Rights and Issues Investment Trust (RII) just dropped its half-year results, and it’s a tale of two realities: solid underlying performance versus a grumpy market reaction. Let’s unpack the numbers and the narrative.
NAV Growth vs. Share Price Blues
First, the good news. Net Asset Value (NAV) per share rose 2.9% to £2,618.20 (Dec 2024: £2,543.40). That’s a respectable absolute return, driven by:
- Total portfolio return of 4.3% (including income).
- Strong performers like Renold (+71%, subject to takeover bids) and Alpha Group (+37%, also attracting suitors).
- Strategic progress at holdings like lender OSB (+36%).
Now, the head-scratcher. Despite this NAV growth, RII’s share price fell 9.7% to £21.50. Why? The discount to NAV ballooned to 17.9% (from 6.4% at end-2024). Ouch.
The Buyback Blockade: A Single Shareholder’s Shadow
The primary culprit for this widening discount? RII’s hands were tied on share buybacks. Here’s the drama:
- Its longstanding buyback authority lapsed at the March AGM.
- A resolution to renew it failed twice – narrowly missing the 75% approval threshold at both the AGM and a subsequent General Meeting in May.
- At the May meeting, 73.84% voted FOR buybacks, but a single shareholder (plus associates), holding ~26% of voted shares, blocked it.
The Board is visibly frustrated, calling the blockade “disappointing” and stressing buybacks are “in the best interests of the Company and its shareholders.” They’re actively seeking a solution. Without buybacks, the trust lacks a key tool to manage the discount and support the share price, explaining much of the recent underperformance (-6.7% total shareholder return).
Portfolio & Performance: Steady as She Goes (Mostly)
Activity was minimal, reflecting cautious markets. The one significant addition:
- JTC: A global fund administrator bought late in H1. The manager views it as a high-quality business benefiting from scale and market shifts, bought at an “attractive price” during weakness.
Performance lagged benchmarks (FTSE All-Share TR: +9.1%, Numis SC: +7.0%). Key detractors were:
- Treatt (-46%): Hit by weak US demand and high citrus prices pushing customers to alternatives (seen as temporary).
- Gamma Communications (-25%): Soft UK conditions offsetting progress in Germany, plus potential disruption from moving its listing to the Main Market.
Dividend Hike: A Silver Lining
Amid the discount gloom, income investors get a boost. The Board announced an interim dividend of 12.25p per share, up 2.1% from last year’s 12.0p. Payable 26th Sept (ex-div 28th Aug). This signals confidence in revenue generation and commitment to shareholders.
Outlook: Pragmatism & Potential
The Chair and Manager strike a cautiously optimistic tone:
- Markets appear less jumpy reacting to every US political headline.
- UK inflation is controlled, rates stabilised – potentially boosting confidence and growth.
- They note the government has stopped “deliberately talking the UK down.”
- UK small-cap valuations are seen as “compelling,” attracting takeover interest (like Renold/Alpha).
The key unresolved issue remains the discount. Restoring the buyback authority is paramount for the Board to close the gap between RII’s inherent value (rising NAV) and its market price.
The Bottom Line: RII’s portfolio is doing its job – NAV is up, dividends are rising, and managers are finding selective opportunities. But the market’s perception, exacerbated by the inability to execute buybacks due to a concentrated shareholder vote, has created a significant disconnect. For contrarian investors, that 17.9% discount might look increasingly tempting if the buyback tool can be reclaimed. One to watch closely.
