July was a good month for the Trust; the net asset value rose 1.5% on a total return basis (with debt at fair value) relative to a 1.2% rise in the FTSE All-Share.
We have seen a resumption in M&A activity within the Fund and this month two of our holdings received cash bid approaches – Cape, which is a services provider primarily to the energy industry, and Novae, which is a non-life insurer. These two were both among the largest contributors to performance. Also among the best performers was Conviviality Retail, one of the largest alcohol distributors in the UK. This had encouraging results in which the management team have managed to successfully integrate two sizeable acquisitions in a short amount of time and return the business to organic growth.
The largest individual detractor from performance was contractor and supports services provider Carillion. Within their contracting division they have found a number of problematic contracts for which they have had to take a sizeable provision. Having met with Keith Cochrane (who was a Non-Executive Director but is currently interim CEO) we have decided to maintain the position. While the scale of the provision is extremely disappointing, we are awaiting the outcome of a review into the business that Keith is conducting, the results of which will likely be announced in September.
During the month we continued to be a modest net seller and the gearing on the Trust has come down to 10%. We reduced both Cape and Novae following the bid approaches. The biggest purchases included Strix, which is an IPO of a company that makes safety controls for kettles that should pay an approximately 7% dividend yield, and AstraZeneca, which we added to following the disappointing trial results for one of its key cancer products.