- Strong first-half returns
- Interim dividend up 20%
- Portfolio still undervalued
Value-focused investment trust Temple Bar (TMPL) continued its run of outperformance in the six months to 30 June with an NAV (net asset value) total return of 13.1% against a 7.4% return for the FTSE All-Share index.
The share price total return was 11% following a widening of the discount to NAV to 7.5% from 5.6% at the end of 2023, despite the manager purchasing over four million shares at a cost of £9.7 million, but the discount has narrowed to 4.7% as of this week.
A ‘strong’ 35% increase in revenue from dividends prompted the board to declare a 20% increase in the interim dividend to 2.75p per share.
In early trading the shares were 0.5p or 0.2% at 274p, taking gains for the year to 14.8%.
WHAT DROVE OUTPERFORMANCE?
Steered by Ian Vance and Nick Purves of Redwheel, the trust adopts a value approach by investing in companies trading at a significant discount to the managers’ estimates of fair or intrinsic value.
The trust’s holdings in NatWest (NWG) and Barclays (BARC), which represented 11.5% of the portfolio at the period end, saw gains of over 40% as the banks continued to benefit from higher-for-longer interest rates and a benign loan-loss cycle.
Shares in media group ITV (ITV) rose by around 30%, despite a weak advertising backdrop, as investors reacted positively to the company’s decision to use the £255 million of sale proceeds from selling its half-share in Britbox International to repurchase shares.
On the negative side of the ledger, the trust’s holding in outsourcing group Capita (CPI) continued to perform poorly after the firm delayed expectations of a return to positive free cash flow. The managers believe the shares remain undervalued, which warrants them holding on to the position.
ADDING TO FINANCIALS
The trust initiated new positions in Dutch bank ABN Amro (ABN:AMS) and UK insurer Direct Line Insurance (DLG). The managers see value in ABN’s shares, which trade on 0.6 times tangible book value, less than six times historic earnings and a ‘well-covered’ dividend yield of over 7%.
Despite the problems faced by Direct Line over the last two years, the managers believe the longer-term earnings power of the business remains intact and the share price reflects an overreaction. The managers believe the takeover approach by Belgian insurer Ageas (AGS:EBR), which came to nothing, suggests the shares are undervalued.
Looking ahead, Vance and Purves believe the trust’s portfolio remains undervalued, trading at an aggregate eight times this year’s earnings which implies a ‘dim view’ of the UK’s economic prospects.
The seasoned investors remind shareholders: ‘The companies in which the trust is invested mostly generate the majority of their profits from overseas and are sound, conservatively-run businesses with good balance sheets and capable management teams.’
