BlackRock Greater Europe Investment Trust Plc - Portfolio Update
PR Newswire
London, May 16
The information contained in this release was correct as at 30 April 2023. Information on the Company's up to date net asset values can be found on the London Stock Exchange website at:
https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.
BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC (LEI - 5493003R8FJ6I76ZUW55)
All information is at 30 April 2023 and unaudited.
Performance at month end with net income reinvested
| One Month | Three Months | One Year | Three Years | Launch (20 Sep 04) | |
| Net asset value (undiluted) | -0.7% | 4.4% | 9.4% | 56.4% | 671.3% |
| Share price | 0.6% | 5.3% | 7.5% | 51.5% | 642.6% |
| FTSE World Europe ex UK | 2.3% | 4.2% | 13.2% | 52.7% | 395.1% |
Sources: BlackRock and Datastream
At month end
| Net asset value (capital only): | 558.63p |
| Net asset value (including income): | 562.07p |
| Share price: | 535.00p |
| Discount to NAV (including income): | 4.8% |
| Net gearing: | 8.8% |
| Net yield1: | 1.2% |
| Total assets (including income): | £567.7m |
| Ordinary shares in issue2: | 101,000,161 |
| Ongoing charges3: | 0.98% |
1 Based on an interim dividend of 1.75p per share and a final dividend of 4.85p per share for the year ended 31 August 2022.
2 Excluding 16,928,777 shares held in treasury.
3 The Company's ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation, write back of prior year expenses and certain non-recurring items for the year ended 31 August 2022.
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| Top 10 holdings | Country | Fund % |
| Novo Nordisk | Denmark | 9.0 |
| LVMH Moët Hennessy | France | 8.1 |
| ASML | Netherlands | 6.2 |
| RELX | United Kingdom | 5.4 |
| Lonza Group | Switzerland | 4.8 |
| Hermès International | France | 4.3 |
| DSV Panalpina | Denmark | 4.2 |
| KBC Groep | Belgium | 3.9 |
| STMicroelectronics | Switzerland | 3.5 |
| Safran | France | 3.3 |
Commenting on the markets, Stefan Gries, representing the Investment Manager noted:
During the month, the Company's NAV fell by 0.7% and the share price rose by 0.6%. For reference, the FTSE World Europe ex UK Index returned 2.3% during the period.
European ex UK markets were up in April, which was a fairly calm month following the market volatility experienced in March. European markets continued to perform better than their US peers.
Whilst global macroeconomic data has been mixed, the bottom-up picture remains robust. The European earnings season showed evidence of a resilient consumer and decent outlooks for the industrial sector, underpinned by green stimulus.
During the month, investors largely favoured defensives over cyclicals with real estate, health care and utilities delivering the strongest returns. The financials sector was also up, somewhat rebounding following volatility in banks during the previous month. The IT sector was the only sector that posted negative absolute returns during April.
The Company underperformed its reference index during April, largely driven by stock selection within health care, whilst an overweight to IT also detracted. In sector terms, the Company's overweight exposure to IT, particularly the semiconductor industry, as well as an underweight to utilities and financials detracted. A higher allocation to health care was positive, although offset by stock selection. The Company's lower exposure to telecoms aided returns.
The largest negative contribution came from the semiconductor industry with the three largest relative detractors being STMicroelectronics, ASMi and ASML. On the one hand, the industry suffered a reversal from strong performance in previous months. On the other hand, markets were worried over weaker reported order intake numbers on the back of inventory levels normalising. Whilst STMicroelectronics beat on Q1 results forecasts, shares fell as investors were concerned over the resilience of the company's consumer-facing end markets, such as electronics and the auto industry. As inventories are starting to normalise, there is a risk that pricing will be slightly weaker in the short term.
ASML also reported solid Q1 numbers with a 6% beat on revenue and 15% beat on EBIT. However, ASML see mixed signals on demand from different end-market segments and reported weaker-than-expected order intake, again seeing an impact from clients bringing their inventory down to healthier levels. ASML still has an order backlog of EUR39bn which provides close to two-year visibility and hence some protection.
Finally, Dutch ASMi reported a beat versus consensus on Q1 revenues but a drop in orders and expect order intake numbers to remain on the lower end of expectations for the remainder of the year. A degree of normalisation had to be expected following a period of extremely high demand, but it does not change the medium to long term investment case around a structural shift in demand as our everyday lives become more digital.
Sartorius Stedim also detracted after Q1 results were weaker than expected. The company had already been guiding for a weaker H1'23 vs H2'23, but the Q1 result showed a larger step up will be needed to hit the full year guidance they have maintained. Sales were down -13% and missed consensus by the same amount. Orders were down -32% as customers continued to rundown inventories built up during the pandemic. The company expects orders to normalise by mid-year, with full year sales growing low single digit percent and EBITDA margin around flat compared to the prior year. Though, following the Q1 results, we see this guidance at risk of being cut.
Worries over the extent of a destocking cycle also impacted chemical distribution businesses including IMCD. We expect the normalisation phase after a number of very strong years to be benign and would note that the company continues to take market share.
Not owning Infineon was positive as shares were caught up amongst the pressure on the semiconductor sector during the month as discussed above. Shares in BE Semi stood out amongst industry peers with gains in April which contributed positively to relative portfolio returns. The company's Q1 results showed consensus beats on all metrics, except for orders where in our view estimates were too high given the company had flagged order pull-ins for smartphones and strong hybrid bonding orders benefiting Q4'22. We expect 2023 to be the trough in orders and sales, with the second half of the year showing more recovery driven by China orders and the hybrid bonding opportunity ramping up into outer years.
Within luxury, Hermès was the top performer on an excellent set of results. Sales surged 23%, largely driven by better than expected results in non-leather categories such as watches, jewellery, homeware and silks. All geographies were positive with the strongest positive impact coming from China.
LVMH also reported strong results for the first quarter with revenue up 17% year-on-year, largely driven by the group's fashion & leather goods business. The rebound in Chinese demand due to lifting Covid restrictions, as well as strength in Europe and Japan thanks to strong tourism, aided results.
Finally, shares in Swedish industrial group Atlas Copco were lifted by strong Q1 results with operating profit beating expectations and demand expected to remain at current levels for the remainder of the year. Industrial orders beat consensus by 19%, driven by the auto industry and the electric/battery end market which has grown significantly.
Outlook
European equities have significantly outperformed other regions over the last six months, as the outlook for Europe has materially improved. The domestic energy crisis has been de-risked with prices down and storage levels high, and as one of the largest exporters to China, many European companies stand to benefit from the country's ongoing re-opening. On the broader European financial system, despite recent volatility owing to concerns around US regional banks and the forced merger of UBS and Credit Suisse, there have been assurances from central bankers and regulators on the sector's financial health, helping to restore some confidence.
Despite year-to-date gains, the set up for the European equity market remains favourable relative to developed market peers, such that the US and European equities are still under-owned and valuations remain attractive.
Whilst there are a number of unknowns from a macroeconomic perspective, we see opportunities for attractive returns in select areas. Corporate balance sheets are in decent shape and in much better positions than in previous downturns. Many companies in Europe have spent the last decade deleveraging balance sheets and interest coverage is significantly higher than during the Global Financial Crisis or other prior periods associated with deep recessions or prolonged bear markets. Corporate spending intentions also remain healthy and this spend is often linked to transformational capex.
Lastly, long-term structural trends and large amounts of fiscal spending via the Recovery Fund, Green Deal and the REPowerEU plan in Europe can drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitization or decarbonisation. We believe the portfolio is well aligned to many of these structural spending streams.
16 May 2023
ENDS
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