Increased corporate activity boosts British Empire trust

The increase in corporate activity has helped to boost the performance of the British Empire Securities and General Trust.

The trust, run by John Pennink and Joe Bauernfreund of Asset Value Investors, said its financial year had “started well”, because of the “pick up in corporate activity and how this is a positive phenomenon for our style of investing”.

Several companies have sought to list on the stockmarket in recent months as sentiment surrounding equities remains firm – including estate agent Foxtons and Royal Mail – and takeover deals have also been picking up.

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Even talks preceding potential takeovers – such as that between AstraZeneca and US rival Pfizer – have propelled the stocks involved.

“The portfolio has continued to benefit from increasing levels of corporate activity, with a number of our European holding companies having exposure to the large merger and acquisition deals currently in the pipeline,” the managers said in a recent update.

“As business confidence in Europe continues to grow and with credit becoming more readily available, the conditions are ripe for this trend to continue. With trading on a weighted average discount of almost 28 per cent, there is every possibility of our portfolio continuing to be a beneficiary of this.”

The managers said there had been “several cases of corporate activity” that have helped the value of the trust’s shares rise.

These included media company Vivendi, which the managers reduced when its share price rose after it announced the sale of its French mobile telephone business.

The managers also said French company Lafarge announced a merger with Swiss firm Holcim in recent weeks and that this too had helped boost performance.

“Lafarge is one of the largest investments of another significant holding for the trust, GBL, making up over 20 per cent of its net asset value, and the positive market reaction to the merger provided a welcome boost to GBL’s net asset value,” the managers said.

The managers acknowledged that recent years had been “challenging” for their style of investment, with a lack of corporate activity “holding back relative performance”. However, they expected the step change in mergers and IPOs to continue.

“There has been a marked change in recent months. We see clear evidence that investors are becoming more interested in our type of companies,” they said.

“This often happens after several years of strong equity market performance. Companies trading on discounts are cheaper ways to access markets. The pick up in corporate activity is another positive feature of the current market environment.

“In such an environment, investors come round to our way of thinking – buying good quality assets at wide discounts is a sensible approach to investing.”