Australian Listed Investment Company Report October 2022

This story features QV EQUITIES LIMITED, and other companies. For more info SHARE ANALYSIS: QVE

Download related file: IIR-Monthly-LMI-Update_5-October-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. Also known as Listed Investment Trusts or Listed Managed Investments.

For comprehensive comparative data tables for LICs please see attached.

LMI Market News

FY22 LIC and LIT Review

On 26 September 2022, IIR published the FY22 LIC and LIT Review. The Review looks at the LIC and LIT share/unit price and pre-tax net tangible asset (NTA) and net asset value (NAV) performance for the financial year period ending 30 June 2022 (FY22) as well as looking at the dividends/ distributions declared for the period and dividend coverage of the LICs.

The broader Australian and global markets increased during the the first half FY22, however declined in the second half as the economic landscape changed. Inflationary pressures, war and the increased probability of a recession all contributed to the sell-off. Growth and small cap stocks were hit hardest by the market downturn, which is reflected in the performance of a number of LICs and LITs.

From a dividend/distribution perspective, share/unit holders fared well for the FY22 period with 86.6% of LICs/LITs either maintaining or increasing their ordinary dividends/distributions. We note that the trust structure of LITs means that they are required to payout all income and realised capital gains generated in any given year. As such, distributions will be dependent on the performance of the portfolio in any given year which can lead to high levels of distribution volatility. This compares to the company structure of LICs, which allows them to reserve income and capital gains for future dividend payments.

The report can be found on the IIR website (www. independentresearch.com.au).

Anton Tagliaferro Retiring From Investors Mutual

During the month QVE Limited ((QVE)), which is managed by Investors Mutual Limited, announced that Anton Tagliaferro will be retiring from Investors Mutual in March 2023 and as such is stepping down as the Co-Portfolio Manager of the QVE portfolio. Anton will be handing over his portfolio management responsibilities to Simon Conn, an existing Co-Portfolio Manager, and Marc Whittaker, who will take Anton’s place as Co-Portfolio Manager. Simon has managed the QVE portfolio since its inception in August 2014. Marc has worked with Investors Mutual since 2016 and is the Co-Portfolio Manager for Investor Mutual’s Future Leaders and Private Portfolio Funds.

AUI Raises $6.9m Through SPP

Australia United Investment Company Limited ((AUI)) completed a Share Purchase Plan (SPP) during the month, raising $6.9m. 736,738 new shares were issue under the SPP at a price of $9.41 per share.

DUI Raises $11.8m Through SPP

Diversified United Investments ((DUI)) raised $11.8m through the SPP completed in September. 2.5m new shares were issued at $4.66 per share.

Argo Global Infrastructure Limited ((ALI)) Announces SPP

On 27 September 2022, ALI announced an SPP offered to eligible shareholders who held shares on 26 September 2022. The Offer opened on 30 September 2022 and will close on 14 October 2022.

Eligible shareholders will be able to acquire up to $30,000 of new share with shares issued at the lower of $2.35 per share, which represents a 5.2% discount to the closing price of ALI shares on the 26 September 2022 or the volume-weighted average price (VWAP) of ALI shares over the last five trading days of the Offer.

Capital raised will be invested in line with the ALI investment mandate.

FPC Completes Third Offer of Equal Access Buy-Back

During September, Fat Prophets Global Contrarian Fund Limited ((FPC)) completed the third offer of its buy-back of shares in accordance with the Buy-Back Booklet issued on 28 September 2021 and approved by shareholders at the AGM held on 1 November 2021. Under the buy-back, FPC shareholders who elected to participate received units in Fat Prophets Global High Conviction Hedge Fund ((FATP)) upon buy-back of the shares. 6.7m shares were acquired under the third buy-back offer at a price of $0.9861 per share.

The buy-back was implemented in an attempt to address the discount to NTA at which the company had traded by offering shareholders the option to effectively trade their shares for units in the recently created actively managed ETF, FATP, which has substantially the same investment strategy. The buy-back provides shareholders the ability to sell their shares at the relevant NAV per share less a discount of 3%. There is one more buy-back offer scheduled under the scheme.

FPC has continued to trade at a discount to the pre-tax NTA however the rolling 12-month average discount at which the shares have traded has narrowed since the announcement of the scheme.

RF1 Adds New Strategy

Regal Investment Fund ((RF1)) announced in September that it was adding the Resources Royalties Strategy to the portfolio, conditional on the completion of a transaction involving a Liquidity Proposal to be put to unitholders in the Gresham Resources Royalties Fund ((GRRF)). GRRF has approximately 77m units on issue, 20m of which are currently held by investment funds managed by Regal including RF1.

The Liquidity Proposal will be put to existing unitholders of GRRF and will seek to change the name from GRRF to the Regal Resources Royalties Fund, appoint Regal as trustee and investment manager, modify the GRRF constitution and replace the information memorandum, terminate the existing investment management agreement and approve the payment of a performance fee to GRRF, among other matters. Investment funds managed by Regal will be excluded from voting on the Liquidity Proposal.

If the Liquidity Proposal is approved, GRRF unitholders will have the opportunity to transfer some or all of their GRRF units in return for consideration comprising cash from RF1 and/or RF1 units from other members of the Liquidity Proposal consortium, being Ficus Fiduciary and New Highland Pty Limited. GRRF units will be transferred at $1.75 per unit. If approved, the Liquidity Proposal is expected to be implemented in October 2022.

The Resources Royalties Strategy aims to provide exposure to a portfolio of natural and renewable resource royalty investments that can provide both income and growth while seeking to minimise some of the downside risks usually associated with investing in mining activities, such as costs and exploration expenditure. The Strategy will seek exposure to a mix of natural and renewable resource royalties, commodity streams and royalty-related products, including listed and unlisted securities, such as equities, warrants, debt and similar instruments.

LRT Raises $1.2m Through Entitlement Issue

Lowell Resources Fund ((LRT)) completed a 1-for-3 Entitlement Issue in September, raising $1.2m through the issue of 913,274 units. Units were issued at $1.35 per unit and had a free attaching option for every new unit issued with an exercise price of $1.65, expiring on 4 March 2024.

The offer had a shortfall was 8.87m units. The Responsible Entity may place the shortfall within the next three months under the terms of the Entitlement Offer.

Shareholders Vote in Favour of WLE Merger with AEG

Absolute Equity Performance Fund Limited ((AEG)) shareholders voted in favour of the merger with WAM Leaders Limited ((WLE)) at the Scheme Meeting in September. The exchange ratio has been confirmed with AEG shareholders to receive 0.68768 new WLE shares for every AEG share under the Scheme. AEG was suspended from trading on 26 September 2022.

GCI Analysis Still Expects No Payment Shock

During the month Gryphon Capital Income Trust ((GCI)) published an updated analysis regarding the impact of increased interest rates on borrowers’ capacity to continue to service their mortgage payments. GCI previously published the results of the analysis of a 2% increase in mortgage rates. The most recent analysis looked at the capacity of borrowers to service their mortgages in the event mortgage rates increased by 3.5%.

Based on the analysis, GCI concluded that a vast majority of borrowers are well placed to manage further increases in interest rates. For the cohort of borrowers most exposed to large increases to their mortgage payments, a combination of serviceability buffers, elevated savings rates, over-payment history and strong employment provides effective mitigants against financial stress. Additionally, the substantial build up in borrowers’ equity will also enable any borrowers experiencing financial pressure to voluntarily self-manage their way out of arrears through property sales.

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology.

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Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts.

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INDEPENDENCE – ACTIVITIES OF ANALYSTS

IIR restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research.

Pitches: Research analysts are not permitted to participate in sales pitches for corporate mandates on behalf of a Broker and are not permitted to prepare or review materials for those pitches. Pitch materials by investor clients may not contain the promise of research coverage by IIR.

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DISCLAIMER

This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

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