abrdn.com
Murray Income Trust PLC
Annual Report 30 June 2022
An investment trust founded in 1923 aiming
for high and growing income with capital growth
The Company aims for a high and growing
income combined with capital growth through
investment in a portfolio principally of UK equities.
Financial Calendar
Payment months of quarterly dividends
March, June, September, December
Financial year end
30 June
Expected announcement of annual results
September
Annual General Meeting
November
Front cover image: Glasgow Science Centre
Investment Objective
Murray Income Trust PLC 1
Neil Rogan, Chairman
Charles Luke and Iain Pyle,
Investment Manager
Overview
Performance Highlights 2
Strategic Report
Chairman’s Statement 4
Investment Manager’s Review 7
Investment Case Studies 11
Performance 12
Financial Highlights and Dividends 14
Overview of Strategy 15
Promoting the Success of the Company 22
Portfolio
Ten Largest Investments 26
Portfolio 27
Sector Comparison with the Benchmark 30
Summary of Investment Changes During the Year 31
Governance
Board of Directors 34
Directors’ Report 37
Statement of Corporate Governance 45
Directors’ Remuneration Report 46
Audit Committee’s Report 50
Statement of Directors’ Responsibilities 53
Independent Auditors’ Report to the Members of Murray
Income Trust PLC 54
Financial Statements
Statement of Comprehensive Income 64
Statement of Financial Position 65
Statement of Changes in Equity 66
Statement of Cash Flows 67
Notes to the Financial Statements 68
Corporate Information
Information about the Manager including Investment
Process 90
How the Investment Manager approaches ESG 93
Investor Information 98
AIFMD Disclosures (Unaudited) 101
General
Alternative Performance Measures 103
Glossary of Terms 106
Notice of Annual General Meeting 107
Additional Shareholder Information 113
Contents
2 Murray Income Trust PLC
Net asset value total return
AB
Share price total return
AB
(
4.0
)
%
(
0.7
)
%
2021: +20.6% 2021: +18.5%
Benchmark total return
AC
Ongoing charges
B
+1.6% 0.48%
2021: +21.4% 2021: 0.46%
Earnings per share (revenue) Dividend per share
40.5
p
36.00
p
2021: 33.7p 2021: 34.50p
Discount to net asset value
B
Dividend yield
B
3.8% 4.3%
2021: 6.8% 2021: 4.0%
A
Total return as defined on page 105.
B
Considered to be an Alternative Performance Measure. Further details can be found on pages 104 and 105.
C
The Company’s benchmark is the FTSE All-Share Index.
Net Asset Value per share Dividends per share Mid-market price per share
At 30 June – pence Year ended 30 June – pence At 30 June – pence
856.3
888.1
808.3
934.6
864.9
18 19 20 21 22
33.25
34.00
34.25
34.50
36.00
18 19 20 21 22
784.0
850.0
768.0
871.0
832.0
18 19 20 21 22
Performance Hi
g
hli
g
hts
Murray Income Trust PLC 3
Strategic Report
Owned partly by SSE, a portfolio company,
the Clyde Wind Farm in South Lanarkshire,
Scotland, operates 206 turbines with an
installed capacity of 522MW.
4 Murray Income Trust PLC
Highlights
· a poor second half resulted in full year performance
behind the FTSE All-Share Index
· total dividends per share increased by 4.3% to 36.00p,
the 49
th
year of consecutive increase
· the dividend yield was 4.3% based on the year end
share price of 832.0p
Review of the Year ended 30 June 2022
(the “Year”)
Having been a little ahead of the FTSE All-Share Index (the
“Benchmark”) at the interim stage, it is disappointing to
report that the total return numbers for the Year show
your NAV decreasing by 4.0% and your share price falling
marginally by 0.7%. Your Company has underperformed
the Benchmark which has seen a total return of 1.6%. The
pain was clearly taken in the second half and
performance attribution analysis shows that the
underperformance can be pinned in broadly equal parts
on style rotation and stock selection. Although your
Manager’s investment style does not lead to a technology
or an internet bias, its search for “quality” means it will
typically be underweight the “value” sectors of the market.
Additionally, like many other managers, their ESG work
has led them to have a low exposure to oil and gas stocks.
Prompted by the Nasdaq sell off that began in January,
and accelerated by the Russian invasion of Ukraine that
led to commodity prices rising dramatically, what were
deemed low-quality resource and bank stocks have
performed very strongly. Compounding this unfriendly
style rotation were some stock specific issues, as ever,
easier to see with hindsight. Coca Cola Hellenic, Inchcape
and Mondi (representing 5.7% of NAV, in aggregate) were
hit by their Russian exposure. Countryside
Partnerships had
problems all of its own making. The Investment Manager
explains performance in further detail in the Investment
Manager’s Review.
The Board has declared a fourth interim dividend per
share of 11.25p, payable on 15 September 2022, which
makes a total for the Year of 36.0p, an increase of 4.3% on
the 34.5p per share paid in the previous year. This marks
the 49
th
consecutive year of dividend increases, securing
our continued place on the AIC’s list of Dividend Heroes.
Revenue per share for the year grew to an all-time high of
40.5p, up 20.2% from the previous year’s 33.7p, and the
36.00p dividend was 112% covered by net income
received during the Year. As a consequence, we were
able to use the excess to bolster revenue reserves per
share from 12.9p to 17.5p, equivalent to 48% of the current
annual dividend of 36.00p, up from 37% coverage at the
previous year end. The Board gave extensive
consideration as to how much to grow the dividend,
recognising the impact that inflation is having on
shareholders’ real income, and how much to add to
reserves. Two factors influenced us in our decision. First,
the Board’s aim is that revenue reserves per share be in
the range of a half to a full year’s dividend per share.
Second is our Investment Manager’s projection that
revenue per share is expected to fall next year before
rising again thereafter, affected by the absence of some
companies’ post-Covid-19 bumper dividends and the
effects of continued supply chain disruption, as well as
increasing inflation.
Environmental, Social and Governance
(“ESG”)
ESG considerations are deeply embedded into the
company analysis carried out by our Investment Manager,
which is able to draw on the expertise of more than 40 in-
house ESG specialists. This aims to mitigate risk and
enhance returns, results in frequent dialogue with investee
companies and helps to ensure that the companies in the
portfolio are acting in the best long-term interests of their
shareholders and society at large. It is important to note
that the policy pursued by our Investment Manager on our
behalf is dynamic rather than static. ESG conclusions can
change if the inputs change: for example, one might look
at Russia’s invasion of Ukraine and conclude that the social
factor of security and safety is more important now than
previously considered. Similarly, one might consider
energy security be given a higher weight relative to
absolute CO
2
emissions and come to a different
conclusion on holding an oil or gas stock. Further
information on how the Investment Manager considers
ESG factors may be found on pages 93 to 97.
Discount
From the start to the end of the Company’s year, the
discount at which the Company’s share traded relative to
the NAV, narrowed from 6.8% to 3.8%. The average
discount over the year was 6.1% and the range was 3.1%
to 8.2%. The Board monitors the discount level closely and
requests permission from shareholders at each AGM to
renew the buyback and issuance policy.
Share Capital
The Company bought back 356,015 shares into Treasury
during the Year, equivalent to 0.3% of share capital. No
shares were issued or sold from Treasury. As at 30 June
2022, there were 116,690,472
Ordinary 25p shares in issue
with voting rights and 2,839,060
shares held in Treasury.
Chairman’s Statement
Murray Income Trust PLC 5
Strategic Report Governance Overview General Portfolio Corporate Information Financial Statements
Ongoing Charges
The 2020 merger with Perpetual Income & Growth
Investment Trust has enabled us to reduce substantially
the level of ongoing charges to shareholders. The largest
cost is the investment management fee payable to abrdn
which is calculated on a sliding scale with a marginal rate
of 0.25% per annum on assets over £450m. The effect of
expanding the Company has produced a blended
management fee rate of 0.40% for the Year.
With most of the other ongoing charges being fixed costs,
the Company’s overall ongoing charges rate has risen
marginally to 0.48%, from 0.46%, as the NAV has fallen.
Borrowing and Gearing
The Board reviews on a regular basis both the Company’s
borrowings and the use of those borrowings to gear the
portfolio. The Company has £100m of long-term
borrowings with £40m due in 2027 and £60m due in 2029
at a blended annual interest rate of 3.6%. During the Year,
the short-term multicurrency facility with The Bank of
Nova Scotia Limited was increased by £30m to £50m.
Consequently, at the year end, the Company had £150m
of borrowing facilities available representing 14.9% of net
asset value. With the beta of the investment portfolio
currently running at 0.9 (typical of the Investment
Manager’s style), the Board believes that the appropriate
neutral gearing rate is 10%. At the year end the actual
gearing rate was 9.4% (2021: 10.3%). The annual cost of
the Company’s current borrowings was 0.23% of the year
end NAV.
Board Composition
As previously announced, Jean Park and Donald Cameron
retired from the Board at the conclusion of the November
2021 AGM, both having served their full nine-year terms.
We were pleased to announce that Nandita Sahgal Tully
joined us shortly thereafter, bringing with her more than 25
years’ experience in financial services, including ESG and
impact investing in both the UK and emerging markets,.
These changes take the Board back to its normal
complement of six Directors.
Shareholder Presentation on 2 November
2022
After welcoming shareholders to our Annual General
Meeting in London on 1 November 2022 we will also hold
an online presentation for existing and potential
shareholders at 2pm on 2 November 2022. This will include
the opportunity to pose questions to your Chairman and
Investment Manager.
Please register for this event at:
https://events.abrdn.com/zo7Yk3 or via the Company’s
website. Questions may also be submitted in advance to
murray.income@abrdn.com.
Annual General Meeting
The Company expects to hold the Annual General
Meeting (“AGM”) in its traditional format, without any
restrictions imposed by measures to restrict the
transmission of Covid-19. The Company will update
shareholders as to any changes to the proposed
arrangements for the AGM through its website at murray-
income.co.uk
and, where appropriate, through
announcement on the London Stock Exchange.
The AGM will be held at 12.30pm on 1 November 2022 at
The Mermaid Conference Centre, Puddle Dock,
Blackfriars, London EC4V 3DB. One of the advantages of
investing via investment trusts is that all shareholders have
the opportunity to meet their Investment Manager and the
Directors at the AGM. This year’s meeting will commence
with a presentation on the Company and market outlook
from our Investment Manager, Charles Luke. There will
then be the formal part of the meeting where
shareholders get to ask questions about, and vote on, the
AGM resolutions. After this will be an informal lunch at
which shareholders will be able to chat to the Investment
Manager and Directors. Shareholders may bring a guest
with them to the meeting.
I always welcome questions from our shareholders at the
AGM. Shareholders are asked to submit their questions
prior to the meeting (and in any event by no later than 18
October 2022) by email to murray.income@abrdn.com in
relation to the Annual Report, the Notice of AGM or the
Company more generally. This is also the email address if
you wish to attend the AGM and are unsure how to
register. The Board and/or the Investment Manager will
endeavour to respond to all such questions received.
Update
From 30 June 2022 to 16 September 2022, being the latest
practicable date prior to approval of this Report, the share
price total return and NAV per share total return were
-2.8% and 1.5%, respectively, as compared to the
Benchmark total return of 1.9%.
Outlook
The Outlook section of the Chairman’s Statement is
always the most difficult to write. It obviously has to be a
considered and realistic reflection on the outlook for the
Company. But there is also an expectation for a wider
commentary and opinion on the outlook for markets.
6 Murray Income Trust PLC
Plus there’s scope for a personal touch. I’m still surprised at
how many Chairman’s statements appear to be written
by the Manager instead of the Chairman. I start writing in
July once the preliminary performance numbers come in
and I’ve been briefed about our Investment Manager’s
review. After a couple of drafts, it is submitted to the
Company Secretary who distributes it to the rest of the
Board for review in late August. My fellow Directors then
provide a welcome, and sometimes robust, number of
edits and often a section has to be completely rewritten
because it has been overtaken by events. Eventually, by
the time of our September Board meeting, we agree the
final wording for inclusion in the Annual Report for issue
to shareholders.
We find ourselves in a scarcely credible era of uncertainty
and without strong political, economic or social leadership.
Domestic politics, geopolitical tensions and war, inflation,
labour shortages, recession, strikes, energy shortages; all
these factors have the capacity to heavily affect the
outlook for the companies in which we invest. Every one of
them is impossible to predict with confidence at the
moment. So what is the outlook? In truth, we can’t be sure.
All the issues are fixable but not without strong leadership.
That’s the most concerning thing this time around. After
similar issues in the 1970s, the 1980s saw Margaret
Thatcher, Ronald Reagan, Mikhail Gorbachev and,
perhaps most importantly, Paul Volcker (chairman of the
US Federal Reserve from 1979 to 1987) provide very
strong leadership and guide their countries to recovery.
I’m a naturally optimistic person so I scour the TV news
and politics programmes for the world’s new generation
of strong leaders which will take us towards recovery. I’m
still looking. Full recovery may take a long time.
What will happen to the companies in our portfolio while
we wait? Based on trailing earnings, the PER (price to
earnings ratio, the most popular stock valuation measure)
of our current portfolio is 13x. That is down from 16x six
months ago and is the lowest I have seen it in the eight
years I have been a Director. It has been as high as 20x. To
me that means that a lot of the bad news is priced in. If you
think about the headlines we’ve been reading these past
six months, it is possible to make a case that much of the
bad news is behind us. But note that this is a valuation
measure based on the previous 12 months of earnings. If
corporate earnings are about to tumble, then stock
markets could move down in parallel and still give the
same valuation. That’s the real danger, so not surprisingly
our Investment Manager is analysing our holdings’
earnings prospects with extra vigilance. One of the main
reasons behind our Investment Manager’s quality
philosophy is that the companies selected should be
sufficiently robust and well managed to withstand
turbulent times like these. We have great faith in our
Investment Manager’s long-term investment approach.
In theory, it should be a good
moment for quality. In reality,
we will have to wait and see.
Neil Rogan
Chairman
21 September 2022
Chairman’s Statement
Continued
Murray Income Trust PLC 7
Strategic Report Governance Overview General Portfolio Corporate Information Financial Statements
Background
For the UK equity market, the year ended 30 June 2022
(the “Year”) started with continued good progress aided
by robust earnings delivery and supportive oil prices. This
was despite concerns around Covid-19 (in particular the
Delta variant in July 2021 and the Omicron variant from
November 2021). While the stockmarket recognised rising
prospects for inflation and higher interest rates, these
were not yet seen as a risk. As the Year progressed these
two factors were increasingly in focus and have largely
driven stockmarket direction in the second half of the
Year. Early in 2022, the rising stockmarket stalled, as higher
interest rates led to a sharp market rotation away from
growth stocks and towards more value sectors. This
rotation was exacerbated as tensions escalated in
eastern Europe with the sharpest fall on 24 February 2022
when Russian troops invaded and launched attacks on
airports and military sites in Ukraine. The impact of the
Russian invasion on commodity prices increased
inflationary pressures globally. Markets recovered
somewhat soon after but ongoing fears of higher inflation
and the risk of a global recession fuelled a fresh wave of
selling in June 2022.
Domestic economic data published across the Year
reflected the circuitous return to more normal economic
conditions. Growth was initially aided by the lifting of the
remaining legal restrictions to control Covid-19 in late
February 2022. However, the rebound in activity levels
combined with tight supply in many areas and higher
commodity prices meant that levels of inflation have
repeatedly been higher than expected. The last reading of
9.9% in August (as measured by the Consumer Prices
Index) marked another 40-year high, down slightly from
10.1% for July. Energy prices, as well as clothing, food and
second-hand car prices, have been major factors,
compounded by ongoing global supply chain issues.
The Bank of England (“BoE”) raised interest rates to 0.25%
at its December meeting, which was the first movement
for over three years, before an additional four increases
resulted in a rate of 1.25% by 30 June 2022. In early August
2022, the BoE revised its forecasts for peak inflation of 13%
in late 2022, driven by higher household energy prices. A
predicted contraction in GDP for up to five quarters
signalled that the UK would enter a recession. At the same
time the BoE announced a further 0.5% increase in interest
rates, to 1.75%, the largest single rise in 27 years.
Overseas, the global economy is expected to slow in 2022
as remaining outbreaks of Covid-19 variants, supply
bottlenecks and the Russian invasion of Ukraine all weigh
on activity. At each of their June 2022 and July 2022
meetings, the US Federal Reserve raised rates by 0.75% as
it sought to control inflation. China continues to operate a
zero-Covid-19 policy which has led to renewed
lockdowns and weak GDP data. Oil and other commodity
prices have increased over the Year driven by the Russian
invasion of Ukraine and concerns over supply disruptions.
Risks of sustained higher prices are greater due to a period
of under investment compounded by supply disruption.
The International Monetary Fund expects the global
economy to grow by only 3.6% in each of 2022 and 2023,
as compared to growth of 6.1% in 2021.
Equities were stable over the Year, although that masks
the underlying volatility experienced by markets. The
Benchmark ended the Year 1.6% higher on a total return
basis (that is, with dividends reinvested), but that came as
a result of a 6.5% rise in the second half of calendar 2021,
followed by a 4.6% fall in the first six months of 2022. The
energy sector performed exceptionally strongly in the
Year as oil and gas prices spiked. On the other hand the
weakest performance was seen in the technology sector
where valuations of long-dated cash flows were impacted
by the significant rise in base rates. In a broad reversal of
the prior year’s performance, the more defensive areas of
the market such as healthcare, utilities and
telecommunications performed well while more cyclical,
economically-sensitive areas of the market such as
consumer discretionary and industrials underperformed.
From a size perspective, reversing the pattern of the
previous year, the FTSE 100 Index significantly
outperformed both the Mid 250 and Small Cap Index, with
the divergence in performance most prevalent in the first
half of 2022.
Performance
The Company generated a negative net asset value per
share total return of 4.0% for the Year which compares to
a strong 20.6% rise in the prior year. The benchmark FTSE
All-Share Index increased by 1.6% over the Year. The
portfolio modestly outperformed in the first and second
quarters of the Year but underperformed during the third
and final quarters. This relative underperformance since
the start of 2022 reflects a market style rotation from
growth and quality to value, initially benefitting the energy
and financial sectors, with the outperformance of energy
sustained following the Russian invasion of Ukraine.
Interest rate increases, as central banks look to control
rising inflation, have meant growth companies with long-
dated cash flows underperformed. Given the portfolio’s
focus on high quality companies, underweight position in
energy and tobacco stocks, and its above Benchmark
exposure to mid-cap companies, it is unsurprising that the
portfolio underperformed in these circumstances.
Investment Mana
g
er’s Review
8 Murray Income Trust PLC
Long term returns remain positive compared to the
Benchmark and it is also important to consider risk-
adjusted returns or, in other words, how much
performance is being generated for each unit of risk. One
measure of this is the ‘information ratio’ and it was
pleasing that the Company, for the second consecutive
year, was awarded the Citywire UK Equity Income
Investment Trust of the Year for a three year information
ratio considerably ahead of all of its peers.
On a total return basis, the Company’s share price
decreased by 0.7% which reflected a narrowing of the
discount to Net Asset Value at which the shares traded
from 6.8% to 3.8%.
In absolute terms, taking account of the £60m of senior
secured fixed rate notes 2029, £40m of senior secured
fixed rate notes 2027, as well as £6.5m drawn down from
an unsecured multi-currency revolving credit loan facility
agreement with The Bank of Nova Scotia Limited, debt
was £106.5m at the end of the Year. The net gearing was
9.4% at the end of the Year as compared to 10.3% at the
end of the prior year.
Looking specifically at the Company’s portfolio, asset
allocation and stock selection both held back
performance over the Year with asset allocation being a
more significant contributor to underperformance than
stock selection where the impact was more modest.
Negative asset allocation in the Year primarily reflected
the portfolio’s lower exposure to the energy sector and
higher exposure to the industrials and financials sectors.
Turning to the individual holdings, there were numerous
companies that demonstrated strong share price
increases. The share prices of Novo Nordisk, Drax, and
Total Energies all increased by over 40% during the Year.
However, the two poorest share price performances were
from Countryside Partnerships and Ashmore whose share
prices both fell by 52%. Countryside Partnerships
underperformed as the company announced the CEO
would be stepping down following poor execution and a
failure to meet build targets. In our view the issues the
company faced are fixable and partnership housing
remains an attractive segment of the market given
structural demand growth and high returns. The shares of
Ashmore have been weak as emerging market debt has
been out of favour leading to fund outflows. The holdings
in Coca Cola Hellenic, Inchcape and Mondi also contributed
negatively to performance, with each of these companies
having exposure to Russia and/or Ukraine
.
Performance Attribution for the
year ended 30 June 2022
%
Net Asset Value total return for year per Ordinary share
–4.0
FTSE All Share Index total return
1.6
Relative return
–5.6
Relative return
Stock selection
Energy
–0.2
Basic Materials
–0.5
Industrials
0.1
Health Care
0.3
Consumer Staples
–0.6
Consumer Discretionary
0.4
Telecommunications
–0.3
Utilities
0.3
Technology
0.2
Financials
–1.0
Real Estate
0.5
Total stock selection (equities)
–0.8
Asset allocation (equities)
Energy
–1.6
Basic Materials
–0.1
Industrials
–1.7
Health Care
–0.6
Consumer Staples
–0.8
Consumer Discretionary
0.5
Telecommunications
–0.1
Utilities
0.4
Technology
–0.8
Financials
0.9
Real Estate
–0.3
Total asset allocation (equities)
–4.2
Cash & options
0.4
Gearing
–0.4
Administrative expenses
–0.2
Management fees
–0.4
Total
–5.6
Sources : abrdn, BNP
Notes: Stock Selection – measures the effect of equity selection relative to the
benchmark. Asset Allocation – measures the impact of over or underweighting each
industry basket in the equity portfolio, relative to the benchmark weights. Cash &
options effect – measures the impact on relative returns of the two asset categories.
Gearing effect – measures the impact on relative returns of net borrowings.
Administrative expenses and management fees – these reduce total assets and
therefore reduce performance.
Investment Mana
g
er’s Review
Continued
Murray Income Trust PLC 9
Strategic Report Governance Overview General Portfolio Corporate Information Financial Statements
Portfolio Activity and Structure
Turnover of approximately 18% was lower than in the prior
year. The pattern of trades reflects reduced exposure to
several of the largest companies in the market and a
willingness to increase the active share (see Glossary on
page 106) of the portfolio (being its similarity to the
constituents of the Benchmark), which is now
approximately 70%, while further both improving the
quality of the portfolio and maintaining the focus on
capital and dividend growth.
Eleven new holdings, of which three were large cap
companies, were added to the portfolio. The first of these
was Experian, the global information services company,
which has high margins and strong pricing power,
meaning this winning business should prove resilient to
higher inflationary pressures. We also started a position in
London Stock Exchange Group, the global financial
markets infrastructure and data provider, where there are
long-term structural drivers and signs of good operational
progress as it integrates the Refinitiv business. The sale of
Rio Tinto (see below) allowed the purchase of Anglo
American given its strong ESG characteristics and greater
exposure to future-facing commodities (further
information may be found on page 94).
There were five mid-cap company introductions. The first
was Drax, the renewable energy company working with
waste wood products, where we see upside potential
from BECCS (bioenergy with carbon capture and
storage) which now has robust political backing, support
from higher UK power prices and an attractive dividend
yield. The second mid-cap new entrant was insurer Hiscox
where we believe the strength of the retail business is
underappreciated and the company should benefit from
a stronger rate environment. We participated in the IPO of
private equity firm Bridgepoint, which has an experienced
management team and good client relationships. The
fourth purchase was HomeServe, the home emergency
and repair services provider, where we saw the valuation
as attractive given the good growth potential in the US as
well as a generous dividend yield. The final mid-cap new
entrant was a position in the high quality, high end
scientific instruments business, Oxford Instruments. The
business is exposed to high growth markets and the
management team have a good track record. The
valuation became particularly attractive in light of the
withdrawal of the bid from Spectris.
Two overseas holdings were added to the portfolio. The
first was Nordea which we view as a higher returning bank
operating in the Nordic region with an attractive dividend
yield. The return of positive interest rates will have a
material positive impact on bank profitability, and with a
strong capital position this should translate into appealing
shareholder distributions. We also started a new position in
Singapore-listed Oversea-Chinese Banking Corp which
provides attractive exposure to Asian banking, wealth
management and insurance markets and should be a
beneficiary of rising rates. Also, one small cap company
was introduced, Watkin Jones, a developer with a
market-leading position which provides exposure to the
attractive build to rent and purpose built student
accommodation markets
In addition, we increased exposure to a number of our
existing holdings which we believe have high quality
characteristics with attractive long term growth prospects
including: Aveva, RS Group, BP, Intermediate Capital,
Moonpig, Rentokil, Sage, and Unilever.
We sold fourteen holdings during the Year. Firstly,
LondonMetric
, as we believed that after a period of strong
performance, the valuation and dividend yield of the
company was no longer compelling. Secondly, the small
holding in Telecom Plus was exited given the uncertain
industry backdrop. Thirdly, the very small holding in
Jackson Financial
shares that were received when the
business was demerged from Prudential were sold. In the
first half of the Year both John Laing and Sanne were sold
at a pleasing profit following bids. The position in beverage
company Fever-Tree was exited as persistent earnings
downgrades weakened our conviction while the stock
was also still valued at a premium rating. The holding of
mining company Rio Tinto was sold with the proceeds
used to purchase a holding in Anglo American. Similarly,
later in the Year, the position in private equity firm
Bridgepoint was sold with proceeds reinvested into
Intermediate Capital. Following the firm offer from
Brookfield the position in HomeServe was sold, providing
an excellent return over a relatively short timeframe. Four
holdings with some cyclical exposure, which had become
smaller positions in the portfolio after profit taking during
the Year, were sold, namely Bodycote, DS Smith, Prudential
and Sirius Real Estate. Finally, the small position in
Woodside Energy that was received through the BHP spin-
off was sold.
In addition, we took profits in a number of holdings that
had performed strongly and where the valuation had
started to look less attractive including AstraZeneca,
Dechra Pharmaceuticals, VAT Group and National Grid.
We continued our measured option-writing programme
which is based on our fundamental analysis of the
holdings in the portfolio. We believe that the option-
writing strategy has been of benefit to the Company by
diversifying and increasing the level of income generated.
10 Murray Income Trust PLC
It also provides headroom to invest in companies with
lower starting yields but better dividend and capital
growth prospects. Income from writing options of £2.8m
represented 5.5% of total income earned in the Year.
With our longer term investment horizon, we continue to
put significant effort into engagement with the companies
in the portfolio to ensure that they are run in shareholders’
best interests. Examples of the subjects of our
engagement during the Year have included issues such as
board composition, capital allocation and M&A activity,
and risk management (including issues such as labour
management, diversity & inclusion, climate change and
environmental issues). These issues have been pursued
through meetings with the executive management of the
companies as well as the non-executives, particularly the
chairs of the board and remuneration committees. The
portfolio continues to be independently rated as ‘AAA’ (the
highest level) by MSCI for its ESG characteristics. Further
information may be found on page 96.
Our aspiration in terms of portfolio construction is simple:
to invest in good quality companies with attractive growth
prospects through a sensibly diversified portfolio with
appealing dividend characteristics. The ability to invest up
to 20% of gross assets overseas is helpful in achieving
these aims and, at the year end, the portfolio comprised
61 holdings with the overseas exposure representing
14.2% of gross assets.
Income
For the Year, the Company witnessed a significant
increase in the level of income due to the addition of new
dividend-paying holdings, growth in the dividends of
existing portfolio companies and a number of special
dividends. Six special dividends (from Kone, Rio Tinto, Mowi,
Fever-Tree, Anglo American and VAT Group) were
included in income from investments and were treated as
revenue items. We believe that this recognition is
appropriate given that, in each case, the return of cash
was from a build-up of profits generated by ongoing
operations rather than from a sale of assets.
According to Link Group’s most recent UK Dividend
Monitor report, UK plc dividends are expected to rise by
2.4% for calendar 2022 (following the 12.5% increase for
calendar 2021), with a record pay-out in the second
quarter, signalling a swifter recovery from the difficult
times experienced during Covid-19. The Company’s
earnings per share increased by 20.2% from 33.7p to
40.5p. Helped by bumper dividends from mining holdings
Rio Tinto and BHP, earnings per share for the Company
surpassed pre-pandemic levels in the Year. We remain
confident about the long term income growth potential of
the portfolio but income for the year ended 30 June 2023
is unlikely to match the exceptional income for the Year.
Outlook
Looking forward, the outlook is becoming more difficult
with a tightening policy backdrop and inflationary
challenges coupled with the implications of the Russian
invasion of Ukraine, all leading to slower global growth.
Despite that there are reasons to be confident in the
outlook for the Company. Our focus on quality companies
provides protection through a downturn: those companies
with pricing power, high margins and strong balance
sheets are better placed to navigate a more challenging
economic environment and emerge in a strong position.
Furthermore, these quality characteristics are helpful in
underpinning the portfolio’s income generation.
The valuations of UK-listed companies remain attractive
on a relative and absolute basis. Moreover, the dividend
yield of the UK market remains at an appealing premium
both to other regional equity markets and to other asset
classes. Indeed, we believe that in many cases the
attractiveness of our holdings is not reflected in their share
prices, particularly given the underlying strengths of the
businesses. This view is reflected in the bids for holdings
including HomeServe and Euromoney. We think a fair
proportion of the portfolio may be vulnerable to corporate
activity and it is noteworthy that private equity purchasers
often look for attractive quality characteristics in potential
acquisitions that dovetail with our investment criteria.
Furthermore, international investors remain underweight
the UK; this provides an additional underpin.
In summary, we feel comfortable maintaining our long
term focus on investments in high quality companies with
robust competitive positions and strong balance sheets,
which are led by experienced management teams and
are capable of delivering sustainable earnings and
dividend growth.
Charles Luke and Iain Pyle
Investment Manager
21 September 2022
Investment Mana
g
er’s Review
Continued
Murray Income Trust PLC 11
Strategic Report Governance Overview General Portfolio Corporate Information Financial Statements
London Stock Exchange Group
With a market capitalisation of approximately £46bn,
London Stock Exchange Group was purchased for the
portfolio during the year. With the acquisition of Refinitiv in
2021 the company has continued its transformation from
a traditional exchange towards being a global financial
markets infrastructure and data provider. Approximately
70% of revenues now come from providing Data &
Analytics services, exposing the group to the structural
growth in demand for financial data. A similar portion of
group revenues are recurring, subscription-based in
nature which provides resilience. We see some areas of
the business, for example the clearing house LCH, as
having very high barriers to entry. The cash generative
nature of the group means that the balance sheet has
strengthened quickly following the Refinitiv acquisition. We
think that accelerating revenue growth and delivery of
revenue and cost synergies will lead to the company
being valued as a leading information services company
with clear quality characteristics.
Oxford Instruments
Oxford Instruments, the provider of high technology
instrumentation products and services to industrial and
scientific research communities, was added to the
portfolio in the year. The company has an approximate
market capitalisation of £1bn. Oxford Instruments is a
technological leader in the products it provides and strong
commercial leadership has ensured strong customer
relationships and high barriers to entry. The company is
well diversified by end market, customer type and
geographically which helps mitigate volatility and we think
its strong pricing power will be helpful in the current
environment. The financials of the company are on an
improving trajectory with revenue growth aligned to the
long-term growth in research and development budgets
and expanding margins. The company has a net cash
balance sheet and high returns. We added the stock to
the portfolio following the withdrawal of a bid for the
company from Spectris which created a particularly
attractive entry point for the valuation of a company with
strong fundamentals and good prospects over the
medium to long term.
Investment Case Studies
12 Murray Income Trust PLC
Performance (total return, including reinvested dividends)
1 year return 3 year return 5 year return 10 year return
% % % %
Share price
A
–0.7 +10.8 +29.6 +100.7
Net asset value per Ordinary share
A
–4.0 +9.6 +22.9 +101.3
Benchmark
B
+1.6 +7.4 +17.8 +94.6
A
Considered to be an Alternative Performance Measure. Further details can be found on page 105.
B
FTSE All-Share Index.
Source: abrdn & Morningstar
Ten Year Financial Record
Year end 30 June 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Income (£’000) 23,566 23,926 25,476 24,838 26,667 25,987 25,597 22,804 35,979 51,018
Shareholders’ funds (£’000) 492,878 547,652 515,888 515,036 576,462 570,929 587,150 534,361 1,093,859 1,009,255
Per Ordinary share (p)
Net revenue return 31.1 30.5 33.1 32.0 34.9 33.6 34.9 30.5 33.7 40.5
Dividends
A
30.75 31.25 32.00 32.25 32.75 33.25 34.00 34.25 34.50 36.00
Net asset value (capital only) 734.6 805.2 757.1 766.5 860.1 856.3 888.1 808.3 934.6 864.9
A
The figures for dividends per share reflect the years to which their declaration relates and not the years they were paid.
Performance