Australian Listed Investment Company Report April 2023

This story features AUSTRALIAN UNITED INVESTMENT CO. LIMITED, and other companies. For more info SHARE ANALYSIS: AUI

Download related file: IIR-Monthly-LMI-Update_5-April-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.

LMI Market News

IIR Reaffirms Recommended Plus Rating for Australian United Investment Company Limited ((AUI))

During the month IIR reaffirmed its Recommended Plus rating for AUI. AUI has a long track record of providing exposure to a moderately diversified portfolio of ASX-listed stocks with a focus on a core group of blue chip stocks, which generate the majority of the Company’s income. The Company seeks to buy quality stocks with a long-term investment horizon, which is evidenced from the low levels of turnover with the portfolio having an average annual turnover of less than 10% over the last five years. The Company has largely achieved its investment objectives and has used the Company structure to provide a steadily growing fully franked dividend throughout its history. While the Company does not seek to mimic the benchmark index, the portfolio has delivered market-like returns over the long-term as is evidenced by the low tracking error.

The portfolio is managed by the Board, which consists of four Directors. The Board of Directors is highly experienced and while there are no formal risk constraints, the Company has a history of managing the risks in the portfolio to achieve its objectives. A key drawback has been the limited liquidity of the Company due to the limited free float of shares on offer. This has contributed to the Company trading at a discount to pre-tax net tangible asset valuation (NTA) throughout its history. One of the largest shareholders, Argo Investments Limited, has been reducing its exposure in recent years which as provided some additional liquidity to the market.

IIR Reaffirms Recommended Plus Rating for Diversified United Investment Limited ((DUI))

During the month IIR reaffirmed its Recommended Plus rating for DUI. DUI has a track record dating back to December 1991. DUI is the sister LIC of Australian United Investment Company Limited (ASX: AUI) and was founded by The Ian Potter Foundation, AUI and the Myer Family. The Ian Potter Foundation and AUI held 22.9% of the shares on issue as at 31 July 2022. The Company seeks to provide income and capital appreciation over the longer term to its shareholders through a portfolio of predominantly ASX-listed stocks with additional exposure to international markets. The Company has a target allocation of 10% to 20% to international markets, exposure to which is provided through passively managed ETFs and unlisted managed funds. The Company seeks to provide broad based exposure to international markets and thematics that are not readily accessible in the Australian market.

The Company has largely achieved its objectives and has used the Company structure to provide a steadily growing fully franked dividend throughout its history. The Company has performed well compared to its peers over the long-term with the Company generating the highest pre-tax NTA (including dividends) of the peer group over the 10 years to 31 December 2022. The portfolio does not seek to mimic the benchmark and with the addition of the international exposure will provide a differentiated return to the market. The Company has traded at a discount to pre-tax NTA throughout its history, however the discount has narrowed which has seen the share price outperform the pre-tax NTA over the long-term.

 NBI to Return Capital through Increased Distribution

On 14 March 2023, NB Global Corporate Income Trust ((NBI)) announced a 71.6% increase in the monthly distribution from 0.711 cents per unit to 1.22 cents per unit, effective 1 March 2023. The new monthly distribution represents an annualised distribution of 14.6 cents per unit versus the prior annualised amount of 8.5 cents per unit. The distribution will include both an income and capital component with the capital component representing a return of capital. The return of capital seeks to enhance the Trust’s competitiveness and increase the demand for units on the ASX and narrow the discount to net asset value (NAV) at which the Trust has been trading. The Trust expects the higher distribution rate will continue until 30 June 2024, at which point the distribution rate will be reviewed and potentially revised. The new distribution rate represents a distribution yield of 10.35% based on the market price at 31 March of $1.41, with the Trust trading at a 14% discount based on the market price at 31 March 2023 and the NAV as at 30 March 2023. Given the return of capital the Trust did not renew the unit buyback program.

PIA Takes a Hit on US Banking Crisis

Pengana International Equities Limited’s ((PIA)) share price hit 2 year lows during March with the portfolio having exposure to Silicon Valley Bank (SVB) and First Republic Bank (FRB). SVB went into receivership during the month with FRB also getting caught up in the banking crisis with the share price falling by almost 90% over the month of March. PIA had a total exposure to the two banks of ~4%, therefore the exposure to the declines in the two stocks was limited. In an announcement to the market, the Company stated the investment team continue to monitor the position in FRB.

Barings to Acquire Gryphon Capital Partners Pty Ltd

On 15 March 2023, Gryphon Capital Income Trust ((GCI)) announced that Barings entered into a definitive agreement to acquire 100% of the owner of the Manager of the portfolio, Gryphon Capital Partners Pty Ltd (Gryphon). Gryphon will join the Barings Global Structured Finance team, which had US$8.2 billion assets under management (AUM) prior to the acquisition. There will be no changes to the management of the GCI portfolio with the portfolio continuing to be managed Steven Fleming and Ashley Burtenshaw. While Gryphon has been acquired by Barings, Steven and Ashley have executed long-term employment contracts with Barings with profit share and earn-outs linked to the performance of the Gryphon business unit within Barings, ensuring the interests of the Manager continue to be aligned with the performance of the business.

WLE Cancels SPP

After announcing a Share Purchase Plan (SPP) on 6 March 2023, WAM Leaders Limited ((WLE)) cancelled the SPP due to market volatility. Shares in the SPP were to be offered at $1.48, which represented the Company’s estimated NTA per share as at 28 February 2023. The SPP provided shareholders the ability to acquire shares at a discount to the share price at the time of the announcement. All monies received under the SPP will be refunded in full.

CD1, CD2 & CD3 Looking to for A New Responsible Entity

The Responsible Entity (RE) of CD1, CD2 and CD3, E&P Investments Limited (E&P), announced it has commenced a process to seek proposals for an external third party RE to replace E&P. The decision provides the opportunity for unitholders to elect a RE for the Funds that is independent of the Investment Manager. The decision comes after feedback from investors as well as the broader E&P Financial Group Limited’s stated strategic objective of exiting from non-core businesses.

E&P will only put forward a proposal to unitholders if it is in unitholders best interests. If a suitable RE proposal is secured for the Funds, a meeting of members will be called to vote on a proposal to change RE. If more than 50% of votes cast by unitholders are in favour, the proposed new RE will be appointed.

BTI Makes Follow-on Investment in InstantScripts

On 15 March 2023, Bailador Technology Investments Limited ((BTI)) announced it had completed a $10m follow-on investment in InstantScripts. InstantScripts in a digital healthcare platform that enables Australians to conveniently access high quality doctor care and routine prescription medication in a safe, secure and clinically responsible manner.

BTI’s investment was accompanied by an investment from a third party institutional investor. The investment round resulted in a 30% uplift to BTI’s existing $24.4m investment. The follow-on investment confirms the positive outlook the Manager has on the company.

BTI still has a substantial amount of cash available to deploy after the large cash inflow realised from Instaclustr being acquired by NetApp last year.

BKI Announces SPP

BKI Investment Company Limited ((BKI)) has announced a Share Purchase Plan (SPP). Shares under the SPP will be issued at the lower of:

-$1.67, which represents a 3.0% discount to the VWAP of BKI shares over the 5 trading days up to and including the Record Date (22 March 2023); and

-a 3.0% discount to the VWAP of BKI shares over the 5 trading days up to and including the Close Date (scheduled to be 28 April 2023).

This means the shares will be issued a maximum price of $1.67.

The purpose of the SPP is to provide the Company with additional funds to increase the investment portfolio and give eligible shareholders the opportunity to purchase additional shares at a discount to the BKI share price. As at 31 March 2023, BKI was trading at a discount to the pre-tax NTA.

PGF Raises $28.06m through SPP

The Share Purchase Plan (SPP) offered by PM Capital Global Opportunities Fund Limited ((PGF)) closed during the month. The Company raised $28.06m through the SPP, issuing 16.0m new shares at a price of $1.7489. The issue price represented a 2% discount to the volume-weighted average price of shares over the 5 trading days to 8 February. The shares issued under the SPP will be eligible for the interim dividend of 5 cents per share, fully franked, scheduled to be paid on 13 April.

TGF Entitlement Offer Falls Short

In February 2023, Tribeca Global Natural Resources Fund ((TGF)) announced it was seeking to raise up to $51.7m through a Wholesale Placement and a 1-for-4 Entitlement Offer. The Wholesale Placement was successfully completed raising $19.37m.

Applications for the Entitlement Offer opened on 3 March 2023 with the close date extended to 31 March 2023. New shares under the Placement and the Entitlement Offer have been issued at $2.10, a substantial discount to the pre and post-tax NTA at the time of the announcement and a discount to the share price at the time of the announcement. TGF have announced the Entitlement Offer, including the Top-Up Facility and Shortfall Facility, raised a total of $16.0m, with the majority of the capital raised through the Shortfall Facility. Combined with the Wholesale Placement, a total of 16.9m new shares will be issued, increasing the shares on issue by ~27%. TGF shares finished the month trading at $2.06, falling 8.4% from the date of the capital raising announcement.

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.

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