Unconstrained investment in UK equities

Standard Life Equity Income Trust 30 January 2017 Review

Standard Life Equity Income Trust

Unconstrained investment in UK equities

Investment trusts

30 January 2017

Price

399.8p

Market cap

£197m

AUM

£235m

NAV*

428.0p

Discount to NAV

6.6%

NAV**

431.6p

Discount to NAV

7.4%

*Excluding income. **Including income. As at 25 January 2017.

Yield

3.9%

Ordinary shares in issue

49.2m

Code

SLET

Primary exchange

LSE

AIC sector

UK Equity Income

Benchmark

FTSE All-Share

Share price/discount performance

Three-year performance vs index

52-week high/low

437.5p

361.5p

440.3p

360.4p

**Including income.

Gearing

Gross*

12.7%

Net*

9.7%

*As at 31 December 2016.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

Standard Life Equity Income Trust is a research client of Edison Investment Research Limited

Standard Life Equity Income Trust (SLET) aims to generate above-average income and real growth in capital and income from a portfolio of UK equities across the capitalisation spectrum. At end-December 2016, more than 55% of the portfolio was invested outside of the FTSE 100 index. While the last year has seen a tough period of relative investment performance as a result of outperformance of large-cap companies with overseas earnings, which were not held, SLET continues to have a good long-term track record; it has outperformed the benchmark FTSE All-Share index over both five and 10 years. With the exception of one year of static dividends, SLET’s annual dividend has increased every year since launch.

12 months ending

Share price
(%)

NAV
(%)

FTSE All-Share
(%)

FTSE 100
(%)

FTSE 250
(%)

31/12/12

26.3

19.2

12.3

10.0

26.1

31/12/13

33.1

32.8

20.8

18.7

32.3

31/12/14

5.1

5.2

1.2

0.7

3.7

31/12/15

15.5

13.3

1.0

(1.3)

11.2

31/12/16

(10.9)

(3.4)

16.8

19.1

6.7

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

Investment strategy: Unconstrained vs benchmark

Manager Thomas Moore is able to draw on the wide resources of Standard Life Investments’ UK equity team. He employs the firm’s Focus on Change philosophy, a proprietary screening matrix and thorough fundamental research to construct a relatively concentrated portfolio of 50-70 companies that are trading at a discount to their intrinsic value. Moore’s unconstrained approach means that stock and sector weightings vary significantly from the benchmark; at end-December 2016, more than one-third of the fund was invested in financial stocks. Gearing is permitted in a range of 5% net cash to 15% net gearing – net gearing is typically c 10%.

Market outlook: Better outlook for smaller-caps

UK equities have rallied strongly since the post-Brexit sell-off – the FTSE 100 index has hit a series of new highs. Smaller companies have more attractive P/E valuations than mega-caps and, while their dividend yields in aggregate are lower, their income can be more sustainable. The dividend cover for smaller companies is much more attractive than for the mega-caps in general and studies show that companies which start paying or grow their dividends, outperform over the long term. Investors seeking income from investment in UK equities may be interested in a fund that offers significant exposure to smaller UK companies.

Valuation: Scope for discount to narrow

SLET’s current 7.4% share price discount to cum-income NAV is wider than the averages of the last one, three, five and 10 years (range of 2.3% to 4.0%). This offers potential for the discount to narrow if near-term relative performance improves. SLET’s board aims to grow the dividend in real terms – over the last five years, annual dividends have compounded at an average rate of 4.4% pa. Its current dividend yield of 3.9% is above the peer group average.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Standard Life Equity Income Trust (SLET) aims to provide shareholders with an above-average income from their equity investment while also providing real growth in capital and income. It seeks to achieve this through a diversified portfolio of between 50 and 70 equity holdings. The benchmark is the FTSE All-Share Index.

13 January 2016: Applied for admission of 3.9m new shares following the exercise of subscription rights.

30 December 2016: Final date for conversion of subscription shares. Subscription share listing suspended 3 January 2017.

15 December 2016: Retirement of director Keith Percy at AGM, replaced by Caroline Hitch, effective 1 January 2017.

16 November 2016: Final results for 12 months ending 30 September 2016. NAV TR of +0.9% versus benchmark TR +16.8%. Share price TR -2.7%.

Forthcoming

Capital structure

Fund details

AGM

January 2018

Ongoing charges

0.96%

Group

Standard Life Investments

Interim results

May 2017

Net gearing

9.7%

Manager

Thomas Moore

Year end

30 September

Annual mgmt fee

0.65% to £250m, then 0.55%

Address

1 George Street,
Edinburgh, EH2 2LL

Dividend paid

Quarterly

Performance fee

None

Launch date

14 November 1991

Trust life

Indefinite

Phone

+44 (0)345 600 2268

Continuation vote

Five yearly, next 2021

Loan facilities

£30m with Scotiabank

Website

www.standardlifeinvestments.com

Dividend policy and history (financial years shown)

Share buyback policy and history (financial years shown)

Dividends are paid quarterly, in March, June, September and December. It is the board’s intention that SLET should achieve long-term real (ie above inflation) growth in its dividend.

SLET may buy back up to 14.99% or allot up to 10% of ordinary shares annually to manage a discount or a premium. Figures include shares issued as a result of subscription share exercise.

Shareholder base (as at 18 January 2017)

Portfolio exposure by market cap (as at 31 December 2016)

Top 10 holdings (as at 31 December 2016)

Portfolio weight %

Company

Sector

31 December 2016

31 December 2015**

Rio Tinto

Mining

3.7

N/A

Aviva

Life insurance

3.6

3.4

BT

Fixed line telecom

3.5

4.4

Sage

Software & computer services

3.0

3.3

Imperial Brands*

Tobacco

2.8

N/A

Micro Focus

Software & computer services

2.7

N/A

Vodafone

Mobile telecom

2.6

2.7

Legal & General

Life insurance

2.5

2.6

Close Brothers

Banks

2.4

2.2

Prudential

Life insurance

2.4

N/A

Top 10 (% of portfolio)

29.2

27.7

Source: Standard Life Equity Income Trust, Edison Investment Research, Morningstar, Bloomberg. Note: *Formerly Imperial Tobacco. **N/A where not in December 2015 top 20.

Market outlook: Smaller-caps relatively attractive

As shown in Exhibit 2 (left-hand side), the FTSE 250 and SmallCap indices have significantly outperformed the FTSE 100 and AIM 100 indices over the last five years (although underperformed in 2016). The valuations of UK indices are shown in Exhibit 2 (right-hand side); while P/E multiples are at or close to the high end of their historical ranges, the valuations of smaller-cap companies look relatively attractive versus larger-cap companies. While they have lower average dividend yields, their income can be more sustainable. Between 2014 and 2016 there has been a succession of FTSE 100 companies cutting dividends, including selected resource stocks and supermarkets. As a result of low earnings growth, dividend cover of the FTSE 100 index is below 1x. This compares to the FTSE 250 index, where dividend cover is closer to 2x; in addition, it has a superior dividend growth track record versus the FTSE 100 index and studies from Goldman Sachs show that companies that grow or initiate dividends outperform in total return terms over the long term. In a continued low interest rate environment, for investors seeking exposure to UK equities, a fund with a focused income bias, broad exposure across the capitalisation spectrum and a good long-term performance track record may be of interest.

Exhibit 2: UK stock market performance and valuation

UK indices over five years (total return)

Valuation metrics of UK indices

 

P/E*
(x)

P/B
(x)

EV/sales
(x)

ROE
(%)

Div yield
(%)

FTSE All-Share

24.7

1.9

1.7

4.3

3.8

FTSE 100

27.6

1.9

1.7

3.7

4.0

FTSE 250

16.9

2.2

1.6

9.6

3.0

FTSE 350

25.2

1.9

1.7

4.5

3.8

FTSE SmallCap

13.7

1.4

1.0

-3.9

2.9

Source: Thomson Datastream, Edison Investment Research. Note: *P/E is current, based on cash earnings.

Fund profile: Focused equity income investment

SLET was launched in 1991 and originally managed by Morgan Grenfell, which was acquired by Deutsche Bank. Standard Life Investments (SLI) took over management of SLET in November 2005 following Deutsche Bank’s decision to exit the UK retail funds market. Since November 2011, SLET has been managed by Thomas Moore, who aims to provide above-average income and real growth in capital and income. He has an unconstrained investment style with a higher exposure to mid- and small-cap equities than the benchmark FTSE All-Share index. The portfolio normally comprises 50-70 positions – SLET’s top 10 holdings may not exceed 50% of net assets and no single holding will exceed 10%. Portfolio turnover is typically between 20% and 35% pa. The board has delegated gearing responsibility to the manager; a range of 5% net cash to 15% net gearing is permitted although, in practice, net gearing is generally c 10%.

The fund manager: Thomas Moore

The manager’s view: More macro surprises in 2017?

The manager suggests that 2016 was a year of “unexpected changes in the macro drivers”, such as the result of the UK’s referendum, the outcome of the US election and a significant recovery in the oil price, and that macro surprises could continue in 2017. Brexit had a negative effect on SLET’s performance as c 50% of its portfolio companies’ revenues are generated in the UK. Following Donald Trump’s election in the US, there has been a shift from monetary to fiscal stimulus, which has been mirrored in the UK; Moore expects this trend to continue. SLET’s largest sector exposure is financials, which typically benefit from a steepening of the yield curve. The trust tends to own more financial and cyclical stocks and fewer bond proxies than its peers, and so the manager suggests its relative performance should improve in an environment of accelerating growth and higher interest rates.

The manager is open-minded about the potential impacts of Brexit on the UK economy; so far, UK companies have generally been upbeat in their commentary. There is a perception among economists that UK consumption growth will slow, but so far this is not being backed up by economic or corporate data. However, there are some companies (not held by SLET) that are being affected by industry-specific factors, such as Foxtons, which is seeing lower sales volumes as a result of higher stamp duty, and easyJet, which the manager suggests is suffering from too much European short-haul capacity. Moore comments that there is a wide valuation disparity between companies generating profits domestically and those generating profits overseas. He adds that this has only occurred two other times in the last 13 years – during the global financial crisis and around the time of the Scottish referendum. When domestic-earning companies have become this cheap on a relative basis, their stocks have subsequently rallied. More generally, there are signs that sentiment towards the UK is improving on the back of more robust economic data, as evidenced by the FTSE 100 hitting new all-time highs.

Asset allocation

Investment process: Focus on change

The manager and the well-resourced UK Equity team at SLI employ the firm’s Focus on Change philosophy, which recognises that at different times in the economic cycle there are different factors that drive individual stocks and markets. When analysing a company for potential inclusion in the portfolio, the following five questions are considered:

What are the key drivers and issues for this stock?

What is changing?

What is assumed in the price?

What will make the market change its mind about this stock?

What specific triggers are there?

The wide potential investment universe of c 1,500 stocks is screened using SLI’s proprietary stock-screening matrix; factors include earnings growth and revisions, stock price momentum, valuation and dividend yield. Stocks that pass the screen are subject to rigorous fundamental analysis, which includes an evaluation of a company’s dividend policy and its corporate governance track record. The resulting portfolio contains 50-70 high-conviction positions and, while the manager is unconstrained by the stock and sector weightings of the FTSE All-Share benchmark, risk is monitored using SLI’s sophisticated risk modelling system.

Current portfolio positioning

At end-December 2016, the top 10 positions accounted for 29.2% of the portfolio; this is modestly higher than end-December 2015. Excluding cash, 44.1% was in FTSE 100, 36.2% in FTSE 250, 8.4% in FTSE SmallCap and 11.3% in non-index companies. By way of comparison, the benchmark FTSE All-Share index is split approximately 80% FTSE 100, 15% FTSE 250 and 5% in FTSE SmallCap. SLET has a much larger percentage in smaller stocks than the benchmark; these stocks generally have higher potential for sustainable dividend growth than mega-cap stocks.

As shown in Exhibit 3, more than one-third of the portfolio is invested in financial companies. Over the last 12 months to end-December 2016, the largest increases in exposure are in basic materials (+5.7pp) and financials (+2.8pp), and the largest decreases are in industrials (-6.7pp) and consumer services (-4.3pp). SLET is heavily overweight the financial sector, which detracted from performance in 2016, and reflecting the manager’s unconstrained investment approach, has zero exposure to the healthcare sector, which comprises c 10% of the benchmark. The manager suggests that the research and development pipelines at pharmaceutical companies such as AstraZeneca and GlaxoSmithKline remain disappointing in spite of heavy investment spend. Within the oil & gas sector, the manager has recently become more positive – the oil price has rallied and both OPEC and non-OPEC producers have agreed to reduce production. He has recently (December 2016) initiated a small position in BP, which has been actively cutting costs since the 2010 Deepwater Horizon oil spill, suggesting a better outlook for dividend growth and cover.

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

Portfolio end- December 2016

Portfolio end- December 2015

Change (pp)

Index weight

Active weight vs index (pp)

Trust weight/ index weight (x)

Financials

36.7

33.9

2.8

25.7

11.0

1.4

Consumer services

16.2

20.5

-4.3

11.7

4.5

1.4

Industrials

14.5

21.3

-6.7

10.7

3.9

1.4

Consumer goods

8.9

7.6

1.2

14.4

-5.5

0.6

Telecommunications

8.6

8.6

0.0

4.0

4.6

2.1

Technology

5.9

6.3

-0.4

0.8

5.0

7.0

Basic materials

5.7

0.0

5.7

6.9

-1.2

0.8

Utilities

2.6

1.8

0.7

3.6

-1.0

0.7

Oil & gas

1.0

0.0

1.0

13.3

-12.2

0.1

Healthcare

0.0

0.0

0.0

9.1

-9.1

0.0

100.0

100.0

100.0

Source: Standard Life Equity Income Trust, Edison Investment Research. Note: Adjusted for cash.

One of the recent additions to the portfolio is Premier Asset Management, which had its initial public offering in October 2016; SLET participated and received a reasonable allocation. It is a retail asset management group across a range of strategies including multi-asset, equity and absolute return funds. It is benefiting from the trend of IFAs spending more of their time on financial planning and less time on selecting funds, which they are outsourcing to multi-managers such as Premier. The company has had 15 consecutive quarters of positive net inflows, is growing earnings at a double-digit rate and trading on a forward P/E multiple of c 13x.

Classified within the consumer goods sector are holdings in housebuilders Bovis, Galliford Try and Persimmon. They are trading on attractive dividend yields and the manager suggests that a lot of bad news is already priced into the stocks, despite the companies issuing positive trading statements. Outside London, housing activity is brisk, so this is an example of good news stories that are being ignored by the wider investment community.

Other cyclical stocks in the portfolio with overseas earnings and strong market positions that have lagged the broader market despite continued solid trading include the following:

Inchcape – an automotive distributor and retailer, where the manager suggests that investors are underestimating the company’s ability to grow revenues across multiple geographies. The company has a strong balance sheet and a high free cash flow yield.

Carnival – a cruise ship operator, which the manager believes can rapidly increase its dividend. Share price weakness on the back of a rising oil price and concerns about the Zika virus provided an attractive investment entry point.

Performance: Tough one-year performance

The manager comments that he aims to provide above-average returns with real growth in capital and income by investing on an unconstrained and index-agnostic basis. For FY16 ending 30 September, SLET’s NAV and share price total returns of +0.9% and -2.7% respectively trailed the benchmark’s +16.8% total return. FY16 relative performance was affected by limited exposure to large-cap companies with overseas earnings, which significantly outperformed small-and mid-cap companies with domestic operations both before and after the UK’s EU referendum and the underperformance of some of SLET’s large-cap holdings, such as BT, even before the announcement from its Italian subsidiary. In periods of market stress, stock market leadership can be particularly narrow – for example, SLET’s relative performance in FY16 was affected by not holding BP or Royal Dutch Shell, both mega-cap companies that rallied strongly in a rising oil price environment. The largest positive contributors to relative performance in FY16 were holdings in Micro Focus International (1.1pp), Sage (0.7pp) and Barclays (0.7pp). The largest detractors to performance were a holding in Staffline (-1.3pp) and not holding Royal Dutch Shell (-0.9pp), BP and British American Tobacco (both -0.7pp).

Exhibit 4: Investment trust performance to 31 December 2016

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

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three and five-year and since inception performance figures annualised. *Since inception (SI) refers to tenure of Thomas Moore, appointed 14 May 2012.

A tough period of relative performance over the last 12 months has affected SLET’s positive three-year performance record. However, its NAV and share price total returns remain ahead of the benchmark over both five and 10 years.

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

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to FTSE All-Share

(4.7)

(6.1)

(5.6)

(23.7)

(9.3)

12.4

5.1

NAV relative to FTSE All-Share

(1.8)

(2.7)

1.2

(17.2)

(3.4)

12.6

6.0

Price relative to FTSE 100

(5.0)

(6.5)

(5.4)

(25.2)

(8.6)

17.7

8.3

NAV relative to FTSE 100

(2.1)

(3.1)

1.5

(18.8)

(2.7)

18.0

9.3

Price relative to FTSE 250

(3.1)

(4.1)

(6.1)

(16.4)

(12.0)

(11.3)

(15.4)

NAV relative to FTSE 250

(0.2)

(0.6)

0.7

(9.4)

(6.3)

(11.1)

(14.7)

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-December 2016. Geometric calculation.

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

Source: Thomson Datastream, Edison Investment Research

Discount: Wider than historical averages

SLET’s 7.4% share price discount to cum-income NAV is wider than the 3.5% average of the last 12 months. Over the past year the range has been a from 3.5% premium to an 11.3% discount – the widest discount occurred on 3 November 2016, a period of heightened investor risk aversion ahead of the US presidential election. The current discount is also wider than the averages of the last three, five and 10 years (2.3%, 3.0% and 4.0% respectively).

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

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

Issued in December 2010, SLET had a line of subscription shares, the last exercise date for which was 30 December 2016 at 320p; their listing was suspended on 3 January 2017. For shareholders not electing to exercise their rights, the final subscription trustee exercised the outstanding rights to 2.14m shares; those shareholders received 70.6p per share (the difference between the prevailing market price and the exercise price, minus costs). As a result, SLET now has a single line of shares; there are currently 49.2m ordinary shares in issue. The trust has a £30m lending facility with Scotiabank; the average cost of borrowing in FY16 was 1.5%. At end-December 2016, net gearing was 9.7%. Standard Life Investments receives an annual management charge, which is charged 30% to revenue and 70% to capital. The fee is calculated as 0.65% on the first £250m and 0.55% on assets above £250m, (prior to October 2016 it was 0.65% of gross assets). FY16 ongoing charges were 0.96%, a 2bp increase versus the previous year.

Dividend policy and record

Dividends are paid quarterly in March, June, September and December. The FY16 dividend of 15.4p was a 4.8% increase versus the prior year; it was 1.16x covered by revenue. Over the last five years the annual dividend has compounded at an average rate of 4.4% per year, which is above the level of annual UK inflation. Based on the current share price, SLET’s dividend yield is 3.9%, which is higher than the weighted average of the UK Equity Income peer group.

Peer group comparison

SLET is a member of the AIC’s UK Equity Income sector, which comprises 23 funds. Exhibit 8 shows the largest 15, which have a market capitalisation higher than £175m. SLET’s NAV total returns are behind the whole peer group average over one, three and five years, ranking 22nd, 18th and 12th over one, three and five years respectively, its weaker performance over one year having affected the longer-term track record. At the time of our last report in June 2016, SLET ranked eighth, sixth and ninth out of 23 funds over one, three, and five years respectively. The weaker near-term performance has had an impact on SLET’s risk-adjusted returns, as measured by the Sharpe ratio, which now lag the weighted averages over one and three years. SLET’s ongoing charge is above average, but no performance fee is payable. Its discount is modestly wider than average, its net gearing is broadly in line, but it has a higher than average dividend yield, ranking 10th out of 23 funds in the sector.

Exhibit 8: AIC UK Equity Income investment trusts above £175m as at 26 January 2017

% unless stated

Market cap £m

NAV TR
1 Year

NAV TR
3 Year

NAV TR
5 Year

Ongoing charge

Perf.
fee

Discount (ex-par)

Net
gearing

Dividend yield (%)

Sharpe 1y (NAV)

Sharpe 3y (NAV)

Standard Life Equity Income

197.4

4.6

17.1

75.5

1.0

No

(6.1)

108

3.8

(0.4)

(0.2)

City of London

1,356.0

16.3

22.1

71.9

0.4

No

1.5

107

3.9

0.1

(0.2)

Diverse Income Trust

355.3

5.3

22.2

121.5

1.2

No

3.7

100

3.0

(0.6)

(0.3)

Dunedin Income Growth

370.5

24.8

15.9

53.6

0.6

No

(9.7)

115

4.7

0.5

(0.2)

Edinburgh Investment

1,367.7

10.7

34.4

85.4

0.6

No

(4.0)

116

3.5

(0.2)

0.1

F&C Capital & Income

283.6

23.6

23.6

64.6

0.7

No

1.9

108

3.6

0.3

(0.1)

Finsbury Growth & Income

973.0

18.5

36.0

119.2

0.7

No

0.8

103

2.0

0.1

0.0

JPMorgan Claverhouse

341.0

21.3

23.2

79.4

0.8

No

(9.9)

114

3.4

0.2

(0.1)

Lowland

376.6

26.8

19.9

97.0

0.6

Yes

(8.2)

109

3.3

0.3

(0.3)

Merchants Trust

502.9

21.6

11.9

57.6

0.6

No

(6.2)

119

5.2

0.3

(0.2)

Murray Income Trust

487.6

22.3

17.8

57.8

0.8

No

(8.7)

107

4.5

0.4

(0.2)

Perpetual Income & Growth

876.4

6.3

19.2

86.2

0.7

Yes

(8.0)

117

3.5

(0.4)

(0.2)

Schroder Income Growth

187.3

19.1

24.2

77.1

1.0

No

(7.0)

109

3.9

0.2

(0.1)

Temple Bar

823.3

30.2

19.0

76.6

0.5

No

(5.7)

103

3.3

0.6

(0.2)

Troy Income & Growth

215.3

11.8

33.3

69.9

1.0

No

1.5

100

3.3

(0.2)

0.0

Sector weighted avg (23 funds)

17.0

23.8

81.6

0.7

(3.9)

110

3.6

0.1

(0.1)

SLET rank out of (23 funds)

14

22

18

12

10

12

11

10

20

17

Source: Morningstar, Edison Investment Research. Note: TR=total return. Sharpe ratio is a measure of risk-adjusted return. The ratios shown are calculated by Morningstar for the past 12- and 36-month periods by dividing a fund’s annualised excess returns over the risk-free rate by its annualised standard deviation. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

There are five directors on the board at SLET; all are non-executive and independent of the manager. Chairman, Richard Burns, was appointed as a director in 2006 and assumed his current role in December 2014. Josephine Dixon was appointed in 2011, Mark White in 2013 and Jeremy Tigue in 2014. The newest member of the board is Caroline Hitch, who has a background in investment management. She was appointed on 1 January 2017 to replace Keith Percy, who retired after 25 years as a director of the trust.

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Standard Life Equity Income 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. 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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. 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 2017. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Standard Life Equity Income 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

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