Lowland Investment Company — Dividend growth and NAV outperformance

Lowland Investment Company (LSE: LWI)

Last close As at 24/06/2024

GBP1.27

0.50 (0.40%)

Market capitalisation

GBP342m

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Research: Investment Companies

Lowland Investment Company — Dividend growth and NAV outperformance

Since we published our detailed review of Lowland Investment Company (LWI) in August, quarterly DPS has been increased 4.9% to 1.6p, continuing a long track record of progressive dividends, and maintaining the trust’s position as one of the highest yielding in the UK Equity Income sector. In the financial year to 30 September 2023 (FY23), its NAV total return of 17.2% was 3.4 percentage points ahead of the benchmark, despite larger-cap stocks continuing to lead market performance, a strong headwind to the trust’s multi-cap approach in the previous year. Although market uncertainties prevail, the managers continue to identify opportunities in market leading, well managed businesses with growth potential.

Martyn King

Written by

Martyn King

Director, Financials

Investment Companies

Lowland Investment Company

Dividend growth and NAV outperformance

Investment trusts
UK Equity Income

10 October 2023

Price

110p

Market cap

£297m

Total assets

£382m

NAV*

126.5p

Discount to NAV

13.0%

*At fair value including income, as at 9 October 2023.

Yield

5.2%

Shares in issue

270.2m

Code/ISIN

LWI/GB00BNXGHS27

Primary exchange

LSE

AIC sector

UK Equity Income

Financial year-end

30 September

52-week high/low

144.5p

100.0p

NAV* high/low

150.1p

114.3p

*Including income

Net gearing*

12%

*As at 30 September 2023.

Fund objective

Lowland Investment Company (LWI) aims to give investors a higher-than-average return with growth in both capital and income over the medium to long term by investing in a broad spread of predominantly UK companies. LWI measures its performance against the total return of the broad UK stock market, although its portfolio is markedly different from that of its benchmark index.

Bull points

Strong recovery in portfolio revenue.

One of the higher yielding funds among peers.

Portfolio trades on a historically low valuation.

Bear points

The UK remains unloved by investors.

Multi-cap investment strategy can be volatile.

Value style can be out of favour.

Analyst

Martyn King

+44 (0)798 626 8072

Lowland Investment Company is a research client of Edison Investment Research Limited

Since we published our detailed review of Lowland Investment Company (LWI) in August, quarterly DPS has been increased 4.9% to 1.6p, continuing a long track record of progressive dividends, and maintaining the trust’s position as one of the highest yielding in the UK Equity Income sector. In the financial year to 30 September 2023 (FY23), its NAV total return of 17.2% was 3.4 percentage points ahead of the benchmark, despite larger-cap stocks continuing to lead market performance, a strong headwind to the trust’s multi-cap approach in the previous year. Although market uncertainties prevail, the managers continue to identify opportunities in market leading, well managed businesses with growth potential.

Recent market focus on large caps has created a multi-cap headwind

Source: Refinitiv, Edison Investment Research

Anticipating a re-rating of domestic SME companies

Across most sectors and company sizes, UK equities trade at a significant valuation discount to history and compared with global markets. The investment managers note that, in many cases, valuations already discount a severe recession. Amid continuing economic uncertainty, this alone should mitigate further weakness and may well attract further takeover activity, which had a positive impact on LWI’s FY23 performance.

LWI’s flexible, bottom-up, multi-cap approach differentiates it from most peers and its portfolio comprises a highly diversified blend of exposures to companies ranging from constituents of the top 100 companies right down to smaller companies, including those listed on AIM. Although underweight its broad market benchmark, LWI’s large-cap exposure is c 50%, typically providing more immediate income and, in an uncertain market, opportunities for growth in more liquid stocks from within more defensive sectors. However, the managers increasingly see the most attractive opportunities in mid- and small-cap (SME) companies and domestic earners and are selectively and slowly rebalancing the portfolio in this direction. With investor confidence weak, these have significantly trailed the broader market; their valuations are particularly low, and they typically have the potential to grow faster, increasing the capital base of the portfolio and distributable income over time. LWI’s broad opportunity pool and risk-return spectrum make LWI an interesting complement to more mainstream trusts. Narrowing of the 13% discount to NAV offers additional potential to enhance shareholder returns.

Multi-cap growth and income

Q323 DPS was increased in line with progressive policy

LWI aims to provide shareholders with a higher-than-average return derived from growth in both dividends and capital over the medium term. To this end, it has successfully maintained a progressive dividend policy since its inception more than 50 years ago, but is differentiated from many income trusts LWI by investing more widely than just the traditional ‘income’ areas of the market, to include companies that can also grow, increasing the capital base of the portfolio and distributable income over time.

Having maintained distributions during the pandemic and its aftermath, using the flexibility provided by the trust’s revenue reserves to smooth out the impact of market-wide dividend cuts, full cover was again achieved during FY22. The 4.9% increase in the Q3 distribution2 (to 1.60p from 1.525p) follows modest dividend growth in the market, with LWI additionally benefiting from the special dividends received from its holdings in Irish insurance company FBD Holdings and foundry business Castings.

  1 The Q3 dividend will be paid on 31 October 2023.

Over the 25 years to end-FY22, DPS has grown by an average 6.8% pa. Ten-year growth, shown in Exhibit 1, is 7.2% pa and, despite the pandemic, DPS has increased by an average 4.5% pa over the past five years.

Exhibit 1: Revenue smoothing supports stable, progressive dividends

Source: LWI data, Edison Investment Research

FY23 outperformance despite being underweight large cap

LWI’s investment approach generates material diverges in portfolio positioning versus its chosen broad market benchmark. The data shown in Exhibit 2 are as at 31 March 2023, as disclosed in the interim report, but we do not believe the position has changed materially since. Although the managers have been selectively and carefully recycling capital into mid- and smaller-cap stocks, this in part reflects the continued appreciation of large caps. The trust’s largest exposure is to the top 100 UK listed companies, which at c 50% is around the top of the range that the managers would normally expect and above its medium-term level of c 30–35%. The weighting is nonetheless well below the c 84% weighting of its broad UK market benchmark. Conversely, broadly half the portfolio is invested in mid- and small-cap stocks, well ahead of the benchmark weight.

Exhibit 2: LWI versus market by segments

Source: LWI. Note: At 31 March 2023 (last full data published). *Other includes unlisted.

FY23 outperformance of the benchmark is despite the trust being strategically underweight in the large-cap segment of the market. The large-cap segment continued to lead market performance during the year but by less of a margin compared with the prior year, a challenging period for the trust.

Exhibit 3: Index performance matched to the LWI fiscal year

Total return, October to September

FY23

FY22

Boad market benchmark

13.8%

-4.0%

Top 100

14.7%

0.9%

Mid-cap

9.9%

-23.6%

Small cap

7.5%

-18.7%

AIM

-8.3%

-34.3%

Source: Refinitiv

The trust is managed bottom up and is highly diversified (107 holdings at end-August 2023).3 With detailed data as yet unavailable, there is no stand-out driver of the outperformance, although the managers have previously highlighted the positive contribution of holdings in Rolls-Royce and Marks & Spencer, both of which have benefited from a range of self-help measures implemented to revitalise performance, and selected industrials such as Hill & Smith, an industrial conglomerate that is performing well and has significant exposure to US infrastructure investment. A key disappointment during the year was Direct Line Insurance where the underwriting performance fell well short of the managers’ expectations. Several of the trust’s holdings were on the receiving end of takeover approaches, at significant premiums to prevailing market prices and provides. These included the acquisitions of/offers for Devro, K3 Capital, Numis, DWF and Finsbury Food. The managers note that while the takeover activity has boosted performance and provides confirmation that valuations are attractive, in many cases the transaction prices were too low, did little more than make up for recent weakness and fell well short of what they believe to be a true fair value.

  2 Given the trust’s diversified stock-driven approach, we have not shown the top 10 holdings and sector weightings in this note, but they can be found at https://www.janushenderson.com/en-gb/investor/product/lowland-investment-company-plc/

The opportunity in mid and smaller caps, particularly domestic earnings

While the UK market as a whole is trading at a historically low level, this is particularly the case for SME stocks. In characteristic contrarian fashion, driven by their long-term, company-focused investment approach, which is underpinned by a strong valuation discipline, the investment managers believe this represents a very strong opportunity for investors, especially so for investment in domestically facing businesses. The timing of an SME share price recovery is difficult to predict, and patience may be needed, but, with valuations so undemanding, investor sentiment weak and trading liquidity at times tight, it may well be better to be a little early than late. The key elements of the managers’ positive outlook include:

While it is not unusual for investors to favour larger, more liquid and more defensive stocks in times of uncertainty, the sell-off of mid- and small-cap stocks has been acute. SME stocks have generally outperformed over the long term, and for much of the past 10 years, but following a strong rally from the initial pandemic sell-off, they have significantly underperformed as inflation and interest rates spiked, heightening investor concerns about the domestic UK economy, to which SMEs are more exposed.

Weakness outside of the largest companies has been broadly based. Nonetheless, the earnings performance of many economically sensitive companies continues to outstrip low expectations, there are many SMEs that are global leaders in their industries with less reliance on the domestic economy, and for others, growth is driven by capturing market share within large end-markets or creating new markets, mitigating any impact from general economic conditions. The managers speak of investing in companies and not the economy.

In general, analyst expectations for SME stocks, and for economically sensitive, domestic facing businesses in particular, have been significantly pared back, but even though UK economic data have been stronger than feared, the market is yet to respond. Many companies have responded to inflationary pressure by paring back costs to support margins, leaving them in a strong position to benefit from increased activity.

Exhibit 4: Mid- and small-cap stocks have given up outperformance… (10-year data)

Exhibit 5: …and this has continued over the past year

Source: Refinitiv. Note: The NSCIAEX is the Numis Smaller Companies Index, including AIM but excluding investment companies.

Source: Refinitiv. Note: The NSCIAEX is the Numis Smaller Companies Index, including AIM but excluding investment companies.

Exhibit 4: Mid- and small-cap stocks have given up outperformance… (10-year data)

Source: Refinitiv. Note: The NSCIAEX is the Numis Smaller Companies Index, including AIM but excluding investment companies.

Exhibit 5: …and this has continued over the past year

Source: Refinitiv. Note: The NSCIAEX is the Numis Smaller Companies Index, including AIM but excluding investment companies.

Large-cap outperformance still weighs on medium-term performance

Given LWI’s multi-cap approach, marked divergence in the trust’s net asset value (NAV) total return performance compared with the chosen broad market benchmark is inevitable over shorter time periods and this can be clearly seen in Exhibit 6.

Exhibit 6: Performance on a financial year basis (October to September)

FY23

FY22

FY21

FY20

FY19

FY18

FY17

FY16

FY15

FY14

FY13

NAV total return

17.2%

-14.8%

51.0%

-24.8%

-9.6%

2.7%

17.0%

12.2%

0.8%

5.7%

20.1%

Benchmark total return

13.8%

-4.0%

27.9%

-16.6%

2.7%

5.9%

11.9%

16.8%

-2.3%

6.1%

17.3%

Versus benchmark

3.4%

-10.8%

23.1%

-8.2%

-12.3%

-3.2%

5.1%

-4.6%

3.1%

-0.4%

2.8%

Source: LWI NAV data, Refinitiv

The FY23 outperformance and a very strong FY21 more than offset the weak FY22, such that on a cumulative basis, LWI’s performance is strongly ahead of the benchmark over three years. Nonetheless, over five years, the outperformance of large caps versus SMEs still weighs on the five-year performance and this is likewise reflected in the 10-year data.

Exhibit 7: Cumulative 10-year performance to 30 September 2023

 %

1 month

3 months

6 months

1 year

3 years

5 years

10 years

LWI share price total return

1.4

1.0

-6.5

13.9

46.0

-3.0

29.5

LWI NAV total return

2.3

3.1

0.9

17.2

50.9

2.5

47.6

Broad UK index

1.8

1.9

1.4

13.8

39.6

19.5

71.2

NSCIAEX*

-1.6

-1.3

-2.9

3.3

9.9

-1.0

48.5

Source: Refinitiv. Note: *Numis Smaller Companies Index including AIM and excluding investment companies.

Performance relative to peers shows a similar pattern to that versus the benchmark. The NAV total return is ahead of peers over one and three years (fifth out of 17 trusts), with weaker five-year performance feeding through to the 10-year data. Despite this, the 20-year relative performance remains strong (third out of 14 trusts).

The discount has widened

With the share price movement lagging the change in NAV, the discount has recently widened to c 13% compared with the 5–10% range in place through much of the past five years. If NAV returns continue to increase, as expected by the managers, we would expect the discount to narrow, enhancing the share price return to investors.

Exhibit 8: The discount to NAV (%) has recently widened

Source: Refinitiv

Peer performance comparison

The AIC’s UK Equity Income sector, of which LWI is a member, is one of the largest AIC peer groups and encompasses funds with a wide range of investment approaches within the overall remit of providing income and capital growth from a portfolio at least 80% made up of UK equities. LWI’s multi-cap investment policy and significant exposure to mid- and small-cap stocks differentiates it from most peers. Aberdeen Standard Equity Income and The Diverse Income Trust are perhaps the closest comparators.

Exhibit 9: Selected peer group as at 6 October 2023

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

NAV TR
20 year

Ongoing
charge

Discount

Net
gearing

Dividend
yield

Lowland

297.2

10.6

42.4

1.4

43.6

369.1

0.62

(12.7)

114

5.5

Aberdeen Standard Equity Income

145.3

(4.5)

22.6

(14.5)

25.9

221.4

0.86

1.0

111

7.5

BMO Capital & Income

296.3

6.7

25.7

11.2

67.8

268.0

0.59

(1.9)

107

4.1

BMO UK High Income Units

100.3

6.3

12.6

6.5

40.6

1.02

(4.8)

115

5.2

City of London

1,952.9

8.4

38.4

22.3

73.6

344.6

0.37

0.1

105

5.2

Diverse Income Trust (The)

248.5

(5.9)

4.4

1.1

66.3

1.09

(7.0)

93

5.2

Dunedin Income Growth

383.7

13.1

20.6

32.5

70.3

243.0

0.62

(11.1)

109

5.0

Edinburgh Investment Trust

1,048.3

18.3

54.0

21.7

86.7

332.6

0.53

(9.2)

109

4.0

Finsbury Growth & Income

1,671.7

4.2

9.2

23.5

129.4

764.9

0.60

(4.9)

101

2.3

Invesco Select UK Equity

103.2

8.4

33.0

22.1

83.9

0.81

(14.0)

108

4.6

JPMorgan Claverhouse

380.2

10.5

35.3

15.7

74.4

311.1

0.70

(6.7)

108

5.3

Law Debenture Corporation

1,013.4

11.5

59.9

43.2

125.0

651.1

0.49

0.3

113

3.9

Merchants Trust

750.2

6.2

66.3

31.9

79.9

308.3

0.56

0.8

113

5.4

Murray Income Trust

884.6

10.4

23.7

30.2

76.7

324.1

0.49

(8.6)

109

4.7

Schroder Income Growth

177.1

9.9

31.2

18.3

73.9

334.8

0.74

(10.8)

114

5.4

Temple Bar

680.8

16.5

72.5

13.0

52.2

365.2

0.53

(5.6)

111

4.0

Troy Income & Growth

161.3

4.5

4.1

6.0

61.6

197.9

0.90

(1.2)

101

3.1

Simple average (17 funds)

605.6

7.9

32.7

16.8

72.5

359.7

0.68

(5.7)

108

4.7

LWI rank in peer group

10

5

5

15

15

3

8

16

2

2

Source: Morningstar, Edison Investment Research. Note: *Latest performance data as at 6 October 2023 based on ex-par NAV. TR is total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100=ungeared).

General disclaimer and copyright

This report has been commissioned by Lowland Investment Company and prepared and issued by Edison, in consideration of a fee payable by Lowland Investment Company. Edison Investment Research standard fees are £60,000 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Lowland Investment Company and prepared and issued by Edison, in consideration of a fee payable by Lowland Investment Company. Edison Investment Research standard fees are £60,000 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Healthcare

Ultimovacs — UV1 ODD a sign of positive things to come

Ultimovacs has announced that the US FDA has granted orphan drug designation (ODD) to its cancer vaccine, UV1, for the treatment of mesothelioma. This is a positive development as the orphan designation is based on initial clinical data from the investigator-led Phase II NIPU clinical trial, which did not meet its primary end point of progression-free survival (PFS) in June 2023; however, it indicated a positive trend in overall survival (OS) in the UV1 arm. While the company is gearing up to share updated dataset (especially OS data) for NIPU at the upcoming ESMO Congress from 20–24 October, we believe the ODD indicates UV1’s potential in mesothelioma and might be helpful in further discussions with the US FDA. In our view, the upcoming readouts from the ongoing Phase II trials, including the next INITIUM (malignant melanoma) top-line results in H124, represent major catalysts for the company.

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