Thursday, 14 November 2013

Edinburgh IT - Interim Results

I hold this investment trust in both my ISA and SIPP Drawdown portfolios and recently topped up my holding following a dip in the share price after news that the manager Neil Woodford was to leave Invesco (here’s the link). Over recent weeks the price has been slowly recovering and today is 583p.

They have today issued half-year results for the period to 30th September 2013. Share price total return has advanced by 7.2% compared to the FTSE All Share benchmark index gain of 3.8%.

The Board has declared an unchanged first interim dividend of 5.0p which will be paid on 29 November 2013 to shareholders on the register on 22 November 2013. The current yield is 3.9%. Revenue return is up 7.1% over the past 6m at 12.1p per share - not quite covering the 12.8p paid in dividends.
2013 year to date performance -v- benchmark index
(click to enlarge)

Performance Fee

A performance fee is payable in respect of each three year rolling period in which the Company outperforms its benchmark index plus a hurdle of 1.25%p.a. This fee is capped at 1% of the period end net assets, before deduction of the fee.

As the Company has performed strongly in the two and a half years to 30 September 2013 in comparison to the Index, the trust are liable for payment of a chunky capped fee of £11.7m. As I have said in relation to other trusts, I am no fan of these fees - I think it would be more acceptable if the fees could be clawed back during periods of any under performance. Having said that, I knew the charging structure before purchasing so I am not complaining.


The board have had discussions with Invesco but are still to make a decision regarding the future management of the trust. Should they decide to stick with Neil Woodford they will need to give 3 months notice to terminate the current arrangements. The other option would be to stay with Invesco and hand over the lead management to the likes of Mark Barnett who will be taking over as manager of Woodfords funds when he departs next April.

Turning to the managers report, Woodford is clearly no supporter of Labours proposed price freeze for the big 6 energy companies
“The holdings in Centrica and SSE fell in value towards the end of the period, on the back of the 20 month utility bill price freeze proposed by the Labour Party should they win the next general election. This policy would clearly be popular with the electorate but the economics of it are in our view absurd. We believe it is irrational for any privately-owned company to sell its products or services at a loss and we would encourage any company that was forced to do so to simply stop supplying. Furthermore, energy bills have been increasing in recent years due to higher commodity prices and as a result of policies designed to increase the UK's sourcing of energy from renewables. Prices have not increased through company profiteering - there have been 20 separate inquiries into the energy market since 2001, none of which have found evidence”. The trust holds SSE and British Gas owner Centrica.

Concluding his outlook, Woodford cautioned that "returns over the next three years are likely to be somewhat lower than over the last three years, purely as a consequence of the higher valuations that we now see in our market."

I would like to see the uncertainty over the management of the trust resolved as soon as possible. The outcome I would prefer would be to stay with Neil Woodford at his new fund management set-up combined with the dropping of any performance fees. We shall see...

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