The Mercantile Investment Trust plc AGM. 20 th May 2015

Transcription

1 The Mercantile Investment Trust plc AGM 20 th May 2015

2 Agenda Overview of fund strategy Review of the year Outlook and positioning 1

3 Overview of fund strategy Mercantile exposure to a diversified portfolio of UK companies Investment Objective Long term capital growth from a portfolio of UK mid and small cap companies Performance Benchmark FTSE All-Share Index excluding FTSE-100 and Investment Trusts Dividend Total dividend for the year 41p (2014: 40p), paid quarterly (2.5% yield at current price) Dividend for the year to 31 st January 2015 Portfolio features as at 20 th May

4 Overview of fund strategy Experienced, stable and dedicated investment team The Mercantile Investment Trust Anthony Lynch, Portfolio Manager Industry Experience: 6 years (6 years on The Mercantile IT) Martin Hudson, Portfolio Manager Lead on 50% of the investment universe* Industry Experience: 40 years (21 years on The Mercantile IT) Guy Anderson, Portfolio Manager Lead on 50% of the investment universe* Industry Experience: 13 years (3 years on The Mercantile IT) Timothy Lewis, Investment Analyst Industry Experience: 3 years (2 years on The Mercantile IT) Dedicated fundamental research Analytical resource to research >300 companies, covering the full breadth of sectors Supported by 40+ investment professionals as part of the JPMorgan European Equity Group Capability to assess new market opportunities 300+ meetings with company management per annum Three UK mid/small cap specialist dealers Managers as at 20 th May There can be no assurance that the professionals currently employed by J.P. Morgan Asset Management will continue to be employed by J.P. Morgan Asset Management or that the past performance or success of any such professional serves as an indicator of such professional's future performance or success. * Effective 31 st January 2015, previously 2/3 MH and 1/3 GA 3

5 Overview of fund strategy Consistent investment philosophy Looking for stocks with one or more of the following characteristics Characteristic Sought Attractively valued assets Sustainable competitive advantages operating in attractive end markets Companies going through periods of positive change Commonalities Appropriately funded businesses Run by strong management teams Focused on shareholder value Balancing expectations versus outcome 4

6 Overview of fund strategy Domino s Pizza UK first mover advantage in bringing Tech to Table Business Model Pizza franchise model Market leading web & mobile platform Virtuous circle as revenue growth funds investment in platform & marketing 700m 600m Sales growth Industry Dynamics Market leader with c.50% share of pizza delivery market Highly fragmented takeaway market Ongoing shift away from home cooking 500m 400m 300m 200m 100m Market Expectations Exceeding analyst forecasts Upside risk to shareholder returns Potential to repeat success in European markets m In-Store Website Mobile Source: Domino s Pizza Group, J.P. Morgan Asset Management analysis Financials & Valuation Double digit same store sales growth Peer group multiples Discounted cash flow (DCF) The information in this case study is intended as an example only and should not be construed as advice, it may not be suitable for your particular circumstances and if you are unsure of the suitability of any investment you should seek financial advice. Past performance is not a guarantee of the future. Any opinions and views expressed here are those held by the author as at date of this document, which are subject to change and are not to be taken as or construed as investment advice. J.P. Morgan Asset Management may or may not hold positions on behalf its clients in any or all of the aforementioned securities. 5 As at 31 st March 2015

7 Overview of fund strategy HellermannTyton exciting growth from an established industrial company Business Model Plastic cable management solutions Automotive, electrical & datacom end markets Leading global market shares End Market Dynamics Increasing wiring per vehicle Metal to plastic substitution Cyclical upturn in car sales Roll-out of fibre networks & data centre growth Market Expectations Analysts forecasting looks for +7% sales growth But order book +13% Manufacturing floor space +40% since 2011 Financials & Valuation Organic revenue growth: industrial production +4% Stable returns cross-cycle, despite cyclical end markets Investing for the future 10% valuation discount to market & material DCF upside The information in this case study is intended as an example only and should not be construed as advice, it may not be suitable for your particular circumstances and if you are unsure of the suitability of any investment you should seek financial advice. Past performance is not a guarantee of the future. Any opinions and views expressed here are those held by the author as at date of this document, which are subject to change and are not to be taken as or construed as investment advice. J.P. Morgan Asset Management may or may not hold positions on behalf its clients in any or all of the aforementioned securities. 6 As at 31 st March 2015

8 Review of the year Net asset value and share price performance Contributions to total returns 12 months to 31 st January 2015 % 3 year total returns Benchmark total return 4.6 Stock/ sector selection 1.2 Gearing/ cash -0.4 Fees & expenses -0.5 Cost of debentures -0.6 Share repurchases 0.1 Return on net assets 4.4 Increase in discount Share Price +75% Benchmark +70% NAV +69% FTSE % Return to shareholders Source: Xamin, Morningstar, AIC, DataStream, J.P. Morgan Asset Management 12 months to 31 st January 2015 Total return, debt at par value, net of fees, income reinvested Benchmark is FTSE All-Share Index excluding FTSE-100 and Investment Trusts Past performance is not an indication of future performance Source: Xamin, Morningstar, AIC, DataStream, J.P. Morgan Asset Management 3 years to 31 st January 2015 Total return, debt at par value, net of fees, income reinvested Past performance is not an indication of future performance 7

9 Review of the year Largest contributors to performance 31 st January 2014 to 31 st January 2015 Top 5 Largest contributor General Retailers (o) 0.94% Dixons Carphone (o) Oil Equipment, Services & Distribution (u) 0.57% AMEC-Foster Wheeler (u) Food Producers (o) 0.52% New Britain Palm Oil (o) Household Goods & Home Construction (o) 0.43% Persimmon (o) Bottom 5 Electronic & Electrical Equipment (u) 0.39% Xaar (u) Largest detractor Gas, Water & Multi-utilities (u) Industrial Metals & Mining (u) -0.24% -0.29% Pennon (u) Evraz (u) Financial Services (o) -0.43% Investec (u) Real Estate Investment Trusts (u) -0.45% Shaftesbury (u) Support Services (o) -1.51% Serco (o) -2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% Relative Contribution % Source: B-one, J.P. Morgan Asset Management (o) denotes overweight, (u) denotes underweight; period average For illustrative purposes only. Past performance is not an indication of future performance Attributions may not match official returns due to differences in systems rounding 8

10 Review of the year 2014 was a year of change Top 10 holdings (31 st January 2014) Top 10 holdings (31 st January 2015) Persimmon 4.5% Catlin 3.7% Jardine Lloyd Thompson 3.1% Jardine Lloyd Thompson 1.8% Bovis Homes 2.9% B&M European Value Retail 1.7% Barratt Developments 2.4% Cobham 1.7% Berkeley 2.2% Dixons Carphone 1.7% Taylor Wimpey 2.1% SSP 1.7% St. James s Place 2.0% Hikma Pharmaceuticals 1.7% Bellway 1.9% Amlin 1.6% Cable & Wireless 1.8% William Hill 1.6% Hays 1.6% FirstGroup 1.6% Total 24.5% Total 18.8% Profits taken in housebuilders, exposure to consumer expenditure increased Source: Bloomberg, J.P. Morgan Asset Management Data as at 31 st January 2015, % of invested portfolio The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice The holdings represent the current holdings of the fund. However, it cannot be assumed that these 9 types of investments will be available to or will be selected by the fund in the future

11 Outlook and positioning The fall in oil price was the most significant event in 2014 Lower oil price positive for economic growth & consumers Oil Price Brent crude price (USD) 130 Estimated Impact on GDP Growth Impact of a $10 decline on GDP 12 months later % deviation from baseline 1-30% Sector Correlation to Oil European sector correlation since % -10% FALLING oil price, NEGATIVE sector impact % UK 10% 20% 30% FALLING oil price, POSITIVE sector impact Dec 12 May 13 Oct 13 Mar 14 Aug 14 Jan 15 Source: Intercontinental Exchange (ICE) The oil price has fallen 52% from the June peak Russia OPEC Malaysia Australia Denmark Indonesia Denmark Japan Sweden US Spain Belgium Finland Romania Taiwan Latin America Germany France Argentina India Portugal Rest of World Chile Hong Kong Slovakia Thailand Croatia Source: OEF, UBS Global Economics...this is positive for global GDP growth... 40% Pharma & Bio Food Prod Food Ret Beverages HHold & Pers Tobacco Comm Svs Telecoms Media Cont & Pack Health Care Hotel/Rest/Leis Gen Retail Utilities Software Svs Paper & Forest Autos & Parts Tech Hardware Const Mats Insurance Transportation Chemicals Real Estate Div Financials Banks Consumer Dur Semis Cap Goods Metals & Mining Energy Source: OEF, UBS Global Economics...and favours consumer led sectors As at 31 st March

12 Outlook and positioning UK cyclical indicators are positive for consumers Rising wages & falling inflation lifting household spending power Monthly Asda Income Tracker Absolute disposable income & YoY % change Retail Sales Growth (ex. Fuel) YoY % change & 3 month moving average 8% 6% 4% 2% 0% -2% -4% Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 YoY % change 3 per. Mov. Avg. (YoY % change) Source: ASDA Source: ONS As at 31 st March 2015 The ASDA income tracker for average family spending power is constructed by taking total household income, subtracting taxes and non-discretionary living costs (e.g. bills, transport, clothing, housing repairs) 11

13 Outlook and positioning Current portfolio positioning reflects these macro views Sector Exposure Geographic Exposure Financials Consumer Services Industrials Consumer Goods Technology 5% 7% 4% 4% 20% 30% 25% 28% 28% 27% UK Europe Americas 17% 17% 10% 14% 48% 59% Telecommunications Health Care Oil & Gas Basic Materials Utilities 2% 3% 2% 4% 1% 5% 1% 5% 0% 2% Mercantile FTSE All Share ex. 100 ex. IT RoW Asia ME & Africa 7% 10% 7% 6% 1% 4% Mercantile FTSE 250 Source: J.P. Morgan Asset Management, Factset Overweight consumer, underweight resources Source: Company reports, Bloomberg, J.P. Morgan Asset Management Revenue mix by geography, RoW = Rest of World, ME = Middle East Overweight domestic, underweight international As at 30 th April 2015 The Fund is an actively managed portfolio; holdings, sector weights, allocations and leverage, as applicable, are subject to change at the discretion of the Investment Manager without notice 12

14 Outlook and positioning Preferred domestic consumer facing stocks Fitted kitchen manufacturer Market cap: 3.3bn Discount greeting cards Market cap: 1.2bn High street bakery Market cap: 1.2bn Market share gains from DIY sheds Strong returns on investment in store estate Positive cyclical drivers Vertical integration yields a cost advantage vs. competitors Market share driven by keener pricing than established competition & roll-out of new stores Improving quality & range of food-to-go offering Estate refurbishment delivering sales improvements Operational improvements to drive up margins Single price value retailer Market cap: 0.8bn Motor vehicle distributor Market cap: 0.6bn Premium tonic water producer Market cap: 0.3bn Store roll-out in fastest growing retail sub-sector Pilot of Dealz format underway in Spain Possible acquisition of 99p stores (pending regulatory review) Cyclical upturn in UK automotive market PCP accelerating car replacement cycle Market share gains to continue Redefining premium gin marketing & consumption Rapid market share gain in large markets International growth opportunity The information in this case study is intended as an example only and should not be construed as advice, it may not be suitable for your particular circumstances and if you are unsure of the suitability of any investment you should seek financial advice. Past performance is not a guarantee of the future. Any opinions and views expressed here are those held by the author as at date of this document, which are subject to change and are not to be taken as or construed as investment advice. J.P. Morgan Asset Management may or may not hold positions on behalf its clients in any or all of the aforementioned securities. 13 Source: Company data, Bloomberg. Last reported financials. As at 20 th May 2015

15 Outlook and positioning Summary & outlook Experienced, stable and dedicated team with a consistent and disciplined investment approach Portfolio positioning reflects positive view on the domestic economy Gearing flexibility facilitates changes in overall exposure to market movements Mid & small cap companies set to deliver superior growth & continue to outperform larger companies The opinions and views expressed here are those held by the author as at 20 th May 2015, which are subject to change and are not to be taken as or construed as investment advice 14

16 Appendix 15

17 Active use of gearing 5 years' historic gearing levels vs. benchmark Gearing Level 20% 6500 Index Return 15% % % % % % 1500 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Month end gearing levels - LHS FTSE All Share ex 100 ex IT (total return index) - RHS Source: DataStream, J.P. Morgan Asset Management to 31 st March

18 The Mercantile Investment Trust Plc This is a promotional document and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P.Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the product(s) or underlying overseas investments. Both past performance and yield may not be a reliable guide to future performance. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co and its affiliates worldwide. You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website Key risks: Investments in smaller companies may involve a higher degree of risk as these are usually more sensitive to price movements. Investment trusts may utilise gearing which will exaggerate market movements both down and up which could mean sudden and large falls in value. For further details, please refer to the trust s annual report and accounts. Investment is subject to documentation (Investor Profiles and Terms and Conditions), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Services Authority. Registered in England No: Registered address: 25 Bank St, Canary Wharf, London E14 5JP. 17

19 The Mercantile Investment Trust plc AGM 20 th May 2015