Australian Listed Investment Company Report December 2022

This story features WAM LEADERS LIMITED, and other companies. For more info SHARE ANALYSIS: WLE

Download related file: IIR-Monthly-LMI-Update_1-December-2022

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.

LMI Market News

IIR Reaffirms Recommended Rating for WAM Leaders Limited ((WLE))

WAM Leaders Limited is a listed investment company (LIC) that provides exposure to an actively managed portfolio of large cap stocks (stocks from within the S&P/ASX 200 Index). The Company has over six years of performance history with the Company listing in May 2016. The Company raised $394.3m at the IPO through the issue of 358.5m shares at $1.10 per share. The Company raised a further $377.3m from the options issued to shareholders that participated in the IPO. The Company has grown to a market capitalisation of in excess of $1.5bn as at 30 September 2022, with over 1 billion shares on issue. The portfolio is managed by MAM Pty Limited (the “Manager”), which forms part of the Wilson Asset Management Group.

The Company seeks to provide capital growth over the medium-to-long term, provide a stream of fully franked dividends, subject to sufficient profit reserves and franking credits, and preserve capital. The Company seeks to achieve this through an actively managed portfolio that comprises predominantly long positions in stocks in the S&P/ASX 200 Index and cash. The Manager can take short positions up to 50% of the portfolio value, however shorting is not expected to be a substantial part of the portfolio. The portfolio is diversified with the portfolio typically comprising around 50- 80 stocks. The Manager can hold cash in the event attractive investment opportunities cannot be identified. The portfolio is managed in a highly active manner with an average annual portfolio turnover in excess of 300%. The high level of turnover is a function of the investment process.

During the month Independent Investment Research (IIR) reaffirmed its Recommended rating for WLE. WLE provides a differentiated investment offering for LIC investors in the domestic equity large cap category with WLE providing exposure to a highly actively managed, diversified portfolio of primarily top 200 ASX-listed securities. Many other LICs with a large cap focus have a buy and hold strategy with low levels of portfolio turnover. The actively managed and flexible mandate of the Company provides the Manager the ability to reposition the portfolio based on market trends and sentiment to achieve its investment objectives and outperform the benchmark in a range of market conditions. The Company has achieved its investment objectives to date. The portfolio performed strongly in the weak market over the FY22 period and has delivered strong risk-adjusted returns compared to its peers over the five years to 30 June 2022. The investment process and investment philosophy has evolved since the Company listed, with the Company having a much more diversified portfolio than was initially expected and having a greater exposure to the market than was expected. IIR views the changes to be positive, putting the Manager in a position to more consistently outperform the benchmark index.

PL8 Announces SPP

On 21 November 2022, Plato Income Maximiser Limited ((PL8)) announced it is undertaking a Share Purchase Plan (SPP). Under the SPP, eligible shareholders have the opportunity to acquire a minimum of $2,500 and maximum of $30,000 worth of PL8 shares. No brokerage will be incurred for new shares issued.

Shares will be issued at the lower of: (1) $1.11 per share, being the pre-tax net tangible asset (NTA) per share plus the franking credit balance per share on 18 November 2022; or (2) the pre-tax NTA on the date the SPP closes (9 December 2022) plus the franking credit balance per share of $0.029.

The maximum price of $1.11 represented an -8.6% discount to the closing share price on 18 November 2022. New shares issued under the SPP will be entitled to the December monthly dividend of 0.55 cents per share.

The Board and the Manager believe that the Company’s profits reserves and franking credit balance are sufficient to maintain the current level of monthly dividends including with any additional capital raised under the SPP.

The rationale for the SPP is to satisfy shareholder demand for acquiring additional shares at NTA combined with the benefits derived from an increased number of shares on issue.

EAI Seeks to Restructure to Address Discount

At its AGM on 10 November 2022, Ellerston Asian Investments Limited ((EAI)) informed shareholders it is considering merging the Company’s asset with the Ellerston Asia Growth Fund ((EAGF)) and converting the merged entity to an exchange traded managed fund ((ETMF)). Under the proposed structure the transaction will involve a transfer of assets from EAI to EAGF. EAI shareholders will receive new EAGF units in exchange for their current shares held in EAI, based on a predetermined ratio, and then EAGF will seek admission to ASX AQUA.

The restructure will require shareholder approval as well as ASX and ASIC review. Assuming the necessary service providers and infrastructure required for an ETMF can be implemented, the Board anticipates the transaction would be presented to EAI shareholders for approval during the first half of 2023 with a view to implementing the restructure in mid to late 2023.

The restructure is being considered to address the consistent discount to NTA that the Company has traded at. The restructure seeks to deliver to those shareholders who desire liquidity at a price more closely approximate to underlying asset value, a clear pathway to redeem closer to NTA while also providing other shareholders with the option to remain invested in the strategy.

While the restructure to an ETMF will provide investors the ability to exit at NTA, the company structure and the ability to distribute franked dividends was a differentiator for the strategy in the market. Given the restructure to an ETMF and the performance of the fund historically, in order to grow the fund, the Manager will have to determine how to differentiate the strategy to offer a differentiated risk/return profile when compared to passive investment options. The current portfolio manager has commenced implementing some changes to the level of conviction in the portfolio to provide a differentiated risk/return profile, however further amendments may be required.

VG8 Changes Name & Ticker

VGI Partners Asian Investments Ltd (VG8) has changed its name to Regal Asian Investments Ltd and the ASX code to ((RG8)) following shareholder approval at the AGM on 23 November 2022. The name change was sought to reflect the changes in the investment management responsibility of the portfolio to Regal Funds Management Pty Ltd and to leverage Regal’s brand and track record of investing within the Asian region.

RF1 Seeks to Add Private Credit Strategy

Regal Investment Fund (ASX: RF1) has announced an expansion of the Investment Processes to allow the Manager the ability to allocate capital to a Regal investment strategy with a track record of less than one year. The amendment to the Investment Processes is primarily to allow the Manager to add the recently launched Regal Private Credit Opportunities Fund to the investment mandate. The Private Credit Strategy is the ninth strategy eligible for investment by RF1 with up to 25% of the portfolio able to allocated to the strategy.

PCI Amends Mandate to Enable Investment in Securitised Credit Fund

Perpetual Credit Income Trust (ASX: PCI) has amended the investment strategy for the Trust to allow it to invest in the Perpetual Securitised Credit Fund (PSCF), a newly established securitised assets fund, to gain exposure to securitised assets.

PSCF is an open-ended unregistered managed investment scheme and seeks to provide exposure to a diversified portfolio of securitised credit assets that aims to generate returns of RBA Cash Rate + 3.5%-5.5%p.a. through the economic cycle (before fees and taxes). The Fund can hold rated and unrated (sub-investment grade) assets and cash.

The securitised assets currently held directly by PCI will be transferred to PSCF and PCI will be issued units in PSCF. The assets are expected to be transferred at market value and therefore there is expected to be little to no impact on the NAV of PCI. PCI will initially have an allocation of less than 5% of the NAV in PSCF.

No fees will be charged nor expenses incurred by the PSCF be recovered by the fund from PCI. The Fund is entitled to charge fees and recover expenses, however the Responsible Entity of the Fund has no intention to do so.

The rationale for the change in the mandate and the creation of PSCF is primarily operational with PSCF providing a more efficient vehicle for creating a portfolio of investments in securitised assets.

WHF Announces SPP

Whitefield Industrials Limited ((WHF)) has announced a Share Purchase Plan (SPP) providing eligible shareholders the opportunity to apply for up to $30,000 worth of shares. Shares under the SPP will be issued at the lower of $5.00 per share or at a -2.5% discount to the volume weighted average market price of WHF shares over the five days up to and including the closing date of the SPP, which is scheduled for 14 December 2022. The maximum issue price of $5.00 per share represented a -5.1% discount to the closing share price of WHF on the day prior to the announcement.

WHF intends to cap the SPP at $50m (being 10m new shares at the maximum price of $5.00 per share). If subscriptions exceed the cap amount the Company may scale back applications received, however the Board retains the discretion to issue more shares to satisfy all or part of applications if the cap amount is exceeded, subject to the maximum number of shares issued not exceeding 30% of the issued share capital of the Company at the date of issue.

Vince Pezzullo Promoted to Head of Equities at Perpetual

Perpetual Limited announced that Vince Pezzullo has been promoted to the Head of Equities within Perpetual Asset Management Australia. The promotion follows the resignation of Paul Skamvougeras, who has decided to step down from the position after more than 18 years at Perpetual. Vince has been with Perpetual since 2007 and steps up from the role of Deputy Head of Equities. Vince will commence the role immediately.

FPC Announces SPP

Fat Prophets Global Contrarian Fund Limited ((FPC)) have announced a Share Purchase Plan (SPP) which offers eligible shareholders the opportunity to acquire up to $30,000 worth of shares at the lower of $0.90 per share or the five day volume weighted average price during the five trading days prior to and including the closing date of the SPP (8 December 2022).

Funds raised under the SPP will be invested in accordance with the investment objectives currently adopted by FPC. A key rationale for the SPP is to increase the size and potentially the liquidity of the Company.

HM1 Announces Conference Portfolio & New Core Fund Managers

On 21 November 2022, Hearts and Minds Investments Limited ((HM1)) released its Conference Portfolio following the annual Sohn Hearts & Minds Investment Leaders Conference. The Conference Portfolio represents 35% of HM1’s total portfolio and the stocks are generally held for a period of 12-months. The Conference Portfolio stocks are presented in the below table.

HM1 also announced the appointment of Munro Partners and Tribeca Investment Partners as Core Fund Managers. The new managers will replace Paradice Investment Management at the end of their mandate term. HM1 Core Fund Managers provide HM1 with their highest conviction stock recommendations on a pro bono basis. HM1 invests in these stock recommendations in the Core Portfolio which makes up 65% of the portfolio. Following the current rotation of Core Fund Managers, Munro Partners and Tribeca Investment Partners will join TDM Growth Partners, Cooper Investors, Caledonia Investments, Magellan Asset Management and Regal Partners as HM1 Core Fund Managers.

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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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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