“Disappointing” results from Murray International
Murray International (MYI) has released its annual results for the year ended December 31, 2021. During the period, MYI provided NAV and total share price returns of 14.1% and 7.2% respectively. The difference between the two reflects a widening of the discount over the period. By comparison, MYI says the UK retail price Index rose 7.6% while its benchmark, the ALL World TR Index, returned 20.0%. Revenue per share generated by MYIs wallet increased to 51.7p for the year (2020: 46.6p).
Of the 440 basis points (before fees) of performance below the benchmark index, asset allocation decreased by 270 basis points and selection of titles decreased by 170 basis points. Structural effects, linked to the bond portfolio and gear net of borrowing costs, weighed an additional 30 basis points on relative performance. MYI Chairman David Hardie comments that “In recent years, capital performance has underperformed the benchmark and indeed company performance. peer group; while this is understandable to some extent, given the significant differences between the Company’s portfolio and the two, it was of course a source of disappointment for the Read our guide to Boards and Directors" class="glossary_term">Plank”.
Dividends – A “next generation” Dividend Hero’
So far, MYI has declared three interim dividends of 12.0p per share (2020: three interim dividends of 12.0p) have been declared and the MYI Board is now recommending a final dividend increase of 19 .0p per share (2020: final dividend of 18.5p) . If approved at the AGMtotal ordinary dividends for the year will amount to 55.0p (2020: 54.5p), an increase over the previous year of 0.9% compared to the 7.5% increase in the retail price index in 2021. MYI Chairman says the level of the increase reflects the fact that the trust is already paying a high competitive dividend yield which stood at 4.8% as of financial year" class="glossary_term">end of the year. This is the 17th year of a dividend increase for the Company, which remains an AIC “Next Generation Dividend Hero”.
Tap into revenue reserves
As a long-established investment fund, MYI has been able to build a decent level of income reserves and, as of December 31, 2021, had £62.9 million of distributable reserves across its balance sheet. The final dividend payment, if approved, will use approximately £23.9 million of the revenue reserves, which equates to approximately 36.1% of these reserves. Dividend coverage at the end of the year was 0.94x (2020: 0.86x).
Gearing – 10 Year Senior Unsecured Loan Note Issued
At the end of the year, MYI had total borrowings of £200 million, representing net debt of 12.2% (2020: 13.4%), all of which is denominated in sterling. In May 2021, MYI extended some of its long-term borrowings by issuing a £50m senior unsecured 10-year loan at an annualized interest rate of 2.24%. MYI used the proceeds from the loan note issue to repay its £50 million revolving credit facility, which expired at that time. Under the loan facility, a further £150 million remains available for drawdown by MYI for a period of five years from its first issuance. MYI’s board says its current intention is to only withdraw this amount to repay existing debt and that MYI is now at an advanced stage in the process of agreeing the £60m terms of service sterling from this storage facility to replace the £60 million term loan when it expires. in May 2022. The [email protected] Board of Directors advises that they plan to provide an update on this shortly.
Management fees reduction
On December 30, 2021, MYI announced a reduction in the level of its management fees. Since January 1, 2022, the management fee is charged at the rate of 0.5% per annum of Net assets up to £500 million and 0.4% per annum of net assets above £500 million. Until 31 December 2021, the management fee was charged at the rate of 0.5% of net assets up to £1,200m and 0.425% of net assets above £1,200m. the running costs (OCR) for 2021 has been reduced to 0.59% (2020: 0.68%). The reduction in the level of management fees will result, all other things being equal, in a further reduction in OCR in the years to come.
Investment ManagerPortfolio Activity Comments
“Portfolio activity has returned to more ‘normal’ levels of around 12% gross asset turnover in 2021, having been higher in 2020 when the market volatility presented many opportunities to replace expensive fixed income securities with undervalued equities. These price gaps have proven to be less frequent as the pandemic-induced panic has subsided, but some notable strategic changes have been implemented. Exposure to emerging markets Obligations continued to be reduced such that at the end of the year, the overall equity exposure had increased to 102.5% of net assets, compared to 98.8% at the end of 2020.
“A total of five new companies have been introduced into the portfolio and seven companies have been fully divested. Exposure to North American equities increased slightly following the selective purchase of two new positions, Canadian pipeline operator Enbridge and US pharmaceutical giant Bristol Myers, offset by the outright sale of the semiconductor maker Intel. European exposure also increased only slightly; with further purchases of Swiss pharmaceutical company Sanofi and Scandinavian regional bank Nordea being offset by outright sales of Bayer and Novartis plus a sharp reduction in exposure to Roche. Such activity in these geographies partly reflects a shift in healthcare preferences, accentuating both potentially higher capital growth and revenue opportunities. Overall exposure to Asia decreased slightly on a net basis, with outright sales of Auckland Airport, Swire Pacific and Japan Tobacco, as well as ongoing profit taking in Taiwan Semiconductor for respect a maximum of 5% of the total portfolio in a position, in accordance with the investment guidelines. . Only one new position was created in Asia with the creation of China Vanke, a high quality property development and management company. During the period, there were only two significant transactions in UK equities, adding to the existing stake in disadvantaged consumer goods producer Unilever and the full divestment of Standard Chartered Bank. While the outlook for Latin America remains attractive, the region saw the largest profit taking within the overall portfolio, the reduction of Chilean lithium producer Sociedad Quimica (Soquimich) and Mexican airport operator Grupo Asur only reflecting strong performance and periodic valuation extensions.
“From an overall investment perspective, the focus continues to be on diversified exposures to assets in companies seen as beneficiaries of the changing environment, maintaining a ‘dumbbell’ strategy of holding at both growth and cyclical stocks Structurally higher inflation supports companies with real assets and exposure to the global economic cycle, while selective growth companies should benefit from accelerating industrial automation trends , semiconductor miniaturization and digital communications. In our view, the greatest potential for positive surprises on the upside of cyclical momentum can still be identified in Asia and other countries that have lagged behind to the recovery in the developed world, given the currently weaker earnings and dividend expectations prevailing. In these sectors and companies, the portfolio remains invested significantly. »
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