited)

 

 

Six months

Six months

Year

ended

ended

ended

31 October

31 October

30 April

2019

2018

2019

£'000

£'000

£'000

 

 

 

Net cash inflow from operating activities

 

2,635

1,953

4,991

Net cash outflow from investing

 

 

 

activities

(94,851)

(32,766)

(80,632)

 

 

 

 

Net cash outflow before financing

 

 

 

activities

(92,216)

(30,813)

(75,641)

Net cash inflow from financing

 

 

 

 

activities

103,977

24,297

58,716

 

 

 

 

Net increase/(decrease) in cash and

 

 

 

cash equivalents

11,761

(6,516)

(16,925)

Cash and cash equivalents at the start of

 

 

 

the period

23,605

40,763

40,763

Effect of exchange rate changes

154

(158)

(233)

 

 

 

 

Cash and cash equivalents at the end of

 

 

 

the period

35,520

34,089

23,605

 

 

 

 

 

           

 

 

1.  The condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standard ('IFRS') IAS 34 'Interim Financial Reporting' and the accounting policies set out in the statutory accounts of the Group for the year ended 30 April 2019. The condensed consolidated financial statements do not include all of the information required for a complete set of IFRS financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 April 2019, which were prepared under full IFRS requirements.

2.  The return per Ordinary share figure is based on the net profit for the six months of £29,983,000 (six months ended 31 October 2018: net profit of £22,237,000; year ended 30 April 2019: net profit of £50,970,000) and on 2,523,148 (six months ended 31 October 2018: 2,254,221; year ended 30 April 2019: 2,299,470) Ordinary shares, being the weighted average number of Ordinary shares in issue during the respective periods.

3.  In respect of the year ending 30 April 2020 the Board has declared a first interim dividend of £1.40 per Ordinary share, which was paid on 12 July 2019 and a second interim dividend of £1.40 per Ordinary share, which was paid on 11 October 2019. A third interim dividend of £1.40 per Ordinary share will be paid to shareholders on 10 January 2020 and a fourth interim dividend of £1.40 per Ordinary share is expected to be paid in April 2020, making a total for the year of £5.60 per Ordinary share. In respect of the year ended 30 April 2019 the Board declared four interim dividends of £1.40 per Ordinary share. This gave a total dividend for the year ended 30 April 2019 of £5.60 per Ordinary share.

 

 

 

4.  At 31 October 2019 there were 2,655,663 Ordinary shares in issue (31 October 2018: 2,291,336; 30 April 2019: 2,392,275). During the six months ended 31 October 2019 the Company issued 263,388 new Ordinary shares.

 

5.  The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view that the Group is engaged in a single segment of business, being that of investing in equity shares, fixed interest securities and other investments, and that therefore the Group has only a single operating segment.

 

6.  The Group held the following categories of financial instruments as at 31 October 2019:

 

 

Level 1

£'000

Level 2

£'000

Level 3

£'000

Total

£'000

Investments

1,041,075

-

2,749

1,043,8245

Current assets

-

23,760

-

23,760

Total

1,041,075

      23,760

2,749

1,067,584

 

The above table provides an analysis of investments based on the fair value hierarchy described below and which reflects the reliability and significance of the information used to measure their fair value. The levels are determined by the lowest (that is, the least reliable or least independently observable) level of impact that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 reflects financial instruments quoted in an active market.

Level 2 reflects financial instruments the fair value of which is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique the variables of which include only data from observable markets. The Company's forward currency contract has been included in this level as fair value is achieved using the foreign exchange spot rate and forward points which vary depending on the duration of the contract.

Level 3 reflects financial instruments the fair value of which is determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable market transactions in the same instrument and not based on available observable market data.

The Company's subsidiary has been included in this level as its valuation is based on its net assets which rose from £783,000 at 30 April 2019 to £1,121,000 at 31 October 2019.

The property that the Company purchased during the period has also been included in this level. The amount of £1,628,000 is based on a professional valuation.

There were no transfers of investments between levels in the period ended 31 October 2019.

The following table summarises the Group's Level 1 investments that were accounted for at fair value in the period to 31 October 2019.

 

 

 

 

                                                                                                              Group

                                                                                                           (Level 1)

                                                                                                                £'000

 

Opening book cost

767,790

Opening fair value adjustment

178,669

Opening valuation

946,459

Movement in the priod:

 

Purchases at cost

443,156

Effective yield adjustment

4,885

Sales - proceeds

(378,921)

  - gains on sales

16,017

Increase in fair value adjustment

9,479

Closing valuation at 31 October 2019

1,041,075

Closing book cost

852,927

Closing fair value adjustment

188,148

Closing valuation at 31 October 2019

1,041,075

 

Other aspects of the Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 30 April 2019.

The fair value of the Group's financial assets and liabilities as at 31 October 2019 was not materially different from their carrying values in the financial statements.

7.  These are not full statutory accounts in terms of Section 434 of the Companies Act 2006 and are unaudited. Statutory accounts for the year ended 30 April 2019, which received an unqualified audit report and which did not contain a statement under Section 498 of the Companies Act 2006, have been lodged with the Registrar of Companies. No full statutory accounts in respect of any period after 30 April 2019 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

 

 

 

Statement of Principal Risks and Uncertainties

 

The Board believes that the principal risks to shareholders, which it seeks to mitigate through continual review of its investments and through shareholder communication, are events or developments which can affect the general level of share prices and other financial assets, including, for instance, inflation or deflation, economic recessions and movements in interest rates and currencies.

Other risks faced, and the way in which they are managed, are described in more detail under the heading Principal Risks and Risk Management within the Strategic Report in the Company's Annual Report for the year ended 30 April 2019.

The Company's principal risks and uncertainties have not changed since the date of the Annual Report and are not expected to change for the remaining six months of the Company's financial year.

Going Concern

The Directors believe, in the light of the controls and review processes noted above and bearing in mind the nature of the Group's business and assets, which are considered readily realisable if required, that the Group has adequate resources to continue operating for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

Related Party Transactions

Details of related party transactions are contained in the Annual Report for the year ended 30 April 2019. There have been no material changes in the nature and type of the related party transactions as stated within the Annual Report.

 

 


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END
 
 
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