Australian Listed Investment Company Report June 2023

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

Download related file: IIR-Monthly-LMI-Update_1-June-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

BKI Raises $72.98m through SPP

BKI Investment Company Limited ((BKI)) raised $72.98 million under its Share Purchase Plan (SPP), which closed on 28 April 2023. Each BKI Director applied for the maximum amount of SPP shares. Shares were issued at $1.66 per share, which represented a 3.0% discount to the VWAP of BKI shares traded on the ASX over the 5 trading days up to and including 28 April 2023 and a 7.7% discount to the pre-tax net tangible assets (NTA) as at 28 April 2023, the date the SPP pricing was confirmed. The Company issued 43.97 million new shares through the SPP. The capital raised will be invested in line with the Company’s investment strategy with the Manager of the view that the market is offering an attractive opportunity for long-term investors. The Portfolio Manager, Tom Milner, commented “Many companies within the BKI portfolio are offering growing fully franked dividends at attractive yields. These companies are generally supported by compelling growth prospects, strong balance sheets, solid management teams and are trading on attractive valuation metrics.”

CAM to Pay Record Quarterly Dividend

Clime Capital Limited ((CAM)) announced it would be paying a dividend of 1.34 cents per share for the June quarter. This is the largest quarterly dividend paid by the Company and is an increase of 4.7% on the June quarterly dividend paid in 2022. The total dividends paid for the FY23 period equals 5.24 cents per share, up from the ordinary dividend of 5.11 cents per share paid for the FY22 period. The Company stated that subject to market conditions the Board intends to steadily and incrementally grow the dividend per share paid to shareholders consistent with dividend/income receipts on the CAM portfolio.

New RE Proposed for CD1, CD2 and CD3

In March 2023, 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. In May, E&P announced it will be proposing to unitholders to appoint K2 Asset management Ltd (K2) as the RE for the funds. E&P commented that K2 was selected based on a range of factors, including K2’s experience and expertise in the provision of RE and trustee services and their competitive fee proposal.

The change in RE is intended to provide unitholders with the following:

-a sophisticated financial services provider with experience and requisite expertise in providing responsible entity and trustee services to managed funds;

-lower aggregate fees charged by K2 for the provision of its services to the funds. The responsible entity fee will drop from 0.08% to 0.05% of the gross assets of the funds and the administration fee will drop from 0.25% to 0.225% of the gross assets of the funds;

-an independent responsible entity from E&P; and

-a responsible entity unrelated to the negative sentiment that has prevailed over the US Masters Residential Fund ((URF)), which E&P believe may be contributing to the discount at which the funds are trading.

A unitholder meeting will be held on 19 June 2023 to vote on the appointment of the proposed RE. The proposal will pass if more than 50% of votes cast by unitholders are in favour of the appointment of the RE.

CD2 LP Receives a US$7m Distribution from Dominion Voting Systems Settlement

CD Private Equity Fund II ((CD2)) announced that the LP received a payment of ~$7 million relating to the Dominion Voting Systems settlement with Fox Corp. The distribution is net of legal costs, taxes, fees and management share option dilution. CD2’s proportionate share of the LP is 87.3%, resulting in CD2’s share of the distribution being US$6.1 million. CD2 will provide further updates regarding the timing of any distributions to unitholders once the fund has received the distribution from the LP.

Partners Group Global Income Fund ((PGG)) Looking to Delist

On 2 May, PGG announced a proposal to delist PGG from the ASX and operate as an unlisted fund with monthly redemptions and subscriptions based on net asset value (NAV). The proposal comes as the trust continues to trade at a significant discount to NAV. For investors who wish to redeem their investment after the trust is delisted, liquidity will be generated using cash balances or selling assets to meet redemption requests. It is proposed that redemptions would be subject to a limit of 5% of NAV per month and for an interim transition period of 12-months from delisting, an exit fee would be applied initially starting at 7.5% for the first four months, 5% for the following four months and 2.5% for the final four months.

The proposal to delist requires unitholder approval. An Extraordinary General Meeting (EGM) is expected to be held around July with details regarding the EGM and the proposal to be released prior to the meeting. For those unitholders that may be seeking to exit the trust without the limitations proposed by the unlisted fund structure, units can to be sold on the ASX until the trust is delisted. The announcement of the proposal has seen the discount to NAV narrow significantly, with PPG units trading at a 3.9% discount to the latest available NAV on 26 May 2023.

EAI Shareholders Approve Restructure Proposal

Ellerston Asian Investments Limited ((EAI)) shareholders approved the restructure proposal during the month with all motions carried. EAI shareholders will receive a special dividend comprised of a non-cash component being units in the Ellerston Asia Growth Fund (Hedged Fund) ((EAFZ)) as well as any associated franking credits. EAI shares will be converted into EAFZ units at a ratio of 0.134546 units of EAFZ for 1 EAI share and the Company will pay a dividend amount of 8.0145 cents per share with franking credits of 2.6715 cents per share, scheduled to be paid on 5 June 2023.

The Company was suspended from trading on the ASX on 25 May with EAFZ scheduled to commence trading on 8 June.

HCF Raises $2.75m

H&G High Conviction Limited ((HCF)) raised $2.75 million during the month through a placement to sophisticated and professional investors. New shares were issued at $1.04 per share, equivalent to the post-tax NTA at 30 April 2023. Capital raised will be used to invest in ex-ASX 300 companies with a focus on micro cap stocks in line with the Company’s investment strategy.

WHF Declare Final Dividend of 10.25 cents per share

Whitefield Industrials Limited ((WHF)) released their full year results for the year ended 31 March 2023 in May. Investment revenue for the year was up 9.8% to $21.8 million and net profit after tax (NPAT) was up 7.3% on the previous corresponding period to $18.0 million. The Company declared a final dividend of 10.25 cents per share, in line with the previous final dividend, taking the full year dividend to 20.5 cents per share, fully franked. WHF has provided a steadily growing dividend stream to investors throughout its long history.

Increased revenue reflected increasing dividends and distributions from a majority of investment holdings, with the Company highlighting notable increases from Origin Energy, APA Group, Wisetech, Transurban, QBE, Computershare, the major banks, Incitec Pivot, Graincorp, Nufarm and Hub24.

Over the full year period, the NTA per share declined from $5.56 per share to $5.30 per share. The Company provided the below graphic highlighting the contributors to movements in the NTA.

The portfolio is highly diversified, with the portfolio comprising 158 stocks with 39 overweight and 43 underweight exposures relative to the benchmark index (S&P/ASX 200 Industrials Accumulation Index) at 31 March 2023.

WLE Raises $230m through Placement & SPP

WAM Leaders Limited ((WLE)) raised a total $230 million through the Placement and Share Purchase plan (SPP) with the SPP closing on 8 May 2023. After raising $131 million in April through the placement to wholesale and sophisticated investors in April at $1.48 per share, a further ~$100 million was raised through the SPP with new shares issued at $1.4580 per share, a 2.5% discount to the 5-day VWAP at the issue date. Shareholders who participated in the placement and SPP are eligible for the interim dividend scheduled to be paid on 31 May 2023. A total of 156.5 million new shares were issued under the Placement and SPP.

RG8 Increases Gross Exposure Limits

During the month, Regal Asian Investments Limited ((RG8)) advised the Board had approved changes to the investment guidelines, with changes to take effect from 1 July 2023. The key changes are:

-Maximum gross exposure has been increased from 150% to 200% of the portfolio’s NAV;

-Single security limit for long investments increased from 8% of portfolio’s NAV at the time of purchase to 10%.

It is important to note that while the gross exposure limit has been increased, there have been no changes to the net exposure limit. Net exposure limit remains at 100% of the portfolio’s NAV.

The potential increased leverage in the portfolio may result in an increased level of volatility in the underlying portfolio.

Switzer High Yield Fund (Managed Fund) (CBOE: SHYF)

The Responsible Entity (RE) for SHFY has announced its intention to terminate the fund and return capital to investors. The proposed termination is expected to take effect on or around 8 June 2023.

The fund was developed with the objective of achieving an attractive cash yield with low capital volatility by investing in a portfolio of high quality and liquid fixed income securities. However, given the current size and demand for the fund, the RE considers it highly unlikely that the fund will be able to reach sufficient scale to invest in accordance with the investment strategy designed to achieve this objective and be economically viable for investors.

SEC Implements Capital Management Initiatives to Address Discount

Spheria Emerging Companies Limited ((SEC)) has implemented two initiatives to address the discount to NTA at which the Company is trading:

1) On-Market Share Buy-Back – SEC will purchase up to 5.4 million shares during the 12-month period commencing 14 June 2023 to 13 June 2024; and

2) Increased Dividend Target – An increase to the quarterly dividend target from 1.0% of the post-tax NTA per quarter to 1.25% of the post-tax NTA per quarter. This equates to a target dividend of 5%p.a. of the post-tax NTA. The increased target will be effective from 30 June 2023.

The two initiatives seek to provide liquidity to the market when the Company is trading at a discount combined with increasing demand through an attractive fully franked dividend.

WQG Declares First Quarterly Dividend

WCM Global Growth Limited ((WQG)) declared its first quarterly dividend after announcing to the market that it would be increasing the frequency of dividend payments from semi-annual to quarterly in its 1H’FY23 results announcement in February 2023. The Company announced a dividend of 1.64 cents per share, fully franked, for the March quarter scheduled to be paid on 30 June 2023. The Company intends to pay the following quarterly dividend, fully franked, for the following four quarters:

-June 2023 quarter – 1.66 cents per share.

-September 2023 quarter – 1.68 cents per share

-December 2023 quarter – 1.72 cents per share.

-March 2024 quarter – 1.74 cents per share.

If dividends are paid as intended, the Company will pay a total of 6.55 cents per share for the FY23 period, up from 5.75 cents per share for the FY22 period. This represents a yield of 5.57% based on the share price as at 30 April 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.

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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