Member Info for jange

Silverdell in December issued new medium-term targets pointing to an acceleration in revenue growth and increased sustained EBITDA margins..................Successful strategic execution would point to a higher quality and mix of earnings, which, accompanied by a promised dividend flow, will enhance the share valuation............... 2012 was a year of transformation The year ending September 2012 was a milestone for Silverdell. The company doubled the size of its business through the acquisition of EDS. It also established a more supportive banking relationship with HSBC bank than it had with Barclays. It has achieved most of its historic KPI targets, although revenue growth in Remediation was negative partly due to demand, partly due to timing, and partly, we suspect, due to management having to focus on the integration of EDS.

Business description Hogg Robinson is an international corporate services company, specialising in travel, expenses and data management.

Although no strict correlation with HRG, it is encouraging that indicators such as global air traffic and lodging remain cautiously positive. Crucially, the company’s clients continue to travel (IATA expects stable air passenger growth in 2013, even if this risks being retail-led), while HRG’s model of predominantly managed income, whereby fees are received to manage down client costs, minimises the impact of less expensive travel options. Anecdotally, Starwood notes that corporates, excluding financials, where HRG has limited exposure, indicate a propensity to travel more in 2013........................

HRG is broadly on track to meet current-year earnings expectations. Relatively subdued constant currency revenue (-6% in the four months to January) is seemingly no deterrent to likely margin gain (we estimate 14.8% at the trading level in H2 against 12.7% y-o-y) as management adjusts costs effectively in line with demand (staff cut of 7% in H1 with similar in view in the current half). There should also be a boost from increasingly important technology sales and key new business and extensions, notably Unilever with service in over 70 countries, as well as Bayer and Pirelli, amongst others. The trend to online self-booking by clients should be helpful, even if a depressant in revenue terms, as should that of sharing in client cost savings.............

Hogg Robinson Group (HRG) continues to make the best of unpromising conditions by confirming the prospect of a material improvement in full-year margin despite significant top-line pressures. While unsurprising, as HRG’s model is tried and tested, such resilience (our forecasts are unchanged) is nonetheless impressive at a time of restructuring in the industry. The IMS affirms robust finances, reinforcing our confidence in the company’s generous dividend policy (the yield has strong cover).

Agree 100%.........

Current portfolio positioning: Mildly defensive MNP is managed predominantly bottom-up and there has been little change in the positioning of the portfolio, from a thematic perspective, during the past six months. The exception is Financials, which remain MNP’s largest active underweight, where the manager has added selectively to banks, particularly in the US, where he has seen balance sheet improvements and an improved earnings outlook. All other changes have been entirely stock specific. MNP remains underweight in consumer goods, consumer services and remains marginally underweight healthcare. Overweight sectors remain unchanged although telecommunications, and oil & gas have been reduced to marginal overweights where as industrials, technology and basic materials are now more substantial overweights. Overall MNP retains a mildly more defensive allocation.

Attractive valuations – a number of valuation metrics are used including DCF, price/earnings ratio and free cash flow yields to assess long-term upside potential.  Growth – companies with good sales, attractive earnings, and above-average cash flow growth.  Positive change – identify specific changes in companies, or sectors, which the manager considers the market consensus has missed, creating the opportunity for superior analysis to establish valuations that differ from the market. Overview: Diversified global equity exposure As at 31 December 2012, MNP had 61 investments. The top 10 equity holdings accounted for 28.5% of net assets, private equity funds 1.2%, cash 2.7% and the remaining equity investments for 67.6% of net assets. As displayed in Exhibit 3, MNP’s sector allocation has reasonable differentials to those of the benchmark index, reflecting the actively-managed nature of the trust. As shown in Exhibit 1, MNP has a diversified global exposure with 47.5% in North America and 26.9% in developed Europe.

Asset allocation Investment process: Bottom-up stock selection MNP is managed using a predominantly bottom-up investment approach, supported by macro analysis. The manager is able to draw on the expertise of Martin Currie’s global team of 29 analysts. In terms of stock selection, the manager uses a number of screens that score stocks on a range of factors considered fundamental to long-term share price performance. This analysis is also supported by a comprehensive programme of company meetings. When evaluating stocks for inclusion in the portfolio, the manager looks for:  High-quality companies – companies with strong balance sheets that are generating strong cash flows, as well as high-calibre management with ownership stakes in the company.

The fund manager: Tom Walker The manager’s view: Increasingly positive on global equities The manager maintains that equity valuations remain attractive, particularly given the yields available on gilts and bonds, and that, with a general rotation back into equities taking place, there is further upside to equity prices. Reflecting this, the manager has become more bullish on equity valuations, if not the world economy, given the continuing global monetary expansion, which the manager believes will support growth and increase the attractiveness of equities as an inflation hedge. In terms of downside risks, long term solutions to structural problems such as eurozone competitiveness and US fiscal deficits are yet to be found, but the manager believes that the worse case scenarios of Euro implosion and US fiscal gridlock will not come to pass and that, even after a strong performance for equities during January, a further 10% uplift during 2013 is readily achievable.

The case for global equities Since the financial crisis, the usual yield advantage of 10-year government bonds compared to quality blue chip non-financial equities has reversed. Despite generally lower levels of global economic growth than before the financial crisis, if current dividend levels are maintained, it is difficult to see how equities will underperform bonds over the next 10 years. Dividend sustainability, which in general relies on economic growth and corporate profitability, is a key risk to the equity advantage emphasising the importance of stock selection.

Fund profile: Large cap global equities with capital growth focus Launched in 1999, MNP invests in large cap global equities with a focus on achieving capital growth and has been managed by Tom Walker, a director of Martin Currie’s investment team who is also responsible for North American investments, since January 2000. MNP initially had a three-tier strategy of investing in UK equities, international equities and private equity. 2007 saw the international allocation limit increase from 25% to 50%. Measures were then approved at the May 2011 AGM that saw the limit on international stocks removed and the investment objective changed to achieving “long-term capital growth in excess of the capital return of the FTSE World index” (previously FTSE All-Share – the benchmark change becoming effective from 1 June 2011). In addition, MNP is also no longer strategically committed to holding private equity funds (there are two legacy holdings, which account for 1.3% of the portfolio, both of which are quoted). The ex-income discount, actively managed since launch, has averaged 8.8% over MNP’s life.

Valuation: Discount below long-term averages MNP’s discount has tightened appreciably during the last six months from c 6% (in line with its longer term averages of 6.0% and 5.6% over three and five years respectively) to its current discount of 2.0%. Compared to other global growth investment trusts, MNP’s discount is appreciably narrower (sector: c 8%) but MNP continues to pay an above-average yield.

Sector outlook: Positive outlook for global equities The manager maintains that equity valuations remain attractive, particularly given the yields available on gilts and bonds, and that, with a general rotation back into equities taking place, there is further upside to equity prices. In terms of downside risks, long term solutions to structural problems such as eurozone competitiveness and US fiscal deficits are yet to be found, but the manager now believes that the worse case scenarios will not come to pass and that, even after a strong performance for equities during January, a further 10% uplift during 2013 is readily achievable.

Investment strategy: International quoted investments MNP is managed using a predominantly bottom-up investment style supported by macro analysis. There are no formal sector, stock or market capitalisation restrictions, and the trust maintains a relatively focused portfolio of around 60 international quoted stocks with a view to providing long-term capital growth. The investment process looks to identify higher-quality global companies at attractive valuations, with superior growth prospects. MNP can gear up to 20% of total assets but is currently ungeared. MNP remains overweight in the UK (c 17% of its portfolio vs c 9% of the benchmark) which is a result of stock selection and the number of attractively priced UK listed stocks with global businesses.

Martin Currie Global Portfolio Trust (MNP) is a global equities investment trust. During the past year MNP has provided absolute returns of 12.6% and 16.8% for NAV and price total return respectively, compared to its benchmark, which returned 14.4%. The portfolio’s defensive positioning has hindered performance a little during this period, although the manager has become more bullish on the outlook for global equities given the continuing global monetary expansion, which the manager believes will support growth and increase the attractiveness of equities as an inflation hedge. The discount has narrowed during the last half year from c 6% to its current 2.0%.

Business description Entertainment One (eOne) is a leading independent entertainment group focused on the acquisition, production and distribution of film and TV content rights across all media throughout the world.

Revenues for the ten months to end January increased by 15%, or by 11% ex Alliance, with Television revenues up by 30% and Film (including Alliance) up 24%. Both Film and Television have a very strong slate of content and eOne recently announced that it took number one independent distributor slot in the UK in 2012. Distribution revenues were down 4% in line with prior trends. In the US, Peppa Pig’s Christmas toy sales exceeded forecasts (although the main roll-out comes in 2013). Our profit estimates are unchanged (we may make some very minor tweaks in our next note) as is our March 2013 net debt estimate of £115m (£170m including TV production financing); eOne recently completed a new $430m syndicated debt facility which provides increased funding to support its growth plans. Most important at this stage, in our view, is the rapid progress being made with Alliance, which enlarges the group by about 40% and has catapulted it into the big league of global entertainment companies. The medium term upside potential is very considerable.

eOne has reported on another successful period which included the completion of the Alliance acquisition on 8 January, which we view as a transformational deal . eOne has already announced new management teams and the integration is well on track. FY13 results are expected to be in line with management expectations and we plan to release a longer note fairly shortly.............recent positive upward momentum in the share price to continue, with FY14 EV/EBITDA still only 7.7x and further positive newsflow on the Alliance integration expected in coming months..............

Business description CML Microsystems supplies semiconductors into specialist communications and embedded flash memory storage applications.