Australian Listed Investment Company Report November 2023

This story features MAGELLAN GLOBAL FUND, and other companies. For more info SHARE ANALYSIS: MGF

Download related file: IIR-Monthly-LMI-Update_1-November-2023

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market. Also known as Listed Investment Trusts or Listed Managed Investments.

For comprehensive comparative data tables for LICs please see attached (logon first).

LMI Market News

Magellan Fight to Keep Closed-Ended Global Fund Structure Until After Options Expire
On 16 October 2023, Magellan Global Fund ((MGF)) announced the Board of Magellan would consider a conversion of MGF to open class units to address the discount to NAV while providing unitholders with a means to still transact on the exchange.

The trust outlined that it would update unitholders once details regarding a conversion proposal is developed with a unitholder meeting targeted for 1H’CY24, subject to market conditions and the determination that the conversion proposal is in the best interests of unitholders.

On the same day, the trust announced that Keybridge Capital Limited together with other members of the Fund had submitted a request to convene a meeting of unitholders to consider and vote on a special resolution to remove the units from the ASX and redeem all closed class units at a redemption price that is determined in accordance with the Fund’s constitution.

Subsequent to the announcement, the trust announced that the Responsible Entity (RE) had filed a summons with the Supreme Court of New South Wales seeking advice and direction with regards to the justification in declining the call to arrange of meeting of MGF unitholders and treating the meeting request as invalid and ineffective.

MGF has stated it believes the meeting request received from unitholders was not made in accordance with the constitution with unitholders carrying less than 5% of votes.

The events that have unfolded have made the position of Magellan clear: (1) They do not want to wind up the trust and repay the capital to unitholders. They would prefer to restructure the units as open class units; and (2) Magellan want to retain control of the timing of the proposal to unitholders to restructure to open class units.

The timing in the announcement indicates a meeting will not be held until after the options have expired. As we discussed in our previous monthly report, Magellan have a liability with regards to making up the 7.5% discount for options exercised. A liability they would likely prefer to avoid given the current state of the business.

NBI Loses Patience
On 24 October 2023 NB Global Corporate Income Trust ((NBI)) announced its intent de-list from the ASX and operate the fund as an unlisted registered managed investment scheme with daily applications and redemptions based on the NAV.

In the event the trust receives the ASX’s approval an Extraordinary General Meeting (EGM) will be scheduled to be held in the 1Q’CY24 seeking unitholder approval.

NBI has traded at a discount to NAV for a prolonged period of time as demand for fixed rate high yield bonds softened in the increasing interest rate environment. NBI have implemented a number of initiatives in an attempt to narrow the discount however have been unsuccessful. Given closed-ended structures are typically oversold during periods of asset class underperformance, it is IIR’s view that the discount would have narrowed when the cycle became more favourable for the asset class, however NBI and likely its unitholders have lost patience.

The Manager will be proposing to apply a transitional 12-month exit fee which is designed to benefit the remaining unitholders in the trust. This fee will not be paid to the Manager or the Responsible Entity. During the 12-month transitional period, redemption requests are proposed to be subject to a gating mechanism with ongoing liquidity for redemptions being provided by either using NBI’s cash balances or selling its assets.

Further information will be provided to the market in due course.

FOR Looks to Transition Back to an Open-Ended Trust
On 12 October 2023, Forager Australian Shares Fund ((FOR)) announced that it will be seeking to transition back to an open-ended trust. The decision was a result of the vehicle continuing to trade at a discount to NAV despite initiatives implemented by the Fund to improve the trading price of FOR units.

FOR was an open-ended trust for the first seven years before transitioning to a closed-ended trust. The Manager has considered a range of additional measures to improve the trading price of FOR however it is the Manager’s view that smaller, less liquid closed-ended vehicles are unlikely to trade at NAV for the foreseeable future.

FOR will seek to finalise a delisting proposal in the coming months with further details and a unitholder meeting expected in the 1H’CY24. The Manager currently intends to propose a transition period of up to 12 months where investors that wish to redeem their units pay a redemption fee that declines throughout the transition period which would accrue to the remaining investors in the Fund and there may be restrictions on monthly redemptions. The details of any restrictions have not yet been determined.

MEC Discount Narrows however Board Continues to Explore Mechanisms to Eliminate the Discount
In a letter to shareholders, the Chair of Morphic Ethical Equities Fund Limited ((MEC)) noted the narrowing of the discount which the Company attributed to the initiatives implemented by the Company including the share buyback and increased dividend through the policy to pay out the entire amount of profits reserve of the Company as dividends before the expiry of the initial term of the Investment Management Agreement, which is due to expire in May 2027.

The Company has bought back 9.4% of the shares on issue since the launch of the buyback. At the AGM, shareholders approved the resolution to buy back a further 20% of shares on issue.

The Chair also stated that the Company continues to explore potential mechanisms to effect a reasonable priced restructure of the Company that would eliminate the discount. The Company have agreed to seek senior counsel’s opinion on the viability of a potential solution that may eliminate the discount. At the AGM, shareholders approved the resolution to amend the constitution to provide the Company the ability to make in specie distributions of shares and units in a trust or managed investment scheme, which highlights the Boards intention to explore a restructure as an openended trust.

QVE Intends to Maintain Quarterly Dividend of 1.3 Cents per Share for Remainder of FY24
During the month, QVE Equities Limited declared an interim quarterly dividend for the September quarter of 1.3 cents per share in line with the previous quarterly dividend. The Company announced its intention to maintain a quarterly dividend of 1.3 cents per share for the remainder of the FY24 period, subject to the Company maintaining profit reserves and there being no material impacts, change or unforeseen events.

The announcement would see a FY24 annual dividend of 5.2 cents per share, in line with the annual dividend for FY22. Based on the share price as at 31 October 2023, the FY24 annual dividend represents a yield of 6.1% (8.7% grossed up).

LSX Announce Dividend of 1.5 Cents per Share
On 18 October 2023, Lion Selection Group Limited ((LSX)) announced the payment of an unfranked dividend of 1.5 cents per share scheduled to be paid on 10 November 2023.

Post exiting the Pani investment, the Company has $75 million in cash and cash equivalents to deploy. The Company stated that under the current market conditions, in which the prices of investment opportunities in the micro cap resources sector have weakened, the use of capital for new investments is favourable over dividend payments. The Company is actively seeking to deploy capital in investment opportunities identified in the junior resources market.

During 2022 and 2023, the Company has made investments in Saturn Metals ((STN)), Plutonic Limited, Alto Metals ((AME)), Sunshine Metals ((SHN)) and Great Boulder Resources ((GBR)).

VG1 Updates Target Dividend Policy
VGI Partners Global Investments Limited ((VG1)) announced the Company will be seeking to pay a semi-annual dividend of at least 5 cents per share, up from the previous target of at least 4.5 cents per share. The new target will result in an annual dividend of at least 10 cents per share, up form the FY23 annual dividend of 9.5 cents per share. Dividends will be franked to the maximum extent possible.

D2O Issues Bonus Options
During the month, Duxton Water Limited ((D2O)) lodged the Prospectus for the issue of 38.18 million Bonus Options exercisable at $1.92 on or before 10 May 2026. The issue of the Bonus Options was announced on 3 July 2023 with options issued on a 1-for-4 basis. The options are listed of the ASX with the ticker D2OO. The options have an issue date of 9 November 2023 and are scheduled to be quoted on the ASX on 10 November 2023. The maturity date for the options was extended from May 2025 to May 2026 due to market factors.

If all options are exercised the Company will raise $73.3 million. The exercise price represents a 14.3% premium to the share price of D2O as at 31 October 2023. and a premium of 3.2% and 14.3% to the pre-tax NTA and post-tax NTA, respectively, as at 30 September 2023.

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology.

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Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts.

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Pitches: Research analysts are not permitted to participate in sales pitches for corporate mandates on behalf of a Broker and are not permitted to prepare or review materials for those pitches. Pitch materials by investor clients may not contain the promise of research coverage by IIR.

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DISCLAIMER

This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

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