Empire strikes back with successful value plays - annual report summary

February 5, 2018

British Empire Trust (BTEM) targets capital growth through a focused portfolio of mainly listed investments, particularly in companies whose shares stand at a discount to estimated net asset value (NAV). Its annual report for the year to 30 September 2017 shows shareholders’ assets of £903 million.

Joe Bauernfreund of Asset Value Investors was promoted to chief investment officer in October 2015, having assisted the previous manager for eight years. He has retained the trust’s value-oriented investment style, reinforced its commitment to constructive engagement with its investee companies, and concentrated the portfolio down to 30 core holdings. This excludes a Japanese special situations basket with 15 holdings, which was assembled in June 2017.

Bauernfreund expects long-term returns to exceed the cost of debt, so gearing was increased from 7.9 per cent to 9.5 per cent following the financial year end.

The trust is invested predominantly in family-controlled holding companies and other closed-ended funds with the following features. Their shares trade at discounts to NAV, they have good-quality underlying assets and strong balance sheets, and there is the likelihood of an event that will narrow the discount. The weighted average discount on the trust’s holdings fell from 32 per cent to 26 per cent over the financial year.

The manager can invest worldwide, and the year-end portfolio comprised 32 per cent in continental Europe, 20 per cent North America, 18 per cent Japan, 17 per cent Asia, 1 per cent UK and 12 per cent elsewhere. BTEM’s NAV and share price total returns last year were 18.8 per cent, and 18.7 per cent respectively. Both exceeded the 16.3 per cent gain in BTEM’s lead benchmark, the MSCI AC World ex US index.

The ordinary dividend was raised by 0.3p to 12p, exceeding revenue earnings per share of 10.44p. Ongoing charges fell to 0.87 per cent. Share buybacks lifted the NAV per share by 0.8 per cent.


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