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07 UK funds see October’s record outflow turn into net inflows in
Vivendi spin-off Canal+ marks biggest UK IPO of 2024
Nasdaq hits new record as tech drives returns and investors lap up Bitcoin exposure
Profiling the South Korean stars beyond Samsung / Emerging markets: tariffs, inflation and South Korean politics
Three important things in this week’s magazine
Discover our tips for the top for 2025
From beverages to managing bankruptcy and from defence contractors to package holidays, read all about our top 10 ideas from page 16 onwards.
Big interview - JD Wetherspoon
Read our exclusive chat with pubs group’s founder Tim Martin
Which stock most surprised the experts this year?
Top fund managers including Terry Smith, Job Curtis and Ben Rogoff run us through the (mostly) highs of the year in terms of their performance.
Visit our website for more articles
Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis.
Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:
Signs of life from the UK market as we end 2024
Fund flows and IPOs provide some hope for the year ahead
The last 10 years have been pretty rough for UK stocks but there could be some signs of life emerging as we head towards 2025.
Brexit, Covid and other political and economic shocks as well as a tilt towards ‘old economy’ stocks and a minimal footprint in technology have combined to undermine the relevance and appeal of the UK market.
The resulting underperformance has led to people consistently pointing out the value on offer from London-listed shares relative to the rest of the world.
However, in the same way an optimistic football fan argues next year will be ‘their year’, a recovery never really seems to transpire: even in 2024, when the FTSE All-Share has made progress, albeit modest at 5.9%, it has fallen well short of the FTSE All-World’s 18.6%.
But, as Ian Conway reports in this week’s
magazine, November saw the first net inflow into UK-focused funds since April 2021.
The market badly needs institutions to start buying again to revive its fortunes so if this becomes a trend rather than a one-off it could be a genuine catalyst for a UK rebound.
Another key driver would be a stream of new market listings to refresh a list of constituents which has been thinned by delistings and inward M&A. Sabuhi Gard looks at recent addition Canal+ (CAN), the largest new addition for some time, and there is another big name which looks set to join in 2025 in the form of Chinese fast fashion play Shein. While there are reservations about the IPO, it is nonetheless another decent-sized name to add to the UK market ranks.
We are still big believers that there are good opportunities to be found among London-listed shares and in time-honoured fashion you can read our best ideas for the year ahead in our main feature this week. Notably just one hails from beyond these shores.
There’s plenty more to keep you satisfied over the festive period in this issue, including the thoughts of Terry Smith and other major fund managers on the stocks which surprised them this year and an exclusive interview by Martin Gamble with the founder of JD Wetherspoon (JDW), Tim Martin. We also look at how names from some of the most popular investment trust sectors performed.
Finally, a big thank you to all of our readers for your contributions and continued support in 2024. We hope you all have a Merry Christmas and Happy New Year and we’ll be back on 9 January 2025.
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UK funds see October’s record outflow turn into net inflows in November
Could the tide finally be turning after more than three years of liquidity drain?
In terms of an early Christmas present, the UK market received its very own ‘secret Santa’ gift last month with the first net inflow into funds invested in UK stocks since April 2021.
According to data from consultants Calastone, fund flows turned positive in November after record outflows in October and a negative run lasting 41 consecutive months.
Admittedly, the £317 million of net buying was a tiny fraction of the £25.33 billion of cumulative selling since April 2021 but it still represents a milestone and may mean investors are finally willing to bet on UK stocks.
There was a stampede out of UK equities in October over fears the chancellor would hike capital gains tax and change the rules on inheritance tax for AIM stocks.
However, according to Calastone’s head of global markets Edward Glyn almost half of October’s outflows came back into the UK market in the first week of November.
Glyn sought to play down suggestions November’s inflows marked a sea-change in attitudes towards the London market.
‘Time will tell, but the inflow to UK-focused funds is likely to be a hiatus rather than marking a break in the trend. There is no major catalyst on the immediate horizon to prompt a wholesale
UK retailers - Christmas updates
Net flows – UK-focused equity funds (millions)
resurgence of interest in the much unloved UK stock market.’
As Shares and many other observers have noted, the UK stock market looks cheap on just about every measure relative not only to other markets but also against its own historic track record.
Yet value alone isn’t enough to make share prices go up – there needs to be a catalyst.
It is worth flagging UK equities weren’t unique in seeing inflows last month – equity funds across the board took in just over £3 billion, a new monthly record.
Most of that cash went into global (£1.2 billion), North American (£848 million) and emerging market funds (£426 million) according to Calastone.
One area of the UK market which is likely to be in focus in the coming weeks is retail and the table shows when the big names from the sector are set to provide their Christmas updates. [IC]
Vivendi spin-off Canal+ marks biggest UK IPO of 2024
French TV and film business behind Paddington listed on main market
After what has been a poor year for UK listings, the London Stock Exchange could afford to celebrate this week with the float of French media group Canal+ (CAN) which debuted with a market value of around £2.5 billion.
Although the shares were listed in London, and at that value would normally be eligible for inclusion in the FTSE 250 mid-cap index, they are excluded as the company is still French-domiciled.
Spun out of the Paris-based conglomerate Vivendi (VIV:EPA) and best known for the hugely successful Paddington films, Canal+ is one of only a few companies to list on the London market this year.
Others of note include computing firm Raspberry Pi (RPI) and sports health brand Applied Nutrition (APN)
‘Choosing London for Canal+ is important as it is the biggest company to join the UK stock market since changes to the listing rules in the summer and under the newly installed Labour government,’ said AJ Bell investment director Russ Mould.
‘If it does well, it could act as a shop window for other big names to float in London and help replenish the pot that has been shrunk by takeovers and de-listings.’
Canal+ was launched as a subscription TV channel in France in the 1980s and has since grown into a vast media group across more than 50 countries with more than 25 million subscribers and 400 million viewers including its streaming services.
giving the company a market value of £2.15 billion.
‘It is common for demerged stocks to experience share price wobbles in the first few days as a standalone listed company, as investors who inherited the stock decide if they want to stay or go,’ added Mould.
Vivendi acquired the company in 2000, and the decision to IPO in London is part of a broader break-up of the group with the simultaneous listing of the advertising agency Havas in Amsterdam and the publisher Louis Hachette in Paris.
Canal+ shared closed down 18% on their first day of trading at 225p and by lunchtime on their second day of trading had settled 5% lower at 215p
‘It can take a few weeks or months before the shareholder register shifts to individuals who want to hang around longer term.’
A portion of the shares are held by French financial institutions who are not able to invest in UK-listed companies.
In November this year, analysts at US investment bank JPMorgan valued Canal+ at around £5 billion or more than double its current market valuation. [SG]
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Ian Conway) own shares in AJ Bell.
Nasdaq hits new record as tech drives returns and investors lap up Bitcoin exposure
Broadcom becomes eighth member of $1 trillion club after 38% post results rally
The Nasdaq Composite index closed at a record high in mid-December as tech continued to drive returns ahead of the last Federal Reserve policy meeting of the year.
Having recently smashed through the 20,000 mark, the index closed at 20,173.89 on 16 December, boosted by sharp jumps for Tesla (TSLA:NASDAQ) and chipmaker Broadcom (AVGO:NASDAQ)
The Nasdaq 100 also closed at an all-time high 22,096.66.
Broadcom jumped more than 11%, lifting the broader semiconductor sector as Wall Street continues to make bullish calls on the stock following the chipmaker’s stronger than expected quarterly results.
Those figures, released after the close on 12 December, kicked started a 38% share price rally that has catapulted the firm’s market cap beyond the $1 trillion mark, making it the eighth company in the trillion dollar club and only the ninth ever, following a brief stint above that valuation for Warren Buffett’s Berkshire Hathaway (BRK.B:NYSE) in late November.
Tesla closed at a fresh record high as the EV maker continued its post-election rally that has
pushed its market cap to around $1.45 trillion. Analysts at Wedbush and Mizuho lifted price targets for the stock to $515 from $400 and $230 respectively, with Wedbush laying out a case for $650 by the end of next year. Founder Elon Musk’s central role in the Trump administration seen as a boon for the company.
Bitcoin proxy MicroStrategy (MSTR:NASDAQ) stock gave up gains to close flat at $408.50 even as it was announced as a new addition to the Nasdaq 100 index following its latest reshuffle, where it will join AI analytics firm Palantir (PLTR:NASDAQ) and Axon Enterprise (AXON:NASDAQ), which makes security services products including tasers. The trio will replace biotechnology firms Illumina (ILMN:NASDAQ) and Moderna (MRNA:NASDAQ), and Super Micro Computer (SMCI:NASDAQ). MicroStrategy has become a popular way for UK investors to play the Bitcoin rally that has taken hold since Donald’s Trump presidential victory. Since then, the cryptocurrency has jumped 57% to more than $107,000 as investors bet that Trump will usher in friendlier US rules for crypto. The president-elect has reiterated plans to create a US Bitcoin strategic reserve similar to the country’s strategic oil reserve, stoking the enthusiasm of crypto bulls. [SF]
Raspberry Pi shares boot up after fresh tie-up and new product launch
Stock has gained 40% in the last month to trade at all-time highs
After the initial buzz around its June 2024 IPO, Raspberry Pi (RPI) seemed to be getting a few raspberries from the market as the shares drifted from their early highs.
However, over the last month the stock has advanced more than 40% to trade at record levels.
Founded by chief executive Eben Upton in 2012 with the premise of making computing ‘more accessible to young people’, Raspberry Pi designs and develops low-cost SBCs (single
board computers) and computer models for industrial customers, enthusiasts and educators around the world.
On 12 November the company agreed a partnership with Italian internet-of-things specialist SECO (IOT:BIT) just ahead of the release of the latest iteration of its key product Compute Module (CM). CM5, as it is called, is the 15th product launch this year and Peel Hunt analyst Damindu Jayaweera notes the company has hit every
SThree shares slump 28% after shock cut to earnings guidance
Specialty recruitment firm SThree (STEM), which focuses on filling roles in science, technology, engineering and mathematics settings, posted a downbeat trading statement
for the 12 months to November and drastically cut its forecast for earnings for the current year.
The shares, which were previously down just 11% for the year, slumped as much as 39% intraday before recovering and now stand 34% below their 1 January level.
The firm, which is heavily reliant on placing people on contracts, reported a 9% fall in net fee income for the last year due to ‘ongoing challenging market conditions’ and reduced its pre-tax profit guidance for this year to around £25 million against a consensus of around £65 million.
Analyst James Bayliss at Berenberg estimated that just a 10% reduction in net fees could reduce
single milestone it promised to the market before floating. Jayaweera also observes the company has taken a collaborative approach with industrial customers in developing CM5.
The tie-up with SECO will involve bringing to market a new humanmachine interface solution based on the new model. [TS]
pre-tax earnings to the level put forward by the company, showing the high level of operational gearing among recruitment firms.
As a specialist, SThree had formerly been viewed as able to weather the poor trading conditions which have impacted larger rivals such as Hays (HAS) and PageGroup (PAGE), whose shares have fallen 27% and 25% respectively year-todate. [IC]
Federal Reserve seen cutting rates but no change at Bank of England
UK economic sentiment has weakened postBudget but rate cuts are off the table
Central banks have been the focus of the market’s attention for the last few weeks, and by the time Shares is published the Federal Reserve will already have met to decide on interest rate cuts.
The consensus is for another 0.25% cut this week to 4.5%, but bets on the extent to which US rates will fall have been pared back sharply in recent months and expectations for Fed policy in 2025 are much less certain.
This week includes a raft of US economic data, including November industrial production and retail sales as well as December’s manufacturing and services PMI (purchasing managers’ index) readings, which the Fed will no doubt consider as it prepares its deliberations.
diary 20 December to 31
The Bank of England meets on Thursday, and recent economic data has been less than robust with GDP (gross domestic product) shrinking by 0.1% in October after a similar contraction in September.
That doesn’t mean a cut is on the cards this week, however, as inflation is forecast to rise again next year due to the increase in business costs unveiled in the Budget.
One area of the economy which has been performing well is the housing market, but a rise in mortgage rates following the Budget took the wind out of its sails according to the Nationwide index which showed new seller asking prices dropped by 1.7% between November and December.
While analysts remain positive on house prices for next year, we would note a large number of buyers are coming to the end of their fixed-rate deals and will have to refinance at rates starting with a four rather than a two or a three, while the end of the stamp duty holiday next April could also stymie prices. [IC]
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INTERVIEW
Discover how Tim Martin turned Wetherspoon into a high street champion
Read our exclusive interview with pub group’s founder and executive chair
Pubs group JD Wetherspoon’s (JDW) value credentials continue to shine through.
According to fund manager Anna Farmbrough at Ninety One the company has doubled its average price advantage over competitors to 40% since the pandemic.
Farmbrough notes that a few years ago there were three pubs in her local area while today there is just a single Wetherspoons, demonstrating its ability to benefit as consumers trade down.
JD Wetherspoon was founded by Tim Martin in the 1970s, floated on the stock market in the early 1990s and today has an estate of just over 800 pubs.
An investor who bought shares at the IPO (initial public offering) in 1992 at a split adjusted 30p per share and held on through thick and thin would today be sitting on a 20-fold gain, comfortably outperforming the FTSE 250 index.
Shares sat down with executive chair Martin for a chat to find out how he built one of the UK’s most successful hospitality firms. As we reveal, in many respects Wetherspoon operates a differentiated business model.
Martin is just back from holiday and in good spirits despite traipsing all the way on foot from Victoria to the Metropolitan pub next to Baker Street tube station.
THE START OF THE JOURNEY
the Wetherspoon story started with a single pub in Muswell Hill in north London in 1970 which Martin purchased from an entrepreneur who had converted it from a bookies.
It may seem an unusual move for someone fresh out university with a law degree who also qualified as a barrister, but, as Martin explains, at the time there was a perception that the UK needed more entrepreneurs, so he took on the challenge.
Martin admits he knew nothing about running a pub at the time and because of the ensuing chaos he decided to rename the pub to Wetherspoon from Martin’s Free House.
The name comes from a teacher at a school he attended in New Zealand who similarly had trouble keeping order in the classroom. Although Martin says many years later when the story found its way back to New Zealand, checks made showed nobody by that name existed.
Martin is too honest to claim that he foresaw the ensuing success but, at the same time, the entrepreneur believed it was possible to build a business by offering good quality beer and food at a reasonable price.
Sam Walton, founder Walmart (WMT), the largest grocery business in the world became an inspiration for Martin after he read Walton’s memoir Made in America.
Every long journey starts with a single step and
A guiding business principle Martin takes from Walton is giving frontline staff a big say in how the business is run, rather than leaving it entirely to senior management.
STAFF HAVE THEIR SAY
Wetherspoon is unique in the UK market in giving staff board membership with three seats currently occupied by area managers. The company gives free shares to employees. Since 2006 the company has paid out £520 million to employees in free shares and bonuses.
Martin is critical of the UK corporate governance rule which requires non-execs to retire after nine years, pointing out in practice this means that ‘no board director at a bank was there in the great financial crisis’, for example. He has coined the phrase GMII which he believes better describes the current system. It stands for ‘Guaranteed mediocrity (by) institutionalised inexperience.’
Forty-five years after opening his first pub Martin still visits 10 pubs a week on average, so that he
WHAT VALUATION DO THE SHARES TRADE ON?
At 608p and after a sell-off in the wake of Budget changes, which are expected to lead to a meaningful increase in costs, JD Wetherspoon trades on a PE (price to earnings) ratio of 12.2 times consensus forecasts for the 12 months to 31 July 2025. According to LSEG data, that compares with an average 12-month forward PE of 17.6 times for Wetherspoon’s entire life as a public company.
keeps in touch with the issues affecting front line staff and the business. Amazingly, given the size of the estate Martin manages to remember the names of individual members of staff.
Wetherspoon staff are among the most loyal in hospitality with over 11,000 staff having worked for five years or more and almost 4,000 having worked for more than a decade and 632 people who have been at the firm for 20 years.
The second Walton principle Martin has embraced is a relentless focus on customer service and providing it at the best price. The Wetherspoon 10-minute rule is a good example of this type of thinking, with customers often getting served within this timeframe.
As touched upon earlier by Anna Farmbrough, Wetherspoon is always looking to widen its price advantage against competitors, providing a sustainable advantage.
A perhaps lesser-known differentiator of Wetherspoon is that it was won more than 200 design awards. The company is proud of transforming old and often iconic buildings into vibrant pubs.
Martin says he has a sense that the new spaces create a relaxed atmosphere where customers feel at home. Where a building has a history which resonates with the local community, the renovation and new design also serves as a connection to the past which brings the community together.
INFLUENCED BY BUFFETT
When doing some research ahead of the interview
JD Wetherspoon
JD Wetherpoon financial forecasts
Sales vs number of pubs
Shares was struck by the similar format of a financial table which appears at the front of every Wetherspoon annual report and one which appears in every Berkshire Hathaway (BRKB:NYSE) annual report.
Martin confirmed that the similarity was not a coincidence, and he is an admirer of Warren Buffett and his late business partner Charlie Munger.
Martin is fond of quoting other entrepreneurs he respects and offered up one from Bill Marriott: ‘The four most important words in the language are:
“What do you think?”’ Martin interprets this in relation to hospitality industry. ‘In general, boards don’t know much. People on the front line, pub managers and staff, know much more,’ he says.
When asked for the most important financial metrics for investors to monitor Martin pointed to sales growth and generating free cash flow. In November the company revealed sales growth had outpaced the industry average for the 25th consecutive month.
Figures correct as of 4 October 2024
Source: JD Wetherspoon, Shares
DEALING WITH HEADWINDS
Looking out to 2025, hospitality faces yet more headwinds after the Labour Government’s Budget which increased employer’s national insurance contributions with another increase in the national living wage in the offing from April 2025. These measures could cost the quoted pub groups a combined £130 million in extra wage costs and push up the cost of a pint. Martin said he believes all hospitality businesses plan to increase prices, adding, ‘as always, Wetherspoon will make every attempt to stay as competitive as possible’. When asked about the possible changes the pandemic may have on the future of hospitality Martin says he is a strong believer in people being ‘creatures of habit’.
Since the pandemic sales per pub have increased by 21% which has contributed to sales topping £2 billion for the first time, despite the number of pubs shrinking from 950 in 2015 to around 800 today.
The company plans to increase the size of the estate back towards 1,000 and Martin says he believes there is scope to expand by a further 200 pubs across the UK.
Despite a strong recovery in sales, most pub groups have yet to regain the level of profitability they enjoyed before the pandemic. This is more than reflected in share prices which sit well below 2019 levels.
Pubs may have evolved over the years, but they have been a staple of British culture for nearly 400 years and look set to remain as relevant today as ever. With its distinctive and differentiated offering Wetherspoon looks well placed to prosper for years to come.
Tim Martin plans to be part of that future and when asked somewhat impertinently if he was thinking about retiring anytime soon (he turns 70 in 2025), the question brought out his inner Buffett: ‘I plan to retire five years after I die,’ says Martin, repeating the Sage of Omaha’s famous quote.
Martin Gamble Education Editor
OUR PICKS IN A NUTSHELL
ALPHABET
Steven says: A fantastic search and cloud business with a free bet on more eclectic ventures.
COHORT
Martin says: A decentralised operating structure is attractive to the company’s client base.
FEVERTREE
Martin says: The brand has a significant amount of white space to grow into.
GLOBALDATA
Sabuhi says: Data analytics firm is driving towards £500 million revenue target by the end of 2026.
Tom says: We like the company’s sensible mediumterm targets and improved cash generation.
AUCTION TECHNOLOGY GROUP
Ian says: The online marketplace and technology solutions firm has a bright future.
DIAGEO
Tom says: If the company can’t get its act together in the coming 12 months then activist pressure or a takeover could be the result.
FRP ADVISORY
Ian says: This undiscovered gem could be one of 2025’s standout performers.
JET2
Sabuhi says: Customer first approach is a winner and will help grow market share.
TREATT
James says: The shares are trading at a discount to their historic average valuation.
Alphabet (GOOG:NASDAQ)
ALPHABET
Prices taken 16 December 2024
Table: Shares magazine•Source: Stockopedia, Refinitiv
Few doubt that 2025 will be another huge year for AI, but when looking for interesting investment opportunities, investors can sometimes allow details to obscure the bigger picture. In our view, Alphabet (GOOG:NASDAQ) remains an outstanding growth business with strong AI levers to pull, currently trading a large discount to other ‘Magnificent Seven’ stocks.
This valuation gap will, we believe, narrow over the coming 12 months as sentiment improves and growth outperforms, triggering significant share price upside. A PE (price to earnings) re-rating to just 25 would put $255 on the table in 2025, and that’s without any increase to current forecasts, implying material upside.
There are wild cards going into 2025. The impact of generative AI on the internet search advertising business remains a key issue for investors, while the outcome of antitrust lawsuits filed by the Department of Justice remains a ‘known unknown’, to paraphrase former US Secretary of Defence, Donald Rumsfeld.
ANTITRUST THREAT
The lawsuit, originally filed in 2023, comes after a combined investigation by the US government and more than a dozen states. The case focuses on a $31 billion component of Alphabet’s Google ad business responsible for placing banner ads on millions of websites, called Google Admob.
It’s a big deal. Search, which includes Google Admob, is Alphabet’s crown jewel, generating $237.9 billion of revenue in 2023, about 77% of its $307.4 billion total. For context, Google Play and Google Cloud produced $34.7 billion and $33.1 billion respectively last year.
Even so, the risk of a full break-up of Alphabet already seems to have been avoided following discussions with the DoJ in the hope that remedies can be found. The ruling by judge Amit Mehta was characterised as ‘measured’ by the antitrust lawyer that Piper Sandler analysts have spoken to, with findings of monopoly power in Search and General Text Ads but without evidence of consumer harm.
‘A break-up or forced divestiture of Android/ Chrome is unlikely,’ according to Piper Sandler’s legal expert.
Fighting off legal challenges goes hand-in-hand with defending its patch in Search, but progress is being made. Alphabet’s Google began deploying ‘AI Overviews’ in the US in mid-May 2024, with conversational summaries topping links for many search queries. In late October, Google launched AI Overviews in 100 countries.
The AI Overviews system uses Google’s in-house Gemini AI model, and early indicators suggest advertisers utilising Gemini AI tools see increased traffic and click-through rates, especially among
younger demographics, Google says.
Based on a survey, Evercore ISI analyst Mark Mahaney estimates no notable slide in Google’s share of internet search, indicating that: ‘Google’s generative AI innovations are creating an overall better search engine for users, which should translate into consistently robust search revenue for Google,’ he said.
AI, CLOUD AND OTHER BETS
Cloud infrastructure is another AI lever Alphabet is pulling. It’s Google Cloud arm remains the world’s third largest cloud computing infrastructure operation worldwide, behind Amazon’s (AMZN:NASDAQ) AWS and Azure of Microsoft (MSFT:NASDAQ)
Worries that huge AI investment might eat into profit margins also looks off the mark, quite the opposite in fact. Alphabet’s third quarter operating margins increased from 28% to 32% even in the face of elevated AI capital expenditure.
‘Alphabet generated free cash flow of over $17 billion, more than a third in excess of the total capital expenditures,’ said Gerrit Smit, who holds Alphabet in the Stonehage Fleming Global Best Ideas Equity Fund (BCLYMF3) he runs.
Significant ‘other bets’ include its autonomous vehicle rideshare service Waymo, and its developments in quantum computing, where Alphabet recently unveiled spectacular results from its new ‘Willow’ chip. The Waymo One robotaxi service already makes 150,000 trips a week in Phoenix, San Francisco, and Los Angeles, with expansion plans for Austin, Atlanta in 2025, and Miami in 2026.
Waymo is widely viewed as the leader in autonomous vehicles, and in October 2024, closed a $5.6 billion funding round. Wall Street analysts do not include Waymo, or any of its Other Bets in Alphabet’s valuation, and doing so would be a big development.
Put simply, Alphabet remains an astonishingly successful business and stock, with returns on capital and equity of more than 30%. Total returns stand at 22.3% a year over the past decade, a third better than the S&P 500.
Having weathered a year of significant pressure, and yet still advanced 40% year-to-date, we say Alphabet shares are worth buying for 2025. [SF]
AUCTION TECHNOLOGY GROUP
Auction Technology (ATG)
Prices taken 16 December 2024
Table: Shares magazine•Source: Stockopedia, Refinitiv
Strange as it may sound, the pandemic turned out to be a blessing in disguise for the auction industry as it forced firms to join the 21st century and offer an online service.
Whereas previously many small auction houses were limited to the number of buyers they could accommodate due to lack of physical space, today they can not only tap into their local market but a whole army of online punters at home and increasingly abroad – the auction world has truly gone global.
One of the companies driving this online revolution is FTSE 250 firm Auction Technology Group (ATG).
ARE AUCTIONS BIG BUSINESS?
Getting data on the auction industry isn’t straightforward as it isn’t just the art and antiques market we are interested in – there is a huge secondary market in used industrial, construction, commercial and agricultural machinery as well.
When companies decide they no longer need certain plant and equipment and need to sell it, they can either go direct to a dealer or they can sell it through an auction house.
Dealers typically offer below-market prices, because they have to sit on the equipment until they themselves find a buyer, whereas specialist auction houses typically achieve higher prices because they have an extensive buyer base and auctions create
competition.
It’s the same story when banks or administrators have to liquidate a company – in order to get the best returns for stakeholders, they need to achieve the best price possible, which more often than not will be by selling at auction.
Auction houses are able to create a ‘network effect’ by offering high-quality items which attract high-quality bidders – this then attracts more sellers of high-quality items, leading to them signing up more high-quality bidders, and so on.
WHAT DOES ATG DO?
The firm operates world-leading auction marketplaces in through its Industrial and Commercial and Arts and Antiques arms, powering eight online market venues and listing sites with its proprietary technology.
In Industrial and Commercial, which encompasses construction and other heavy equipment, commercial and industrial equipment (basically anything not on wheels) and agricultural equipment, it operates BidSpotter, i-bidder.com and Proxibid.
In Art and Antiques, it operates EstateSale.Net, liveauctioneers, Lot-tissimo and the saleroom.
Altogether, in the year to September, the firm facilitated 88,000 individual auctions with around 24 million lots listed and 390 million bidder sessions.
While the auction industry itself saw lower values and volumes, ATG managed to grow its revenue by
2% on an organic basis with an acceleration to 4% growth in the second half as it attracted more buyers and sellers.
More importantly, it increased it’s ‘take rate’ across its auction marketplaces by selling its customers, the auction houses, more value-added services like paid-for digital advertising, payments processing and shipping.
ATG also strengthened its competitive position with the launch of an integrated white-label marketplace solution, and management believe there is an opportunity to grow its revenues ‘meaningfully’ going forward.
Internally, the company unified multiple data warehouses and consolidated its finance and HR systems across the group creating efficiency gains.
WHY BUY THE SHARES NOW?
Back in 2021, ATG was trading at over £15 per share as investors were swept up with enthusiasm for the online auction industry, and in 2023 the gross merchandise value of all goods traded hit a record.
Since then, GMV has normalised and stock prices have fallen, and although the shares jumped last month when the firm published its full-year results, they are still only around a third of their level three years ago when the firm was making losses.
GMV is actually growing again, led by Industrial and Commercial, one of ATG’s specialties, and the roll-out of new products including the listing of auction lots on other classified websites is attracting more bidders and more auction houses to the firm’s marketplaces.
Auction Technology
As far as rolling out its value-added services and increasing its take rate go, analysts at Berenberg describe the company as being ‘in its infancy’ with its rollout and believe it will be a major driver of results next year and beyond.
As a result, ATG’s target to grow revenue by around 5% for the year to September 2025 looks not only achievable but on the conservative side, regardless of the strength of the broader auction market, and we believe there is good scope for the shares to re-rate. [IC]
COHORT
Analysts continue to underestimate momentum in the business as reflected in persistent upward revisions to consensus earnings per share estimates for 2025 and 2026 which means today’s estimates are 20% and 40% higher than a year ago. This trend should continue to support the shares.
The company is differentiated from other defence contractors in that Cohort acts as the parent company overseeing six innovative and agile businesses which provide a range of products and services for UK, German, Portuguese and international customers in defence and related markets.
This decentralised approach allows the individual businesses to prosper and respond more flexibly to customers’ needs and grow and deepen customer relationships.
The proof of the operating model can be demonstrated by the financial success delivered by the group. The dividend has increased by more than 10% a year over the last three years and has increased every year since IPO (initial public offering) in 2006.
Revenue has increased at a compound annual growth rate of 11% a year over the last five years, while operating profit has grown at a CAGR of almost 30% a year reflecting rising margins. Free cash flow has grown at a CAGR (compound annual growth rate) of 20% a year.
WHAT IS THE STRATEGY?
Ongoing conflicts in Ukraine and the Middle East and calls from incoming US president Donald Trump for NATO members to increase defence spending as a percentage of national income will continue to provide a tailwind for the defence sector.
AIM-quoted Cohort (CHRT:AIM) is well positioned to benefit from an increase in defence spending and at the first-half results on 11 December, the group disclosed a record order book of £541 million, representing around 99% of consensus revenue expectations for the year to the end of April 2025.
Cohort’s strategy is to grow organically by exploiting its competitive advantages and make selective bolt-on acquisitions where the company sees an opportunity to increase profitability and gain access to new markets.
The company is also on the lookout for standalone businesses which offer growth potential and sustainable competitive advantages that are ready to join a larger group.
A good example of the type of deal Cohort targets is the recent purchase (21 November) of leading Australian-based developer and producer of highend SATCOM terminals for global naval and defence customers, EM Solutions, for around £75 million.
The acquisition enhances the company’s existing defence and communications offering while gaining
exposure to the naval surface vessel SATCOM (Satellite Communications) market which has strong structural growth drivers.
EM Solutions will also beef up the group order book to more than £650 million and is expected to be ‘materially’ earnings accretive in the first full year of ownership, in line with the company’s acquisition criteria.
Cohort financed the deal partly through an institutional and retail share placing, raising £40 million at a 4% discount to the prevailing share price. The balance sheet post purchase remains robust with net debt to earnings before interest, tax, depreciation, and amortisation of less than one.
TECHNOLOGY DRIVEN DEMAND
A key strength underpinning future success is the amount of money the group spends on research and development which increased 26% in the last financial year to more than £14.5 million, equating to around 7% of revenue.
The company’s six businesses are grouped under two divisions, the largest of which is sensors and effectors representing nearly 60% of group revenue and communications and intelligence representing the rest.
The UK remains the groups most important domestic market while internationally, rising tensions around the South China Sea are creating demand for naval systems demand in Australasia and Asia.
In summary, Cohort is a strong business with a proven track record of growth and of delivering shareholder value. [MG]
DIAGEO
Prices taken 16 December 2024 Table: Shares magazine•Source: Stockopedia, Refinitiv
Alcoholic drinks outfit Diageo (DGE) has endured a rough period of late, partly thanks to problems of its own making. We think that has put the valuation in a place where, if there are signs the business is getting its act together, the shares can deliver significant upside for investors in 2025.
Unless there is evidence of improved performance soon then activist investors could be tempted to join the share register, takeover interest could emerge and/or current chief executive Debra Crew could be pushed out. Any of these developments could, in themselves, be a catalyst for the stock.
SHARES THE CHEAPEST SINCE THE FINANCIAL CRISIS
In the past, Diageo has consistently traded above 20 times forecast earnings. Based on consensus numbers for the year to 30 June 2026 the shares are now on a PE (price to earnings) ratio of around 18 times, the cheapest level since the 2007/8 financial crisis. They offer a dividend yield of 3.5% to boot, with the company having grown its payout handsomely over the long run.
Headquartered in London’s West End, Diageo owns several iconic brands including Johnnie Walker whisky, Smirnoff vodka and Guinness, as well as Captain Morgan rum, Tanqueray premium gin and Baileys cream liqueur. In the June 2024 financial year, 24% of sales were accounted for by scotch, 16% by
9%
As well as this enviable portfolio, Diageo has a robust distribution network and strong marketing capabilities.
However, since the untimely passing of then chief executive Ivan Menezes in June 2023 – shortly before he was due to step down to be replaced by current incumbent Crew – Diageo has served up a surprise profit warning (in November 2023) and results for the year to 30 June 2024 which undershot consensus expectations as group sales declined for the first time post-pandemic.
The company has been hit by having excess inventory in the Latin American and Caribbean region, China’s slower than anticipated post-Covid recovery and a cautious consumer environment in North America.
Despite this challenging environment, the company managed to grow free cash flow by 18% to $2.6 billion in the 12-month period and deliver a 5% increase in the dividend, and the appointment of Nik Jhangiani as chief financial officer in September 2024 could help build on this.
Jhangiani previously served as finance chief at
beer, 11% by tequila and
by vodka.
Diageo (DGE)
bottling firm Coca-Cola Europacific Partners (CCEP), where he was part of a team which delivered very strong returns to shareholders. Bringing this experience to bear, he could help make Diageo more disciplined on costs as well as increasing the focus on cash, returns and execution.
ADAPTING TO SHIFTING CONSUMER TASTES
One of the risks for Diageo is a reduction in spirits consumption, particularly among more healthconscious younger consumers. Drinking trends are changing, although we suspect not to the extent some would have you believe, and Diageo is adapting. Its alcohol-free Guinness Zero is seeing extremely strong growth, albeit from a low base.
Guinness in general seems to be enjoying a surge in demand with reports suggesting limits were placed on pub and bar purchases in the run-up to Christmas, with a wave of so-called ‘Guinnfluencers’ prompting increased consumption of the famous stout among women.
There are other risks to consider, including the potential impact of any new tariffs introduced by a new Trump administration. However, we think these are more than reflected in the price and see the company’s first-half results on 4 February as an opportunity to reset expectations, with the market’s focus increasingly shifting to a year of recovery in the 12-month period to 30 June 2026 through the course of the 2025. [TS]
FEVERTREE DRINKS
Drinks (FEVR:AIM)
Prices taken 16 December 2024
Table: Shares magazine•Source: Stockopedia, Refinitiv
Premium mixer drinks company Fevertree Drinks (FEVR:AIM) has had a torrid time of late with the shares down 38% from the highs in the spring of 2024 and down twothirds from the all-time high in December 2021.
On a longer-term basis, the shares are still up 440% since listing on the AIM market in 2014, equivalent to a compound annual growth rate of 15% a year.
Recent poor performance is down to a drop in margins due to cost increases from the fallout of the war in Ukraine as well as supply chain disruptions coming out of the pandemic.
Despite these challenges Fevertree has continued to grow revenue which is set to reach £372 million in 2024, some 42% above 2019 levels demonstrating solid expansion outside the UK market.
A DEPRESSED VALUATION
The valuation of the shares in terms of one year forward PE (price to earnings) ratio has shrunk quite considerably to 21 times consensus 2025 EPS (earnings per share) from 56 times three years ago.
We believe negative sentiment towards the shares and the underlying profitability of business have both
troughed and investors are not giving enough credit to the potential margin recovery and the quality of the business.
Analysts at Panmure Liberum forecast EBITDA (earnings before interest, tax, depreciation, and amortisation) margins will recover to over 20% from 8.4% in 2023 over the next three years, driving EPS at a compound annual growth rate of 23% a year.
If the company can deliver anywhere close to those forecasts, we see the potential for the start of a new upward EPS revision cycle which should support the shares and shift negative sentiment.
At the first-half results in June 2024 Fevertree confirmed it is on track to deliver 6% of gross margin improvement for the full year to December as well as ongoing improvement in the medium term.
The gains made are driven by improved glass bottle pricing and lower freight rates in addition to some price increases.
The company has historically generated high levels of free cash flow and with £66 million of net cash sitting on the balance sheet, management has said it anticipates being able to distribute surplus cash to shareholders during 2025.
NOT A ONE TRICK PONY
Fevertree has evolved and diversified over the last few years beyond tonics and long mixer drinks. For example, around 40% of its revenue is generated from non-tonic categories, up from 25% in 2019.
Operationally the company has reduced costs by opening local bottling plants in Australia and the US and it is yet to fully capitalise on its increased scale and capabilities.
In the US today, its biggest market, more than half of sales come from the non-tonic category which is important because gin only accounts for 2% of the US premium spirits market.
The company has entered the noncarbonated cocktail mixer market which is bigger in value than both the tonic water and ginger beer categories that contribute over 80% to Fevertree’s US sales.
Cocktails and RTD (ready-to-drink) make up over 20% of US spirits market by volume and provide an opportunity for Fevertree to address the at-home premium cocktail occasion. The RTD category is also the fastest growing segment.
In the UK Fevetree has a 45% value share of the premium mixer market, but due to faster growth outside the UK, the region today only makes up 30% of sales compared with 51% in 2019.
To address slower growth, Fevertree has entered the adult soft drinks category (examples include Mexican Lime soda) which is about half the size of the premium mixer market. This helps address the growing trend towards lower alcohol consumption.
The company has gained over 9,000 points of distribution access and is already seeing 36% growth in the category.
STRONG BRAND VALUE
There remains a significant growth opportunity in
Fevertree Drinks
the US, EU, and Rest of the World markets where Fevertree can further gain market share. One of the underappreciated qualities of the business is the growing strength of the brand.
Fevertree was named the best-selling and top trending mixer for the tenth consecutive year. It has extended its lead in the UK and European markets, and remains the leading brand in the US, Canada, and Australia. Just to give a sense of the lead, in Canada Fevertree is almost three times as big in value terms than its nearest competitor.
The company is well positioned to tap into developing consumer trends due to its core values of provenance, health and wellbeing and high-quality ingredients.
In short, investors may end up kicking themselves for not taking advantage to buy the shares trading on one of their cheapest valuations since floating on the AIM market a decade ago. [MG]
FRP ADVISORY
FRP Advisory (FRP:AIM)
Prices taken 16 December 2024
Table: Shares magazine•Source: Stockopedia, Refinitiv
Specialist business services firm FRP Advisory (FRP:AIM) is one of those businesses which many investors may have heard of but few are sure exactly what it does.
Put simply, FRP helps companies through each stage of their development, giving advice on raising capital, managing debt, acquisitions, corporate finance and forensic accounting. It is probably best-known for ‘crisis management’ where it helps companies either in restructuring or going through administration, two high-profile cases being Debenhams and The Body Shop.
RECENT CASE STUDIES
FRP works with companies of all sizes across many sectors, and investors in offshore gas producer IOG may know it as the firm which managed the company through administration, keeping it afloat, selling its subsidiaries to a joint venture partner in order to secure production and jobs, and ultimately making sure bondholders and HMRC were paid.
On a more positive note, FRP helped with the solvent wind-up of the film company ‘Chump & Sons’ which was set up to produce the hit Amazon series The Grand Tour.
Once the final episode had been filmed, the firm went into voluntary liquidation and the shareholders – including the show’s presenters – were able to walk away with the capital to move on to other TV projects.
Finally, in a story to warm the cockles in the runup to Christmas, FRP secured the future of a vital speech therapy business for schools which was facing the threat of insolvency – it was able to find a buyer and save 19 jobs all before the start of the new school term.
WHAT ELSE DOES FRP DO?
While restructuring is the company’s mainstay, FRP gets a lot of work advising on M&A (mergers and acquisitions) in the lower mid-market working with business owners and management teams to raise finance for takeovers or arrange sales.
In 2023, the firm advised on 66 deals with a value of £1.5 billion and partner Dan Bowtell believes activity is set to pick up due a combination of factors.
‘Private equity will be one driver of this uplift. Historically, PE firms have held onto their investments for four to five years before exiting – however, many of these investments are now surpassing their typical hold period, leading to
© Amazon
FRP helped with voluntary liquidation of production firm behind The Grand Tour
a growing number of businesses being prepped for sale.’
Bowtell also sees corporates becoming more active – as organic growth becomes harder to achieve, many are looking at M&A as a means of expanding, and he believes AI (artificial intelligence) and sustainable energy are set to be hotspots.
WHAT IS THE FIRM’S TRACK RECORD?
The company floated on AIM in 2020, but it was set up in 2011 and has grown its revenue every year bar
2013 with an impressive 15% average compound annual growth rate.
In the year to April 2024, revenue grew by 23% to £128 million while EBITDA (earnings before interest, tax, depreciation and amortisation) rose by 37% to £37 million and pre-tax profit rose by more than 90% to just under £30 million.
The top management team of chief executive Geoff Rowley and chief operating officer Jeremy French are co-founders, and in a short space of time have built the business into a global operation with more than 800 staff across 32 offices.
While most of that growth has been organic, management are always looking for opportunities to increase market share and earnings through bolt-on acquisitions at attractive prices, as in the case of Globalview Advisors which was purchased in October 2024 for £5.5 million or just five times EBITDA.
WHY INVEST NOW?
FRP’s shares have traded sideways more or less for the last three years, during which time both revenue and EBITDA have grown by 60%.
Earnings per share have also risen 60%, from 5.67p to 9.18p, meaning the stock has de-rated from a PE (price to earnings) multiple of 26.5 times in 2021 to 16.9 times last year’s earnings and 14.5 times the consensus forecast of 10.7p for the year to April 2025.
To us, this seems too cheap for a quality, established business generating way above-average growth across all its specialties, and we suspect at the rate the company is going forecasts for 2025 and 2026 will turn out to be too conservative.
GLOBALDATA
GlobalData (DATA:AIM)
Prices taken 16 December 2024 Table: Shares magazine•Source: Stockopedia, Refinitiv
We live in a world of seemingly endless data. Parsing and analysing this information is crucial across a range of industries and that is something GlobalData (DATA:AIM) really excels at.
We think the company will make a compelling investment for the year ahead due to a renewed focus on growth. The company is committed to developing its artificial intelligence offering and has a strong balance sheet providing firepower for M&A. The dealmaking is part of a wider three-year growth transformation plan launched in January
2024 targeting £500 million annual revenue by the end of 2026.
The company also wants to double down on its AI strategy. Having started investing in this area in 2017, it has already started to roll out an AI Hub to clients. As of July 2024, 29% of clients have access to this tool. The company plans to upskill its workforce with AI training sessions and employ 300 AI experts by 2025. Currently it has around 300 software specialists of which 50 focus on AI.
WHAT DOES IT DO?
A globally diversified client base upwards of 4,800 includes names like global food and beverage company Nestle (NESN:SWX) and UK supermarket Asda.
In its own words GlobalData’s platform aims to deliver ‘key insights on market analysis and critical insights into competitors and pricing intelligence’.
About 80% of GlobalData’s sales are subscriptionbased which provides good visibility on future earnings and the company also has high levels of profitability, looking to maintain EBITDA (earnings before interest, tax, depreciation and amortisation) margins of at least 40%.
What GlobalData charges its customers is a very small proportion of their overall spend but is also really significant to how they do business which helps reinforce the stickiness of its revenue streams.
A rating of 20 times forecast 2025 earnings does not seem overly expensive for a such a high-quality data analytics business. With the stock coming under some pressure thanks to wider concerns about the AIM market.
In fact, on some metrics, GlobalData looks positively cheap versus the peer group. On an enterprise value (EV) to revenue basis GlobalData trades on a multiple of around five times for 2024 according to estimates from broker Panmure Liberum. This compares to an average for its peers (as of mid-November) of 13.7 times and a ratio
for its closest UK lookalike – RELX (RELX) of nearer eight times.
A SHIFT IN PRIORITIES
Investors who might have previously valued GlobalData for its income will have been disappointed at the decision to rebase the dividend, revealed alongside first-half results in July. This followed the completion of a £434 million investment by Inflexion to take a minority stake in GlobalData’s Healthcare division.
While the discipline of paying a dividend is important we are on board with the company’s growth ambitions – albeit there are obviously risks to such a strategy. The company has also announced share buybacks to return surplus capital and may well continue to do so.
The plan is to supplement targeted organic revenue growth of 10% by making bolt-on acquisitions which can be integrated into the platform. Reassuringly, the management team has experience of successfully acquiring and integrating assets.
In November, GlobalData snapped up global job market data company LinkUp which uses real-time proprietary technology to index millions of job listings.
Another consideration for a prospective investor is founder and CEO Mike Danson’s large shareholding – he owns nearly 60% of the business. Some may be uncomfortable with this situation.
However, there are plenty of examples of successful listed companies where an entrepreneurial architect behind the business has a controlling stake. [SG]
JET2
Jet2 (JET2:AIM)
Prices taken 16 December 2024
Table: Shares magazine•Source: Stockopedia, Refinitiv
Airline and package holidays provider Jet2 (JET2:AIM) is an example of why treating your customers well is not just a good ethical position to adopt but also makes excellent business sense.
The company recently won European Airline of the Year and scores highly on review platforms TripAdvisor and Trustpilot and its excellence in this area, including during Covid when it stood out compared with several of its rivals, has enabled it gain market share and secure loyalty from existing customers. The current valuation doesn’t fully reflect Jet2’s existing business attributes, its strong balance sheet and its scope for growth.
GIVING CUSTOMERS WHAT THEY WANT
Jet2 has a range of options to suit different types of customers, whether they are looking for flight-only deals, fully inclusive holidays, luxury five-star breaks and affordable holiday experiences.
In total Jet2 provides holidays in more than 75 established sun, city and ski resort destinations in Europe and also provides scheduled leisure flights on more than 550 routes from its UK bases.
It seems spending on a week in the sun is a nonnegotiable for many UK households, whatever financial pressures they are facing, and that has been reflected in Jet2’s operational and financial performance.
The group reported record passenger numbers
for the first half of its current financial year and record revenue of £5.08 billion and upgraded profit guidance for the 12 months to 31 March 2025.
Jet2’s jewel in the crown is its Jet2holidays arm. The UK’s largest tour operator is ATOL-licenced for more than seven million customers. Bookings for package holidays are more resilient and reliable than for flights and yet the company is currently trading at 8.9 times earnings – more akin to the valuation afforded a pure airline operation.
The company’s rapid growth both before and coming out of the pandemic means this is now a large business in stock market terms. Should the lure of relaxed listing rules see it move from AIM to the Main Market, then the company would comfortably be a member of the FTSE 250 and be on the cusp of FTSE 100 membership. Any such move could act as a kicker for the share price as it boosts the profile of the shares and tracker funds are forced to buy.
GROWTH AMBITIONS
The outlook both in the short and medium-term looks positive. On-sale seat capacity for winter 2024/2025 is 14% higher than 2023 at 5.11 million seats and summer 2025 on sale capacity is 9% higher than last year at 18.74 million seats..
Over the next 12 months Jet2 will launch new UK bases at Bournemouth and London Luton airports and expand overseas in Morocco (city breaks and
flights to Marrakech and Agadir) as well as in Adriatic and Italian resorts.
The company has exercised the remaining 36 purchase rights of Airbus aircraft (originally announced in late 2021) meaning that the company now has a firm delivery stream of 146 A321 neo aircraft through to 2035.
Jet2 can fund this increase in capacity, with planned capital expenditure expected to total nearly
Jet2 (p)
company holds as customer deposits. The long-term visibility on its trajectory also means Jet2 can achieve operating cost efficiencies and plan sensibly for the future.
The company’s careful management of external risks is reflected in the fact it is 70% hedged for summer 2025 for both foreign exchange (dollar and euro) and jet fuel exposure and 100% hedged for calendar year 2025 carbon emissions allowances. [SG]
Kier (KIE)
Prices taken 16 December 2024
Table: Shares magazine•Source: Stockopedia, Refinitiv
Anyone who has walked past a building site in the UK recently might well have seen Kier (KIE) branding on it. This infrastructure and construction services outfit is actively at work on more than 400 developments across the UK. Having emerged from a difficult period with much stronger foundations, this improvement is not yet reflected in its current valuation, but we think that will change through the course of 2025.
The business, which employs 10,000 people and has been going since 1928, has four divisions: Transportation, Natural Resources, Nuclear & Networks, Construction and Property.
Transportation designs, builds and maintains infrastructure for several sectors including highways, rail, aviation and ports. Natural Resources and Nuclear & Networks provide repair and maintenance services and support for large capital projects in the nuclear, broader energy and telecoms industries.
Construction delivers private- and publicsector projects, including in areas like education, healthcare, prisons and defence, while the Property division invests in and develops mixeduse sites encompassing residential properties, urban regeneration, last-mile logistics and office developments.
PUTTING PAST PROBLEMS BEHIND IT
Like several of its peers in the construction and contracting space, Kier has endured problems in
the past thanks to a lack of discipline when bidding on projects which left it saddled with loss-making contracts.
Between 2018 and 2020 this resulted in significant strain being placed on Kier’s balance sheet and the company having to go cap in hand to investors. However, a subsequent focus on simplifying the business and managing contract risk more carefully has helped drive improved cash generation and seen a significant reduction in the company’s liabilities. The company actually finished its financial year to 30 June 2024 with net cash of £167 million (excluding leases).
While this is obviously just a snapshot of the financial position, average month-end net debt halved for the 12-month period to £116 million. This was supported by an appreciable uplift in free cash flow in the year to £186 million, which also enabled the company to put money to work in the Property division where it targets a return on capital employed of 15%.
Around 90% of Kier’s contracts are with the public sector and regulated companies, and this means it is well placed to benefit from renewed investment in UK infrastructure including areas such as energy,
water, transport, defence, education and health.
Kier’s recent contract awards include a £100 million contract to replace hangars, office buildings and a training school at Royal Naval Air Station Culdrose and work as part of Wessex Water’s planned £3.7 billion spending programme.
The company also looks well-positioned to benefit from the new Labour Government’s push to boost housebuilding and bolster infrastructure spend. An order book which totaled £10.9 billion at the last count already provides good visibility on the current financial year and beyond.
These factors should, in turn, help underpin the company’s medium-term ambitions. Through to 2030, these include growth above GDP through the economic cycle, 3.5%-plus adjusted operating profit margins, 90% of operating profit converted to cash, average month-end net cash (with surplus funds reinvested) and a dividend three times covered by earnings.
A DISCOUNTED VALUATION
Margins are skinny in this sector, as the mediumterm target indicates, however this is more than reflected in the valuation which stands at just 6.9 times forecast earnings for the 12 months to 30 June 2026. The forecast yield also looks attractive at 4.7%.
We think as Kier delivers on what looks like a sensible and fairly conservative set of full-year targets, the market will re-rate the shares. A 14 November trading update revealed a strong start to the current financial year and we would expect the momentum to be maintained through the course of the next 12 months. [TS]
Kier
TREATT
Treatt (TET)
Prices taken 16 December 2024
Next year should prove a sweet one for Treatt (TET) and its shareholders. The extracts-to-ingredients supplier has the recipe for long-term growth and many of the hallmarks of a high-quality company including an unwavering focus on innovation, strong cash generation and double-digit returns on both equity and capital employed.
Well-placed to profit as its end-markets recover from an unhelpful spell of customer destocking, Treatt offers a long-term play on consumer trends including a preference for natural products and the growing interest in health and wellness.
A progressive dividend payer, Treatt has virtually eliminated its debt and is led by an ambitious new CEO hungry for growth in existing and new markets alike. While a forward PE (price to earnings) ratio of 17.3 might look expensive, this is actually a material discount to Treatt’s 10-year trailing average and that of its peer group.
Shares sees scope for upgrades and a re-rating ahead as the well-invested £297.5
million cap bags new business, delivers growth in overseas geographies and improves gross margins above consensus expectations.
Takeover speculation surrounding peer Tate & Lyle (TATE) has highlighted the attractions of speciality ingredients companies to potential acquirers, so future bid interest cannot be ruled out.
A LEADER IN A NICHE MARKET
Treatt is a niche yet market-leading natural extract and ingredient manufacturer that provides products to the global beverage, flavour, fragrance and consumer goods markets. It is particularly strong in beverages, a defensive sector seeing trends towards natural, clean label and calorie-free products which play to the company’s strengths.
Crucially, the Suffolk-based business has pedigree in passing on cost increases to customers, which will be key in an environment of elevated raw material prices, particularly in citrus, and increasing wage pressures.
With facilities in the UK, US and China, Treatt’s competitive strengths include experience in sourcing and trading raw materials and its long-term and
deepening relationships with customers. And the company is poised to accelerate growth in existing and new markets such as China under the stewardship of new CEO David Shannon, who joined from chemicals giant Croda (CRDA) and wants to take Treatt beyond its core markets of the US and Western Europe and into new geographies in Asia and Latin America over the next 12 months.
Under Shannon’s new strategy, Treatt should also expand its gross margins and improve earnings quality through a product shift mix from its lower margin Heritage business, which spans citrus, herbs, spices and florals and synthetic aroma, into the
higher margin Premium segment spanning tea, health and wellness and fruit and vegetables.
Shannon is also seeking to broaden the customer base, since customer concentration has long been a concern for investors in Treatt; he will focus on showcasing the firm’s capabilities and securing wins with medium-sized FMCG (fast moving consumer goods) clients where Treatt is currently underindexed.
Although revenue of £153.1 million for the year to September 2024 missed estimates by a smidge as extreme US weather delayed a large shipment and shifted the associated sales into full year 2025, Treatt’s pre-tax profit came in slightly above guidance at £19.1 million.
ENCOURAGING MOMENTUM INTO 2025
Encouragingly, second-half sales growth of 13% reflected organic growth from new business wins and a normalisation in industry demand, with management calling out ‘favourable’ sales in citrus, which remains a core focus for Treatt, as well as in China, where a large proportion of the new business wins are coming from, all of which augurs well heading into the new calendar year.
The cash-generative company also reported a significant reduction in year-end net debt from £10.4 million to just £700,000, providing Treatt with the firepower to invest in organic growth while rewarding investors with rising distributions.
Investec forecasts a rise in pre-tax profits to £21 million for the current year, ahead of £23 million and £24.7 million in 2026 and 2027 respectively, as sales sweeten up to the thick end of £180 million by 2027. [JC]
SURPRISE STAR TURNS AND SHOCK DISAPPOINTMENTS LITTER OUR BEST 2024 PICKS PERFORMANCE
SHARES 10 PICKS FOR THE PAST YEAR NARROWLY UNDERPERFORM THE FTSE ALL-SHARE
Shares' 2024 stock portfolio
What a mixed year this has turned out to be for Shares’ best ideas for 2024.
That our one star turn stock was an annuities and lifetime mortgage specialist, even if it was ‘screamingly cheap at its current price’, as we originally noted, and the supposedly exciting tech growth picks have been dull-to-dismal, might make you hark back to school days studies of Christopher Hill’s The World Turned Upside Down
What it also tells us is that a well-run company whose stock looks anomalously cheap can be a very compelling combo for investors. Just Group (JUST) can hardly be called
exciting, with a mission statement to provide competitive products, financial advice and guidance to people in later life, yet the share price performance has been spectacular, up 91% on the original 84.9p share price, driven by short-to-long-run drivers as our nation’s over-65 population keeps on growing.
We did garner some success from the global AI boom, albeit from the more left-field RELX (REL), which is doing a super job at integrating this emerging technology into the large datasets it analyses for clients across a range of sectors. How that contrasts with our MongoDB (MDB:NASDAQ) selection, also a business that is all about massive datasets; managing,
analysing and drawing valuable insights from it.
We know that data is AI’s rocket fuel yet rocket fuel isn’t much good if you don’t have a match to ignite it, and MongoDB has certainly lacked any sort of spark this year. In fairness, we did say that it was a ‘higher risk play’, and it has struggled to capture it’s expected share of the AI capex boom amid more cautious spending by corporate IT departments. A demonstration that picking stocks for the next 12 months is always going to be a challenge.
Staying with the tech theme, we have come to understand this year that turning AI potential into profit and hard cash will be a longer, bumpier road for many applications firms than we originally anticipated, illustrated by graphic design tools platform Adobe’s (ADBE:NASDAQ) uninspiring stock performance through 2024.
We are, arguably, most shocked by the disappointment that B&M European Value
Retail (BME) has delivered. It is surprising that in a higher interest rate environment off the back inflationary spikes that a discount retail business has continued to get the cold shoulder from investors, especially given the relatively resilient operating performance it has delivered.
Our bet on consumers being attracted to Hollywood Bowl’s (BOWL) value-for-money leisure and entertainment offering has stood the 12-month test well, with its carefully managed expansion story still very popular with customers and investors alike, even if the shares have struggled to regain May’s 350p highs.
There were solid performances from oil engineer Hunting (HTG), despite a second half slide, biotech Puretech Health (PRTC) and reinsurer Conduit (CRE), while the hopedfor recovery at Smith & Nephew (SN.) didn’t come through.
Schroder European Real Estate –demonstrating resilience with distinction
Looking beyond Europe’s current challenges for a unique real estate opportunity
European real estate has endured a challenging year, influenced by the ongoing economic impact of higher interest rates. Elevated financing costs have continued to suppress real estate activity and weigh on property valuations. While there are encouraging signs of stabilisation as interest rates have begun to fall, the sector is still grappling with shifting dynamics. The office subsector is navigating reduced demand from evolving work patterns, while retail continues to adjust to changing consumer habits and online competition.
Despite these conditions, Schroder European Real Estate Investment Trust (SERE) has demonstrated impressive resilience. In this article, we explore the trust’s distinctive characteristics and how they enable it to deliver consistent performance, even in a challenging market environment.
A unique proposition focused on Europe’s growth hotspots
SERE stands out as the only UK-listed investment trust offering access to a diversified portfolio of
high-quality European commercial real estate. This exclusivity provides investors with a rare opportunity to gain exposure to some of Europe’s most dynamic locations.
SERE’s strategy focuses on Europe’s ‘Winning Cities and Regions’, which have been identified for their strong economic fundamentals, robust infrastructure and favourable demographics. These include major metropolitan areas such as Berlin, Hamburg and Paris, alongside strategically important logistics hubs like Rennes and Nantes in France, and Venray in the Netherlands. Together, these investments reflect the trust’s ability to capture the benefits of supply-constrained markets and longterm trends such as urbanisation and the growth of e-commerce.
The trust’s €233 million portfolio spans 15 properties1, including logistics hubs, offices and retail assets, chosen for their potential to deliver an attractive and sustainable income alongside the potential for longterm capital growth. By targeting investments in high-performing cities and regions, SERE represents a compelling choice for investors seeking stable returns through a unique strategy focused on Europe’s most promising locations.
Shielded from inflation
A key feature of SERE’s portfolio is that substantially all leases are indexed to inflation, providing investors with a built-in hedge against price rises and ensuring rental income adjusts accordingly. Around 80% of the trust’s income benefits from annual indexation, while the remainder is linked to inflation thresholds, ensuring nearly all leases reflect price increases over time. This embedded protection was particularly valuable during the recent period of elevated inflation. While inflation has since moderated, this linkage remains a crucial feature, positioning shareholders to benefit should higher rates of inflation resurface. Notably, such formalised inflation linkage in lease agreements is more prevalent in continental Europe than in the UK, enhancing the appeal of SERE’s unique European real estate proposition.
Balance sheet strength underpins an attractive dividend
Financial discipline has been a cornerstone of SERE’s strategy, supporting both its robust balance sheet and its ability to deliver an attractive dividend. The trust benefits from a conservative loan-to-value (LTV) ratio of 25% net of cash and no debt maturities until mid-20262. Recent refinancing activities have secured a low average borrowing cost of 3.2%, demonstrating the trust’s proactive approach to maintaining balance
sheet strength. Additionally, €25 million in cash reserves provide significant investable firepower, enabling the trust to pursue opportunities in its existing portfolio or acquire additional assets. There is the potential for gearing to fall a further c.3% once Seville is disposed. We understand that management are close to concluding this.
These strengths underpin SERE’s dividend, which offers a compelling yield of 7.1%3. Fully covered by earnings, the dividend reflects the trust’s ability to deliver a stable and consistent income, even in challenging market conditions. Backed by inflationlinked leases and high occupancy rates, this income stream remains both resilient and dependable, making SERE a standout option for income-focused investors.
Tax disclosure
The Board have made a contingent tax liability disclosure of between nil and €12.6m (exc. penalties) given the French tax authorities have commenced an audit on the French structure. This remains not provided as an outflow as it is not deemed probable.
Expert hands at work
SERE’s operational performance benefits from the specialist expertise and resources of Schroders’ €30 billion real estate platform. During the past year,
2Source: Schroders, December 2024. Excludes the Seville asset for which the trust’s investment has been previously written down to nil. SERE’s LTV metrics will fall by a further 3% on the disposal of this asset.
3Source: Schroders, based on the 69.2p share price as at 29 November 2024 and an annualised dividend of 5.92 euro cps.
the trust concluded 16 new leases and re-gears, generating €1.4 million in additional annual rental income and extending the weighted lease term to eight years. These asset management achievements reflect a proactive approach to maintaining high occupancy levels and securing long-term rental income. There are a number of key leases to re-gear (Hornbach, KPN and Nestle) over the medium term and there is confidence in management ability to de-risk. This would help in enhancing income and share price.
The trust is managed by Jeff O’Dwyer, who brings 28 years’ experience in real estate investment, supported by Rick Murphy (Finance Manager with 19 years’ experience) and Milena Niemann (European Fund Analyst with 21 years’ experience). Together, they are backed by a team of more than 250 on-the-ground specialists, providing sectoral and regional expertise that enhances the trust’s operational capabilities and supports its performance.
This depth of expertise is reflected in the trust’s impressive 96% occupancy rate and 100% rent collection during the latest financial year, underscoring the strength of its tenant relationships and the quality of its portfolio. Looking ahead, the team has identified a number of asset management initiatives aimed at supporting earnings growth in the years to come, ensuring the trust remains wellpositioned to deliver consistent returns.
Conclusion
Europe’s economic and political challenges are widely recognised, and by definition, they are therefore already “in the price”. Current asset price valuations should reflect what we already know about the state of the world – future performance will be influenced by how things develop from here, and from this perspective, there are reasons for optimism.
SERE’s portfolio manager’s see growing confidence in occupier demand, liquidity and property values. This
optimism is supported by favourable developments concerning inflation, recent interest rate cuts and the expectation of further monetary policy easing over the next couple of years. Such factors are anticipated to positively impact commercial real estate and boost business confidence.
Despite this, in the current environment, it could be argued that Europe’s well known economic challenges are actually “in the price” twice – firstly in the pricing of individual portfolio assets and secondly in the trust’s discount which, at the time of writing, stands at more than 30%. For investors willing to take a long-term view, SERE’s distinctive proposition therefore currently appears compellingly priced.
• Credit risk: A decline in the financial health of an issuer could cause the value of its bonds, loans or other debt instruments to fall or become worthless.
• Currency risk: The fund may lose value as a result of movements in foreign exchange rates.
• Interest rate risk: The fund may lose value as a direct result of interest rate changes.
• Liquidity risk: The fund is investing in illiquid instruments. Illiquidity increases the risks that the fund will be unable to sell its holdings in a timely manner in order to meet his financial obligations at a given point in time. It may also mean that there could be delays in investing committed capital into the asset class.
• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.
• Operational risk: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the fund.
• Performance Risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.
• Property development risk: The Fund may invest in property development which may be subject to risks including, risks relating to planning and other regulatory approvals, the cost and timely completion of construction, general market and letting risk, and the availability of both construction and permanent financing on favourable terms.
IMPORTANT INFORMATION
This information is a marketing communication
Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of investments to fall as well as rise.
Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy.
The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.
• Real estate and property risk: Real estate investments are subject to a variety of risk conditions such as economic conditions, changes in laws (e.g. environmental and zoning) and other influences on the market.
• Concentration risk: The company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down, which may adversely impact the performance of the company.
• Gearing risk: The company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in that investment could be lost, which would result in losses to the fund.
Important information
For help in understanding any terms used, please visit address www.schroders.com/en/insights/invest-iq/ investiq/education-hub/glossary/
We recommend you seek financial advice from an Independent Adviser before making an investment decision. If you don’t already have an Adviser, you can find one at www.unbiased.co.uk or www.vouchedfor.co.uk
Before investing in an Investment Trust, refer to the prospectus, the latest Key Information Document (KID) and Key Features Document (KFD) at www.schroders.co.uk/investor or on request.
Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. Schroders has expressed its own views and opinions in this document and these may change.
Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy.
This document may contain “forward-looking” information, such as forecasts or projections. Please note that any such information is not a guarantee of any future performance and there is no assurance that any forecast or projection will be realised.
Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registration No 4191730 England. Authorised and regulated by the Financial Conduct Authority.
Find out which stocks surprised leading fund managers the most in 2024
Terry Smith and other top names in the business discuss the wildcards in their portfolios in 2024
In the first part of a three-part series featuring opinions and ideas from some of the UK’s leading fund managers, we asked which stocks have surprised them the most over the course of the 2024 and why.
While it was hard to avoid the influence of AI (artificial intelligence) on portfolios, the breadth of responses was surprising and goes to show how skilled stock-pickers can turn up gems in parts of the market which are overlooked by the majority of investors.
Read on to find out more and look out for parts two and three in the New Year.
THE AI WINNERS
Given the extraordinary performance of the US market, and AI-related stocks in particular, it is only fitting that first up is Ben Rogoff, lead manager of Polar Capital Technology Trust (PCT), who describes his team as ‘AI Maximalists’.
Having fully embraced Generative AI following the launch of Chat GPT, in early 2023 the team pivoted their portfolios decisively in favour of AI
and added an ‘AI lens’ to their investment process through which all themes and investments are now evaluated.
‘Even we have been surprised by the pace of hyperscale capex, AI model improvement and the rate of AI diffusion.’
Ben Rogoff
Polar Capital Technology Trust
‘Even we have been surprised by the pace of hyperscale capex, AI model improvement and the rate of AI diffusion,’ says Rogoff.
‘We have also been pleasantly surprised by how quickly industry leaders such as (defence firm) Axon (AXON:NASDAQ) and (retailer) Walmart (WMT:NYSE) have been able to monetise AIenabled products, and/or capture AI-related efficiency gains. These perceived “AI winners” have been well rewarded by investors, with many outperforming their technology peers with lower volatility.’
Paul Niven, manager of F&C Investment Trust (FCIT), singles out communication network and infrastructure provider Vertiv (VRT:NYSE) as the biggest surprise of the year for his fund.
‘Vertiv was our best-performing holding in 2023, outperforming Nvidia.’
Paul Niven
F&C Investment Trust
‘Vertiv was our best-performing holding in 2023, outperforming Nvidia (NVDA:NASDAQ) and delivering a sterling denominated return of 233%, and so far in 2024 it has posted a gain of over 165%,’ says the manager.
The company provides power and cooling systems for data centres and has been a major beneficiary from rising demand for AI projects.
ENERGISED BY ARTIFICIAL INTELLIGENCE
Cormac Weldon, head of US equities at Artemis, picks out two more stocks which have ridden the wave of AI investment, independent power producers Constellation Energy (CEG:NASDAQ) and Vistra (VST:NYSE).
The former is the largest nuclear power generator in the US, while the latter is a more diversified clean energy provider.
‘Utilities are often heavily regulated, and typically we haven’t viewed the sector positively, but the independent nature of these companies [Constellation Energy and Vistra] allows them to sell their electricity into the open market at market rates.’
Cormac Weldon head of US equities Artemis
‘Utilities are often heavily regulated, and typically we haven’t viewed the sector positively, but the independent nature of these companies allows them to sell their electricity into the open market at market rates,’ reveals Weldon.
‘The combination of this pricing advantage and the ‘clean’, ‘always on’ nature of their power has made them desirable partners for the likes of Amazon (AMZN:NASDAQ), Meta (META:NASDAQ) and Google in meeting the power needs of their highly energy-consumptive data centres,’ adds the manager.
Nicholas Khuu, chief investment officer at J. Rothschild Capital Management Limited, which manages RIT Capital Partners (RCP), also cites utilities as a successful side play on AI and data centres.
‘[We] were surprised by how quickly, and how much, value was achieved for Talen’s assets within the year, as the market embraced the critical role Talen could play in the AI boom.’
Nicholas Khuu RIT Capital
‘In the second half of 2023 we purchased Talen Energy (TLN:NASDAQ) for a combination of factors: its electricity generation assets, which are vital to US industry, its government-underwritten downside protection, and the material upside potential from the monetisation of a datacentre co-located at its nuclear plant and the sale of conventional assets.
‘With so many moving pieces, we thought this thesis would play out over an 18 to 36-month period, but were surprised by how quickly, and how much, value was achieved for Talen’s assets within the year, as the market embraced the critical role Talen could play in the AI boom,’ observes Khuu.
SUCCESSFUL STOCKPICKING
Leaving the AI theme aside, James Cook, comanager of JPMorgan Global Growth & Income (JGGI), flags Progressive (PGR:NYSE), a US insurance-based group as a surprise outperformer.
‘The stock contributed strongly to returns during the year after we initiated the position at a compelling valuation point. With concerns around inflation having heightened since 2022, Progressive has performed incredibly well against a backdrop of elevated interest rates.’
‘With concerns around inflation having heightened since 2022, Progressive has performed incredibly well against a backdrop of elevated interest rates.’
James Cook
JPMorgan Global Growth & Income
In the year to the end of September the stock returned almost 50% in sterling terms which meant it became more expensive in the fund’s stock selection framework so the team fully exited the position, taking profits and allocating them to more attractively valued opportunities.
Staying with the US, but eschewing AI, Fundsmith Equity (B41YBW7) chief executive and chief investment officer Terry Smith (and head of research Julian Robbins) cite Philip Morris (PM:NYSE) as their biggest positive surprise.
‘We have long believed the company was on the right track with the development of its “heat not burn” reduced-risk products and the acquisition of Swedish Match with its nicotine pouches, but we wondered whether there were enough people who weren’t forbidden from buying it by the sustainability thought police for its prospects to ever be reflected in the share price. It seems there are as the shares are up over 40% in 2024.’
‘We wondered whether there were enough people who weren’t forbidden from buying it [Philip Morris] by the sustainability thought police for its prospects to ever be reflected in the share price. It seems there are.’
Terry Smith Fundsmith
The pair were also surprised by Danish drugmaker Novo Nordisk (NOVO-B:CPH), although not in a good way as the shares have only risen 7% this year against a 35% gain for Eli Lilly (LLY:NYSE), its competitor in the weight-loss market duopoly.
‘At times in 2024, Novo shares have traded on close to the average valuation of the market despite sales and profits which are expected to have doubled between 2022 and 2025,’ point out the managers.
‘The only limit on sales currently is the inability to produce Wegovy and Ozempic fast enough. The reasons for this sluggish share price performance are allegedly competition and political pressure on prices.
‘Given this is set to be a market worth hundreds of billions of dollars, it would be surprising if there were not competition, but meanwhile the current two players are likely to have the market to themselves for quite a few more years.’
ANOTHER TOBACCO STOCK SPRINGS A SURPRISE Job Curtis, manager of City of London (CTY) investment trust, also picked a tobacco stock as his surprise winner of 2024.
‘Imperial Brands (IMB) surprised me pleasantly by performing very well, despite the UK government passing legislation to ban the sales of cigarettes to those born after 2008. Critics have often said that there are no marginal buyers of tobacco shares, but Imperial has been the marginal buyer of its own shares. The share buyback programme has been very enhancing for remaining shareholders because it has been done at a “rock bottom” valuation,’ observes Curtis.
‘Critics have often said that there are no marginal buyers of tobacco shares, but Imperial has been the marginal buyer of its own shares.’
Job Curtis City of London
Sticking with the UK, Stephen Anness, manager of Invesco Global Equity Income (IGET), believes the biggest surprise for the market was probably a second year of strong performance by engineering firm Rolls-Royce (RR.), which after Nvidia-beating returns in 2023 has delivered another 90%-plus gain year-to-date.
‘The trust first invested in the shares [in Rolls-Royce] back in 2020 and it has gone through a remarkable transformation.’
Stephen Anness Invesco Global Equity Income
‘The trust first invested in the shares back in 2020 and it has gone through a remarkable transformation,’ says Anness.
‘We always believed in the business’s exceptional engineering pedigree, with its strong, duopolistic position in wide body engines, but it had been mismanaged for a long period of time.
‘The company went through a near-death experience after the onset of Covid, with new engine orders cancelled and existing fleets grounded, but that also presented an opportunity for accelerated transformation. New management have delivered cost savings, free cash flow continues to grow, and we have seen record new orders for engines. We believe there continues to be room for recovery in travel demand, and the company remains attractively valued versus other civil aerospace peers.’
DISCLAIMER: AJ Bell, referenced in this article, owns Shares magazine. The author (Martin Gamble) and editor (Tom Sieber) own shares in AJ Bell.
By Ian Conway Deputy Editor
Discover the best and worst investment trusts in 2024
Ranking
four of
the most popular sectors with investors
Investment trusts have experienced challenges this year, with discounts remaining wide across various sectors and some consolidation occurring. However, certain trusts have performed well compared to both the wider market and their peer group. This article highlights the top performers across four of the Association of Investment Companies’ most widely followed equity-facing sectors.
GLOBAL
An investment remit that allows managers to scour the globe for the best investment ideas is an attractive proposition but don’t expect the Global sub-sector to be neatly packaged – it’s a mishmash of investing styles, risk tolerances, costs and benchmark comparisons, which may leave investors comparing apples with tractors when ranking trust versus trust.
We all know that high inflation and interest rates have eaten into returns for growth stocks, while on the flip side, exposure to the year’s biggest trends –AI, cloud computing, ecommerce, gold, bitcoin etc
Global investment trustsperformance rankings
Table: Shares magazine • Source: Sharescope, data to 10 December 2024
– to a greater or lesser degree has massively tilted performance. Take this year’s top performer, Manchester & London (MNL). A relatively small trust with around £360 million of assets, its heavy focus on large cap technology stocks has paid off brilliantly for shareholders this year, just as it did in 2023, when it also led the sub-sector performance rankings.
As markets began peering into a future where rates start coming down, cutting the cost of capital and supporting the risk-on trade, which typically
plays well for tech stocks, it added a huge tailwind to structural shifts, such as AI. It is a theme captured successfully by the trust, which has eyebrow-raising bets on tech giants Nvidia (NVDA:NASDAQ) and Microsoft (MSFT:NASDAQ), worth 61.5% of the fund combined, perhaps too concentrated for the average investor.
You might argue that number three Scottish Mortgage (SMT) faces a similar diversification conundrum given its hefty stakes in private companies like Elon Musk’s SpaceX, although it has a far more spread portfolio, albeit exclusively in high growth stocks.
Given the heavy risk-on showing in performance, it is a little surprising that Brunner Investment Trust (BUM), a far more conservatively run trust, sits second. Yet manager Allianz Global Investors too has a firm commitment to long-run growth themes, such as AI, digital health and rising retail investors independence, illustrated by big calls on TSMC (TSM:NYSE), Microsoft, UnitedHealth (UNH:NYSE) and Charles Schwab (SCHW:NYSE).
Spare a though for the once popular Lindsell Train Investment Trust (LTI), which continues to lose its way, and is the sub-sector’s sole negative performer in 2024. The shares have lost roughly 60% in three years as retail investors dump the stock in their droves. [SF]
GLOBAL EQUITY INCOME
Rate cuts in the New Year should stoke renewed investor interest in the Global Equity Income sector, outshone by sectors such as Growth Capital, Private Equity and Technology & Technology Innovation in 2024 as the US market continued to dominate, driven by the AI theme.
Nevertheless, four of the Global Equity Income sector’s seven constituents delivered respectable double digit total returns, including the simplified and relaunched Invesco Global Equity Income (IGET), which benefited from robust performance and a new 4% dividend target which drove demand for the shares. And the Troy Asset Managementsteered STS Global Income & Growth (STS), which outperformed its benchmark in the half to 30 September with a boost from tobacco giant Philip Morris (PM:NYSE) and delivered an 11.6% return, with share buybacks keeping the trust’s NAV (net asset value) discount in check.
Global equity income investment trusts - performance rankings
Leading the pack with a 37.5% gain was the self-managed and highly concentrated British & American (BAF), whose NAV was enriched by a share price surge at biggest holding Geron Corporation (GERN:NASDAQ), a California-based biotech specialising in therapeutic products to treat cancer.
Hot on its heels with a 21.7% gain was JPMorgan Global Growth & Income (JGGI), which combines ideas in both the growth and value styles and whose popularity reflects the managers’ track record of picking winning stocks using their highconviction, bottom-up research process. JPMorgan Global Growth & Income built on its record of outperformance in 2024 whilst benefiting from selective exposure to AI beneficiaries including Nvidia, TSMC, Meta Platforms (META:NASDAQ) and Microsoft. Demand for the shares remained strong, allowing the company to issue new stock at a premium to NAV. As it swells in size, the trust is becoming a natural ‘home’ for other funds, not just internally but also externally where trustees are looking for a change of manager. [JC]
UK ALL-COMPANIES
Top of the pops in the UK All-Companies trust table this year comes Henderson Opportunities Trust (HOT), run by the ever-dependable duo of James Henderson and Laura Foll.
For the year to 10 December, Henderson Opportunities returned 22.4% thanks to an eclectic mix of financial, mining and property holdings.
Both Barclays (BARC) and HSBC (HSBA) feature in the trust’s top three, while Anglo American (AAL) and Rio Tinto (RIO) make the top six and Springfield Properties (SPR) and Shaftesbury Capital (SHC) help round out the top 10 list.
In the runner-up position was Fidelity Special Values (FSV), run by the equally reliable Alex Wright and Jonathan Winton, with a 17.4% return for the year.
The managers take a contrarian, bottom-up, stockpicking approach, looking for companies which are unloved but are entering a period of positive change which hasn’t been picked up by the market.
Having first identified the downside risk, the duo then assesses the potential upside return and where each company is in the market cycle in order to build
a diversified portfolio.
There are typically three stages to each investment, and on average it takes 18 months for a company to move through this cycle although obviously each company is different.
The top contributors to the trust’s outperformance were its overweight positions in construction group Keller (KLR) and savings and insurance firm Just Group (JUST), which make up 3.5% and 2.4% of the fund against just 0.1% each of the All-Share, along with positive turns from FTSE stalwarts NatWest (NWG) and Imperial Brands (IMB)
The team also highlights their underweight of oil giant BP (BP.A) – which makes up 3.2% of the AllShare but is completely absent from Special Values – as a further positive top five contributor. [IC]
UK EQUITY INCOME
Leading the gainers is value-orientated investment trust Temple Bar (TMPL), followed by Diverse Income Trust (DIVI) and CT UK High Income Trust (CHI) which have all returned double-digit growth.
Temple Bar’s returns can be attributed to strong portfolio performers including ITV (ITV), up 18% this year, and NatWest up 87%.
It benefits from the investment experience of managers Nick Purves and Ian Lance who have more
UK all companies investment trusts - performance rankings
Table: Shares magazine • Source: Sharescope, data to 10 December 2024
than 50 years’ worth between them.
Another company to beat its benchmark is CT UK High Income Trust. The trust has also managed to grow annual dividend payments for 11 years in a row.
It currently invests in 40 stocks with more than 75% of its assets in FTSE 100 shares. Helpful considering the FTSE 100 has enjoyed its best year since 2021 with an 11.4% total return.
Struggling in comparison to peers are Finsbury Growth & Income Trust (FGT) , Schroder Income Growth Fund (SCF) and Dunedin Income Growth Investment Trust (DIG).
It comes as no surprise that Finsbury Growth & Income, managed by Nick Train, has fared less well this year due to the weak performance of major holdings, including drinks maker Diageo (DGE) and Burberry (BRBY). Burberry’s shares have fallen 30% year-to-date due to weaker demand for its luxury goods, especially in China. [SG]
Profiling the South Korean stars beyond Samsung
Consumer electronics giant dominates the market but there are some other interesting names
It may have had a tough time of late but consumer electronics and technology hardware outfit Samsung (005930:KRX) still dominates the South Korean market.
If you include the preference shares it has a near-30% weighting in the MSCI Korea index. However, there are some other interesting businesses beyond Samsung. Number two is SK Hynix (000660:KRX) which is one of the world’s largest semiconductor vendors whose major customers include Microsoft (MSFT:NASDAQ) and Apple (AAPL:NASDAQ).
Other major constituents include banking and insurance institutions KB Financial (105560:KRX) and Shinhan Financial (055550:KRX) as well as online platform and search engine Naver (035420:KRX).
Hyundai Motor (005380:KRX) and Kia Corporation (000270:KRX) will be familiar to many
UK motorists and both have a decent footprint in the hybrid market which is proving popular as people look to move away from traditional combustion engine vehicles but remain somewhat wary of going fully electric.
Biopharmaceutical business Celitron (068270:KRX) specialises in biosimilars – versions of previously approved medications which are intended to be more affordable for patients.
Steel manufacturer POSCO (005490:KRX) can trace its origins back to the 1960s when the country decided it needed to be self-sufficient in steel. Today it serves global markets including geographies like India and China.
Sponsored by Templeton
Emerging markets: tariffs, inflation and South Korean politics
Three things the Franklin Templeton Emerging Markets Investment trust team are focused on right now
1.
Tariffs: President-elect Donald Trump has indicated he will impose new tariffs on three of America’s leading trading partners. He plans to sign an executive order placing 25% tariffs on goods imported from Canada and Mexico on day one of his presidency, with an additional 10% on goods from China. This is on top of earlier plans for 60% tariffs on China and 10%-20% on all other imports to the United States.
2.
Inflation: Researchers at Harvard University1 have analyzed the impact of increased tariffs during the presidentelect’s first term, concluding American importers and, to a lesser extent, consumers, paid for the tariffs. In the case of specific tariffs on washing machines imported from Asia, their research shows prices of domestically manufactured machines also rose, as did the selling prices of tumble dryers, which did not carry specific tariffs. However, the tariffs did encourage Asian manufacturers to set up factories in the United States and created over 2,000 jobs. With even higher tariffs proposed in the president-elect’s second term, the potential impact on US inflation could give investors pause for thought.
3.
Political turbulence in South Korea: President Yoon’s declaration of martial law and the subsequent swift vote to reverse
the decree by parliamentarians indicates the checks and balances in South Korea’s democracy are working well. Policymakers were quick to respond with unlimited liquidity, if required, to stabilise financial markets. In the short term, equity market volatility could increase given political uncertainty, as well as concerns over president elect Trump imposing 10%-20% tariffs on all imports, including those from South Korea. In our assessment, the medium- to long-term outlook for the market remains unchanged.
Portfolio Managers
TEMIT is the UK’s largest and oldest emerging markets investment trust seeking long-term capital appreciation.
Chetan Sehgal Singapore
TEMPLETON EMERGING MARKETS INVESTMENT TRUST (TEMIT)
Andrew Ness Edinburgh
Cash offers rule but bid premiums ease back slightly versus last year
UKtakeovers moved up a gear in 2024 as predators targeted bigger companies. The average value of deals was £1.07 billion, nearly three times higher than the £390 million average in 2023. In total, there were £49 billion worth of recommended bids versus £17.2 billion last year.
A bounty of unloved or underappreciated companies were swept off their feet, signalling the UK market as being ‘on sale’ and showing how there was widespread value on offer.
Five FTSE 100 companies and 19 stocks in the FTSE 250 index received bids, the bulk of which were successful. That’s remarkable given last year there were only three FTSE 250 takeovers and none among FTSE 100 stocks.
It took a few attempts to get certain deals away, but there is a right price for every listed company and it was just a case of doing the M&A dance on price negotiations until the stars aligned.
Investors on the receiving end of a bid have cottoned on to the fact that many predators are not giving up if their first offer is turned down. That’s given many shareholders confidence to say no at the initial bid and ask for more – because, in most cases, they are getting it.
Just look at how quickly it took for Aviva (AV.) to stump up more cash for Direct Line (DLG). It made two bids and got a recommended offer in just nine days. Many couples spend months or years getting to know each other before marriage.
DEAL SHAPE AND SIZE
Bidders know the structure of a deal is important, hence why the majority of 2024’s UK takeovers were all-cash offers. Cash is king and investors
would prefer something in their hand than paper or a mixture of the two. Only eight successful deals involving UK-listed companies in 2024 had a cash and shares structure, while a mere three were allshare deals.
The average bid premium was 45%, slightly less than 2023’s 52% average but still a nice sweetener for investors on the receiving end of offer. The term ‘bid premium’ describes the extra amount (in percentage terms) the buyer offers compared to the market value on the night before the takeover approach went public.
If you consider the FTSE 100 has returned in the region of 11% this year including dividends, investors with a takeover in their portfolio in 2024 effectively received the equivalent of four years’ worth of UK stock market returns upfront.
COMMON THEMES AMONG UK TAKEOVERS
There was a common thread among UK takeovers in that many bidders thought a company was worth much more than attributed by the market. Buyers typically take a multi-year view on a company whereas the collective stock market is often short-term in its thinking.
For several years it’s been clear that unless the market attributed fair value, companies would be picked off one by one through takeovers. That trend remains in motion and could continue across 2025 unless investors are happier to pay a higher price for UK shares and bargain situations diminish.
Britvic (BVIC) and TI Fluid Systems (TIFS) are good examples of where the buyer spotted an opportunity to gain scale in their respective market through acquisition. Carlsberg was looking for ways to strengthen its footprint in Western Europe and be a bigger player in nonalcoholic drinks, and Britvic ticked all the right boxes. ABC Technologies buying TI Fluid Systems will expand its global footprint and broadens its customer base.
more than half of clothing retailer N Brown (BWNG:AIM). He took the view that the company would be better served as a private business, away from the spotlight of the stock market and without the listing costs.
UNSUCCESSFUL TAKEOVER ATTEMPTS
Fifteen UK-listed companies fought off takeover approaches during 2024 including two from the FTSE 100 – Anglo American (AAL) and Rightmove (RMV). In both cases and the same for fellow bid ‘survivor’ Currys (CURY), the stocks have gone on to trade on higher multiples of earnings.
The bid activity functioned as a wake-up call for investors that the stocks had something to offer.
Rigorous bid defence can cause investors to reappraise a stock –they wonder why the board has rejected a bid (or multiple bids) and take a deeper look. In the case of Anglo American, Rightmove and Currys, it’s clear that investors’ interest piqued after bids came and went.
On several occasions, bids came from an existing shareholder who subsequently decided they’d like to own the whole company. Pre-bid, Joshua Alliance and his family (plus associates) owned
Anglo American now trades on 16.5 times next 12 months’ forecast earnings versus 12.4-times on the eve of BHP trying to buy the miner. Part of Anglo American’s bid defence was to announce a sharper focus on fewer commodities and to exit certain areas including diamonds. The market liked this plan and that will have contributed to its subsequent equity re-rating.
Rightmove saw its valuation multiple move from 19.7 times forward earnings immediately before REA’s bid interest to now trade on 23.3-times.
The bid was a reminder that the UK stock market contains high quality companies. Sometimes all it takes is a bid to remind people what’s on offer.
As for Currys, it was clear that the electronic retailer’s board had no interest in the offers, which led US investment firm Elliott Advisors to walk away after making takeover attempts. Additional bid interest from China’s JD.com didn’t amount to anything, but investors were curious as to why Elliott was so eager to own Currys.
Currys’ shares now trade on 8.3 times forward earnings versus 5.5-times on the eve of Elliott’s first approach, with the re-rating amplified by
positive news flow. The frenzy around all things to do with AI has created a tailwind for Currys because electronic manufacturers are launching AI computing products and the public seems keen to snap them up.
WHO COULD BE THE NEXT BID TARGET?
One of the perfect recipes for a takeover is a company with decent scale but whose share price is drifting sideways or downwards as the market frets about near-term headwinds. That was precisely the case with Rightmove, DS Smith (SMDS) and International Distributions Services (IDS) before they received bids this year.
Whitbread (WTB) falls into this category – its share price is struggling to make progress because the market is worried about near-term UK growth opportunities. Fundamentally, Premier Inn is one of the UK’s most loved hotel brands and Whitbread is making progress in replicating this success in Germany, albeit from a low base. Whitbread would be an obvious takeover target if it weren’t for the fact the shares are not particularly cheap. Instead, there are two other names which look like more credible takeover targets because the shares are both weak and cheap, and the companies have redeeming qualities which could interest a buyer taking a longer-term view.
ITV’s (ITV) shares have languished in the doldrums amid a hangover from the Hollywood strikes which has disrupted TV and film productions, as well as uneven advertising income. There has been perennial chatter about ITV being a bid target but
for once it feels credible.
Private equity, a rival broadcaster or even a streaming platform could show interest in ITV. Its Studios content arm is the hidden gem in the business, potentially worth more than the market value of the entire group. Someone like Netflix could gobble up ITV for a fraction of its annual content spend and access its rich library of programmes.
The ITVX platform is proving to be stronger than originally expected and it is providing valuable insight into customers and their viewing habits, exactly the type of in-depth data that convinces big brands to advertise on the platform as they can target certain people efficiently.
ITV’s shares currently trade on just eight times forward earnings. Pre-pandemic it often traded in the region of 12 to 15 times.
Brothers Simon, Robin and Bobby Arora bought B&M (BME) 20 years ago as a struggling chain of 21 stores. They worked their magic and made B&M into a UK and French retail giant with more than 1,000 sites. It has been a disruptive force in discount retail and its roll-out opportunity still has legs.
Simon Arora bowed out in 2022 after 17 years running the business, Robin Arora seems to have become hands-off and now Bobby Arora is preparing to leave in 2025.
It’s the end of an era for the business, and precisely the time when a bidder might fancy their chances of making an offer, given the changing of the guard.
The shares have been weak because two disappointing quarters. The company recently lost its place in the FTSE 100 and investor sentiment is weak. It’s at times like this when a predator could pounce.
B&M trades on seven times EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) and a PE (price to earnings) ratio of nine-times based on 12-month forward earnings. Those are undemanding valuations and leave room for a bidder to offer a nice premium to the market value to seal the deal.
Why more people are set to face a big January tax bill
Recent developments mean the start of the year could be painful
Let’s not beat around the bush, January is an awful month. You’ve just spent a packet on Christmas, your favourite clothes are inexplicably tight, and your efforts to work off a little holiday weight in the gym are hampered by everyone else trying to do exactly the same thing.
It’s against this backdrop of seasonal wretchedness that HMRC stations its deadline for filling in a tax return, just in case anyone starts feeling a bit too chipper about the oh so slight increase in daylight hours towards the end of the month.
The final deadline for submission to the tax authorities is 31 January, and the bad news is the forthcoming tax return in 2025 will be significantly more painful for many savers and investors. That’s because they face a higher tax bill on their bank interest, share dividends, and capital gains.
A HIGHER-RATE BACKDROP
The tax return people will be completing in January 2025 refers to the tax year running from 6 April 2023 to 5 April 2024. It was during this year that
the base rate reached its recent peak of 5.25%, and as a result, savers enjoyed access to higher rates of interest than they had seen since the financial crisis. The average instant access rate offered by UK banks and building societies across the tax year was 2.5%, according to the Bank of England, though the most competitive rates were around double that. A positive development for savers, no doubt. But as a result of the dramatic shift in rates, many have had to think about the tax due on their interest payments for the first time in a long time.
Nowadays banks pay interest without any tax deductions, because of the personal savings allowance, an amount of interest taxpayers can receive each year tax-free. This is £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £0 for additional rate taxpayers.
When interest rates were close to zero, this meant most cash savers didn’t have to worry about a January tax bill. A higher rate taxpayer receiving an interest rate of 0.5% on their cash needed £100,000 sat in the bank to breach their Personal Savings Allowance, during the days of ultra-low interest rates. If that rate has risen to 5% though,
Next January promises to be even worse for savers and investors filling in their tax returns”
suddenly anything over £10,000 in a standard savings account starts to create a tax liability. For plenty of savers, the January 2025 tax return will be the first time they have reckoned with the tax implications of higher interest rates.
ISSUES WITH DIVIDENDS
Shareholders face a similar issue with their dividends. That’s because everyone receives a dividend allowance, which is an annual amount of dividends which can be received tax-free. When this was introduced in 2016/17, it stood at £5,000. From 2018 this was cut to £2,000, and for the tax year 2023/24, which is what taxpayers will be filing this coming January, it was cut to £1,000.
So that means even more tax for those who hold dividend-paying portfolios outside of a tax shelter. January 2026 will be even tougher, because for the current tax year the dividend allowance has been halved again, to just £500.
Gains on share sales are also in the spotlight this coming January because the capital gains tax allowance has been drastically cut back too. This is the amount of gains you can cash in each year without paying tax. Only a few years ago this stood at £12,300, but last tax year it was cut to £6,000, so those filing their tax return in the coming weeks will need to reckon with this too.
Again, there is more pain in the post, as this tax year the CGT allowance has been cut again, to just £3,000, so next January promises to be even more punitive for anyone with gains to report to the taxman. This will be amplified by the fact
the chancellor has increased the rates of capital gains tax on shares from 30 October 2024, to 18% for basic rate taxpayers and 24% for higher rate taxpayers (from 10% and 20% respectively).
PLANNING FOR NEXT YEAR
If you’re facing a large January tax bill as a result of these changes, there’s very little you can do about it seeing as the tax refers to the previous tax year, not this one. One exception to this is making a charitable donation, which can be carried back one tax year, provided it is recorded in the forthcoming January tax return. If you’re a higher or additional rate taxpayer this could trigger a tax rebate which would be set against any tax you owe.
Even though your January 2025 tax bill might be a lost cause, it’s worth giving some thought to this time next year. Next January promises to be even worse for savers and investors filling in their tax returns, thanks to lower capital gains tax and dividend allowances, not to mention frozen income tax bands pushing more people into higher tax brackets. It’s still possible to make pension contributions and ISA subscriptions in this tax year, which could well help to reduce your tax bill next January, especially if you’re a higher rate or additional rate taxpayer.
The deadline for contributions is the end of the tax year on 5 April 2025. The January 2026 tax return might well feel like a problem for another day, but action now could really take the edge off what might otherwise prove to be a punishing tax bill this time next year.
By Laith Khalaf AJ Bell Head of Investment Analysis
Should I look at alternatives to a SIPP in wake of inheritance tax changes?
The case for considering other options now the rules have been altered
I am 67 and currently have a SIPP worth approximately £500,000. Because the favourable IHT regime is now ending I am now considering whether to reduce the amount in my SIPP and look at alternatives.
My understanding is that I can take 25% tax free from my SIPP at any point and then the remaining pot is taxed on withdrawal at marginal rates. We do not need the cash immediately as we have other resources to call on and our ISAs produce a regular income. But given the pending change in IHT treatment I am considering taking the 25% tax free and gifting at least some of it in the hope of surviving seven years. My wife and I could also shelter £80,000 in ISAs over two tax years.
Simon Rachel Vahey, AJ Bell Head of Public Policy, says:
In the Budget at the end of October, the chancellor proposed bringing pensions into inheritance tax (IHT). On the same day HMRC published a consultation on what the rules surrounding this
could look like.
To be very clear, this is currently only a consultation, and not yet law. The final rules on how pension funds are treated on death stand a good chance of changing between now and April 2027, so it’s probably a good idea to hold fire on setting detailed plans into action until we get a clearer picture of the final rules.
Having said that it’s understandable some people will want to start thinking about their retirement and estate planning, and what action they could take.
HOW PENSION WITHDRAWALS CAN BE MADE
Generally, people can take up to 25% of their pension fund as a tax-free amount. They can withdraw the rest of it out through drawdown in any way they want – gradually as a regular income, in chunks over time, or all at once. When they take money out it will be taxed as income, so people should be aware that taking large amounts could push them into a higher tax bracket.
Alternatively, once they take a tax-free cash amount, people can choose to buy an annuity with the remaining fund. An annuity gives them a guaranteed income for as long as they live. But
Ask Rachel: Your retirement questions answered
it doesn’t have to be just drawdown or annuity –pension savers can take a combination of both.
People don’t need to take all their tax-free cash at once either. They could take a slice of their pension pot at a time; take 25% of that amount as cash, and then move the rest into drawdown to take out when they want, or use it to buy an annuity, or take it all as a taxed ad-hoc lump sum.
Once people take money out of their pension (either tax free or taxed), if it remains with them, it will generally be in their estate when it comes to working out what (if any) inheritance tax applies. If their spouse or civil partner inherits this money, then it will be exempt from inheritance tax. Of course, it then falls into their spouse’s estate when they die, unless they spend it in the meantime.
If someone takes money out of their pension and invests it in their ISA, then it stays within their estate when working out inheritance tax – the same way as for a pension (if the proposals go ahead). The key difference is the timing of paying income tax and by whom. If the money is taken out of a pension and invested in an ISA, then the pension saver pays income tax at that point. If the money is kept within the pension, then the beneficiary pays income tax when they take it out –but only if the original pension saver died after age 75.
WHEN IT MIGHT MAKE SENSE FOR MONEY TO STAY PUT
If the person inheriting the money is not a spouse or civil partner, is a lower rate taxpayer than the
original pension saver was, or the original pension saver dies before 75, it may make more sense to leave the money in the pension. Especially in the knowledge that it is being passed on to help that loved one attain a decent income in retirement. Alternatively, there are ways to remove money out of someone’s estate. People can gift it outright to others. HMRC’s rules allow people to give out gifts of up to £3,000 each year exempt from inheritance tax. Or small gifts of up to £250 each (although these small gifts cannot be given to people who receive all or part of the £3,000 gift).
Alternatively, people can make an unlimited gift to another which will escape inheritance tax if the giver of the gift survives for another seven years after making the transfer. If the giver dies in this period, then usually the full value of the gift will be included in their estate when working out inheritance tax, but taper relief will be available if the giver survived the gift by at least three years. Another way is for someone to make a regular gift to another out of their normal income. To meet the rules to be exempt from IHT the gift has to be part of the giver’s normal expenditure, it has to be made out of income, and it has to leave the giver with enough income to maintain their normal standard of living. This can be a useful exemption from IHT, but it’s also complicated, so care needs to be taken and appropriate paperwork kept. Again, it’s probably best to get expert help and advice in this area.
THE TRUSTS OPTION
Gifts can also be made to trusts, but there are complicated rules around setting up trusts, as well as additional costs, so it’s always best to get some expert help and advice on your options on how to set these up and how to invest trust money. One final thing. As well as making outright gifts to family members, some people may want to pay the money into someone else’s SIPP or ISA. If they pay into a SIPP, then the pension holder should receive tax relief on the contribution and that will boost the overall value of their SIPP, and their income in retirement.
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