Review of management arrangements

The European Investment Trust 19 June 2019 Review
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The European Investment Trust

Review of management arrangements

Investment trusts
European equities

19 June 2019

Price

815.0p

Market cap

£328m

AUM

£363m

NAV*

902.2p

Discount to NAV

9.7%

NAV**

927.7p

Discount to NAV

12.2%

*Excluding income. **Including income. As at 18 June 2019.

Yield

3.3%

Ordinary shares in issue

40.2m

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

940.0p

754.0p

1,058.2p

845.9p

**Including income.

Gearing

Net cash*

0.9%

*As at 31 May 2019.

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) is managed by Craig Armour at Edinburgh Partners. This company follows a strict value-based investment process, based on the philosophy that there is a stable relationship between expected share price total returns and a company’s current share price compared with its long-term earnings per share (see chart below). In recent years, global markets have been led by growth rather than value stocks, and EUT’s investment performance has consequently lagged that of its benchmark FTSE All-World Europe ex-UK index. The board has announced that it is undertaking a review of EUT’s management arrangements and will update shareholders in due course.

Very clear negative correlation between year-five P/E multiples and expected share price annual total returns

Source: The European Investment Trust, Edison Investment Research

The market opportunity

European markets have not been immune to higher levels of volatility as investors worry about the escalating disputes between the US and its trading partners. There are also region-specific considerations, such as Brexit and political polarisation. As a result, European shares are looking attractively valued compared with their own history and the world market, which may provide an opportunity for long-term, patient investors.

Why consider investing in EUT?

The trust provides clear exposure to a value strategy, which has significantly underperformed a growth approach in recent years.

Progressive dividend policy, with an above-average 3.3% yield.

Very competitive cost structure.

Scope for a narrower discount

EUT’s current 12.2% share price discount to cum-income NAV is wider than the 10.2% to 11.8% range of discounts over the last one, three and five years. There is scope for a revaluation if the trust’s performance improves, or if there is increased investor demand for European equities. EUT has a progressive dividend policy; its total distribution has compounded at a rate of 11.4% pa over the last nine years, and the trust currently offers a 3.3% dividend yield.

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.

23 May 2019: Six-month report ending 31 March 2019. NAV TR -7.7% versus benchmark TR -3.6%. Share price TR -10.2%. Announcement of 9.5p interim dividend (+5.6% year-on-year). The board is undertaking a review of EUT’s management arrangements.

11 February 2019: Launch of EUT’s new website.

29 November 2018: Annual report for 12 months ending 30 September 2018. NAV TR -2.1% versus benchmark TR +2.4%. Share price TR +1.2%. Announcement of 18.0p final dividend (+33.3% year-on-year).

Forthcoming

Capital structure

Fund details

AGM

January 2020

Ongoing charges

0.63% (H119)

Group

Edinburgh Partners

Final results

November 2019

Net cash

0.9%

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.eitplc.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 in July.

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

Shareholder base (as at 31 May 2019)

Portfolio exposure by geography (as at 31 May 2019)

Top 10 holdings (as at 31 May 2019)

Portfolio weight %

Company

Country

Sector

31 May 2019

31 May 2018*

Roche

Switzerland

Healthcare

4.2

3.4

Sanofi

France

Healthcare

3.9

N/A

Royal Dutch Shell 'A'

Netherlands

Oil & gas

3.7

3.2

Telefónica

Spain

Telecoms

3.5

3.1

Novartis

Switzerland

Healthcare

3.3

N/A

Getinge

Sweden

Healthcare

3.2

N/A

Nokia

Finland

Technology

3.2

2.9

Sopra Steria

France

Technology

3.2

N/A

Deutsche Post

Germany

Industrial goods & services

3.1

N/A

Cyfrowy Polsat

Poland

Media

3.0

N/A

Top 10 (% of holdings)

34.3

31.5

Source: The European Investment Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in end-May 2018 top 10.

Market outlook: Valuations relatively attractive

The performance of indices, in sterling terms, is shown in Exhibit 2 (LHS). Over the last five years, European shares have outpaced those in the UK, but have failed to keep up with the world market, where the dominant US has outperformed in recent years. Over the past 18 months, global stock markets have returned to more normal levels of volatility following a particularly benign 2017; investor concerns include the escalating dispute between the US and its trading partners and its potential negative effect on economic growth. Within Europe there are other considerations that have led to outflows by international investors, such as the lack of a Brexit resolution, an increased level of political polarisation, and Italian budget concerns. However, current depressed sentiment towards European equities may provide a longer-term opportunity. The Datastream Europe ex-UK index is currently trading on a forward P/E multiple of 13.0x, which is a 4.3% discount to the 13.6x five-year average. In relative terms, Europe is trading at an 11.7% P/E discount to the world market; this is considerably wider than the 7.9% average discount over the last five years.

Exhibit 2: Market performance and valuation

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

Valuation of European equities (using Datastream Europe ex-UK index)

Source: Refinitiv, Edison Investment Research. Note: Valuation data as at 18 June 2019.

Fund profile: Relatively concentrated exposure

EUT was launched in 1972 and since 1 February 2010 has been managed by Edinburgh Partners (EP), which follows a value-driven process developed by the company’s founder, Sandy Nairn. It is based on the understanding that stock markets are efficient over the long term (with share prices being driven by company fundamentals), but behave more randomly over shorter periods. Over the course of EP’s tenure, EUT’s investment performance has been somewhat disappointing; from the beginning of February 2010 until the end of March 2019, the trust’s 84.7% NAV total return has lagged the benchmark FTSE All-World Europe ex-UK index’s 101.5% total return. As a result, the board has announced that it is undertaking a review of EUT’s management arrangements.

EP manager Craig Armour aims to achieve attractive investment returns over the long term from a diversified portfolio of European securities. EUT’s portfolio typically contains 30–50 securities across the market cap spectrum. Investment parameters dictate a maximum 10% of the portfolio in a single stock, and a limit of 10% in countries not included in the FTSE All-World Europe indices. Investment in unquoted companies requires prior board approval. In normal market conditions, gearing of up to 20% of NAV is permitted; at end-May 2019, EUT had a 0.9% net cash position. The manager may hedge the trust’s currency exposure, but in practice does not do so.

February 2019 saw the launch of EUT’s new website, www.eitplc.com, which has improved features and additional functionality. The company has also revamped its monthly factsheets (historical publications are now available on the website).

The fund manager: Craig Armour

The manager’s view: Low growth, not a recession

Armour says that the way to describe the European economic backdrop is ‘subdued growth’. He senses that recent data points have been better than anticipated compared with very low expectations – at the end of 2018, he suggests the outlook was ‘horrendous’, but as Q119 progressed, things did not look quite as bad. However, confidence indicators are fluctuating, depending on newsflow regarding the US trade disputes.

The manager comments that investor sentiment towards Europe remains poor, with parallels being drawn with Japan in terms of ‘no growth forever’, an ageing population and a lack of inflation. However, Armour says that although Germany, like Japan, is an industrial leader, there is immigration into Europe, demographic trends differ by region, and Europe has low inflation, not deflation. Also, he notes the difference in debt profiles; Europe’s debt to GDP is considerably lower than Japan’s, which provides some degree of increased flexibility. However, persistently low interest rates in Europe do mean that the ECB, similar to other central banks, lacks policy tools to stimulate the economy.

If there is a recession in Europe, the manager says he believes investors will continue to pay up for the more defensive sectors, such as consumer staples, telecoms and utilities. However, if the economy just slows or is bumpy, he suggests that cyclical stocks offer the best value. Armour says EUT’s portfolio is balanced between defensive and cyclical sectors. He reduced the trust’s cyclical exposure in 2018, but ‘not by enough’, as recession fears in Q418 led to particular weakness in EUT’s holdings in banks and industrials. The European (and global) market has been volatile in 2019, as investor sentiment towards the growth outlook waxes and wanes, and the manager notes that while he was pleasantly surprised by the resiliency of Q119 earnings results, there have been what he considers to be outsized share price moves for companies failing to meet expectations. In such an environment, Armour says that it is important to ‘keep your head’ and maintain a longer-term perspective, suggesting that while there are always issues for investors to worry about, and economic growth in Europe is muted, he does not think the region is heading for a recession unless there is a policy misstep.

Asset allocation

Investment process: Value-based approach

The manager has a bottom-up approach to stock selection, seeking to identify companies that are trading at a discount to their intrinsic value. He focuses on long-term analysis of risk and reward potential, and is not distracted by short-term gyrations in the stock market. This unconstrained, contrarian approach means that EUT’s portfolio construction can vary markedly from the benchmark FTSE All-World Europe ex-UK index.

EP’s investment philosophy is that the stock market is rational over the long term, wherein a company’s share price is driven by its fundamentals, but over shorter periods, there is a more random relationship between a firm’s earnings growth and movements in its stock price. Armour is able to draw on the expertise of EP’s well-resourced team of 14 portfolio managers and analysts, and two applied research personnel. The investment professionals each have 30–50 stocks under coverage and conduct in-depth fundamental analysis. The resulting standard research template includes a company’s five-year, inflation-adjusted earnings forecast, a Y5 P/E multiple, and 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 9x). The fund typically has 35–45 positions and portfolio turnover is around 20–25% pa, implying an average holding period of four to five years. In H119, active share was 81% (this is a measure of how a fund differs from its benchmark, with 0% representing full index replication and 100% no commonality).

Current portfolio positioning

The trust’s sector exposures shown in Exhibit 3 highlight that compared with 12 months ago there is higher exposure to technology (+6.4pp), with a lower weighting in financials (-6.2pp).

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

Portfolio end-
May 2019

Portfolio end-
May 2018

Change
(pp)

Index
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

Healthcare

19.5

16.8

2.7

14.9

4.6

1.3

Industrials

15.6

19.7

(4.1)

15.4

0.2

1.0

Financials

15.0

21.2

(6.2)

20.4

(5.4)

0.7

Oil & gas

10.5

12.7

(2.2)

5.1

5.5

2.1

Consumer services

9.9

11.2

(1.3)

4.3

5.6

2.3

Technology

9.3

2.9

6.4

6.4

2.9

1.4

Consumer goods

8.2

7.6

0.6

20.4

(12.2)

0.4

Telecommunications

6.2

5.2

1.0

3.4

2.8

1.8

Utilities

2.5

2.4

0.1

4.7

(2.2)

0.5

Basic materials

2.2

0.0

2.2

5.1

(2.9)

0.4

Cash/(gearing)

0.9

0.4

0.5

N/A

N/A

N/A

100.0

100.0

100.0

Source: The European Investment Trust, Edison Investment Research. Note: Numbers subject to rounding.

Armour highlights three relatively recent additions to EUT’s portfolio. He is finding more opportunities in the mid-cap space, as higher risk aversion has seen investors gravitate towards larger companies.

Gerresheimer – a Germany-listed manufacturer of glass and plastic packaging for the healthcare sector (products include inhalers, insulin pens and syringes). End-demand is growing, while high-quality standards and regulatory expertise provide barriers to entry. The manager says the company hired a new CEO in early 2018 who has reinvigorated the business in both developed and emerging markets.

Stora Enso – an integrated paper and packaging producer based in Finland. Operations have shifted from the declining paper market into packaging, where there is increased demand led by e-commerce. Stora Enso is also reducing exposure to the volatile pulp market by buying out its forestry joint venture partner to secure its supply of raw material. Armour says that the company has a strong balance sheet and a well-supported dividend (5.4% yield).

Valeo – a French automotive supply company providing products for vehicles with all three types of engines (petrol, diesel or electric). Its focus is on electrification products and reducing emissions, and it has a joint venture with Siemens, all of which offer long-term growth potential. While end-demand in the auto sector is currently depressed, the manager says that Valeo’s stock was sufficiently cheap for him to consider a position; in addition, the company has a strong balance sheet and a healthy c 5% dividend yield.

Performance: Affected by growth stock leadership

Exhibit 4: Five-year discrete performance data

12 months ending

Share price
(%)

NAV
(%)

Benchmark
(%)

FTSE All-Share
(%)

MSCI World
(%)

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

31/05/19

(11.2)

(9.9)

2.4

(3.2)

5.9

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

In H119 (ending 31 March), EUT’s NAV and share price total returns of -7.7% and -10.2% respectively trailed the benchmark’s -3.6% total return. In terms of industry attribution, healthcare added +0.7pp, consumer goods +0.5pp and technology +0.4pp, while the main detractors were all cyclical sectors: industrials (-4.0pp), financials (-3.5pp) and oil & gas (-1.8pp). On a stock level, the largest positive contributors were major pharma company Roche (+0.6pp), Ireland-based global nutrition group Glanbia (+0.5pp) and food retailer Ahold Delhaize (+0.4pp). The largest detractors were auto part supplier Leoni (-1.2pp), oil service firm Petroleum Geo-Services, and delivery company PostNL (both -1.0pp).

Exhibit 5: Investment trust performance to 31 May 2019

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

Price, NAV and benchmark total return performance (%)

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

EUT has suffered a poor period of relative performance; it has lagged its benchmark, the FTSE All-Share and the MSCI World over the periods shown in Exhibit 6. Armour explains that, once again in 2019, value stocks have been unable to keep pace with growth stocks; of the c 10% underperformance in the first five months of this year, around 5pp occurred in May alone. The manager says that the escalation in the disputes between the US and its trading partners, along with falling bond yields, points to an economic slowdown. This has weighed particularly heavily on the performance of EUT’s cyclical holdings, such as banks and industrials.

Exhibit 6: 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

(5.4)

(8.6)

(8.6)

(13.3)

(9.6)

(20.3)

(8.0)

NAV relative to FTSE AW Europe ex-UK

(5.0)

(6.6)

(7.3)

(12.0)

(9.9)

(17.9)

(11.9)

Price relative to FTSE All-Share

(3.8)

(6.0)

(7.8)

(8.3)

(0.9)

(12.9)

(8.1)

NAV relative to FTSE All-Share

(3.5)

(3.9)

(6.6)

(6.9)

(1.3)

(10.2)

(12.1)

Price relative to MSCI World

(4.4)

(8.0)

(6.2)

(16.2)

(16.3)

(37.4)

(36.0)

NAV relative to MSCI World

(4.0)

(6.0)

(4.9)

(14.9)

(16.6)

(35.5)

(38.7)

Source: Refinitiv, Edison Investment Research. Note: Data to end-May 2019. Geometric calculation.

Exhibit 7: NAV total return performance relative to benchmark over three years

Source: Refinitiv, Edison Investment Research

Discount: Suspension of share repurchases

While the board does not employ a formal discount target, it monitors the trust’s valuation closely. In H119, 0.9m shares were repurchased at a cost of £7.0m, which added 0.2% to NAV. Given the review of EUT’s management arrangements, share repurchases are currently suspended.

The trust’s discount has widened in recent months, and the current 12.2% share price discount to cum-income NAV compares with the 6.6% to 13.5% range of discounts over the last 12 months. It is also wider than the 10.8%, 11.8% and 10.2% average discounts over the last one, three and five years respectively. There is scope for a narrower discount if EUT’s performance improves, or if there is increased investor appetite for European equities.

Exhibit 8: Share price discount to NAV (including income) over three years (%)

Source: Refinitiv, Edison Investment Research

Capital structure and fees

EUT is a conventional investment trust with one class of share; there are currently 40.2m ordinary shares in issue. 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, to manage a discount or premium. EUT has a €30m overdraft facility with The Northern Trust Company, but at end-May 2019, the trust had a net cash position of 0.9%. The manager employs gearing tactically, depending on valuations, and suggests that when EUT’s portfolio Y5 P/E multiple is 8x, the use of gearing is appropriate, but not so when the average multiple is 10x.

Historically, EP received a flat annual management fee of 0.55% of EUT’s market capitalisation, but starting on 1 June 2018, a tiered structure was introduced, at 0.55% up to £500m market cap and 0.50% above this level (there is no performance fee). The board believes that a fee based on market capitalisation rather than a percentage of NAV more closely aligns the interests of EP with those of EUT’s shareholders. Starting in FY18, two-thirds of fees and financing costs related to borrowing are charged to the capital account (the split between the capital and revenue accounts reflects the board’s expected breakdown of future capital and income returns). In H119, ongoing charges were 0.63%; while this was a modest 2bp higher year-on-year, EUT’s fees remain very competitive versus its peers in the AIC Europe sector (Exhibit 9).

Dividend policy and record

Since 2017, EUT has paid dividends twice (in July and January) rather than once a year. The total distribution has either increased or been maintained for the last nine years, compounding at an annual rate of 11.4%. In FY18, the total dividend was 27.0p per share, a 25.6% increase versus the 21.5p regular dividend paid in FY17 (along with a 1.5p special dividend), helped by a change in the allocation of fees. The annual distribution was more than covered by revenue.

In H119, EUT generated net revenue per share of 7.9p; this was 6.0% lower year-on-year due to the disposal of some of the trust’s higher-yielding positions. Investors should not extrapolate the H119 revenue result, as many European companies pay their dividends in April and May, while EUT’s expenses are incurred more evenly throughout the financial year. The board has announced a first interim dividend of 9.5p per share (+5.6% year-on-year). At the end of H119, the trust had revenue reserves of £7.7m, which is c 0.7x the FY18 dividend payment. Based on its current share price, EUT offers a 3.3% dividend yield.

Peer group comparison

EUT is one of eight members of the AIC Europe sector. The trust has experienced a period of tough performance, meaning its NAV total returns are the lowest over the periods shown. It has a very competitive ongoing charge, which is 30bp below the mean, and no performance fee is payable. EUT is one of two funds in the group that are ungeared, and it has a competitive yield, ranking second (70bp above the average).

Exhibit 9: AIC Europe sector peer group as at 18 June 2019*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(ex-par)

Ongoing charge

Perf.
fee

Net
gearing

Dividend
yield

European Investment Trust

328.0

(8.5)

34.8

19.6

139.5

(12.2)

0.6

No

100

3.3

BlackRock Greater Europe

320.1

7.5

61.5

69.9

278.7

(4.7)

1.1

No

103

1.5

Fidelity European Values

1,016.3

8.3

61.5

71.1

223.5

(8.3)

0.9

No

105

2.5

Henderson European Focus

262.8

1.2

46.2

54.2

250.2

(9.8)

0.8

No

100

2.5

Henderson EuroTrust

239.4

3.9

51.8

63.5

241.5

(10.2)

0.8

No

103

2.7

JPMorgan European Growth Pool

210.9

(2.7)

41.2

45.8

188.8

(11.0)

1.0

No

105

3.0

JPMorgan European Income Pool

158.4

2.5

47.5

54.9

229.1

(9.1)

1.1

No

106

4.1

Jupiter European Opportunities

985.9

7.0

70.0

98.7

496.5

(0.1)

0.9

Yes

106

0.7

Average (8 funds)

440.2

2.4

51.8

59.7

256.0

(8.2)

0.9

103

2.6

EUT rank in sector

3

8

8

8

8

8

8

7=

2

Source: Morningstar, Edison Investment Research. Note: *Performance data to 17 June 2019 based on ex-par NAV. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

Following the retirement of William Eason at the January 2019 AGM, there are five directors on EUT’s board, all of whom are non-executive. The chairman is Michael MacPhee, who joined the board in 2016 and assumed his current role in 2017. Michael Moule was appointed in 2004, while Dr Michael Woodward joined the board in 2013. The two newest directors are Sue Inglis and Andrew Watkins, who were both appointed on 1 January 2019. Inglis is chairman of the Bankers Investment Trust and is on the boards of Baillie Gifford US Growth Trust, BMO Managed Portfolio Trust, NextEnergy Solar Fund and Seneca Global Income & Growth Trust. Watkins is chairman of Ashoka India Equity Investment Trust and is on the boards of BMO UK High Income Trust and Chelverton UK Dividend Trust.

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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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by The European Investment Trust and prepared and issued by Edison, in consideration of a fee payable by The European Investment Trust. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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