Today I’ve got a quick smorgasbord of fund updates on some of my more adventurous investment trusts.
First up, Killik and Co’s excellent research guru nicely sums up why I’m still enthusiastic about India Capital Growth (IGT).
If we’re honest the other funds in this space have done better in recent years but as Mick says,
“….it does offer a ‘get-out’ opportunity via the December exit opportunities. If investors are disappointed by the lack of discount narrowing or lack of participation in India’s emerging technology sector then they can vote with their feet and elect to redeem at a 6% discount each December.”
There’s been a big fund management overhaul which I think should start paying dividends and we’re also seeing the first stirrings of a profound technology shift in India. As Gillgan notes much of the fund’s most recent statement echoes that of other Asian managers such as BG’s Pacific Horizon who see that “India’s technology adoption is transforming consumer habits and business in India. This is not yet reflected in stock market representations (1% of market cap) but this is changing with a wave of IPOs coming down the tracks.” On the same theme, the US Digital and Tech sector represents c. 30% of the S&P 500, whilst in India it is c. 1%. In July, Zomato, India’s equivalent of Deliveroo, was the first major tech company to list, 35x subscribed and a share price rising 50% on day one.
In terms of interim results, ICG reported a total return of 25.1%, outperforming the (BSE Midcap TR Index) benchmark by 2.9%. The discount narrowed from 14% to 12% over the period.
One country that will definitely not be embracing this technology shift is our trusty socialist champion Cuba. Now, in the past I’ve championed a feisty London listed real estate outfit called CEIBA which has just released results for the six months to 30th June 2021.
I think if you are willing to be patient – and can get past many brokers allergy against dealing in stocks from Cuba, courtesy of the US embargo – then this could come right in the long term.
My sense is that Cuba, whether the communists in charge like it or not, is going to head back to capitalism at some stage. Unfortunately, that transition may take longer than most of us have on this planet !! Which is more the pity for its long suffering citizens, though our friends in Momentum probably take a different view.
Anyway, in the meantime, Ceiba has been having a tough time, as you’d expect from a hotel property group which has been badly hit by Covid and the collapse in tourism. CEIBA’s NAV per share fell to $1.31/94.7p, from $1.41/103.8p at 31st December 2020 ( -8.75% in sterling, -7% in USD, the functional currency of CEIBA).
“The principal reason for the decrease in NAV during the period was a decrease in the fair values of all of the main assets in which the Company is invested. In turn, the fall in fair values was mainly attributable to (i) a fall in projected income levels as a result of the continued effects of the COVID-19 pandemic and its negative impact on the Cuban tourism sector, the Cuban economy and the continuation under the Biden administration of President Trump’s intensified Cuba embargo policy, and (ii) increased discount rates as a result of higher levels of perceived risk in the present circumstances”.
It’s not all doom and gloom – the trade centre remains fully occupied, some of the hotels are still profitable. Cuba is planning a gradual reopening and the government reckons it’ll get to 90% vaccinated (with what?) by mid November. One wonders whether they’ll put up with many vaccine sceptics!! The bad news is that Biden doesn’t seem to be too keen to kickstart the Cuba relationship.
The fund raised €25m via a convertible raise earlier this year while the share price of 67p represents over a 29% discount to this reduced NAV.
Ocean Wall, an alternative investments specialist shines their spotlight on SUPP this month, in part because of the successful IPO of Oxford Nanopore which was up +42% on its first day of trading. On 16th September, the US tech giant Oracle announced they would take a 15% cornerstone stake as part of an ongoing strategic partnership. ONT is on a valuation of close to £5bn.
Schroders UK Public Private (SUPP) is a 3.7% shareholder.
According to Ocean wall , the Schroder fund is up
“…only + 20% on the year yet ONT accounts for nearly 22% of its £363.5m assets. SUPP indicated they would partially sell (10% of their stake) into yesterday’s IPO. Prior to IPO SUPP held 3.7%. As part of the IPO, they sold 10% @425p = £11.2m. Remaining ONT holding @612p = £143.6m. At a £5bn market cap for ONT we believe that SUPP’s NAV is 46p. So, at SUPP’s closing price last night of 35p it has over 30% upside to reach its NAV. “
The discount to NAV remains at around 41%.
Lastly Ocean wall ahs also been taking a closer look at another favourite of this blog, Doric Nimrod 2 (DNA 2), one of the aircraft leasing funds and a favourite of my alternative funds trading list from a few years ago.
As a reminder this specialist fund raised debt and equity to buy7 A380s and leased them all to Emirates. These are coming off lease over the next 2-4 years and will be owned outright.
Ocean Wall observes that
“…you can buy DNA for 56p and get 76.5p of payments. The leases are structured to provide for DNA2 to pay investors a total 4.5p over 17 remaining quarters while servicing the debt on each aircraft so they are returned unencumbered and paid for. The Board of DNA2 has confirmed that it has received no formal request from Emirates to renegotiate their leases and that they are currently servicing them in line with their obligations. If you are happy with Emirates as a counterparty then here is where you stand now:
-Income 76.5p income – 56p per share = 20.5p / 56p = 36.6% 36.6% / 4 years = 9.1% pa”.
So, just to reiterate that’s a 9% per annum bond-like income stream , predicated on Emirates staying in business. The great unknown is whether there might be a capital gain? Recent portfolio valuations indicate 356p a share which we all think is pie in the sky. Ocean wall reckons that the “the four massive Trent 900 engines on an A380 can fetch up to $480,000 a month in lease payments or be sold for several million dollars each. ” At 56p the price is reflecting Emirates to stop paying DNA2 and zero scrap value – both scenarios that we consider to be highly unlikely.”
I quite agree.