Edinburgh Investment Trust (EDIN)
19/11/2024
Results analysis from Kepler Trust
Intelligence
Edinburgh Investment Trust
(EDIN) has released its half-year results for the six months to
September 2024, reporting NAV total returns of 8.3% and a share
price total return of 10.8%, outperforming the FTSE All-Share Index
return of 6.1%. The board declared a first interim dividend of
6.90p per share, up 3.0% from the previous year's 6.70p. The
portfolio's underlying revenue also increased, climbing 13.3% from
11.54p to 13.08p. Net income at the end of the period was £19.6m,
an improvement from the same period last year. However, the board
expects dividends paid to shareholders to modestly exceed this
level of income, resulting in a slight reduction in reserves. As of
the period end, revenue reserves stood at c. £45.3m, accounting for
approximately 95% of last year's dividend.
Kepler
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Imran Sattar, the lead
manager of Edinburgh Investment Trust (EDIN), truly believes in the
total return philosophy, focussing unashamedly on building a
well-diversified portfolio that balances growth, value, and
recovery stocks that can deliver a combination of capital and
income growth over time. This strategy has helped deliver strong
relative performance over the latest reporting period, the first of
interim results of his tenure, with EDIN's NAV and share price
rising 8.3% and 10.8%, respectively, outperforming the FTSE
All-Share Index's 6.1% return. We think the outperformance is
noteworthy given the current landscape marked by challenges such as
geopolitical tensions, polarised political climates and
uncertainties around the speed of interest rate cuts, and what
stands out is the breadth of contributors.
Rather than being driven by a
single sector or heavily weighted stock, returns came from across
the portfolio. Key performers included Tesco and NatWest, which
benefitted from improved consumer and interest rate conditions,
alongside cash-generative businesses such as Dunelm and AutoTrader,
which delivered strong results and have effectively allocated
capital. Imran has used this success to trim several positions in
high-performing stocks like Marks & Spencer, Centrica and BAE
Systems, reallocating capital to take advantage of undervalued
opportunities elsewhere. Despite the UK market's reputation for
housing out-of-favour or downtrodden sectors, Imran views the
current undervaluation of many stocks as an opportunity rather than
a limitation, recognising the potential for long-term recovery and
a chance to unlock long-term value in this overlooked
market.
UK equities have faced years
of investor apathy, with persistent outflows driving valuations to
historic lows. However, we think a few key catalysts are emerging.
UK companies are leading the way in share buybacks, which, when
coupled with strong dividends, are boosting shareholder returns and
signalling growing confidence in the UK market's potential. Imran
also believes that Chancellor Reeves' inaugural budget, now in the
past, means UK consumers can plan their finances with greater
certainty, leading to growing consumer confidence. When coupled
with easing inflation and a downward trajectory for interest rates,
this offers the potential to foster stronger corporate
investment.
Against this backdrop, we
think EDIN stands out as a compelling option for investors. Imran's
focus on quality companies that are well-positioned to deliver
strong total returns throughout market cycles, may mean the
portfolio can capitalise on a strengthening economy whilst offering
resilience during periods of uncertainty. Its well-diversified
holdings, many with strong earnings growth potential, also support
a robust dividend growth profile, aligning with EDIN's appeal to
investors seeking a balance of capital growth, current income, and
income growth. Overall, EDIN presents itself as a solid core
holding for investors, blending economic recovery potential with
defensive qualities in a volatile market. If the strong performance
and dividend growth persist, then we see potential for the discount
to narrow, providing an additional boost to shareholder
returns.
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