Monthly Listed Investment Trust Report – Mar 2022

This story features AMCIL LIMITED, and other companies. For more info SHARE ANALYSIS: AMH

Download related file: Monthly-LMI-Update_1-March-2022

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.

Note: For comprehensive comparative data tables for LICs and ETFs please see attached.

LMI Market News

AEG’s Future as a Listed Entity Under Review

On 16 February 2022, AEG provided a shareholder update stating that a consultation process, including the appointment of legal counsel, has commenced and all practical options are being considered with respect to the future of the Company. This process is a result of a consortium of shareholders seeking input on the continuation of AEG as a listed entity. The Company has stated that the process may result in a return of capital if approved by shareholders. AEG postponed its decision on the declaration of an interim dividend until the Board completes the consultation and review process.

Amcil SPP & Interim Dividend Declared

On 1 February 2022, Amcil ((AMH)) issued documentation for the Share Purchase Plan announced on 25 January 2022. Shareholders will be able to invest up to $30,000 under the SPP. The SPP issue price will be the lower of $1.26 per share or a 2.5% discount to the VWAP of AMH shares over the 5 trading days up to and including the day of the close of the Offer. Therefore, the maximum issue price of shares under the SPP will be $1.26 per share. AMH was trading at $1.175 per share at 25 February 2022.

AMH declared an interim dividend of 1cps for FY22. This comes after the Board changed the approach to determining dividends in 2021. Dividends were previously a result of the Company paying out all available franking credits. This approach resulted not only in dividend fluctuations but constrained the capital growth of the portfolio. Dividends will now be determined based on the amount of income and realised capital gains received, available franking credits and market conditions. This may mean not all franking credits are distributed, however, is expected to reduce dividend volatility and provides the potential to increase the dividend from annual to semi-annual. The new policy was highlighted with the Company declaring a 1cps interim dividend for FY’22, only the second interim dividend declared in the last 10 financial years.

Hamish Douglass Takes Leave from Magellan

As has been well publicised, there have been a few shock departures from Magellan Financial Group ((MFG)) in recent months. The CEO, Brett Cairns, departed in December 2020 and the Chairman and CIO of Magellan, Hamish Douglass, took indefinite medical leave in February 2022. Chris Mackay was promptly appointed to oversee the portfolio management of Magellan’s global equity retail funds and global equity institutional mandates. Mr. Mackay has a long association with Magellan, being Magellan’s inaugural Chairman and CIO from 2006 to 2012. Mr. Mackay is currently the Managing Director and Portfolio Manager of MFF Capital Investments Limited ((MFF)).

Magellan also advises that Ms. Nikki Thomas has re-joined Magellan as a co-portfolio manager of Magellan’s global equity strategies. Ms. Thomas originally joined Magellan in January 2007 and was involved in the global equity strategy since its inception in July 2007 until December 2017. The appointments provide a level of continuity of the strategy given both these appointments know and helped evolve the global equity strategy.

MOT Looking to Raise up to $150m through Entitlement Offer

Metrics Income Opportunities Trust ((MOT)) announced a pro-rata 1-for-3 Non-Renounceable Entitlement Offer of new fully paid ordinary units in MOT to eligible unitholders to raise up to $150m, including an oversubscription facility available to eligible unitholders. Any new units not taken up by eligible unitholders under the Offer will be offered to certain Wholesale investors as part of the Shortfall Offer. Up to 70.43m new units will be issued at a price of $2.12 per unit, the NAV of the Trust at the time of the Offer and a 3.2% discount to the unit price at the close of the business day prior to the announcement. The capital raised will be used to provide MOT with additional scale to invest in a pipeline of investment opportunities identified by the Manager.

The Offer closed on 25 February 2022. New units are expected to commence trading on a normal settlement basis on 3 March 2022. If the Offer is fully subscribed, the units on issue will increase from 211.28m to 281.71m.

VGI Partners and Regal Funds Management Sign Merger Term Sheet

On 31 January 2022, VGI Partners Limited ((VGI)) announced that it has entered into an exclusive and non-binding term sheet with Regal Funds Management Pty Limited (“Regal”) for the merger to the two managers. The merger would create an alternative investment strategy manager with FUM of in excess of $6bn. The merger, which is subject to shareholder approval and for which a definitive agreement is yet to be entered into, would involve VGI acquiring 100% of Regal in consideration for the issue of new VGI shares. The anticipated shareholding of the merged entity at completion of the merger (after adjusting for cash, liquid assets and other investments), is approximately 60% Regal shareholders and 40% VGI shareholders. It is anticipated that VGI would be renamed post the completion of the merger. VGI has granted Regal a period of six weeks of exclusivity on customary binding terms which include no shop, no talk, and no due diligence restrictions, and an obligation for VGI to notify Regal if it receives a competing offer.

VGI is the manager for VGI Partners Global Investments Limited ((VG1)) and VGI Partners Asian Investments Limited ((VG8)) and Regal is the manager for Regal Investment Fund ((RF1)). At this stage there appears to be no intention for any changes to the underlying investment strategies of these vehicles.

While the details are yet to be finalised, conceptually we view the merger to be a positive, particularly for VGI, with the ability to leverage off Regal’s marketing and distribution platform in addition to the additional expertise provided by the combined investment teams.

WAM Capital Mopping Up Smaller LICs

WAM Capital ((WAM)) is taking the opportunity to acquire the assets of LICs at the smaller end of the scale from a market cap perspective and trading at discounts to pre-tax NTA. In December 2021, WAM announced they had entered into a Scheme of Arrangement with WIC and OZG to acquire 100% of the shares not owned by WAM. Under the Scheme, WIC and OZG shareholders will receive WAM shares, the number of which will be determined by a formula based on the ratio of the WAM’s share price to the NTA of Westoz Investment Compnay ((WIC)) and Ozgrowth ((OZG)) before tax. The calculation date for the exchange ratio is scheduled for 31 March 2022 with the Scheme meeting scheduled for 4 April 2022. In January 2022, WAM increased its Offer Consideration for PM Capital Asain Opportunities Fund ((PAF)). After the proposed scheme for PM Global Opportunities Fund ((PGF)) to merge with PAF was unsuccessful in late 2021, PAF’s board recommended shareholders accept the WAM Offer. On 14 February 2022, WAM announced it had succeeded with the unconditional off-market takeover bid for PAF with acceptances exceeding 90%.

Keybridge Capital Limited Announces Proposed Takeover Bid for WAM Active Limited (ASX: WAA)

Keybridge Capital Limited ((KBC)) has announced its intention to make an off-market takeover bid for WAM Active ((WAA)) for an all scrip consideration of 1.16 x $1.00 Keybridge convertible redeemable promissory notes (CRPN) for each WAA share. This equates to a value of $1.16 per WAA share, an 8.4% premium to the share price at the COB on the day of the announcement (7 February 2021) and a 13.6% premium to the most recently released post-tax NTA. The Offer values WAA at $85.6m, currently a market cap of $79.0m. The Offer is subject to Keybridge shareholder approval.

Keybridge have outlined the following key terms for the CRPN:

-Face value of $1.00.
-Maturity Date of 10 years from the issue date.
-Will be categorised as an equity instrument for tax purposes.
-A gross running yield of 2.0% p.a., fully franked. The CRPN will pay a fully franked dividend of 1.4 cents per note, paid annually.
-A dividend stopper on Keybridge ordinary shares if a CRPN interest payment remains outstanding.
-Upon maturity, the CRPN may be redeemed for the face value in cash or converted into Keybridge ordinary shares at a 5% discount to the VWAP.
-The Keybridge CRPN is intended to be ASX-listed.

There is a bit of history with regards to Keybridge and WAA. In 2020, WAA made a takeover bid for Keybridge which was unsuccessful. The two parties also went to court regarding the block of shares held by WAA, in which costs were awarded against Keybridge. In the event Keybridge obtains control of WAA, it intends to dispose of WAA’s shares in Keybridge within 12-months. WAA and associated entities of the Wilson Asset Management Group hold a 44.5% interest in Keybridge.

Further details regarding the Offer and considerations for WAA shareholders can be viewed at the following link: https:// independentresearch.com.au/keybridge-capital-limited-asx-kbc-announces-proposed-takeover-bid-for-wam-active-limited-asx-waa/.

Dividends/Distributions Declared/Paid for 1H’FY22

Reporting season for the 1H’FY22 has now come to an end. Below we take a look at the dividends that were declared or paid during the 1H’FY22 and the change on the pcp. For completeness we have also included the distributions paid over the 1H’FY22 for the fixed income LITs. There were a number of uplifts in interim dividends declared and dividends paid for the period. After reducing the interim dividend in FY21 on the back of reduced income from investments, BKI Investment Company ((BKI)) increased its interim dividend to 3.5cps (not including the 0.5cps special dividend), a 75% increase on the pcp. Ex the special dividend, this is very close to the interim dividend levels in FY20. After a prolonged period of declining dividends, Djerriwarrh Investments ((DJW)) declared an uplift of 28.6% to 6.8cps. While still significantly below the previous highs, the uplift is positive news for shareholders.

Amcil’s interim dividend was of note, given it was is only the second interim dividend declared in the last 10 financial years and is the first dividend paid since the Board revised the dividend payment policy, as discussed above.

There were a number of LICs/LITs that increased their interim dividends by 100% or more, including Cadence Capital ((CDM)), PGF, Fat Prophets Global Property Fund ((FPP)), VG1, L1 Long Short Fund ((LSF)) and RF1. We note that RF1 is a LIT and therefore distributions will be dependent on the realised capital gains and income earned during any given period. VG1 and LSF posted the greatest uplifts with a 200% and 166% increase in the interim dividends, respectively. LSF has significant dividend coverage based on the profits reserve at 31 December 2021.

There were a number of LICs/LITs that paid their inaugural interim dividend, including Cadence Opportunities Fund ((CDO)), which paid a fully franked dividend of 7.5cps after only listing in November 2021. Upon listing the Company had an existing profits reserve and franking credit balance which has allowed the Company to declare a dividend so soon after listing.

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