Investors in Alliance Trust are being asked to buy a pig in a poke. Still, sometimes even the least promising poke contains a healthy porker.
It is worth bearing in mind that back in the summer, when RIT Capital Partners made a highly tentative approach to buy the venerable investment trust, the shares were trading at around 520p. Had the deal gone ahead, it would have been a steal. At the time the net asset value was 561p. Yesterday the shares rose ½p to 620½p, still on a discount to net assets of almost 646p but less pronounced.
One would expect investment trusts to trade at a slight discount, but Alliance has been unable to buy back shares in the market while the strategic review has been dragging on. That bar has now ended and Alliance has pledged to buy back shares to narrow that discount. The trust has the firepower to buy almost 10 per cent of its equity, which should provide some support under the share price.
Last week’s shake-up, though, leaves questions unanswered. At some stage there probably will be some sort of facility that will allow Elliott Advisors, the activist fund that has brought about the changes, to exit. There was disappointment in some quarters that this was not announced along with the outcome of the review.
The most significant pledge is to double the target for outperformance to the relevant benchmark plus 2 per cent. This will be down to the various managers to be appointed by Willis Towers Watson; the investment manager has a good enough track record, but, as ever, past record is no guide to future performance. The approach WTW takes is a high-conviction one: this means the managers it appoints are encouraged to take firm views on their investments rather than apply a scattergun approach across the board that is unlikely to do much better than track the market.
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This, we are assured, is an approach that has not been available to the UK retail investor before. We are also promised that the annual costs will be significantly lower than elsewhere in the sector. Again, time will tell.
The shares offer a yield of 2 per cent, not bad for the sector. On balance the moves last week are positive and Alliance’s tribe of retail investors should wait around for developments.
MY ADVICE Hold
WHY The shake-up at Alliance Trust should be good news for investors in due course, but there are still a number of uncertainties ahead
Brewin Dolphin
Apparently there were plenty of other potential buyers for Duncan Lawrie Assett Management, but its purchase by Brewin Dolphin does look like one of those strikingly fortunate and opportunistic deals. The seller is Camellia, an odd and little-known quoted conglomerate taking in tea plantations and engineering, which made clear in the summer that banking, in an era of low interest rates, was no longer a core business.
The loan book has been sold to Arbuthnot Latham, leaving Brewin to pick up the fund management business. There is a degree of consolidation going on in wealth management, which the company has not yet greatly participated in. The deal looks an excellent fit: about 84 per cent of the £735 million of funds under management are discretionary, an area that increasingly Brewin is heading into.
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Take out expected staff costs and Duncan Lawrie makes profits of £3.7 million out of revenues of £6.2 million. This is substantially ahead of the margins that Brewin enjoys, about 22 per cent and heading slowly towards the targeted 25 per cent. The deal will add to earnings immediately, therefore, about a 5 per cent increase.
The £28 million expected purchase price makes a dent in Brewin’s cash balances of £171 million. The company had emphasised that it was heading to a stage when there was an excess of capital that would be returned to investors. Brewin shares, up 7½p at 297¾p, sell on 15 times’ earnings. A good deal, then, but not a compelling buy.
MY ADVICE Avoid
WHY No sign of imminent cash back to investors
Speedy Hire
Speedy Hire is now largely recovered from its woes, which included accounting irregularities, the departure of a chief executive and two profit warnings. Having sold its large plant fleet, the company is in a position to invest again and has picked up, quite cheaply, Lloyds British Testing, which specialises in lifting equipment, from the administrator.
No price is being put on the deal, but one analyst estimates £3.5 million. As ever with such businesses, there is plenty of overlap in terms of outlets close to one another and Speedy estimates that, once synergies have been achieved, it is paying about twice earnings, which is an attractive enough price. Analysts were upgrading their profits forecasts by about 4 per cent yesterday, so the deal is hardly transformational.
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Speedy shares, up 2p at 54p, are still a long way from the 75p or so of last year. They sell on about 25 times’ earnings, which suggests the market is looking for more improvement yet. The company is well enough placed for this, while further M&A activity should not be ruled out. That valuation looks a full enough one for now, though.
MY ADVICE Avoid
WHY Shares have recovered and price looks full
And finally...
Volution Group was tipped here a couple of months ago as a long-term prospect because of its ability to find small, niche acquisitions that can be funded from existing cashflow. It came to the market in 2014 and is best known for its ownership of the Vent-Axia brand of ventilation products. Yesterday Volution bought Breathing Buildings, a small, Cambridge-based provider of energy-efficient ventilation that was a collaboration between the university and Massachusetts Institute of Technology.