Investec has upgraded Temple Bar Investment Trust to ‘buy’ after a year in which it bested its benchmark under new managers Ian Lance and Nick Purves.
In an analyst note published Friday, the research team said the £876.9m trust’s value-driven approach and focus on quality companies leaves it “well-placed in what could be a more challenging economic environment”.
Decades high-inflation and rising interest rates couple with slowing economic and earnings growth are threatening the “Goldilocks environment”, which has buoyed the growth investing style for more than a decade.
Investec’s bullish recommendation comes a day after Temple Bar revealed it had outperformed its benchmark the first year after changing hands from Ninety One to Redwheel, formerly RWC.
In the 12 months to 31 December 2021, net asset value and shareholder total returns were up 24.5% and 20% respectively, which Investec noted was “comfortably ahead” of the FTSE All Share’s 18.3% return.
Most of Temple Bar’s gains came in the first quarter, with Royal Mail (+3.3%), Marks & Spencer (+2.8%), Shell (+2.1%) and NatWest (+1.7%) the biggest positive contributors overall.
Temple Bar yield represents 10% premium to FTSE All Share
Though it is still early days, Investec said managers Lance (pictured) and Purves are off to a “highly impressive start”.
Since the Redwheel pair took over the mandate on 30 October 2020, the trust’s NAV is up 66.8%, while share price total returns have risen 74.3%, nearly double the FTSE All Share’s 38.1%. It has also outpaced the MSCI UK Value index (57%).
During its past financial year, the investment company has also seen a “significant improvement in earnings per share (EPS)” from 12.6p to 35.6p per share.
It is currently yielding 3.4%, which Investec notes represents a 10% premium to the FTSE All Share yield of 3.1%, after issuing four dividend payments totalling 39.5p per share or £26.3m.
However, it has had to dip into revenue reserves to fund the fourth interim dividend, which now stand at £4.9m, down from £11.7m.
Discount provides ‘margins of safety’
Investec added the fact Temple Bar trades at a discount on top of a “broader UK equity valuation discount” provides “margins of safety” against a more volatile backdrop.
Temple Bar’s shares currently trade at a 4.2% discount to NAV, according to data from the Association of Investment Companies.
During its last financial year, its discount ranged between 0.3% and 10.7% but Investec noted the trust’s £10m share buyback program, launched in Q3, has helped with the subsequent re-rating.
