standard life equity income trust plc manager presentation · standard life equity income trust plc...

Standard Life Equity Income Trust plc

Manager presentation

18 January 2018

Thomas Moore

Manager, Standard Life Equity Income Trust plc

Evan Bruce-Gardyne

Head of Investment Trusts, Standard Life Investments

For general information of shareholders - not intended as a forecast, research or investment advice for any particular investor

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Year to 30 September 2017 highlights

Source: Standard Life Investments, 30 September 2017

30 Sept 2017 30 Sept 2016 Year on year

change (%)

Total Return

(%)

NAV per share 478.6p 431.5p 10.9 14.7

Share price 459.6p 412.4p 11.5 15.9

FTSE All-Share Index 4049.89 3,755.34 7.8 11.9

Revenue (£000s) 10,173 8,997 13.1

Revenue EPS 19.23p 17.92p 10.0

DPS 17.10p 15.40p 11.0

No. of shares in issue (m) 49.163 45.283 8.6

Year to

30 Sept 2017

Year to

30 Sept 2016

Ongoing Charges Ratio 0.87% 0.96%



SLEIT performance against market and during manager tenure

Outperformance since change in investment approach in 2011

SLEIT performance track record

Thomas Moore appointed manager on 11 November 2011

Source: Thomson Reuters DataStream – total return, Standard Life Investments, 31 December 2017

SLEIT NAV Total Return SLEIT Price Total Return

126.3%

83.7%

125.4%

• SLEIT performance benefiting

from index-agnostic investment

approach

Process identifying stocks

with potential for rapid

dividend growth and yield

compression

Differentiated portfolio with

limited reliance on FTSE 100

mega-caps and bond proxies

FTSE All Share Total Return



The Trust is trading at a narrower discount than the unweighted sector average

SLEIT discount relative to the UK Equity Income unweighted sector average

since September 2012

Source: Standard Life Investments, 08 January 2018

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Sep 16 Mar 17 Sep 17

Standard Life Equity Income Trust discount

Unweighted sector average discount



SLEIT track record of dividend growth and yield

Source: Thomson Reuters DataStream, September 2017

Sep

2011

Sep

2017

%

change

DPS 12.4 17.1 37.9%

Share

price 276.5 459.6 66.2%

Yield 4.5% 3.7%

2.50

3.00

3.50

4.00

4.50

5.00

10

11

12

13

14

15

16

17

18

Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17

DPS (p)

DPS (lhs) Standard Life Equity Income yield (%) (rhs)



SLEIT revenue reserves and dividend cover

Source: Standard Life Investments. 30 September 2017

50%

55%

60%

65%

70%

75%

80%

85%

90%

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

2011 2012 2013 2014 2015 2016 2017

Revenue reserves (post final dividends)(£000s) (lhs) Dividend cover (rhs)



• “To provide shareholders with an above average income from their equity investment while

also providing real growth in capital and income”

• To achieve the investment objective by investing in a diversified portfolio consisting mainly of

quoted UK equities

Company objectives



-5

0

5

10

15

20

25

30

35

Year to30 September

2012

Year to30 September

2013

Year to30 September

2014

Year to30 September

2015

Year to30 September

2016

Year to30 September

2017

SLEIT NAV Total Return

FTSE All-Share Total Return

RPI

Objective: Deliver real growth in capital

Source: Thomson Reuters DataStream, Standard Life Investments, 30 September 2017

%



SLEIT’s consistent DPS growth reflects growing portfolio cash flows

Objective: Deliver above average income

Source: Standard Life Investments, SLEIT, Thomson Reuters DataStream, 30 September 2017. Indexed to September 2005

90

110

130

150

170

190

210

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

SLEIT DPS FTSE All-Share DPS DPS 2017 : 17.1p

+11.0%



0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Top 10 biggest dividend payers (stocks 1-10) Next 10 biggest dividend payers (11-20)

Rest of FTSE All share (stocks 21-641)

FTSE All Share dividend concentration (2017)

Unconstrained approach provides diversification

Index has heavy dividend concentration in a few mega-caps

Source: Bloomberg, 31 December 2017

Value of

dividends

Number of

companies



FTSE 100 companies cutting dividends – 2014 to 2017

FTSE 100 dividend cover under pressure from weakening fundamentals

Index-agnostic approach broadens the investable universe

Source: Thomson Reuters DataStream, 01 November 2017

Tesco

Sainsbury

Morrisons

Glencore

Antofagasta

Vedanta

Anglo American

BHP Billiton

Rio Tinto

Standard Chartered

Barclays

Provident Financial

Centrica

Severn Trent

Drax

Rolls Royce Pearson

Div

ide

nd

co

ve

r (x

)

0.5

1.0

1.5

2.0

2.5

3.0

3.5FTSE 100 Dividend Cover

FTSE 250 Dividend Cover



Index-agnostic approach gives portfolio broader access to UK Market

SLEIT benefiting from exposure to FTSE 250 dividend growth

Source: Standard Life Investments, 01 November 2017

FTSE 250 FTSE 100

100

200

300

400

500

600

700

800

900

100019

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17



Shift from macro to micro set to drive rebound in FTSE 250

• Mega-cap stocks generate the bulk of their earnings

overseas, so Sterling’s 2016 devaluation provided a

significant currency benefit, reducing the pressure on dividend

cover

• At $1.36/£, the currency is touching the highest level since

the EU referendum in June 2016. This means that megacaps

are no longer benefitting from a currency tailwind

• Conversely, the basing of Sterling will provide a dual benefit

to UK domestic companies – improving the outlook for real

wages and reducing gross margin pressure

• As investors feel more comfortable about owning UK

domestic companies, we expect their valuations to move

higher, from very depressed levels

Support for mega-caps from currency is set to diminish

Source: Standard Life Investments, 12 January 2018

75

80

85

90

95

100

105

110

115

120

125

130

135

Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18

FTSE 250 FTSE 100

FTSE 250 has lagged FTSE 100



Periods of heightened nervousness produce extremes in valuation

• The uncertain political environment has resulted in a

polarisation in valuation between sectors. Investors have

crowded into large cap defensive stocks, while they have

avoided small and mid-cap financial and cyclical stocks

• Stock-level opportunities tend to be most abundant when

macro concerns cause investors to take their eyes off

corporate fundamentals

• As macro concerns fade, we expect share prices to

respond to positive surprise in cash flows and

dividends

Implications of potential shift in market focus from macro to micro

Source: Standard Life Investments, Barclays, November 2017

Domestic valuations – what’s priced in?

-10

-8

-6

-4

-2

0

2

4

6

8

10

0.6

0.7

0.8

0.9

1.0

1.1

1.2

2003 2005 2007 2009 2011 2013 2015 2017

UK Domestics: PE vs. MarketUK real GDP Growth (rhs, 12m lag)



SLEIT portfolio characteristics


30 September 2017 FTSE 100 FTSE 250 Smaller companies

SLEIT portfolio allocation 38% 39% 23%

FTSE All Share 80% 16% 4%

SLEIT UK Equity Income

Sector Average

Gross assets £266.0m £450m

Dividend yield 3.7% 3.5%

5 year dividend growth (CAGR) 6.0% 4.3%

Discount 4.0% 5.6% (unweighted)

Net gearing 9.9% 7.0%

Number of stocks 50 to 70 stocks

Active share 85.0%

Beta 0.86



Conviction-based approach to UK Equity Income

Stock and sector positioning

* Sector bet relative to FTSE All-Share index


Overweight / Underweight sectors* Top 10 Holdings %

Aviva 2.9

Prudential 2.7

Sage 2.7

BP 2.6

Micro Focus 2.6

Close Brothers 2.6

River & Mercantile 2.6

HSBC 2.5

Tyman 2.2

Royal Dutch Shell 2.2 Pharmaceuticals

and Biotech

Oil & Gas Producers

Equity Investment

Trusts

Tobacco

Banks

Nonlife Insurance

Software and Computer Services

Construction & Materials

Life Insurance

Financial Services

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%



Portfolio positioning reflects most compelling valuation opportunities

Portfolio composition by sector and geography

Source: Standard Life Investments, Factset (based on company accounts), 30 September 2017

43%

18%

11%

7%

6%

5% 5%

3%

2%

Financials IndustrialsConsumer Services Consumer GoodsOil & Gas TechnologyBasic Materials Telecommunications

55%

17%

14%

9% 5%

UK Continental Europe

North America Asia / Pacific

Rest of World

Portfolio weightings by sector Source of revenue by region



Stock contribution – 12 months to 30 September 2017

SLEIT – performance attribution and portfolio outlook


Top 5 contributors to

absolute return

Absolute contribution

(%)

Rio Tinto 1.3

River & Mercantile 1.2

Aviva 0.9

Prudential 0.9

Carnival 0.8

Bottom 5 contributors to

absolute return

Absolute

contribution (%)

BT Group -0.8

Imperial Brands -0.6

Babcock International -0.4

Sage -0.4

Connect -0.3

Key themes:

• Financials: Improving growth outlook under-valued

• Resources: Robust demand and capital discipline

• Consumer : Macro fear provides opportunity

• Self-help: Management turn-around situations

Key stock examples:

• Aviva, Prudential, Close, River & Mercantile, HSBC

• BP, Royal Dutch Shell, Rio Tinto

• Tyman, National Express

• Sage, Micro Focus, TP ICAP

Portfolio outlook



• SLEIT offers a differentiated, index-agnostic investment approach:

Focus on sustainable dividend growth

Limited reliance on FTSE 100 mega-caps and bond proxies

• Well-resourced, experienced UK equities team:

Focus on Change investment process has been tried and tested

61 strong equity team, including 13 specialising in FTSE 350 companies

Summary

Source: Standard Life Investments, 31 December 2017

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