Australian Listed Investment Company Report March 2023

This story features PERPETUAL ETHICAL SRI FUND (MANAGED FUND), and other companies. For more info SHARE ANALYSIS: GIVE

Download related file: IIR-Monthly-LMI-Update_2-March-2023

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

IIR Initiates Coverage on Perpetual ESG Australian Share Fund (Managed Fund) with a Recommended Rating

During February, IIR initiated coverage on the Perpetual ESG Australian Share Fund (Managed Fund) ((GIVE)), with a Recommended rating. GIVE has a dual objective: (1) provide long-term capital growth and regular income through investment predominantly in quality Australian shares that meet Perpetual’s ESG and values-based criteria; and (2) outperform the S&P/ASX 300 Accumulation Index (before fees and taxes) over rolling three-year periods. The Fund is moderately diversified with the portfolio typically comprising 30 to 80 stocks.

The Fund provides investors the opportunity to gain exposure to the Perpetual ESG Australian Share Fund, which has a track record of more than 20 years, through a listed vehicle. The Fund has a very competitive fee structure when compared to its actively managed listed peers, however is competing with a number of passively managed ETFs that have a very low fee structure. Consistent outperformance of the passively managed ETFs on a net basis is expected to be a driver of fund flows. While the strategy has a long track record, GIVE is a relatively new structure with small levels of assets under management. Growth in AUM will be important for not only the longevity of the vehicle but to reduce the risks associated with unitholder concentration.

IIR Reaffirms QV Equities Limited ((QVE)) Recommended Plus Rating

IIR reaffirmed its Recommended Plus rating for QVE. QVE seeks to provide investors exposure to a diversified portfolio of ASX-listed entities outside the S&P/ASX 20 Index with the goal of providing long-term capital growth and income. The portfolio is managed by Investors Mutual Limited, a value investor with the philosophy that an entity’s share price will reflect its underlying value in the long-term. The Manager seeks to invest in quality companies led by capable management, which are operating with competitive advantages, have recurring and predictable earnings with the ability to grow over time where securities can be purchased at an attractive price. The focus on ex-20 stocks seeks to provide investors exposure to a broader and more diversified range of investment opportunities than the S&P/ASX 300 Index where the top 20 stocks are heavily weighted to the Financial and Resource sectors.

QVE has been true to name as a value manager which has seen the portfolio underperform the benchmark index since listing with value stocks underperforming growth stocks in recent years. Despite the underperformance, the Company has continued to pay an increasing fully franked dividend and is one of the few LICs that pays a quarterly dividend. Given the expected interest rate rises in 2023, we would expect the portfolio to outperform a number of its peers with value stocks expected to outperform growth stocks in the current environment. The retirement of Anton Tagliaferro is a significant change to the investment team, however Simon Conn remains as a Co-Portfolio Manager of the QVE portfolio. Simon has been with the Manager since its establishment in 1998, therefore we are expecting there to be no changes to the investment process and philosophy, however we will continue to monitor the investments and performance of the Company to ensure continuity of the strategy and process.

 TGF Declares Maiden Dividend and Announces Capital Raising

Tribeca Global Natural Resources Limited ((TGF)) declared a maiden dividend in its first half results. The Company will pay a total fully franked interim dividend of 12.5 cents per share, comprising an ordinary dividend of 5 cents per share and a special dividend of 7.5 cents per share. The dividend comes after the Company reported a net profit of $17.18m for the 1H’FY23 period.

TGF also announced they were undertaking a capital raising comprising:

-An institutional placement seeking to raise $19.37m; and

-A 1-for-4 Entitlement Offer to raise up to $32.3m.

The capital raising will be dilutive, with shares under the Placement and Entitlement Offer to be issued at $2.10, which represented a -6.7% discount to the closing share price prior to the announcement, a -21.6% discount to the estimated post-tax net tangible asset valuation as at 17 February 2023 and a -22.8% discount to the estimated pre-tax NTA as at 17 February 2023.

The institutional placement was completed on 23 February 2023 with the Company raising $19.37m through the issue of approximately 9.23m shares.

The Entitlement Offer is scheduled to close on 24 March 2023. There is a Top-Up facility and Shortfall facility allowing for eligible shareholders to apply for additional shares and the ability for the Company to offer any shortfall of shares to wholesale investors.

If the Entitlement Offer is fully subscribed, combined with the Placement, the Company will increase the number of shares on issue by ~40%. One of the reasons for the Placement was to expand the shareholder base and provide more liquidity for shareholders. The institutional placement was successful in attracting new shareholders to the register.

The shares issued under the Placement and the Entitlement Offer will be eligible for the dividend. If fully subscribed the dividend payment amount will equate to ~$10.8m. With the Company reporting Retained Earnings of $9.3m as at 31 December 2022, the dividend payment is expected to exhaust the Retained Earnings of the Company. We note that the Company has announced it will introduce a dividend reinvestment plan for shareholders, which means the actual cash payment for the dividend may be less. With the net profit of the Company primarily driven by the net changes in the value of the portfolio, the ability of the Company to sustain the ordinary dividend moving forward will be dependent on the performance of the portfolio.

PE1 Made a Play for the CD Series of Funds

Courtesy of a news article in the AFR, the cat was let out of the bag that Pengana Private Equity Trust ((PE1)) submitted two conditional non-binding indicative proposals to merge the four funds in the CD Series (CD1, CD2, CD3 and CD4) with PE1. The proposal was made after the failed attempt to merge the CD Series of funds by the Responsible Entity (E&P Investments Limited) in 2022. The PE1 proposal was rejected and PE1 is currently not in active discussions with E&P Investments Limited.

WQG Moves to a Quarterly Dividend

On 22 February 2023, WCM Global Growth Limited ((WQG)) announced it is increasing the dividend payment frequency from semi-annual to quarterly following the payment of the FY23 interim dividend. The LIC intends to pay the following quarterly fully franked dividends:

-1.64cps for the quarter ending 31 March 2023;

-1.66cps for the quarter ending 30 June 2023;

-1.68cps for the quarter ending 30 September 2023; and

-1.72cps for the quarter ending 31 December 2023.

WQG had a substantial Dividend Reserve as at 31 December 2022 of $110.8m, providing dividend coverage of over 8 years based on the intended quarterly dividends to be paid in 2023.

LSX Completes Pani Sale

On 20 February 2023, Lion Selection Group Limited ((LSX)) announced the completion of the sale of its Merdeka shares received as part of the consideration for the sale of its JV interest in Pani. The shares were progressively sold since late January 2023 on the Indonesian Stock Exchange for a total of AUD$32.5m. LSX also received the deferred consideration of US$10m due under the sale of its Pani interests. LSX announced the payment of a special dividend of 2cps to shareholders, scheduled to be paid on 3 April 2023.The dividend will be unfranked. The Company announced it intends to pay an annual dividend for the FY23 period.

With the completion of the sale, the portfolio includes $80m net cash, equivalent to 57cps cash backing. The Company will seek to deploy the cash in new investment opportunities.

PGF Seeks to Raise Capital through SPP

On 9 February 2022, PM Capital Global Opportunities Fund Limited ((PGF)) announced a Share Purchase Plan (SPP) offer to eligible shareholders. Shareholders have the opportunity to subscribe for up to $30,000 worth of shares with shares to be issued at the lower of:

-$1.7489 – a 2% discount to the volume-weighted average price of shares over the five trading days prior to the announcement; or

-A 5% discount to the NTA per share before tax as at the date on which the SPP is scheduled to close (7 March 2023).

New shares issued under the SPP will be eligible for the interim dividend declared for FY23 of 5cps, fully franked.

The proceeds raised will be used to expand the PGF portfolio.

LIC & LIT 1H’FY23 Dividends/Distributions

This section can be accessed in the PDF file attached.

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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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