Managing risk in a transition period

The European Investment Trust Plc 21 June 2018 Review
Download PDF

The European Investment Trust

Managing risk in a transition period

Investment trusts

 

21 June 2018

Price

914.0p

Market cap

£382m

AUM

£428m

NAV*

993.0p

Discount to NAV

8.0%

NAV**

1,016.8p

Discount to NAV

10.1%

*Excluding income. **Including income. As at 19 June 2018.

Yield (inc. indicated & special dividends)

2.6%

Ordinary shares in issue

41.8m

Code

EUT

Primary exchange

LSE

AIC sector

Europe

Benchmark

FTSE All-World Europe ex-UK

Share price/discount performance

Three-year performance vs index

52-week high/low

974.0p

866.0p

1,069.6p

971.9p

**Including income.

Gearing

Gross*

0.0%

Net cash*

0.4%

*As at 31 May 2018.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

The European Investment Trust is a research client of Edison Investment Research Limited

The European Investment Trust (EUT) adopts a strict valuation-based investment approach to construct a relatively concentrated portfolio of stocks that can be held for the long term. Manager Craig Armour says that monetary conditions are slowly normalising following the extreme policies adopted as a result of the global financial crisis. He believes that this process will lead to an increase in stock market volatility, which will in turn lead to a greater investor focus on company valuations. Armour has been selectively adding attractively priced new positions to EUT’s portfolio across a range of industries. However, on balance he has been taking some risk off the table by reducing the fund’s cyclical exposure.

12 months ending

Share price (%)

NAV (%)

Benchmark (%)

FTSE All-Share (%)

MSCI World (%)

31/05/14

32.1

20.6

12.5

8.9

8.0

31/05/15

9.4

3.7

4.1

7.5

16.8

31/05/16

(19.1)

(11.7)

(3.6)

(6.3)

1.3

31/05/17

41.8

39.8

35.8

24.5

32.0

31/05/18

1.2

0.7

1.3

6.5

8.8

Source: Thomson Datastream. Note: All % on a total return basis in pounds sterling.

Investment strategy: Valuation-based stock selection

EUT is managed by Edinburgh Partners (EP), whose analysis shows that stock prices are correlated over the long term with a company’s inflation-adjusted, five-year earnings performance, but that share price moves over shorter time periods are more random. The manager and his team undertake in-depth research, seeking companies with attractive fundamentals, which are trading on a five-year (Y5) P/E of less than 11x. EUT’s typical 35-45 stock portfolio is diversified by geography and sector, and is constructed without reference to the FTSE All-World Europe ex-UK index benchmark. Gearing of up to 20% is permitted, but at end-May 2018 the trust had a net cash balance of 0.4%.

Market outlook: Higher valuations warrant selectivity

Global equity valuations, including those of European companies, are looking somewhat extended. On a forward earnings multiple basis, European stocks are trading at a c 15% premium to their 10-year average. Given this backdrop and ongoing macroeconomic concerns, including a potential trade war in response to US protectionism, investors may be well served by considering a fund with a rigorous valuation-based approach to stock selection.

Valuation: Discount in line with historical averages

EUT’s current 10.1% share price discount to cum-income NAV is broadly similar to the averages over the last one, three and five years of 10.4%, 10.7% and 10.2% respectively. The trust has a progressive dividend policy; annual distributions have grown or been maintained each year since 2009, compounding at an average rate of 6.7% pa. Including indicated and special dividends, EUT has a yield of 2.6%.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

The European Investment Trust (EUT) seeks attractive investment returns over the long term from a diversified portfolio of European securities. The trust was launched in 1972 and management was transferred to Edinburgh Partners on 1 February 2010 following a tender process. The manager follows a disciplined, long-term value investment approach. The trust has an indefinite life and is not subject to a periodic continuation vote.

23 May 2018: Interim report for six months ending 31 March 2018. NAV TR -4.2%% versus benchmark TR -4.0%. Share price TR -1.8%. Announcement of 9.0p interim dividend.

1 May 2018: Edinburgh Partners became a wholly owned subsidiary of Franklin Templeton Investments.

30 November 2017: Annual report for 12 months ending 30 September 2017. NAV TR +29.9% versus benchmark TR +22.6%. Share price TR +32.2%. Announcement of 13.5p final dividend.

Forthcoming

Capital structure

Fund details

AGM

January 2019

Ongoing charges

0.61% (at H118)

Group

Edinburgh Partners

Final results

November 2018

Net cash

0.4%

Manager

Craig Armour

Year end

30 September

Annual mgmt fee

Tiered (see page 7)

Address

27-31 Melville Street, Edinburgh EH3 7JF

Dividend paid

July, January

Performance fee

None

Launch date

1972

Trust life

Indefinite

Phone

+44 (0) 131 270 3800

Continuation vote

None

Loan facilities

€30m

Website

www.edinburghpartners.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

The investment objective is to achieve attractive investment returns, so dividend yield is not the primary aim. Historically, annual dividends were paid in January, but starting in July 2017 an interim dividend is also paid.

EUT is authorised both to repurchase up to 14.99% of its ordinary shares and to issue up to 5% of its issued share capital at a premium to NAV.

Shareholder base (as at 31 May 2018)

Portfolio exposure by geography (as at 31 May 2018)

Top 10 holdings (as at 31 May 2018)

Portfolio weight %

Company

Country

Sector

31 May 2018

31 May 2017*

Total

France

Oil & gas

3.5

3.1

Eni

Italy

Oil & gas

3.4

N/A

Roche

Switzerland

Healthcare

3.4

3.3

Royal Dutch Shell 'A'

Netherlands

Oil & gas

3.2

N/A

PostNL

Netherlands

Industrial goods & services

3.2

4.5

Bayer

Germany

Healthcare

3.1

3.6

Telefónica

Spain

Telecoms

3.1

3.1

Nokia

Finland

Technology

2.9

N/A

ING Groep

Netherlands

Banks

2.9

N/A

Ryanair

Ireland

Travel & leisure

2.8

3.2

Top 10 (% of holdings)

31.5

34.2

Source: The European Investment Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-May 2017 top 10.

Market outlook: Focus on company valuations

Following a period of above-average equity returns in recent years (Exhibit 2, LHS), driven by robust corporate earnings growth and re-rating, company valuations are now less attractive. This includes European equities which, although on an absolute forward earnings multiple are cheaper than both global and US equities, are looking extended versus their 10-year average (Exhibit 2, RHS). Stock market volatility has returned to more normal levels in 2018, following a particularly benign environment in 2017, as investors have had to consider the risk of higher interest rates due to an uptick in inflation, along with other developments such as the risk of a trade war due to US protectionism and recent political upheaval in Europe. In this environment of elevated valuations and macroeconomic risks, investors may be rewarded by a more selective approach to equity investing, with a greater focus on company valuations.

Exhibit 2: Market performance and valuation

Performance of indices, last five years (in £ terms)

Forward P/E multiples of Datastream indices

 

Last (x)

High (x)

Low (x)

10-year average (x)

Last as % of 10-year average

Europe ex-UK

13.6

15.5

7.3

11.9

114

UK

13.6

15.7

7.4

12.3

111

US

17.1

18.9

9.4

14.8

115

World

14.3

16.2

8.8

13.2

108

Source: Thomson Datastream, Edison Investment Research. Note: Data to 20 June 2018.

Fund profile: Value-based investment approach

EUT was launched in 1972 and has been managed by Edinburgh Partners (EP) since February 2010. EP was launched in 2003 and has more than £7bn of assets under management, of which £1.3bn is in European mandates. On 1 May 2018, EP was acquired by Franklin Templeton Investments; the investment teams will remain independent and there will be no change to EUT’s disciplined, valuation-based investment process, which is based on five-year earnings forecasts. Sandy Nairn, founder of EP, will remain as its investment partner and CEO, but is now also chairman of the Templeton Global Equity Group. He previously worked at the firm between 1990 and 2000 with Sir John Templeton, with whom he shared a similar philosophy and investment approach. Since August 2016, EUT has been managed by Craig Armour, who joined EP in 2009. The trust is listed on the Main Market of the London Stock Exchange. Effective from 2 November 2017, EUT is no longer listed on the New Zealand Stock Exchange, as the board considered that the costs of the secondary listing outweighed the benefits. At the January 2018 AGM, the board proposed a change in the trust’s investment objective from “achieve long-term capital growth through a diversified portfolio of Continental European securities” to “achieve attractive investment returns over the long term from a diversified portfolio of European securities”. This resolution was duly approved by EUT’s shareholders. The trust’s portfolio is made up of 30-50 securities, with a maximum 10% (at the time of investment) in a single stock. Up to 10% of the portfolio may be invested in countries outside of the benchmark FTSE All-World Europe ex-UK index. EUT traditionally has not hedged its currency exposure. Gearing of up to 20% is permitted in normal market conditions, although at end-May the trust had a net cash position of 0.4%.

The fund manager: Craig Armour
The manager’s view: On the path to monetary normalisation

Armour says that the European economy remains reasonably robust, although President Trump’s threats to global trade via the imposition of tariffs have had a negative effect on sentiment. The manager believes the eurozone is on the path towards normalisation of monetary policy, albeit behind the progress being made in the US. He notes continuing evidence of higher inflation in Europe, such as in the labour market. An example is in Germany, where the most powerful labour union IG Metall has agreed a 4.3% wage increase over 27 months and more flexible working hours.

While European politics have once again been in the news recently, the manager is keen to stress that he “invests in companies, not countries”. However, he is mindful of the risks of investing in companies in southern Europe that have a high domestic exposure – only c 12% of EUT’s portfolio is invested in Italy and Spain. The trust holds two Italian stocks: Eni, which is an international business and Mediobanca, which is well capitalised with minimal exposure to sovereign debt and has an attractive wealth management business. The manager says that while investors tend to focus on negative political issues such as immigration and the rise in popularity of more extreme political movements, there have also been positive developments. He says that Greece, Portugal and Ireland have “all taken their medicine”, and their economies are the better for it, and he notes the potential for meaningful reforms in France. He believes that President Macron has a mandate for change and should be able to bring about a more flexible labour market, including pension reform. Armour says that these moves should be very good news for the French economy, which would be on a par with the German reforms of 2004-06.

In Europe, as elsewhere, the manager sees the impact of technological developments as a pervasive theme. He says that companies across the board have to deal with the effects of digital disruption, so it is very important to try to differentiate between those companies that are responding to digital threats by using technology more effectively and those who fail to act. He cites Ryanair as an example of a company that is embracing change, such as trying to harness data from its 130 million annual customers, which could be used to generate future revenue streams.

Asset allocation
Investment process: Disciplined, bottom-up approach

EP employs a disciplined, valuation-based, bottom-up approach to stock selection. The key assumption is that the stock market is rational over the long term but, over shorter periods, there is a more random relationship between a company’s earnings growth and movements in its stock price. Armour is able to draw on EP’s well-resourced team of 13 portfolio managers and analysts, and one applied research personnel. They each have 30-50 stocks under coverage and conduct in-depth fundamental research, which includes a company’s five-year, inflation-adjusted earnings forecast, and hence a Y5 P/E multiple. Each company under review is also given an environmental, social and governance (ESG) rating.

EP’s analysis shows that above-average real returns can be delivered when companies are purchased at a Y5 P/E below 11x. Over the last 20 years the average Y5 P/E of EUT’s portfolio has ranged between 7x and 11x (currently close to the top end of the range). Armour explains that due to EP’s long-term, valuation-based approach, there may be periods when the trust lags its benchmark, hence EUT’s investors should also have a long-term investment horizon. The trust’s portfolio is relatively concentrated, generally made up of 35-45 positions. In H118, portfolio turnover was 21%, broadly similar to 22% in FY17, and active share was 80%, again, similar to 79% in FY17. (Active share is a measure of how a portfolio differs from an index, with 0% representing full index replication and 100% no commonality.)

Current portfolio positioning

At end-May 2018, EUT’s top 10 positions made up 31.5% of the portfolio, which was a modest decrease in concentration compared to 34.2% a year earlier; six positions were common to both periods. The trust’s positioning compared with the benchmark is shown in Exhibit 3. EUT has no exposure to five industry subsectors, which together make up a meaningful 17.7% of the benchmark. It is also heavily overweight oil & gas (+7.9pp), industrial goods & services (+7.1pp) and banks (+6.6pp), while underweight two relatively defensive sectors: personal & household goods (-5.0pp) and food & beverages (-4.7pp). However, it should be noted that in aggregate, over the last 12 months, the manager has been taking risk off the table and reducing cyclical exposure.

Exhibit 3: Portfolio subsector exposure vs benchmark (% unless stated)

Portfolio end- May 2018

Portfolio end- May 2017

Change (pp)

Index weight

Active weight vs index (pp)

Trust weight/ index weight (x)

Industrial goods & services

19.7

15.9

3.8

12.6

7.1

1.6

Banks

18.8

19.2

(0.4)

12.2

6.6

1.5

Healthcare

16.8

12.8

4.0

13.2

3.6

1.3

Oil & gas

12.7

11.0

1.7

4.8

7.9

2.6

Telecoms

5.2

7.1

(1.9)

3.3

1.9

1.6

Media

4.3

2.0

2.3

1.7

2.6

2.5

Retail

4.1

5.0

(0.9)

2.6

1.5

1.6

Technology

2.9

5.0

(2.1)

5.8

(2.9)

0.5

Travel & leisure

2.8

3.2

(0.4)

0.5

2.3

5.3

Food & beverages

2.7

0.0

2.7

7.4

(4.7)

0.4

Personal & household goods

2.6

2.6

0.0

7.6

(5.0)

0.3

Utilities

2.4

2.4

0.0

4.1

(1.7)

0.6

Financial services

2.4

2.3

0.1

1.6

0.8

1.5

Automobiles & parts

2.3

3.7

(1.4)

4.8

(2.5)

0.5

Basic resources

0.0

1.9

(1.9)

1.5

(1.5)

0.0

Chemicals

0.0

3.6

(3.6)

5.3

(5.3)

0.0

Construction & materials

0.0

0.0

0.0

3.4

(3.4)

0.0

Insurance

0.0

0.0

0.0

5.8

(5.8)

0.0

Real estate

0.0

0.0

0.0

1.7

(1.7)

0.0

Cash & others

0.4

2.3

(1.9)

0.0

0.4

N/A

100.0

100.0

100.0

Source: The European Investment Trust, Edison Investment Research

Armour notes higher stock market volatility so far in 2018 compared to the very benign environment in 2017. He says that this is generating more opportunities to trim and add to EUT’s positions. However, the manager says that attractively valued new ideas are hard to find. Over the last 20 years the Y5 P/E on the portfolio has ranged between 7x and 11x. It is currently near the top end, at c 10x. New positions in recent months include Polish telecom company Cyfrowy Polsat (purchased at a Y5 P/E of 9.4x), Irish global nutrition group Glanbia (Y5 P/E of 9.4x), Danish facilities management company ISS (Y5 P/E of 10.4x) and French telecom company Orange (Y5 P/E of 10.6x).

Performance: NAV modestly behind benchmark in H118

In H118, EUT’s NAV and share price total returns of -4.2% and -1.8% compared with the -4.0% benchmark total return. In terms of sectors the best contributor was oil & gas (+0.9pp), where all holdings delivered positive returns. The largest detractor was financials (-1.9pp), led by the banks, which benefit from rising interest rates and so were negatively affected when the trend of rising bond yields stalled in early 2018. At the stock level, the best contributors to performance were Danish telecom company TDC (+0.7pp), Norwegian seismic firm Petroleum Geo-Services (+0.6pp) and Dutch digital security company Gemalto (+0.5pp). The largest detractors were German pharma and life science company Bayer, Spanish food retailer DIA and French pharma company Sanofi (each contributed -0.7pp to performance).

Exhibit 4: Investment trust performance to 31 May 2018

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

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: SI is since move to Edinburgh Partners (1 February 2010). Three-year, five-year and SI performance figures annualised.

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

 

One month

Three months

Six months

One year

Three years

Five years

SI

Price relative to FTSE AW Europe ex-UK

(0.3)

(2.1)

0.7

(0.1)

(12.5)

7.9

6.2

NAV relative to FTSE AW Europe ex-UK

(1.5)

(1.3)

1.7

(0.6)

(6.3)

0.1

0.1

Price relative to FTSE All-Share

(3.8)

(9.3)

(6.6)

(5.0)

(6.6)

15.3

0.2

NAV relative to FTSE All-Share

(5.0)

(8.5)

(5.7)

(5.5)

(0.0)

6.9

(5.5)

Price relative to MSCI World

(5.1)

(5.7)

(4.1)

(7.1)

(20.3)

(8.7)

(23.6)

NAV relative to MSCI World

(6.3)

(4.9)

(3.1)

(7.5)

(14.6)

(15.3)

(28.0)

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

Exhibit 6: NAV total return performance relative to benchmark over three years

Source: Thomson Datastream, Edison Investment Research

Discount: Range-bound over the last year

EUT’s share price discount to cum-income NAV started to narrow noticeably from c 18% in late 2016 and has been in a relatively tight range of an 8% to 12% discount over the past year (Exhibit 7). The trust’s current 10.1% discount is broadly similar to the averages over the last one, three and five years (range of 10.2% to 10.7%). Renewed annually, EUT is authorised to repurchase up to 14.99% of its shares in issue in order to help manage the discount. So far in FY18, c 230k shares have been repurchased at a cost of c £2.1m.

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

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

EUT is a conventional investment trust with one class of share in issue; there are currently 41.8m ordinary shares outstanding. Renewed annually, the trust is authorised both to repurchase up to 14.99% of its ordinary shares and to issue up to 5% of its issued share capital at a premium to NAV, in order to manage a discount or premium. EUT has a €30m overdraft facility with Northern Trust, but at end-May 2018 the trust was ungeared and running a net cash position of 0.4%.

There has been a revision to EUT’s fee structure. Historically, EP received an annual management fee of 0.55% of EUT’s market capitalisation. Starting on 1 June 2018, the annual management fee will be 0.55% up to a £500m market cap and 0.50% above this level; there continues to be no performance fee entitlement. The board believes that paying a percentage of market capitalisation rather than a percentage of NAV more closely aligns the interests of EP with those of shareholders. In H118, ongoing charges were 0.61%, which was a modest 2bp higher than 0.59% in FY17. The trust has a very competitive fee structure, with the lowest ongoing charge in the AIC Europe sector (35bp below average). Starting in FY18, two-thirds of fees and financing costs related to borrowing will be charged to the capital account. The 2/3:1/3 split between capital and revenue accounts reflects the board’s expected breakdown of future capital and income returns. All else being equal, the change in allocation of management fees and financing costs related to borrowing should increase the revenue available for dividend payments.

Dividend policy and record

EUT’s ordinary dividends have grown or been maintained since 2009, with a compound annual growth rate of 6.7%. The trust also pays special dividends, which are dependent on the level of income (Exhibit 1). In FY17, the 21.5p ordinary dividend was 34.4% higher than the 16.0p ordinary dividend paid in FY16. Taking special dividends into account, the FY17 total distribution of 23.0p was 4.5% higher than 22.0p in FY16. It was 1.1x covered by income, which was boosted by the receipt of historic overseas withholding tax reclaims and the strength of the euro relative to sterling. At end-FY17, EUT had revenue reserves of £9.9m (23.5p per share, which is 0.5p higher than the last annual total distribution). In H118, revenue per share was 8.4p; this was lower than 8.9p in H117, which included 3.2p of historic overseas withholding tax reclaims. Because many European companies pay their dividends between April and September, the H118 revenue per share should not be extrapolated when considering the potential total income in FY18.

Starting in 2017, the trust now pays an interim dividend in July, as well as a final dividend in January. A 9.0p interim dividend has been announced for H118, which is 12.5% higher than 8.0p in H117. Based on the current share price, EUT’s dividend yield (including indicated and special dividends) is 2.6%.

Peer group comparison

EUT is one of eight trusts in the Association of Investment Companies Europe sector. Its NAV total returns are below average over the periods shown. However, it should be noted that since the global financial crisis in 2007-08, growth rather than value stocks have led the European (and global) stock markets, and the peers generally have a growth rather than value bias. EUT has a modestly wider than average discount in a sector where none of the trusts trades at a premium. It has the lowest ongoing charge (35bp below the average) and no performance fee is payable. EUT’s 2.6% dividend yield is the second highest in the group, c 0.4pp above average.

Exhibit 8: AIC Europe sector peer group as at 18 June 2018*

% unless stated

Market cap £m

NAV TR 1 year

NAV TR 3 year

NAV TR 5 year

Discount (ex-par)

Ongoing charge

Perf. fee

Net gearing

Dividend yield

European Investment

382.7

2.3

28.7

59.7

(8.7)

0.6

No

100

2.6**

BlackRock Greater Europe

309.1

13.2

52.7

80.8

(1.3)

1.1

No

104

1.5

Fidelity European Values

916.7

8.6

44.9

75.3

(11.1)

0.9

No

110

2.0

Henderson European Focus

268.2

2.0

40.2

88.0

(6.0)

0.9

Yes

102

2.4

Henderson EuroTrust

237.8

4.7

49.7

87.8

(6.5)

0.9

Yes

102

2.3

JPMorgan European Growth Pool

220.4

3.8

44.5

79.4

(11.1)

1.1

No

106

2.3

JPMorgan European Income Pool

159.7

2.0

44.1

88.2

(9.0)

1.1

No

107

4.0

Jupiter European Opportunities

878.9

14.6

59.4

115.4

(2.4)

1.0

Yes

106

0.8

Average (8 funds)

421.7

6.4

45.5

84.3

(7.0)

0.9

105

2.2

EUT rank in sector

3

6

8

8

5

8

8

2

Source: Morningstar, Edison Investment Research. Note: *Performance data to 15 June 2018. **Includes indicated and special dividends. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

There are four directors on EUT’s board; all are non-executive and independent of the manager. The chairman Michael MacPhee was appointed in 2016 and assumed his current role in 2017. The other three directors and their year of appointment are: Michael Moule (senior independent director, 2004), William Eason (2007) and Dr Michael Woodward (2013). All the directors have backgrounds in investment management and investment trusts.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by The European Investment Trust and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by The European Investment Trust and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

Share this with friends and colleagues