Publication of monthly factsheet

Utilico Emerging Markets Trust PLC

13 October 2023

 

13 October 2023

UTILICO EMERGING MARKETS TRUST PLC

(LEI Number: 2138005TJMCWR2394O39)

Publication of monthly factsheet

The latest monthly factsheet for Utilico Emerging Markets Trust plc ("UEM" or the "Company") will shortly be available through the Company's website at:

https://www.uemtrust.co.uk/investor-relations/factsheet-archive

Monthly commentary

PERFORMANCE

UEM's NAV total return increased by 2.3% in September, ahead of the MSCI EM total return Index ("MSCI") which was up 1.0% in Sterling terms in the month. In the six months to 30 September 2023, UEM's NAV total return has increased by 6.0%, significantly outperforming the MSCI which was down 0.9% in Sterling terms over the period.

Emerging markets equities were mostly weaker in September, as the US Federal Reserve's "higher for longer" stance on interest rates impacted investment flows worldwide. The surprising resilience of the US economy in the face of rapid rate rises has led the Federal Reserve to indicate that policy will be biased toward more restrictive policy, with fewer rate cuts now expected in 2024. This has seen the yield on 10-year US Treasury bonds reach the highest levels since before the Financial Crisis and the DXY Dollar Index continue to appreciate. The S&P 500 Index fell by 4.9% in September.

Typically, the broader impact of restrictive Federal Reserve policy is seen in reduced supply of money in circulation as well as withdrawal of foreign capital from what are perceived to be higher-risk jurisdictions such as EM. In China, the Hang Seng Index declined by 3.1% and the Shanghai Composite fell by 0.3%, though market movements here were also affected by whipsawing prices in some listed Chinese real estate companies. The slowdown in the property market has impacted real estate developers' ability to make interest payments on debt liabilities, with both Country Garden and China Evergrande undergoing complex debt restructuring programs. UEM has no direct investments in Chinese property companies. More positively, China's factory activity expanded for the first time in six months in September, with the PMI edging into positive territory at 50.2 from 49.7 in the previous month.

Weakness was also seen in Vietnam's Ho Chi Minh Index, which fell 5.7%, Mexico's Bolsa, down 4.0%, and Chile's IPSA, down 2.9% over the month. Bucking the trend was the Bucharest BET, up 8.2%, bolstered by the recent IPO of Hidroelectrica, now one of the largest listed companies on the local market. India's SENSEX Index was also notable in delivering a positive 1.5% return in September, while Brazil's Bovespa Index managed to eke out 0.7% return following a second consecutive interest rate cut of 50bps to 12.75%.

In the currency markets, the US Dollar continued to strengthen against most currencies, while Sterling weakened materially on deteriorating growth expectations for the UK economy. Sterling declined 3.7% against the US Dollar and 1.3% versus the Euro, and eased 2.6% against the Brazilian Real, 3.5% versus the Chinese Renminbi, 3.4% against the Indian Rupee and 3.8% versus the Philippine Peso.

PORTFOLIO

There was one change to the top thirty holdings, with Cia de Saneamento Basico do Estado de Sao Paulo ("Sabesp") replacing Grupo Traxion on investment and relative performance. Sabesp is the largest listed water utility in Brazil, with a USD 8.5bn market cap. Its concessions cover 375 municipalities in Sao Paulo state, providing water and sewage service to 10.2m customers. Sabesp is 50.3% owned by the Sao Paulo State government that has initiated a privatisation process, strengthening the shares which appreciated by 5.4% in September.

Performance was evenly split between risers and fallers in the top thirty over the month. A notable positive price increase was seen at Kunlun Energy, up 17.6%, following interim results which saw volume growth of 9.0% and resilient Dollar margins, enabling EBITDA growth of 7.4% and bolstering its significant net cash position. Trading at just 3x EV/EBITDA, Kunlun demonstrates attractive valuations that are currently available in EM. In Romania, TTS Transport Trade Services posted solid 1H23 results with revenues up 42% driven by increases in volume of agricultural product, with its share price appreciating by 11.2%. Strong share price performances were also seen in UEM's digital infrastructure investment KINX up 10.7%, Powergrid India's share price was up 8.6% (adjusted for a stock split), and Orizon firmed by 5.0% in the month.

Weaker share price performances were seen at Vamos, down 16.5% following lacklustre Q2 results released in August, resulting in investors questioning visibility on 3Q23 rental contracts and yields Vamos will achieve. UEM's Chinese investments also softened, with China Gas' share price declining 7.6% and Datang Renewable easing 4.1%. Powergrid InvIT and Aguas Andinas' share prices decreased by 7.1% and 6.3% respectively. Notwithstanding continued encouraging progress towards commercialisation of its EV charging technology, the carrying value of Petalite was reduced by 12.9% to reflect softening of share prices at listed peers.

Portfolio purchases amounted to £7.5m and realisations totalled £6.8m in the month under review.

DEBT

UEM's debt reduced to £11.8m from £13.5m during the month, drawn as GBP 7.5m and EUR 5.0m.

OTHER

UEM's share price ended September at 222.00p, up 0.9% over the month. The discount to NAV disappointingly widened to 15.1% from 13.9%. UEM bought back 1.2m shares at an average price of 221.13p in the month. This takes the total shares bought back in the six months to 30 September 2023 to 4.4m, equivalent to 2.1% of the share capital as at 31 March 2023. 

The first quarterly interim dividend of 2.15p per ordinary share in respect of the year ending 31 March 2024, was paid on 22 September to shareholders on the register on 1 September 2023.

Name of contact and telephone number for enquiries:

ICM Investment Management Limited                                 [phone]

Charles Jillings / Alastair Moreton

Montfort Communications

Gay Collins, Pippa Bailey                                                       [phone]

[e-mail]

 

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