THE EASTERN EUROPEAN TRUST PLC: Portfolio Update
THE EASTERN EUROPEAN TRUST PLC
All information is at 28 February 2013 and unaudited.
Performance at month end with net income reinvested
One Three One Three *Since
Month Months Year Years 30.04.09 Sterling: Share price** -0.5% 12.4% -0.9% 14.8% 84.9% Net asset value (undiluted) 1.2% 13.6% 5.9% 16.0% 92.0% Net asset value (diluted) 1.0% 11.2% 3.1% 12.8% 86.8% MSCI EM Europe 10/40(TR) -0.2% 11.4% 7.1% 19.4% 85.8%
US Dollars: Net asset value (undiluted) -3.1% 7.6% 0.7% 15.6% 96.7% Net asset value (diluted) -3.3% 5.3% -2.1% 12.5% 91.3% MSCI EM Europe 10/40(TR) -4.5% 5.5% 1.8% 19.1% 90.4%
Sources: BlackRock and Standard & Poor's Micropal
* BlackRock took over the investment management of the Company with effect from 1 May 2009.
At month end Net asset value - capital only: 316.33p Net asset value*** - cum income: 321.75p Net asset value - cum income (diluted for subscription shares): 313.04p Share price: 275.50p 2012 Subscription share price: 13.50p Total assets^: £130.7m Discount (share price to cum income NAV): 14.4% Gross market exposure^^^: 108.6% Net yield: n/a Ordinary shares in issue^^: 39,263,427 2012 Subscription shares: 8,533,028
***Includes year to date net revenue equal to 5.42p per share. ^Total assets include current year revenue. ^^Excluding 5,800,000 shares held in treasury. ^^^ Long positions plus short positions as a percentage of net asset value.
Benchmark Sector Analysis Net Assets(%)* Country Analysis Net Assets(%)*
Financials 32.7 Russia 62.9 Energy 31.9 Turkey 19.8 Telecommunications 12.6 Poland 7.2 Materials 7.5 Hungary 6.7 Consumer Staples 6.3 Czech Republic 4.7 Industrials 4.2 Kazakhstan 2.4 Health Care 4.0 Turkmenistan 1.5 Information Technology 3.6 Austria 1.4 Other 3.0 Ukraine 1.0 Utilities 1.4 Consumer Discretionary 0.4
---------- -------- Total 107.6 Total 107.6
---------- -------- Short Positions -1.0 Short Positions -1.0
*reflects gross market exposure from contracts for difference (CFDs)
Ten Largest Equity Investments(in %orderof Total Market value)
Total Market Company Country of Risk Value %
Sberbank Russia 9.8 Gazprom Russia 8.4 Turkiye Garanti Bankasi Turkey 5.0 Mobile Telesystems Russia 5.0 Turkcell Iletism Hizmet Turkey 4.0 Surgutneftegaz Russia 3.8 Mail Ru Russia 3.4 Powszechna Kasa Osz czednosci Poland 2.9 Lukoil Russia 2.8 Komercni Czech Republic 2.7
Commenting on the markets, Sam Vecht, representing the investment Manager noted;
In February, the MSCI Emerging Europe 10/40 Index returned -0.2% (GBP terms), erasing gains from January. Policy risks in China; sequestration in the US; and a political stalemate in Italy weighed on global equity markets.
The strongest market in February was Turkey, although a return of 2% was not sufficient to regain the losses of January. Investors overlooked uninspiring macroeconomic data, focussing on stock specific issues.
Russia underperformed over the month. With increased political uncertainty in Europe negatively impacting global sentiment and in the absence of specific positive catalysts, increased equity issuance weighed on the market.
Hungary was the weakest market as macroeconomic data for the fourth quarter of 2012 disappointed investors. The appointment of a new governor of the central bank raised concerns about the institutions independence from the government and also weighed on sentiment.
The Eastern European Trust returned 1.2% (undiluted GBP terms) in February, outperforming the benchmark by 1.0%.
Stock selection was the main driver of relative outperformance over the month.
Turkish telecom company, Turkcell was the largest individual contributor to performance after announcing a strong trading update for the fourth quarter of 2012.
Russian internet company, Mail.ru, which was also strong, announced a special dividend implying a 12% yield. The stock outperformed although the announcement of a $580m placing on the last day of the month dampened the share price.
The Trust also benefitted in relative terms from an underweight position in Polish telecom, TPSA. The stock has long been considered a `defensive dividend' play but lost that tag in spectacular fashion when the company announced weak results and cut the dividend. As a result, the stock fell by over 40%.
The largest detractor from performance was Hungarian pharmaceutical, Gedeon Richter, which suffered from the negative sentiment surrounding political appointments in Hungary.
In February, we added to the position in Russian energy company, Surgutneftegas. We hold preference shares which trade at an attractive valuation for what is the most free cash generative company in the sector.
We sold the position in Russian energy company, Rosneft on concerns about additional capital expenditure in non-core markets.
Russian and Eastern European markets have significant long-term structural advantages. They benefit from flexible and dynamic economies with undervalued currencies and educated and skilled workforces, allowing the countries of the region to remain competitive in a globalized market. That said, the region has not been immune from sentiment stemming from the problems which have beset the Eurozone. Action from the ECB has reduced systemic financial risk and that has been positive for all risk assets.
In Russia, the announcement that state-owned companies will return a target 25% of profits to shareholders through dividends is positive. Private companies have also followed suit, bringing dividend yields in Russia up to global emerging market averages of c.4% for the first time. In addition, recently announced buybacks from companies across Russia & CIS have totalled $10bn, demonstrating that companies see value in their own capital.
Elsewhere, macroeconomic conditions in Turkey have improved and Hungary has accessed international bond markets for the first time in 20 months to underpin the country's fiscal position. However, the key driver of markets over recent months is the fact that Emerging European stocks were exceptionally cheap, universally disliked and widely misunderstood. As such, minor changes in sentiment were able to have a meaningful impact on prices.
Although we still see upside for the region, we remain mindful of the risks which could potentially emanate from three places; US, Europe or China.
The fortunes of global markets are still tied to varying degrees to the fate of the US recovery which, although bumpy, is underway as reflected in a housing market which is slowly returning to health. A fragile recovery, by definition, could be blown off course and that is a risk for all markets, not just those of Emerging Europe.
A slowdown in China will affect the demand for commodities, the prices of which impact sentiment surrounding Russia, although this will be positive for Turkey and central Europe, commodity importers.
While recent measures to stabilise the Eurozone have been positive, any deterioration in the crisis will have implications for emerging Europe despite their clear contrast to the economies of peripheral Europe. It is important to remember that the economies of emerging European markets typically have lower government budget deficits and lower debt burdens.
Despite the attendant risks, valuations are still attractive and many of these risks remain reflected (and more) in the price. The long-term outlook for Emerging Europe is bright.
13 March 2013
Latest information is available by typing www.estplc.co.uk on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal). Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.
-0- Mar/15/2013 15:59 GMT