Monthly Listed Investment Trust Report – Dec 2021

This story features CLIME CAPITAL LIMITED, and other companies. For more info SHARE ANALYSIS: CAM

Download related file: Monthly-LMI-Update_2-December-2021

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.

Note: For comprehensive comparative data tables for LICs and ETFs please see attached.

LMI Market News

Initiated Coverage on Loomis Sayles Global Equity Fund (Quoted Managed Fund) ((LSGE))

During the month, we initiated coverage on Loomis Sayles Global Equity Fund (Quoted Managed Fund) which listed on the ASX on 1 October 2021. LSGE provides exposure to the Loomis Sayles Global Equity Opportunities Strategy, which was established in October 2004. The Responsible Entity (RE) is Investors Mutual Limited who has appointed Loomis, Sayles & Company, L.P as the Investment Manager of the Fund. Loomis Sayles is a global asset manager that was established in 1926 and had over US$350b AUM as at 30 June 2021 across fixed income and equity investment mandates.

The Fund has a long only investment strategy with a fundamental bottom-up investment approach with the portfolio representing the “best ideas” of the investment team. The Fund seeks to deliver a return (after fees and expenses but before taxes) in excess of the benchmark (MSCI All Country World Index) over a full market cycle, which is considered to be 3-5 years. The Manager has an unconstrained mandate with no sector, style or geographic limitations. Stock selection is driven by the fundamental bottom up analysis undertaken by the investment team. The portfolio is concentrated given the investable universe with 35-65 stocks. The Manager has a long-term investment horizon and as such typically has low levels of portfolio turnover. The portfolio is expected to be largely fully invested at all times, with the portfolio typically having a cash position of less than 5%.

We initiated coverage on LSGE with a Recommended rating. A copy of the full report can be found on the IIR website.

Initiated Coverage on Clime Capital Limited ((CAM))

During the month we initiated coverage on CAM with a Recommended rating. CAM has a long history, listing on the ASX in February 2004. The portfolio is managed by Clime Asset Management Pty Limited, a wholly owned subsidiary of Clime Investment Management Limited ((CIW)), an ASX-listed asset management company.

The Company’s primary objective is to provide an above market yield. In addition to this the Company seeks to provide superior risk-adjusted returns to the benchmark index (ASX All Ordinaries Accumulation Index). The Company provides exposure to a portfolio that can be broken down into three sleeves: (1) Australian equity exposure; (2) Unlisted fixed income; and (3) Cash. The portfolio will predominantly provide exposure to an all cap Australian equities portfolio. Typically 50%-70% of the portfolio will be invested in ASX 100 stocks and 30%-50% will be invested in stocks outside the ASX 100. Up to 17.5% of the portfolio will be invested in a portfolio of unlisted fixed income securities. The fixed income portfolio is designed to meet the interest payment requirements of the Convertible Notes as well as provide additional income to the portfolio.

A copy of the full report can be found on the IIR website.

On 18 November 2021, the restructure of the Convertible Notes ((CAMG)) was approved by shareholders. Following the respective conversions and redemptions of Notes, the consolidations of Notes and the issue of Notes, CAM has a total of 36.49m Notes on issue with a face value of $1.00. The Notes pay an interest rate of 5.25%p.a, with interest paid quarterly. Noteholders can convert some or all of their Notes into CAM ordinary shares at any time before the maturity date on a 1-for-1 basis. Unless converted earlier, the Notes will be redeemed at face value on the maturity date (25 November 2025).

Cadence Opportunities Fund Limited ((CDO)) Lists on the ASX

On 17 November 2021, CDO listed on the ASX. The Company raised $15.55m as part of the IPO Offer, issuing 5.6m shares at a price of $2.7716 per share (the mid-point of the of the NTA at 31 October 2021). The Company has 15.06m shares on issue and a market cap of $41.9m as at 30 November 2021.

CDO provides exposure to an actively managed long/short portfolio, with a long bias, of Australian and international securities. Cadence  Asset Management Pty Limited (Cadence) is the Manager of the  portfolio. Cadence manages the portfolio of Cadence Capital Limited ((CDM)), which listed in 2006, using a similar investment philosophy and process that is used for the CDO portfolio.  The Company has two stated investment objectives: (1) provide capital growth through investment cycles; and (2) provide fully  franked dividends, subject to the Company having sufficient profit  reserves and franking credits and it being within prudent business  practices.

The Company operated as an unlisted company for three years and as such has an existing profits reserve and franking credit balance. In the NTA and Investment Update provided to the market on 18 November 2021, the Company stated that it had a profits reserve balance to support future dividends of around 60 cents per share and 11 cents per share of franking which would enable the Company to fully frank 25 cents per share of dividends.

Plato Income Maximiser Limited ((PL8)) Raises $139.5m

During November, PL8 raised $139.5m in total through a Placement to wholesale investors and a Share Purchase Plan (SPP). The Place­ment to wholesale investors raised $71.3m with the issue of 64.3m fully paid ordinary shares at $1.11 per share. The SPP raised $68.2m through the issue of 62m new shares at $1.10 per share. The SPP was oversubscribed with the Company targeting $50m, however the Company decided not to scale back any applications.

The proceeds from the Placement and the SPP will be invested via the Plato Australian Shares Income Fund in accordance with the Company’s structure and investment strategy.

PL8 took the opportunity to raise capital when the Company was trading at a premium. The share price closed at $1.285 on 2 Novem­ber, the day prior to the capital raising announcement, an 11.7% premium to the pre-tax NTA and a 15% premium to the post-tax NTA. The issue of new shares through the Placement and SPP has seen the share price decline to be trading closer to the pre-tax NTA at November-end.

Metrics Master Income Trust ((MXT)) Seeking to Raise $440m Through Unit Purchase Plan

On 28 October 2021, MXT announced a Unit Purchase Plan (UPP) proposing to issue 220.8m new units at a price of $2.00 per unit. The Trust is targeting to raise ~$441.6m. While the Trust maintains the flexibility to accept applications in excess of the target raise amount, applications in excess of this amount may also be scaled back.

The Offer closed on 30 November 2021 with an Issue Date of 3 December 2021. New units are expected to commence trading on 6 December 2021.

Capital raised will be invested in accordance with the investment mandate and target return of the Trust.

APL Shareholders Approve Scheme to Exchange Shares for Units in AGX1

On 24 November 2021, Antipodes Global Investment Company Limited ((APL)) announced that shareholders had approved the Scheme to exchange APL shares for units in the Antipodes Global Shares (Quoted Managed Fund) ((AGX1)). Shareholders voted overwhelmingly in favour of the Scheme, with 99.65% of eligible shareholders voting ‘for’ the Scheme. The Scheme remains subject to court approval with a court date scheduled for 7 December 2021.

If court approval is received, APL shareholders will exchange their shares for units in AGX1 on the Implementation Date (17 December 2021).

The PAF Board Committee Recommends Shareholders Reject WAM’s Takeover Bid and Vote In Favour of PGF’s Merger Proposal

The Directors of the PM Capital Asian Opportunities Fund Limited ((PAF)) who comprise the PAF Board Committee have recom­mended that PAF shareholders reject the takeover bid by WAM Capital Limited ((WAM)) and vote in favour of the merger with PM Capital Global Opportunities Fund Limited ((PGF)). The recommendation was based on the outcomes of the Independent Expert’s Report.

The below table [see attached] provides the implied value of the respective offers to PAF shareholders that was provided to the market on 29 November 2021 by PAF. The implied values are based on the PGF and PAF NTA as at 26 November 2021 and the WAM share price as at 19 Novem­ber 2021 and WAM Pre-tax NTA at 31 October 2021. These values are as at the calculation date and are subject to change.

A Scheme meeting is scheduled to be held on 13 December 2021 to vote on the PGF merger proposal. The WAM takeover offer has been extended with the offer scheduled to close on 14 January 2022.

From a share price perspective, the implied values are largely similar, however from an implied NTA value the offers differ materially. The key driver of this is the value of the WAM offer is based on the WAM share price. The WAM share price has consistently traded at a premi­um to pre-tax and post-tax NTA. Over the three years to 31 October 2021, WAM has traded at an average premium of 17.6% to pre-tax NTA. This compares to the PGF merger proposal which is based on the after-tax NTA (before deferred tax assets) of the two companies at the calculation date.

There are a number of factors that PAF shareholders need to take into consideration when making their decision with the decision likely to be influenced based on PAF shareholder’s intentions post the merger or takeover, ie. whether they intend to hold the shares in the respective companies post the merger or takeover or redeem their investment.

For those investors seeking to retain their investment post the merg­er or takeover, in addition to tax and valuation considerations PAF shareholders need to consider the underlying investment exposure they are seeking access to. WAM provides exposure predominantly to ASX-listed securities, while PGF provides exposure to a portfolio of global equities.

We highly recommend PAF shareholders read the Independent Ex­pert’s Report that was provided with the Explanatory Memorandum released to the market on 4 November 2021 when making a decision regarding the two offers.

Whitefield ((WHF)) Releases Half Year Results to 30 September 2021

During the month, WHF released the half year results to 30 September 2021. Investment revenue increased 86.4% to $9.98m for the period and NPAT was up 106.5% to $8.0m. The growth in earnings was largely attributed to the partial reversal of the dividend cuts experienced by a large number of businesses in the first six months of the pandemic during 2020 with the most material contributors to earnings growth coming from companies that had heavily cut or not paid dividends in the previous period.

The Company declared an interim dividend of 10.25 cents per share, fully franked. The Company announced that it expects to maintain the dividend level for the full year dividend following the financial year end at 31 March 2022. The NTA per share both pre and post deferred capital gains tax, performed strongly over the 12-months to 30 September 2021, up 26.4% and 20.9%, respectively.

On 30 November 2021, the Convertible Resettable Preference Shares ((WHFPB)) reached the end of their current term and effective from 1 December 2021, WHFPB traded under the new terms until the next reset date of 30 November 2024. The annual dividend rate for WHFPB under the new terms if 3.75% x (1 – tax rate). Dividends are paid semi-annually and are expected to be fully franked.

61% of Qualitas Real Estate Income Fund ((QRI)) Capital Raise Deployed as at 15 November 2021

In late October 2021, QRI raised $171.6m through an Entitlement and Shortfall Offer. The capital raised was to be deployed in line with the investment strategy over a three-to-six month period. In the Performance Update for October 2021 released to the market on 15 November 2021, the Fund announced that it had already deployed and allocated 61% of the capital raised to new loans. The swift deployment of the capital raised reflects the strong pipeline identified by the Manager.

On a separate note, Qualitas Limited (the ultimate holding company of the Qualitas Group) is seeking to list on the ASX. The Company is seeking to raise $134m shares at the Offer Price of $2.50 per share to raise $335m. If fully subscribed, at the completion of the Offer the Company is expected to have 294m shares on issue and a market cap of $735m based on the Offer Price. The Company is expected to commence trading on the ASX on a normal settlement basis on 23 December 2021, under the ticker “QAL”.

The Manager of QRI is a wholly owned subsidirary of the Qualtas Group. The IPO of Qualitas Limited is not expected to impact QRI with the Manager continuing to manage the capital of QRI in line with the investment strategy of the Fund in accordance with the Investment Management Agreement (IMA).

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.

INDEPENDENCE OF RESEARCH ANALYSTS

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.

Supervision and reporting lines: Analysts who publish research reports are supervised by, and report to, Research Management. Research analysts do not report to, and are not supervised by, any sales personnel nor do they have dealings with Sales personnel

Evaluation and remuneration: The remuneration of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients.

INDEPENDENCE – ACTIVITIES OF ANALYSTS

IIR restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research.

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.

No promotion of issuers’ transactions: Research analysts may not be involved in promotional or marketing activities of an issuer of a relevant investment that would reasonably be construed as representing the issuer. For this reason, analysts are not permitted to attend “road show” presentations by issuers that are corporate clients of the Firm relating to offerings of securities or any other investment banking transaction from that our clients may undertake from time to time. Analysts may, however, observe road shows remotely, without asking questions, by video link or telephone in order to help ensure that they have access to the same information as their investor clients.

Widely-attended conferences: Analysts are permitted to attend and speak at widely-attended conferences at which our firm has been invited to present our views. These widely-attended conferences may include investor presentations by corporate clients of the Firm.

Other permitted activities: Analysts may be consulted by Firm sales personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations. Analysts may also carry out preliminary due diligence and vetting of issuers that may be prospective research clients of ours.

INDUCEMENTS AND INAPPROPRIATE INFLUENCES

IIR prohibits research analysts from soliciting or receiving any inducement in respect of their publication of research and restricts certain communications between research analysts and personnel from other business areas within the Firm including management, which might be perceived to result in inappropriate influence on analysts’ views.

Remuneration and other benefits: IIR procedures prohibit analysts from accepting any remuneration or other benefit from an issuer or any other party in respect of the publication of research and from offering or accepting any inducement (including the selective disclosure by an issuer of material information not generally available) for the publication of favourable research. These restrictions do not preclude the acceptance of reasonable hospitality in accordance with the Firm’s general policies on entertainment, gifts and corporate hospitality.

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.

IIR, its officers, employees and its related bodies corporate have not and will not receive, whether directly or indirectly, any commission, fee, benefit or advantage, whether pecuniary or otherwise in connection with making any statements and/or recommendation (if any), contained in this Report. IIR discloses that from time to time it or its officers, employees and related bodies corporate may have an interest in the securities, directly or indirectly, which are the subject of these statements and/or recommendations (if any) and may buy or sell securities in the companies mentioned in this publication; may affect transactions which may not be consistent with the statements and/or recommendations (if any) in this publication; may have directorships in the companies mentioned in this publication; and/or may perform paid services for the companies that are the subject of such statements and/or recommendations (if any). However, under no circumstances has IIR been influenced, either directly or indirectly, in making any statements and/or recommendations (if any) contained in this Report. The information contained in this publication must be read in conjunction with the Legal Notice that can be located at http://www.independentresearch.com.au/Public/Disclaimer.aspx.

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