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Picton Property Income

FY18 builds on successful track record

Outlook | Financials | 25 Jun 2018

In a successful FY18, Picton Property Income again outperformed the MSCI IPD Quarterly Benchmark property return, as it has now done over one, three, five and 10 years. Moderate gearing enhanced the EPRA NAV total return to 14.9%. The industrial and office property markets, towards which Picton's portfolio has a strong bias, remain robust with widespread rental growth. In addition, Picton's portfolio continues to offer significant reversionary potential despite an already high level of occupancy. Plans to convert to UK REIT status later in the year should enhance future profitability, with no material impact on investment and portfolio strategy.

Chemring

Ducks aligning

QuickView | Aerospace & Defence | 21 Jun 2018

Chemring's H118 report demonstrates improved operational performance and financial security. While FX headwinds persist, the operating margin improvements at Countermeasures and Sensors are visible, as is improved cash generation. End markets are evolving from the perceived threat to increasing budgets, which underpins Chemring's market position. The FY18 outlook remains unchanged, underpinned by the H2 order book.

Templeton Emerging Markets Investment Trust

Continuation of strategy under new lead manager

Review | Investment Companies | 19 Jun 2018

Templeton Emerging Markets Investment Trust (TEMIT) has been managed by Chetan Sehgal since the beginning of February 2018, when he took over from prior lead manager Carlos Hardenberg. The two managers had worked closely together for a number of years and there will be no change to the investment process. Sehgal will continue to follow Franklin Templeton’s value-based, bottom-up stock selection approach, aiming to generate long-term capital growth. The manager is optimistic on the outlook for emerging market equities, citing above-average earnings growth with below-average valuations versus global equities. TEMIT has recently announced its FY18 results (ending 31 March); its NAV and share price total returns of 12.4% and 13.7% respectively were ahead of the 11.8% total return of the benchmark MSCI Emerging Markets index.

discoverIE Group

Making good progress

Outlook | Electronics & Electrical Equipment | 14 Jun 2018

discoverIE reported strong FY18 results: organic growth of 6% was boosted by acquisitions and currency to generate reported revenue growth of 14.7% and normalised EPS growth of 15.8%. The company is making good progress in its strategy to grow the Design & Manufacturing (D&M) business through a combination of organic growth and recent acquisitions. We expect further accretive acquisitions to move the company towards its target of generating 75% of revenues from the D&M business, and view progress towards this target as the key driver of share price performance.

QinetiQ Group

Unique position

Outlook | Aerospace & Defence | 13 Jun 2018

QinetiQ holds a unique position in the global defence market, providing capability generation and assurance in challenging times. The company is working tirelessly with the UK MOD to provide world-class Test and Evaluation (T&E) facilities in the face of a tight budget environment. In addition, it is building its global footprint, leveraging both its technological expertise and global defence budget dynamics.

DeA Capital

Alternative manager with strong asset support

Outlook | Financials | 12 Jun 2018

Over the past year, DeA Capital (DeA) has continued to make good progress in implementing the growth strategy for its alternative asset management (AAM) platform, comprising private equity, real estate and non-performing loans (NPLs). New fund launches have contributed to assets under management (AUM) growth of c 10% since end-FY16. Meanwhile, cash flow from its significant asset portfolio has remained strong, more than sufficient to fund co-investment in new fund launches, new direct investments and a continued high dividend distribution. After recent volatility in Italian markets, the yield is again more than 9% and the discount to our fair value of EUR 1.72 per share is c 26%.

Hurricane Energy

Enhanced EPS returns at current strip

Outlook | Oil & Gas | 11 Jun 2018

The development of Hurricane’s Lancaster early production system (EPS) remains on track for H119 first oil. We estimate a 1 January 2018 point-forward IRR of 63% for the EPS phase based on current commodity price forecasts. We use the EIA’s short-term oil forecast with Brent at $66/bbl for 2019 and long-term $70/bbl (from 2022). We believe the market is fully valuing a 10-year Lancaster EPS phase (34.7p/share net of debt), a project that has the potential to significantly de-risk our RENAV of 81.0p/share (increased from 78.4p/share). Our RENAV includes a risked value for Lancaster full field development and two mid-sized field developments (250mmbo) at Lincoln and Halifax.

Findel

Outstanding success with online-led strategy

Outlook | General Retailers | 08 Jun 2018

Findel (FDL) is seeing outstanding success with its online-led value retail strategy. FY18’s 21% PBT growth includes a strong Black Friday and Christmas campaign. However, underlying independent market share growth puts FDL on the right side of a difficult sector. Also, considering that customer redress has been bottomed out, Education has been stabilised and that core net bank debt (excluding receivables-related debt) is close to net positive, most of the negatives in the investment case have been removed. FDL appears to have turned the corner and our revised valuation suggests significant valuation headroom.

JPMorgan Global Convertibles Income Fund

Continuity of approach under new team head

Review | Investment Companies | 06 Jun 2018

JPMorgan Global Convertibles Income Fund (JGCI) is managed by the convertible bonds team at J.P. Morgan Asset Management (JPMAM), now led by Natalia Bucci following the departure of Antony Vallée in February 2018. Bucci and other members of the team have worked together for many years, and stress the continuity of a process that has been developed collaboratively over time, based on in-depth fundamental security analysis. The portfolio management team has been bolstered with the addition of Paul Levene, who joined JPMAM in 2015. JGCI continues to achieve its target yield of 4.5% and NAV progression has been broadly steady, with the share price having risen by a greater margin over 12 months, following the introduction of a discount management policy in May 2017. The team remains positive on the outlook for the global economy, which supports exposure to more equity-sensitive areas of the convertible bond market.

Vietnam Enterprise Investments

Well-established record of Vietnam expertise

Review | Investment Companies | 05 Jun 2018

Vietnam Enterprise Investments (VEIL) was launched in 1995 and is the largest Vietnam specialist closed-ended investment company listed in London. With an unconstrained, bottom-up investment process focussing on stock selection for capital growth, the fund has delivered good near- and long-term performance; achieving an annualised NAV return of 25% over the past five years to end-May 2018. Vietnam equities have performed strongly over the past two years, and a correction since the March 2018 VN Index peak has helped to moderate valuations. Meanwhile faster than expected GDP growth of 7.4% for Q118, and a sustained robust outlook, support earnings momentum. VEIL's discount to NAV of 14.8% is smaller than its three-year average of 16.5%, and may have scope to narrow further over time.

Hutchison China MediTech

Jewels in the crown

ADR Outlook | Pharmaceutical & healthcare | 01 Jun 2018

Key near-term value drivers include newsflow from partnered assets savolitinib (AZN globally) and fruquintinib (LLY in China). By year end, we anticipate the China FDA to approve fruquintinib (3L CRC). The molecular epidemiology study (MES) data on savolitinib in PRCC could support a US NDA submission (possible breakthrough therapy designation, BTD). Both products have blockbuster potential; as combination therapies in cancer drive overall uptake of targeted therapies. Beyond this we expect progression in Hutchison China MediTech's (HCM) wholly owned late stage oncology assets to reach value inflection points over the next few years. We have extensively reviewed our financial forecasts and increase our valuation to $47.9/ADS or $6.4bn.

Beta Systems

Positive outlook

Update | Technology | 31 May 2018

Beta’s H118 results reflect the anticipated lull in the DCI licence renewal cycle, with EBITDA down 54% y-o-y. Despite the decrease, management believes it is on track to deliver to the top end of its guided range for the full year. With an anticipated pick-up in performance over the next two years, combined with the recent uptick in M&A activity, we feel that the FY18 EV/EBITDA premium to peers is justified.