Benefiting from enhanced investment process

Jupiter US Smaller Companies 29 November 2018 Review
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Jupiter US Smaller Companies

Benefiting from enhanced investment process

Investment trusts

 

29 November 2018

Price

1,010.0p

Market cap

£147m

AUM

£167m

NAV*

1,134.5p

Discount to NAV

11.0%

*Including income. As at 28 November 2018.

Yield

0.0%

Ordinary shares in issue

14.6m

Code

JUS

Primary exchange

LSE

AIC sector

North America Smaller Companies

Share price/discount performance

Three-year performance vs index

52-week high/low

1,112.5p

812.0p

1,206.0p

900.3p

**Including income.

Gearing

Net*

1.2%

*As at 31 October 2018.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

Jupiter US Smaller Companies is a research client of Edison Investment Research Limited

Jupiter US Smaller Companies (JUS) is managed by Robert Siddles, who aims to generate long-term capital growth, while preserving capital in periods of stock market weakness, from a diversified portfolio of mid- and small-cap US equities. Since October 2017, the manager has employed a tighter investment process, increasing JUS’s portfolio concentration and enhancing the sell discipline. This has proved effective; since then, the trust has outperformed its US small-cap equity benchmark by more than 15pp. Relative performance has remained robust during recent months, which have been characterised by high levels of stock market volatility.

12 months ending

Share price (%)

NAV (%)

US small-cap equities (%)

FTSE All-Share (%)

S&P 500 (%)

31/10/14

(2.2)

6.4

7.1

1.0

17.8

31/10/15

(6.2)

(3.4)

2.6

3.0

9.0

31/10/16

26.2

30.2

29.7

12.2

32.2

31/10/17

10.8

6.4

16.0

13.4

13.7

31/10/18

17.1

18.2

4.5

(1.5)

11.6

Source: Thomson Datastream. Note: all % in pounds sterling.

Investment strategy: Very disciplined approach

The manager undertakes stock selection in a very disciplined manner, which involves quantitative screening; a qualitative risk assessment, aiming to avoid ‘value traps’; and a ‘good company test’ (a strong franchise, meaningful free cash flow, a high level of insider ownership, potential pricing flexibility and at least 50% potential upside from its current share price). Very few companies pass this three-stage process and are deemed worthy of in-depth fundamental analysis, which includes the construction of a detailed financial model.

Market outlook: A pick-up in volatility

Last year was a particularly benign period in terms of share price volatility. However, 2018 has seen a return to more normal conditions, and the US stock market has suffered two corrections since end-December 2017. Investor concerns include tensions between the US and its trading partners, and the pace and magnitude of US interest rate hikes. Given this backdrop, investors may benefit from being selective and adopting a more valuation-aware approach.

Valuation: Scope for a narrower discount

JUS is currently trading at an 11.0% discount to cum-income NAV, which is wider than the 6.6% to 10.0% range of averages over the past one, three, five and 10 years. The board actively manages the discount by repurchasing shares, aiming for a maximum 8% discount in normal market conditions. The significant improvement in the trust’s performance since the investment process was tightened in October 2017 suggests there is scope for the discount to narrow. US smaller companies is a low-yielding asset class; hence, JUS does not pay a dividend.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Jupiter US Smaller Companies’ objective is to achieve long-term capital growth by investing in a diversified portfolio primarily of quoted US smaller and mid-sized companies. It uses a 2,000-stock US small and mid-cap index (capital returns, sterling adjusted) as its benchmark.

27 September 2018: annual results for the year ended 30 June 2018. NAV +21.1% and share price +23.8% versus +14.2% capital return for the benchmark (all in sterling terms).

9 May 2018: special resolution passed at general meeting to renew JUS’s share buyback authority.

7 March 2018: half-year report for the period ended 31 December 2017. NAV +7.4% and share price +7.5% versus +4.2% capital return for benchmark (all in sterling terms).

Forthcoming

Capital structure

Fund details

AGM

November 2019

Ongoing charges

1.02% (30 June 2018)

Group

Jupiter Unit Trust Managers

Interim results

March 2019

Net gearing

1.2%

Manager

Robert Siddles

Year end

30 June

Annual mgmt fee

Tiered (see page 7)

Address

The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ

Dividend paid

N/A

Performance fee

No

Launch date

10 March 1993

Trust life

Indefinite, subject to vote

Phone

+44 (0)20 3817 1000

Continuation vote

Three-yearly, next 2020

Loan facilities

£20m with Scotiabank

Website

www.jupiteram.com/JUS

Portfolio exposure by sector (as at 31 October 2018)

Share buyback policy and history (financial years)

Weightings are adjusted for net debt (1.2% at end-October).

JUS has the authority to allot up to 10% and buy back up to 14.99% of shares annually, to manage a premium or a discount. Buybacks are employed with the aim of maintaining the discount at a maximum of c 8%.

Shareholder base (as at 31 October 2018)

Portfolio exposure by theme (as at 31 October 2018)

Top 10 holdings (as at 31 October 2018)

Portfolio weight %

Company

Exchange

Industry

31 October 2018

31 October 2017*

Ollie's Bargain Outlet

NASDAQ

Retailing

7.0

3.1

Chef's Warehouse

NASDAQ

Food products wholesaler

5.3

N/A

America's Car-Mart

NASDAQ

Auto retailing

4.0

2.1

Genesee & Wyoming

NYSE

Rail freight

3.9

2.5

MSC Industrial Direct

NYSE

Industrial tool distributor

3.5

N/A

Ensign Group

NASDAQ

Healthcare facilities

3.5

N/A

Alleghany

NYSE

Reinsurance

3.5

N/A

LiveRamp Holdings

NASDAQ

Application software

3.3

N/A

Bottomline Technologies

NASDAQ

Application software

3.2

N/A

Covanta

NYSE

Waste management

3.1

N/A

Top 10 (% of holdings)

40.3

23.1

Source: Jupiter US Smaller Companies, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-October 2017 top 10.

Market outlook: Increased share price volatility

Exhibit 2 (LHS) shows the performance of both US and UK shares, in sterling terms, over the past five years. US equities have performed better, particularly larger-cap stocks (unlike over the longer term, when smaller US stocks have outperformed significantly). So far in 2018, global stock markets have experienced a higher level of volatility compared to a very benign period in 2017; investor concerns include US/China trade tensions and higher US interest rates.

In terms of valuation, US shares (measured by the US Datastream index) are currently trading on a forward P/E multiple of 15.6x. While lower than the high of 19.0x over the past five years, US equities are now at a 15.2% premium to world equities, which is 0.8pp higher than the five-year average. In an environment of higher stock market volatility and above-average relative valuations, investors may be well served by focusing on a fund with a disciplined approach to stock selection that seeks significantly undervalued companies and has a strong performance track record.

Exhibit 2: Market performance and valuation

Performance of US and UK indices (past five years, £)

Valuation of US equities (using US Datastream index, as at 27 Nov 2018)

Source: Thomson Datastream, Edison Investment Research

Fund profile: Focused US smaller-cap investment

JUS was launched in March 1993 as F&C US Smaller Companies. In 2014, the trust moved from F&C Asset Management to Jupiter Asset Management, along with manager Robert Siddles. He aims to generate long-term capital growth from a diversified portfolio of smaller and medium-sized US companies, while also preserving capital in periods of stock-market weakness. The board believes that the US smaller companies sector is an attractive asset class, which is often under-researched, offering areas of undiscovered value. Siddles typically invests in companies with a market cap between $100m and $10bn, seeking firms that are trading at a significant discount to their intrinsic value. Data supplied by Jupiter shows that from 1927 to 2014, US value stock returns have compounded at an average 12.8% pa, compared to 10.3% for growth stocks. In 2017, the board announced changes to the investment process and a reduced cost structure (see pages 4 and 7). Gearing of up to 20% is permitted; at end-October 2018, net gearing was 1.2%.

The fund manager: Robert Siddles
The manager’s view: Support for smaller US companies’ shares

Siddles provides an interesting perspective, suggesting support, in terms of reduced supply for, US mid- and small-cap company shares. He cites data showing that from 1996 to 2014, the number of US publicly quoted small-cap companies declined by 53%, while the number of mid-cap companies fell by 30%. These percentages were much larger than the 11% decline in the number of large quoted US companies. Reasons for the reduction in the number of quoted companies include low interest rates, which have driven a high level of private equity deals, including management buyouts and an increased regulatory burden for publicly listed firms.

Considering the macro background, the manager says that wage inflation in the US was low for a long time and is gradually rising, now up to 3.1%. He says the Federal Reserve begins to get uncomfortable when wages are rising above 3%; hence there is potential for another interest rate hike this December. Siddles believes that, in aggregate, the economy is doing ‘fine’ as higher wages are limited to selected geographies and industries, such as energy, nursing and trucking. The manager expects a lower number of interest rate rises in 2019 compared with 2018, as he says the longer the Federal Reserve can hold off slowing the economy, the better for the average American. He believes that continued economic expansion can move the ‘discouraged’ back into employment and increase real wages for the average US worker, following 18 years of little or no above-inflation wage gains, a factor that contributed to the election of President Trump.

In terms of the stock market, after years of easy liquidity, Siddles says that investors are now experiencing more normal conditions, and he expects more frequent corrections, unlike the benign conditions in recent years. However, the manager is not pessimistic, as he is continuing to find companies that fit his strict stock selection criteria, and he remains positive on the prospects of the firms within JUS’s more concentrated portfolio. He notes that the higher level of stock-market volatility in 2018 means there have been periods when value rather than growth stocks have led.

Asset allocation
Investment process: Capital growth and preservation

Siddles invests for the long term, focusing on high-quality companies, whose reasonable valuations should limit downside risk. The investment process leads the manager to focus on areas of the market that are out of favour, or on companies with lower-risk businesses. There is a three-stage process to stock selection: a quantitative screen of the investible universe of more than 3,000 companies with a market cap between $100m and $10bn; a qualitative risk assessment aiming to avoid stocks that appear inexpensive, but are unlikely to appreciate (value traps); and a ‘good company test’ – companies passing this hurdle are subject to thorough fundamental research, including a detailed financial model. Very few companies are able to meet the strict criteria in the ‘good company test’, which are: a strong franchise, meaningful free cash flow, a high level of insider ownership, potential pricing flexibility and at least 50% potential upside from its current share price. The manager’s investment style means there are sectors towards which he naturally gravitates, such as staples of American life (including food and automobiles), specialist non-life insurers and distributors, while avoiding other areas, such as biotech, fashion, restaurants or technology.

JUS’s portfolio companies tend to fall into one of two main ‘buckets’: compounders (undervalued companies with reliable long-term earnings growth) or recovery (companies with very depressed valuations), along with valuable assets (which can be exploited to generate long-term shareholder value) and turnarounds (companies requiring new management teams or strategies). Stocks may be sold if a company’s growth prospects deteriorate; it makes a large non-core acquisition; there is a loss of key management or heavy insider selling; there are detrimental changes to an industry cycle; the company becomes too large; further share price appreciation is unlikely; or the manager identifies a more attractive investment opportunity. Positions may be trimmed if a stock exceeds 10% or an industry represents more than 15% of the portfolio. In October 2017, the investment process was tightened up; there is now greater exposure in Siddles’ highest-conviction holdings and the sell discipline has been improved; winning positions are allowed to run and the manager is quicker to exit holdings that are underperforming.

Current portfolio positioning

As a result of the changes in the investment process adopted in October 2017, the concentration in JUS’s top 10 positions has increased – 40.3% at end-October 2018, compared with 23.1% a year earlier. The number of holdings has also reduced (from 58 to 42 during the course of FY18, now 41). In terms of sector exposure (Exhibit 3), over the past year JUS has increased exposure to materials and processing (+5.1pp) and producer durables (+4.4pp), with lower exposure in healthcare (-6.6pp).

Exhibit 3: Portfolio sector exposure (% unless stated)

Portfolio end-October 2018

Portfolio end-October 2017

Change (pp)

Financial services

20.9

18.4

2.5

Consumer discretionary

19.7

21.3

(1.6)

Producer durables

18.3

13.9

4.4

Technology

10.7

11.4

(0.7)

Healthcare

10.4

17.0

(6.6)

Materials & processing

8.1

3.0

5.1

Consumer staples

7.3

6.2

1.1

Energy

3.3

5.2

(1.9)

Utilities

2.5

2.1

0.4

Cash & (gearing)

(1.2)

1.5

(2.7)

100.0

100.0

Source: Jupiter US Smaller Companies, Edison Investment Research. Note: numbers subject to rounding.

The manager highlights two contrasting industries in which he is invested that he believes have temporary oversupply issues – chicken production and assisted living. Chicken is seen as a healthy option compared with red meat and is cheaper, driving underlying demand. Sanderson Farms is a niche player among the chicken producers, providing larger chickens for supermarkets, rather than smaller birds for fast-food restaurants. The company generates a high return on equity, but the industry has periodic overcapacity, leading to weakness in chicken pricing. Siddles says that chicken production is a short-cycle business, so chicken price weakness leads to a reduction in supply. The position in Sanderson was initiated when the company was trading on a historically low price-to-book multiple, reflecting tough industry conditions, and the manager is also attracted by the company’s free cash flow generation and high insider ownership. He says that he held previously held a position in Sanderson within the past two years, but sold it when its valuation became unattractive.

Siddles explains that assisted living is a growth industry because baby boomers are reaching an age when they require these services. However, there has been too much supply added during the past few years and developers are now cutting back on their growth plans, due to lower utilisation and difficulty in achieving fee increases to cover higher labour costs. JUS has a position in Brookdale Senior Living; the manager explains that the company compounded its problems by embarking on a significant merger four years ago, which proved to be problematic. Brookdale is now turning itself around under a new management team, which has improved the balance sheet and the company has a clear plan to fix its issues, including the disposal of unprofitable facilities and focusing more on generating sales. Siddles also expects the company to benefit from improving industry conditions in 2019 as supply growth wanes.

Performance: Tightened process delivering results

In FY18, JUS’s NAV and share price returns of +21.1% and +23.8% were significantly ahead of the benchmark’s +14.2% return. The outperformance was primarily driven by the smaller companies in the portfolio, with the largest contributions to performance coming from oil service company DMC Global (+238%), food distributor to up-market restaurants Chef’s Warehouse (+116%) and deep discount retailer Ollie’s Bargain Outlet (+67%). Performance was also enhanced by three takeovers during FY18: Amplify Snack Brands, which was bought for a significant premium, along with State Bank Financial and CoBiz Financial, whose bid prices were at more modest premiums to their prevailing stock prices.

Exhibit 4: Investment trust performance to 31 October 2018

Price, NAV and benchmark return performance, one-year rebased

Price, NAV and benchmark return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: three, five and 10-year performance figures annualised.

JUS’s relative returns are shown in Exhibit 5. The trust has generated very strong results over the past 12 months in both NAV and share price terms; performance has been helped by tightening up the investment process (see below), and the manager has navigated the heightened level of stock market volatility in the past couple of months. Looking over longer periods, JUS has outperformed its benchmark over three and 10 years, while lagging over five years.

Exhibit 5: Share price and NAV performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to US small-cap equities

(0.7)

1.8

5.8

12.0

4.2

(13.0)

27.5

NAV relative to US small-cap equities

1.4

4.7

6.0

13.1

4.2

(2.6)

16.2

Price relative to FTSE All-Share

(4.8)

1.9

15.9

18.8

30.7

15.2

76.7

NAV relative to FTSE All-Share

(2.7)

4.8

16.1

19.9

30.6

29.0

60.9

Price relative to S&P 500

(5.1)

(4.8)

0.3

5.0

(2.3)

(30.2)

3.4

NAV relative to S&P 500

(3.0)

(2.1)

0.5

5.9

(2.3)

(21.8)

(5.8)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-October 2018. Geometric calculation.

The success of JUS’s refined investment process, with a greater concentration in Siddles’ highest-conviction positions and an enhanced selling discipline, is evident in Exhibit 6. Since October 2017, the trust has outperformed the benchmark by more than 15pp, which the manager considers very gratifying. He says that several top 10 positions have performed well, such as Ollie’s Bargain Outlet, which is continuing to deliver strong same-store sales growth; nursing home operator Ensign, which has worked through the tough integration of an acquisition and is benefiting from improving industry fundamentals; and America’s Car-Mart, which is benefiting from a loyal customer base and a positive mix shift to higher-margin sports utility vehicles.

Exhibit 6: NAV performance relative to benchmark over three years

Source: Thomson Datastream, Edison Investment Research

Discount: Aiming for a maximum discount of 8%

The board targets a maximum discount of 8% in normal market conditions and regularly repurchases shares. So far in FY19, 0.2m shares (1.5% of the end-FY18 share base) have been bought back at a cost of £2.3m. This is a much slower pace of buybacks than in FY18, when 26.0% of the share base was repurchased at a cost of £43.2m. On 9 May, the board received shareholder approval to renew the authority to repurchase up to 14.99% of its shares ahead of the 20 November 2018 AGM. JUS is currently trading at an 11.0% discount to cum-income NAV. This compares to a range of 4.5% to 13.3% over the past 12 months, and the average discounts of 8.9%, 10.0%, 8.6% and 6.6% over the past one, three, five and 10 years, respectively. There is scope for JUS’s discount to narrow, given the manager’s improved investment performance.

Exhibit 7: Share price discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

JUS is a conventional investment trust with one class of share; there are 14.6m ordinary shares in issue. The trust historically did not employ gearing, but since 29 September 2017 has had a £20m flexible loan facility with Scotiabank (Ireland), with an option of a further £10m if required. At end-October 2018, JUS had net gearing of 1.2%. Prior to 1 October 2017, Jupiter Unit Trust Managers was paid a flat management fee of 0.80% of NAV. There is now a sliding fee of 0.75% of net assets up to £150m, 0.65% between £150m and £250m, and 0.55% above £250m. The performance fee has been removed (last paid in FY14). In FY18, JUS’s ongoing charges were 1.02%, which was broadly in line with 1.01% in FY17.

Dividend policy and record

Reflecting the trust’s focus on capital growth rather than income (US smaller companies are not a high-yielding asset class), JUS does not pay a dividend. In FY18, the trust generated revenue income of £1.4m, which was more than offset by management fees and other expenses.

Peer group comparison

JUS is one of three trusts in the AIC North American Smaller Companies sector. They are not directly comparable, as JPMorgan US Smaller Companies has a growth bias, JUS follows a value investment style, and North Atlantic Smaller Companies invests in smaller US and UK companies, both public and private. To enable a broader comparison, in Exhibit 8 we also show the sterling share classes of open-ended US smaller company funds. JUS’s NAV total return is considerably ahead of both the closed- and open-ended peer group averages over the past 12 months. It is also above the averages over three years, while lagging over five and 10 years, which is not surprising given the outperformance of growth stocks over the last decade. JUS has the lowest ongoing charge in the closed-end peer group, the second-lowest discount and an average level of gearing. The trust does not pay a dividend.

Exhibit 8: Selected peer group as at 27 November 2018 (all in sterling)*

% unless stated

Market cap £m

NAV TR 1 year

NAV TR 3 year

NAV TR 5 year

NAV TR 10 year

Ongoing charge

Perf. fee

Discount (cum-fair)

Net gearing

Dividend yield

Jupiter US Smaller Companies

148.4

18.4

58.4

68.6

352.6

1.0

No

(8.6)

101

0.0

JPMorgan US Smaller Companies

178.0

5.9

64.4

96.7

513.4

1.3

No

(0.1)

107

0.8

North Atlantic Smaller Companies

392.5

8.7

35.7

95.7

273.2

1.0

Yes

(24.4)

94

0.8

Peer group average

239.6

11.0

52.8

87.0

379.7

1.1

(11.1)

101

0.5

JUS rank in sector

3

1

2

3

2

3

2

2

3

Open-ended funds

Allianz US Small Cap Equity

3.0

1.6

34.8

2.1

No

0.0

Artemis US Smaller Companies

486.8

15.3

77.1

0.9

No

0.0

BMO US Smaller Companies

86.8

9.3

48.4

80.7

395.0

0.8

No

0.0

GS US Sm Companies CORE Eq

216.5

6.8

55.5

85.4

390.5

0.9

No

0.2

Hermes US Smid Equity

783.5

4.1

46.8

80.9

0.9

No

0.0

JPM US Smaller Companies

193.5

7.9

69.5

90.0

453.4

0.8

No

0.0

Legg Mason IF Royce US Smlr Cos

195.3

(0.1)

44.9

51.2

268.1

1.0

No

0.3

Legg Mason RY US SmCp Opp

778.5

(4.9)

54.9

55.1

383.5

2.0

No

0.0

Neuberger Berman US Sm Cap

290.0

7.4

50.8

70.7

1.9

No

0.0

Schroder US Smaller Comp

802.4

3.8

51.5

87.5

337.6

0.9

No

0.0

T. Rowe Price US Smlr Cos Eq

1,213.9

7.7

58.0

95.5

431.4

1.1

No

0.0

Threadneedle AmerSmlrComs

623.2

2.2

43.1

82.0

408.8

0.9

No

0.2

Peer group average

472.8

5.1

53.0

77.9

383.5

1.2

0.1

Source: Morningstar, Edison Investment Research. Note: *performance data to 26 November 2018. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

JUS’s board is made up of five historically independent, non-executive directors, but they are aware that recent corporate governance changes mean that directors who have served more than nine years are considered non-independent. The chairman, Gordon Grender, was appointed as a director at the trust’s inception in 1993 and assumed his current role in October 1998. The other four directors and their dates of appointment are: Norman Bachop (senior independent director since June 2007 and a board member since February 1999), Peter Barton (February 1998), Clive Parritt (January 2007) and Lisa Booth (September 2015). The directors have experience in a range of financial services including investment management, corporate finance, private equity and investment banking, along with accountancy and law.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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United States

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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