Herald trust swings to revenue earnings as liquidity issues continue

Josh White Sharecast | 17 Feb, 2017 16:12 | | |

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Herald Investment Trust posted its results for the 2016 calendar year on Friday, with total assets - before the deduction of bank loans and derivatives - of £816.4m, rising from £709.1m at the end of 2015.

The London-listed firm posted a net asset value per ordinary share of 1083.2p, up from 881.8p, while over the year its share price improved to 882.5p from 745.3p.

Revenue earnings per share were 0.58p for the period, off revenue profits of £0.4m for the year, swinging from revenue losses of 0.05p per share in 2015.

The trust’s discount to net asset value was 18.5%, compared to 15.5% in 2015.

“The share price discount has remained at a frustratingly wide level, but broadly in line with UK smaller companies investment trusts,” commented Herald chairman Julian Cazalet.

“Helped by the strong cash flows from takeovers in 2015 and 2016, the board and the manager have been purposeful in share buybacks, representing 4% of the outstanding capital, but overall volume has been limited.”

Cazalet said the illiquidity in the trust's shares mirrored the illiquidity in the underlying portfolio.

“In part this reflects the fact that commission levels have been driven down to such a low level that it does not pay brokers to broke stocks actively.

“The burden of marketing is now moving even more to companies including the trust itself.

Cazalet explained that marketplaces adapt, but at the moment in the UK the regulatory shock of the impending introduction of MiFID II had led to “dire illiquidity”, and commensurately wide discounts for smaller company trusts in general.

“It will be interesting to see how markets evolve over the next two years.

“In 2017, we intend to be more active in marketing and broker engagement.”

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