HALF-YEARLY FINANCIAL REPORT 2024 - Flipbook - Page 8
6 / STRATEGIC REPORT / THE EDINBURGH INVESTMENT TRUST PLC
PORTFOLIO MANAGER’S REPORT
FOR THE PERIOD ENDED 30 SEPTEMBER 2024
MEETING THE COMPANY’S
OBJECTIVES
IMRAN SATTAR
PORTFOLIO MANAGER
As Emily and I complete our first full year as
portfolio managers of your Company, we
would like to write a brief reminder of the
process that remains in place to meet the
Company’s investment objectives. In short,
we take a total return approach. To do this,
we identify and invest in businesses that we
expect to deliver a combination of capital and
income growth. We apply a flexible investment
process, with an open-minded approach to
the ‘type’ of investments held – for example,
‘growth’, ‘value’ and ‘recovery’ stocks. Within
the Company’s investment portfolio, we aim
to deliver a well-diversified portfolio, both
economically and thematically.
PERFORMANCE REVIEW
The UK market performed solidly over the
period, with UK consumer exposed names
generally performing strongly. Behind these
moves, UK consumers are in much better shape
than a few years ago and with the Budget out
of the way can plan their finances accordingly.
The trajectory of interest rates also helps the
UK economy: there was a cut of a quarter
point back in July, to which we can now add
another cut earlier this month. Perhaps even
more importantly, the inflation genie appears
back in the bottle and businesses can plan
for investment and spending with greater
certainty. This is critical.
The total return for the portfolio over the
six-month reporting period was pleasingly
positive, with the NAV rising by 8.3% and
the share price up 10.8% - both ahead of our
benchmark FTSE All-Share Index.
After strong performances from stalwart
holdings NatWest and Tesco – both benefitting
from the improved consumer and interest rate
positions noted above – the most significant
stock contributor to relative performance was
the position in Baltic Classifieds, the leading
online classifieds platform in eastern Europe.
It delivered a strong set of results for the past
year and reported a strong growth outlook for
the next.
The most significant stock detractor from
relative performance was in Rentokil, the pest
control company, followed by Spirax, a steam
and fluids engineering company. Both are
high quality businesses with strong long-term
growth potential and both have suffered, we
believe, temporary setbacks in growth and
execution.
Rentokil is in the midst of integrating its
largest acquisition to date – the leading US
termite company Terminix. This is a complex
task. With Rentokil’s focus on the integration,
this has enabled competitor Rollins to
gain market share. The highly experienced
Rentokil management team are implementing
an improvement strategy, and we viewed
the recent share price weakness as a good
opportunity to increase the position in a
company with attractive long-term growth
potential, after being hampered by some
short-term execution issues.
PORTFOLIO ACTIVITY
The biggest transactions over the period
were additions to some of the most attractive
long-term growth opportunities in the
portfolio, including London Stock Exchange
Group, Compass (outsourced catering) and
Verisk (data and analytics supplier to the
insurance sector). We also added to Rentokil
as noted above.
Elsewhere, notable transactions included
new positions in Sage – a global leader in
accounting software – and Grainger, a UK
leader in the growing build to rent property
sector. Sage has experienced a recent dip in
organic revenue growth. This ‘miss’ in growth
has resulted in a much more reasonable
valuation multiple at which we have initiated
a position. For Grainger, with consistently
strong demand for rental properties, alongside
new energy efficiency regulations coming into
force, we think private rental landlords will
struggle and operators like Grainger stand
to benefit.
