Murray Income Trust PLC
Annual Report 30 June 2024
Performance Highlights
| Net asset value total returnABC | | Share price total returnAB |
| +9.9% | | +7.6% |
| 2023: +8.8% | | 2023: +4.9% |
| | | |
| Benchmark total returnAD | | Ongoing chargesB |
| +13.0% | | 0.50% |
| 2023: +7.9% | | 2023: 0.50% |
| | | |
| Earnings per share (revenue) | | Dividend per share |
| 37.4p | | 38.50p |
| 2023: 38.7p | | 2023: 37.50p |
| | | |
| Discount to net asset valueBC | | Dividend yieldB |
| 10.5% | | 4.5% |
| 2023: 8.2% | | 2023: 4.5% |
| A Total return. | ||
| B Considered to be an Alternative Performance Measure. | ||
| C With debt at fair value. | ||
| D The Company’s benchmark is the FTSE All-Share Index. | ||
| Net Asset Value per sharec | Dividends per share | Mid-market price per share | ||
| At 30 June – pence | Year ended 30 June – pence | At 30 June – pence |
| 2020 | 807.7 | 2020 | 34.25 | 2020 | 768.0 | ||
| 2021 | 835.7 | 2021 | 34.50 | 2021 | 871.0 | ||
| 2022 | 871.0 | 2022 | 36.00 | 2022 | 832.0 | ||
| 2023 | 911.7 | 2023 | 37.50 | 2023 | 837.0 | ||
| 2024 | 949.9 | 2024 | 38.50 | 2024 | 857.0 |
Murray Income Trust PLC, established in 1923, is an investment trust aiming for high and growing income with capital growth through investment in a portfolio principally composed of UK equities. Managed by abrdn, a leading global asset management company, the Company has a market cap approaching £1 billion, is listed on the London Stock Exchange and is a constituent of the FTSE-250 Index.
The Company is recognised as a ‘Dividend Hero’ by the Association of Investment Companies, boasting a 51-year track record of annual dividend increases, making it an attractive choice for risk-averse income seekers. The Manager’s investment process prioritises quality characteristics, targeting exceptional companies by thoroughly evaluating their management, finances, and business models first-hand. This rigorous approach aims to build a portfolio capable of delivering a high and growing income, with dividends paid quarterly.
The Manager employs a ‘3D’ investment approach – dependable, diversified, and differentiated – to identify high-quality large-cap companies with robust earnings potential, as well as small and mid-cap companies with strong growth prospects. The ability to invest up to 20% of the portfolio in overseas-listed companies provides differentiation from peers.
The Board of the Company and the Manager believe that investment in the UK equity income sector offers a compelling opportunity, with investors increasingly recognising that dividends are a key driver of long-term total equity returns. Many areas of the UK market have seen dividends rebased and pay-out ratios remain modest, providing a strong foundation for dividend growth. The Manager’s focus on quality companies gives investors access to predominantly global businesses capable of delivering appealing long-term earnings and dividend growth.
For more information, or to sign up for regular updates from the Company, please visit: www.murray-income.co.uk.
Strategic Report
Chair’s Statement
Highlights
· Annual dividend increased by 2.7%, the 51st year of consecutive growth.
Investment management fee reduced to a competitive 0.35% for the first £1.1bn of the Company’s net assets from 1 July 2024.
· Net Asset Value (“NAV”) A,B total return of 9.9% for the Year.
· Share price A,B total return was 7.6% as the discount, calculated on a fair value NAV, widened from 8.2% to 10.5%.
· Over 7.0 million shares (6.3% of the total) bought back by the Company during the year ended 30 June 2024.
A considered to be an Alternative Performance Measure.
B With debt at fair value.
It has been a turbulent but positive period for world stock markets in the year ended 30 June 2024 (the “Year”). Global indices ended higher across the board with the MSCI World Index up 21.5% in Sterling terms. The UK’s FTSE All-Share Index (the Company’s Benchmark) ended the Year with a positive total return of 13.0%. One of the drivers for positive market returns was the fall in inflation across the major global economies.
In the UK, for example, the Consumer Prices Index fell from 6.8% to just 2.0% over the Year and was in line with the Bank of England inflation target for the first time in three years. UK food price inflation also fell to 2.5% in June, its lowest level since October 2021. The hoped-for corollary of subsiding inflation is the potential for interest rates to fall. As a leading indicator, the UK stock market has already risen modestly in anticipation of such a move, the first step of which occurred in early August, after the Year end, with a cut announced by the Bank of England, from 5.25% to 5.00%. Perhaps interest rates will not decline as far or as fast as had been anticipated at the start of the calendar year, but it does seem likely that they will end 2024 at a lower level.
Investment Performance
Over the Year, the Company’s NAV per share (with debt at fair value) rose 9.9% in total return terms, as compared to the Benchmark total return of 13.0%. The share price total return was 7.6% reflecting the discount widening from 8.2% to 10.5% (based on NAV with debt at fair value). Further details of the portfolio performance, including attribution, may be found in the Investment Manager’s report. Performance returns over the longer term are shown in the table below.
From 30 June 2024 to 12 September 2024, being the latest practicable date prior to approval of this Report, the NAV per share (with debt at fair value) returned 1.1% as compared to 2.0% for the FTSE All-Share Index (both figures on a total return basis). The share price total return was 0.7%, reflecting the discount widening from 10.5% to 11.0%.
Dividend
The Board announced, on 30 July 2024, its 51st consecutive year of growing dividends. For the year ended 30 June 2024, the dividend increased from 37.5p to 38.5p per share, a rise of 2.7%. Revenue per share for the year was 37.4p, a slight decrease on last year’s 38.7p. The Board understands that, whilst the short term outlook for dividends is complicated by the increasing use of share buybacks by certain listed companies, one of the positive features of investment companies is their ability to smooth distributions to shareholders. The Board is confident in keeping its dividend growing in future years as it possesses revenue reserves, as at 30 June 2024, equivalent to 55% of the current annual dividend.
| | 3 years ended | 5 years ended | 10 years ended |
| | 30 June 2024 (annualised) | 30 June 2024 (annualised) | 30 June 2024(annualised) |
| Performance (total return) | % | % | % |
| Share price A,B | 3.9 | 4.6 | 5.5 |
| Net asset value per Ordinary share A,B,C | 4.9 | 5.7 | 6.0 |
| FTSE All-Share | 7.4 | 5.5 | 5.9 |
| Source: abrdn & MorningstarA Total return.B Considered to be an Alternative Performance Measure.C With debt at fair value. | | ||
The Association of Investment Companies (the “AIC”) awards Dividend Hero status to investment trusts which have raised their annual dividend consecutively for twenty years or more. Maintaining that Dividend Hero status is a source of pride for the Board as it pursues its long term objective of a high and growing dividend income combined with capital growth from a diversified portfolio consisting primarily of UK equities.
Discount and Share Buybacks
There has been turbulence in investment companies over the last 18 months or so, with discounts to NAV coming under pressure, particularly for those vehicles comprising less liquid assets. The UK equity income sector, despite the greater liquidity of its underlying stocks, was not immune from the overall trend as indicated by the widening of the Company’s discount, as noted above.
One reason for the higher level of discounts in the UK equity sector has been a widespread lack of enthusiasm for UK equities over the past few years. UK funds, in general, have not seen any net monthly inflows since July 2021. Many reasons have been put forward for this, including the uncertainty caused by Brexit, then the Covid epidemic, not to mention the recent political uncertainty, with four UK Prime Ministers in the past five years. UK Defined Benefit pension schemes have also sharply reduced their exposure to UK equities over the past two decades. Part of the reason for widening discounts can also be put down to the underlying interest rate environment. When interest rates are high or rising, markets tend to trade in a ‘risk-off’ mode with limited enthusiasm overall, given the competing attractions of high interest paying deposit accounts. When interest rates start to fall, however, investors are more likely to be in ‘risk-on’ mode, looking for attractive opportunities as deposit rates fall. One such opportunity could be accessed through buying investment trusts at prices which represent higher than average discounts to net asset value.
Share buybacks across the investment trust sector are currently running at record levels. Total investment trust buybacks during 2023 amounted to £3.9bn. In the six months ended June 2024 alone, buybacks reached £3.7bn. At 30 June 2024, the average discount for investment companies, excluding 3i Group plc, stood at 15%. During the course of the Year, the Board has pursued a policy of buybacks in order to limit the volatility of the discount. The share buyback policy also aligns the views of the Board with that of shareholders in seeking to maintain an orderly market in the shares, enhance shareholder returns by buying shares at a discount and highlighting the overall value in being able to buy a good quality portfolio of liquid, readily tradable assets at a discount.
The Company bought back just over 7.0 million shares, 6.3% of the shares outstanding at the beginning of July 2023. This compares to a figure of 4.3% for the previous year. These shares were bought at an average discount of 8.9%, with a corresponding positive impact on the NAV total return of 0.6% over the Year. The shares bought back are kept in Treasury meaning there is the potential for them to be reissued should the Company return to a sustained premium to NAV in the future.
The Board monitors the discount level closely and will again be requesting shareholders’ approval at the AGM to renew the Company’s buyback and issuance powers. As at 30 June 2024, there were 104,685,001 (2023: 111,720,001) Ordinary 25p shares in issue with voting rights and 14,844,531 (2023: 7,809,531) shares held in Treasury. Between 1 July 2024 and 13 September 2024, the latest practicable date prior to approval of this Report, the Company bought back an additional 1,005,021 shares, resulting in 103,679,980 shares in issue, and a further 15,849,552 shares in Treasury.
Gearing
The Company’s net gearing was 9.1% at 30 June 2024 (2023: 10.3%) and the Board’s policy towards gearing remained unchanged during the Year. The Company has in place £100 million of long term borrowings made up of £40m loan notes redeemable at par in November 2027 and £60 million loan notes redeemable at par in May 2029. These combined have a weighted interest cost of 3.6%.
Reduction and Simplification of Investment Management Fees
The Board is pleased to report that it has reached agreement with the Manager to reduce and simplify its management fee. The new annual fee structure, back-dated to the start of the Company’s financial year on 1 July 2024, will be simplified from three tiers to two tiers with 0.35% charged on the first £1.1bn of net assets, falling to 0.25% for net assets above that level. Until 30 June 2024, the annual management fee was 0.55% of the first £350m of net assets, 0.45% on net assets from £350m and £450m and 0.25% on any net assets in excess of £450m. The Board is confident that this is a competitive fee structure within the overall investment trust industry. For example, at its current size of approximately £1bn of net assets, the annual management fee of the Company would be 0.35% of net assets under the new basis as compared to 0.375% on the former basis, equivalent to a reduction of £250,000.
Board Composition
Alan Giles, currently Senior Independent Director, has indicated that he will not seek re-election as a Director at the forthcoming Annual General Meeting (“AGM”) and will retire from the Board at the conclusion of the meeting. Alan was appointed a Director following the merger between the Company and Perpetual Income and Growth Investment Trust plc in November 2020. The Board shall miss Alan’s wise counsel and the considerable experience of listed companies which he brought to its deliberations. I, and the Board, wish him well in his future endeavours.
I am pleased to announce that Stephanie Eastment has agreed to become the Company’s Senior Independent Director, replacing Alan, while Nandita Sahgal Tully will take over from Stephanie as Chair of the Audit Committee. As referenced in the Half-Yearly Report, Angus Franklin joined the Board as a non-executive director in January of this year following the retirement of previous Chair, Neil Rogan and fellow director, Merryn Somerset Webb.
The Board has commenced a search for a new Director, with a view to having someone in situ by the end of this calendar year or early 2025.
Investment Process
Our Manager’s investment process is best summarised as a search for good quality companies at attractive valuations, with the potential for sustainable dividend growth. The Manager defines a quality company as one capable of strong and predictable cash generation, enduring high returns on capital and with attractive growth opportunities over the longer term. These typically result from a sound business model, a robust balance sheet, good management and strong environmental, social and governance characteristics.
Investment People
abrdn is our appointed investment management company. Charles Luke has been our lead portfolio manager since 2006 and works alongside Co-Manager, Iain Pyle, and Rhona Millar, as members of the Manager’s 39-strong Developed Markets Equities team.
Sustainability and ESG
Sustainability and ESG (environmental, social and governance) continue to be at the top of UK’s regulatory agenda. In April of this year, the FCA published its guidance on new anti-greenwashing rules which aim to protect consumers by ensuring that sustainable products and services are accurately described.
Whilst the Company does not have a sustainability objective and its investment policy does not have specific sustainability characteristics, ESG analysis is integrated into the Manager’s investment process. The Board delegates the management of the portfolio to the Manager and endorses its approach to integrating ESG into portfolio construction and investee company engagement.
Overview
In addition to the significant widening of discounts across the investment trust sector, we have also witnessed unprecedented corporate actions and mergers over the past year with eight transactions completed and two more announced in 2024 to date. If discounts remain high, that trend is likely to continue. In some cases the activity is due to potential corporate buyers seeing the value in the underlying assets. In some cases, this is due to investment trust boards, themselves, reviewing their own policies, the overall trends in their sectors and the scope for greater liquidity and economies of scale through judicious merger.
On a longer term basis, however, despite all the turbulence, UK equities have returned 9.6% p.a. over the past 50 years. Crucially, about 40% of this return has derived from dividend income – highlighting the genuine attractions of long term income investing. This is especially important for shareholders in this Company. There remains significant demand for a reliable income stream from many investment trust shareholders, and Murray Income Trust is well placed to fulfil this with its current yield of 4.5% and its record of consistent dividend growth over more than half a century.
It is also the case, as observed by Charles Luke in his report, that UK equities are cheap by international standards. Whilst few commentators would argue that there is good value in the UK equity market and in those investment trusts trading at higher than average discounts, there is still the question of what might be the catalyst to unlock that value. I mentioned above the impact that lower interest rates could have. I also make no bones about the fact that the UK Government can play a big role in creating the conditions for making the UK equity market a more attractive long-term place to invest. There are many initiatives which can be undertaken. I can report that I, as Chair of your Company, have written to Tulip Siddiq, the new Economic Secretary to the Treasury, urging her to reform the rules governing cost disclosures for investors. This is a somewhat arcane, technical issue, but the way in which costs are currently assessed and disclosed is a big disincentive for investors to invest in investment trusts. Previous governments had promised reform since 2021, but no action has yet been taken. The new government can quickly and easily correct this misleading and discriminatory cost disclosure regime.
I also welcome the steps taken by the Government to encourage more companies to list on the UK stock exchange, by making the listing requirements more similar to those on the European and US stock exchanges. The new Chancellor, Rachel Reeves, wants to encourage more investment in British industry. Anything she can do to make it more attractive to invest in UK listed companies would be welcome. Given that it is unlikely that the Government will be pursuing the idea of a separate British ISA, it would still be worthwhile simplifying the existing range of different ISAs and an increase in the annual investment limit to £25,000 would also be welcome. Encouraging pension funds to invest a certain minimum percentage of their assets in the UK market might also be worth considering. Finally, and I realise that this is unlikely to be top of the Chancellor’s agenda, a commitment to scrapping the 0.5% stamp duty charge on the purchase of UK shares would go a long way towards levelling the playing field against other major equity markets which do not impose such a charge.
A combination of some or all of these measures, together with the current relative undervaluation of UK equities could significantly help to make the UK market the natural home for many UK investors, particularly income investors, once again.
These are matters to which I may well return in the future as I think it important to speak out on issues which could be of great benefit to our shareholders over the medium to long term.
Online Shareholder Presentation
The Company will hold an online shareholder presentation for shareholders and other interested parties at 11.00am on 17 October 2024. This will feature your Chair and Investment Manager discussing the outlook for the Company and answering your questions live. Further information on how to register for the online shareholder presentation may be found on the Company’s website at https://www.murray-income.co.uk/en-gb
Annual General Meeting
The Company will hold its AGM at 12.30 pm on Tuesday 5 November 2024 at Wallacespace Spitalfields, 15 Artillery Lane, London E1 7HA. One of the advantages of investing via investment trusts is that all shareholders have the opportunity to meet their Manager and the Directors at the AGM. This year’s meeting will commence with a presentation on the Company and market outlook from Charles Luke. There will then be the formal part of the AGM where shareholders can ask questions about the AGM resolutions and thereafter cast their votes via a poll.
I always welcome questions from our shareholders at the AGM. Alternatively, shareholders may submit questions prior to the AGM by sending an email to: murray.income@abrdn.com.
Shareholders will find enclosed with this Annual Report an Invitation Card and Form of Proxy for use in relation to the AGM. Whether or not you propose to attend the AGM, shareholders are encouraged to complete the Form of Proxy, for which the latest date of receipt by the registrar is 12.30pm on 1 November 2024. Completion of a Form of Proxy does not prevent a shareholder from attending and voting in person at the AGM.
Shareholders who wish to attend and/or vote at the AGM and hold their shares via a platform will need to make arrangements with the administrator of their platform. Further details on how to attend and vote at company meetings for holders of shares via platforms can be found at: www.theaic.co.uk/aic/how-to-vote-your-shares.
Shareholders wishing to attend the AGM and who are unsure how to register, can email murray.income@abrdn.com.
Peter Tait
Chair
17 September 2024