TR European Growth Trust — Finding small-cap value opportunities

The European Smaller Companies Trust (LSE: ESCT)

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TR European Growth Trust — Finding small-cap value opportunities

TR European Growth Trust (TRG) has seen its share price de-rate substantially over the past 18 months, from a c 3% premium to NAV to a c 15% discount, following a period in which its small-cap value style of investing has been out of favour with investors. However, its NAV has risen c 13% year to date, with lead manager Ollie Beckett taking advantage of depressed valuations in smaller European companies whose growth potential he believes is underappreciated by the wider market. The portfolio is diverse, with c 140 holdings broadly spread by country and industry sector. TRG has a more value-oriented investment approach than its peers and is more exposed to stocks at the lower end of the market capitalisation spectrum, which have greater potential to grow exponentially. The largest positions rarely exceed c 2%, which limits stock-specific risk, while a well-covered c 2.5% dividend yield provides support for total returns in periods of market volatility.

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Investment Companies

TR European Growth Trust

Finding small-cap value opportunities

Investment trusts
European smaller companies

18 June 2019

Price

857.0p

Market cap

£429.4m

AUM

£544.6m

NAV*

987.4p

Discount to NAV

13.2%

NAV**

1,003.5p

Discount to NAV

14.6%

*Excluding income. **Including income. As at 14 June 2019.

Yield

2.5%

Ordinary shares in issue

50.1m

Code

TRG

Primary exchange

LSE

AIC sector

European Smaller Companies

Benchmark

EMIX Smaller Europe ex-UK

Share price/discount performance

Three-year performance vs index

52-week high/low

1,056.0p

765.0p

1,170.9p

859.9p

*Including income.

Gearing

Gross*

9%

Net*

9%

*As at 31 May 2019.

Analysts

Sarah Godfrey

+44 (0)20 3681 2519

Mel Jenner

+44 (0)20 3077 5720

TR European Growth Trust is a research client of Edison Investment Research Limited

TR European Growth Trust (TRG) has seen its share price de-rate substantially over the past 18 months, from a c 3% premium to NAV to a c 15% discount, following a period in which its small-cap value style of investing has been out of favour with investors. However, its NAV has risen c 13% year to date, with lead manager Ollie Beckett taking advantage of depressed valuations in smaller European companies whose growth potential he believes is underappreciated by the wider market. The portfolio is diverse, with c 140 holdings broadly spread by country and industry sector. TRG has a more value-oriented investment approach than its peers and is more exposed to stocks at the lower end of the market capitalisation spectrum, which have greater potential to grow exponentially. The largest positions rarely exceed c 2%, which limits stock-specific risk, while a well-covered c 2.5% dividend yield provides support for total returns in periods of market volatility.

12 months ending

Share price
(%)

NAV
(%)

EMIX Smaller Europe ex-UK (%)

FTSE World Eur ex-UK (%)

FTSE All-Share (%)

31/05/15

15.9

8.3

2.7

4.7

7.5

31/05/16

2.3

6.7

6.3

(3.7)

(6.3)

31/05/17

61.4

55.7

39.9

35.7

24.5

31/05/18

0.7

2.5

6.2

0.9

6.5

31/05/19

(16.1)

(14.4)

(4.9)

1.8

(3.2)

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

The market opportunity

There are more than 2,000 quoted companies in Europe (excluding the UK) with a market capitalisation of less than €4bn, spread across multiple geographies and industry sectors. European smaller companies have outperformed their larger brethren by c 60pp over the past decade (to 31 May 2019) but remain under-researched and under-owned. Many also offer attractive dividend yields.

Why consider investing in TRG?

Value investment style has outperformed over the long term, although FY18 and H119 disappointed after a stellar FY17.

True small-cap (rather than small- and mid-cap) focus differentiates TRG from peers – around two-thirds of the portfolio is sub-£1bn market cap.

Well-diversified portfolio limits stock-specific risk.

Active approach to gearing allows the managers to take advantage of attractively valued stocks without having to sell holdings in volatile periods.

Significantly higher dividends since FY18, fully covered by income.

Discount somewhat narrower as share price picks up

TRG’s current 14.6% discount to NAV is close to its widest point in the last 12 months (14.7%, on 12 June 2019) and remains higher than both medium- and long-term averages (c 10–13% over three, five and 10 years). It is also broadly in line with the peer group average discount. The NAV has recovered well year to date (up c 13%) and the share price has begun to follow suit, suggesting investors may be beginning to look more favourably at European small-caps.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

TR European Growth Trust’s objective is to achieve capital growth by investing in smaller and medium-sized companies that are quoted, domiciled, listed, or have operations in Europe (excluding the UK).

26 February 2019: results for the half-year ended 31 December 2018. NAV TR -21.6% and share price TR -22.9%, versus a 13.2% decline in the EMIX Smaller Europe ex-UK index. Interim dividend of 7.5p declared (up 50% on 5.0p for H118).

19 November 2018: all resolutions passed at AGM.

Forthcoming

Capital structure

Fund details

AGM

November 2019

Ongoing charges

0.71%

Group

Janus Henderson Investors

Annual results

October 2019

Net gearing

9.0%

Manager

Ollie Beckett and team

Year end

30 June

Annual mgmt fee

Tiered (see page 9)

Address

201 Bishopsgate,
London, EC2M 3AE

Dividend paid

April, November

Performance fee

Yes (see page 9)

Launch date

1990

Trust life

Indefinite, subject to vote

Phone

+44 (0) 20 7818 6825

Continuation vote

Three-yearly, next 2019

Loan facilities

£100m overdraft

Website

www.treuropeangrowth.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

From FY18, an interim and a final dividend are paid in April and November (previously a final dividend was paid in November). While the primary aim is to achieve capital growth, the board also hopes to maintain and grow the dividend. Special dividends were historically paid alongside the final dividend; however, the move to paying two dividends a year means these are less likely in future.

TRG has the authority, renewed annually, to buy back up to 14.99% of shares and allot up to 10% of shares to manage a discount or a premium. Buybacks are at the board’s discretion following the removal in 2010 of an obligation to repurchase if the discount exceeded 10%.

Shareholder base (as at 20 February 2019)

Portfolio exposure by market cap (as at 30 Sept 2018, adjusted for gearing)

Top 10 holdings (as at 30 April 2019)

Company

Country

Sector

Portfolio weight %

30 April 2019

30 April 2018*

Van Lanschot Kempen

Netherlands

Banks

2.5

2.3

TKH Group

Netherlands

Electronic & electrical equipment

2.3

1.1

DFDS

Denmark

Industrial transportation

1.9

1.2

Nexans

France

Electronic & electrical equipment

1.8

N/A

Dermapharm

Germany

Pharma & biotech

1.6

1.2

Gaztransport & Technigaz

France

Oil services & distribution

1.6

1.2

Karnov Group

Sweden

Media

1.5

N/A

Tarkett

France

Construction & materials

1.5

N/A

Banca Farmafactoring

Italy

Banks

1.4

N/A

Conzzeta

Switzerland

Industrial goods

1.3

N/A

Top 10 (% of portfolio)

17.4

13.8

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

Market outlook: Short-term pain but long-term gain?

Until the global market sell-off in the last quarter of 2018, European equity markets had produced solid gains in sterling terms from the low point that followed the eurozone sovereign debt crisis in 2011. As shown in Exhibit 2 (left-hand chart), smaller companies in Europe have outperformed their larger brethren over the past decade (the EMIX Smaller Europe ex-UK index produced a total return of c 210% compared with c 150% for the FTSE World Europe ex-UK index), although they declined in value more sharply as risk aversion increased in Q418. Investors should be mindful of the risks that remain in the near term: according to the latest World Economic Outlook from the International Monetary Fund (April 2019), economic growth is expected to slow in the eurozone in 2019 (to 1.3% versus 1.8% in 2018) before picking up again (to 1.5%) in 2020. Particularly sluggish growth is forecast in Germany and Italy (0.8% and 0.1%, respectively, in 2019), with France and Spain relatively better at 1.3% and 2.1%. The European Central Bank has limited firepower to stimulate the economy, given interest rates remain at historic lows, whereas the uncertainty arising both from the Brexit saga and the slowdown in China (a key export market) may induce investors to remain on the sidelines until the picture is clearer. However, as shown in the right-hand chart, European equity valuations for both small- and large-cap stocks look reasonable compared with the rest of the world, providing a potentially attractive entry point for long-term investors, and dividend yields – an important support for total returns in periods of share price volatility – are also higher.

Exhibit 2: Market performance and valuation

Small versus large-cap European equity performance over 10 years

Valuation metrics for European and global large- and small-cap indices

Source: Refinitiv, MSCI, Edison Investment Research. Note: Total return performance in sterling terms. Valuation data at end-May.

Fund profile: European small-cap value portfolio

TRG, launched in 1990, invests for long-term capital growth in a diversified portfolio of smaller European (ex-UK) companies that its managers believe are good value. Lead manager Ollie Beckett of Janus Henderson Investors has run the fund since 2011 and is assisted by Rory Stokes and Julia Scheufler, who joined the team in 2013 and 2018, respectively. The managers have an unconstrained, bottom-up approach to portfolio construction. TRG measures its performance against the EMIX Smaller Europe ex-UK index (in sterling terms) and is a member of the Association of Investment Companies’ European Smaller Companies sector.

The portfolio is biased towards the smaller end of the small-cap universe, with c 65% of TRG’s assets invested in companies with a market capitalisation below £1bn. Because smaller companies may carry a higher risk of failure and can be illiquid, TRG’s managers prefer to hold a relatively long list of stocks (c 120–150) to mitigate stock-specific risk. There is a maximum individual position size of 7%, although in practice few holdings exceed 2% of the total. The trust is permitted to hold unquoted investments (prior board approval is required), but currently has no such positions following the sale of longstanding unlisted holding Brainlab towards the end of 2018.

Gearing of up to 30% of net assets is permitted (with a normal working range of up to 15%) and is used flexibly in response to investment opportunities. The trust may also hold up to 20% in cash and/or fixed income. While TRG’s main aim is to achieve capital growth, it also has a long record of year-on-year dividend growth and since FY18 has paid an interim as well as a final dividend to spread income more evenly through the year.

The fund managers: Beckett, Stokes and Scheufler

The managers’ view: Opportunities in mispriced securities

After a difficult period of performance for TRG (following an exceptionally strong FY17, with NAV and share price total returns of 54.0% and 75.5%, respectively, compared with 35.8% for the benchmark), lead manager Beckett says he is finding many opportunities in attractively valued, under-researched small-cap stocks across Europe. Although a value-oriented investment approach has outperformed over the long term, Beckett points out that during the decade since the global financial crisis, investors have favoured highly valued ‘quality’ stocks, continuing to back those companies that have already performed strongly, even at forward P/E valuations that suggest severe limitations on future appreciation. From January 2018 to May 2019, small-cap stocks in Europe have underperformed large- and mid-caps, with small-cap value underperforming by more than small-cap growth. The manager explains that in a climate of uncertainty such as that surrounding the US trade dispute with the rest of the world, investors have become more risk averse, which tends to translate into a preference for larger stocks that are perceived to be safer.

Beckett admits the TRG team was too early in moving further into low-valued stocks at the end of 2017, as expensive names continued to perform better for the first three quarters of 2018; however, from a style perspective, quality and momentum both underperformed in the Q418 sell-off, with value stocks falling by less than the broad MSCI Europe Index.

The manager says that the climate of volatility, together with ongoing concerns over the impact of Brexit on the rest of Europe, has led to a number of attractive smaller stocks, in which he and the team have a high level of conviction, trading at levels ‘where the price is just wrong’. He gives the example of Paris-listed Nexans, a top 10 holding, which makes cables for construction, telecoms and high-voltage power lines. Following the sudden departure of its CEO and delays to several high-voltage cable projects, its share price fell sharply; with a new CEO in place, it has rallied by c 23% since its low point in November 2018, yet still trades on a forward P/E valuation of less than 10x. Beckett says the team significantly increased TRG’s position in the stock in October and November to reflect a high level of conviction. ‘All these projects will come good, but they are on a different cycle to the rest of the economy,’ he adds.

The team actively manages the portfolio, a strategy illustrated by the holding in Danish ferry and shipping company DFDS, TRG’s third-largest position. Having previously owned and sold the holding, Beckett and the team have been building the stake back up at a single-digit forward P/E valuation, despite the company generating a more than 20% return on equity. The manager says being one of two Dover-Calais ferry operators means DFDS is seen as ‘the ultimate Brexit stock’, although it also has routes in the Mediterranean, the Baltic and the North Sea, which will be less exposed to the UK’s future trading relationship with the EU, whatever form that takes. Even in the most extreme no-deal Brexit scenario, which would adversely affect the English Channel route because of a lack of space for carrying out customs checks in Kent, the impact on DFDS could be lessened by a switch in shipping routes to the North Sea coast, where ports have more storage capacity. Beckett says that even if there were a Brexit-induced reduction in UK GDP of a similar magnitude to that of the global financial crisis (c 5%), which could hit shipping demand and reduce DFDS’s EBITDA profits by c DKK400m (c 15%), the stock would still be undervalued.

Gearing is also managed actively in response to available investment opportunities. Beckett raised TRG’s gearing close to the maximum 15% working level in the Q418 sell-off, as he felt valuations were attractive, further deterioration in the political situation was unlikely and a recession was not inevitable. Along with not being a forced seller in a falling market because of redemptions, the manager says the ability to use gearing to buy stocks at depressed levels is a key advantage of TRG’s closed-ended structure. The level of gearing was reduced to 8% at end-February after the market rallied, before increasing again to 11% at 31 March 2019. At 31 May, net gearing was 9%.

Asset allocation

Investment process: Bottom up, diversified and valuation aware

TRG’s investment universe covers c 2,000 small- and mid-cap companies across Europe with a market capitalisation below €4bn, from which the managers build a diversified portfolio of c 120–150 stocks. Beckett, Stokes and Scheufler begin by using quantitative screens to help identify attractive companies whose valuations do not reflect their long-term growth prospects. Each year they meet hundreds of companies to assess the durability of their business models, quality of management, drivers of growth and catalysts for revaluation. They also take account of in-house and external company research. The managers build financial models for potential investee companies, using a range of valuation metrics to gain an understanding of the relationship between a company’s current valuation and its growth potential. The portfolio is built on a bottom-up basis, with no constraints on country or sector weighting, and position sizes are based on the managers’ degree of conviction, although they rarely exceed c 2%.

Beckett, Stokes and Scheufler view their investment universe in terms of a company lifecycle with four stages:

Early cycle – the managers look for young companies with growing returns on capital, a clear strategy and operating leverage. The key valuation metric is enterprise value to sales (EV/sales).

Quality growth – companies with high returns on capital, growing revenues, sustainable margins and strong competitive positions. The team uses valuation metrics including P/E multiples, EV/EBIT (earnings before interest and tax) and EV to invested capital (EV/IC).

Mature – cash-generative companies with steady returns on capital, whose shares are trading cheaply versus the value of their assets. Valuation metrics include EV/IC, EV/EBIT and free cash flow (FCF) yield.

Turnarounds – companies that may have suffered declining growth or a specific setback, but where management cost cutting or asset disposals may spark an improvement in margins. Companies are valued on EV/IC, EV/EBIT and FCF yield.

Exhibit 3: Portfolio characteristics

Metric

TRG

Index

Dividend yield forecast (%)

3.6

3.3

P/E forecast (x)

11.9

13.4

Return on equity (%)

14.9

12.7

Historic EPS growth (last three years) (%)

17.7

17.4

Forecast EPS growth (next 12 months) (%)

28.1

18.2

Source: TR European Growth Trust, Edison Investment Research. Note: As at 31 October 2018.

Beckett says most investors concentrate on the quality growth and mature segments of the market and are not willing to go down the market cap scale to the ‘early cycle’ companies such as ‘internet of things’ solutions provider S&T, or to consider turnaround situations such as Puma, which was transformed following the appointment of ex-Pandora CEO Bjørn Gulden in 2013.

As shown in Exhibit 3, TRG’s holdings on average trade at lower forward P/E valuations than the benchmark average, with higher prospective dividend yields, higher returns on equity, and higher historical and projected earnings growth.

Portfolio turnover averages c 50% a year (53.8% in FY18), implying a holding period of around two years, although many companies are held for much longer than this. Stocks may be sold when they reach the managers’ assessment of fair value (as with Carl Zeiss Meditec in FY18), if worsening fundamentals call the original investment thesis into question (as with Swedish online retailer Boozt), or where the managers see better-value opportunities elsewhere.

Current portfolio positioning

At 30 April 2019, there were 143 holdings in TRG’s portfolio, a slight decrease from 146 a year earlier. The portfolio remains very broadly diversified, although concentration in the top 10 holdings has risen to 17.4% of the total, compared with 13.8% at 30 April 2018.

Exhibit 4: Portfolio geographic exposure (% unless stated)

Portfolio end-April 2019

Portfolio end-April 2018

Change (pp)

Germany

19.9

17.8

2.1

France

12.3

11.8

0.5

Switzerland

10.4

9.5

0.9

Netherlands

9.7

11.1

(1.4)

Sweden

8.7

7.7

1.0

Italy

7.9

7.3

0.6

Finland

6.9

11.4

(4.5)

Norway

4.2

6.2

(2.0)

Belgium

3.9

4.9

(1.0)

Denmark

3.1

3.1

0.0

Other

13.0

9.2

3.8

100.0

100.0

Source: TR European Growth Trust, Edison Investment Research

As shown in Exhibit 4, the geographical allocation has not dramatically changed over the past 12 months, with the exception of a 4.5pp reduction in Finland (a combination of performance and portfolio activity) and a 3.8pp increase in ‘other’. Germany remains the largest country weighting, with a 2.1pp increase in exposure over the year. Beckett says he struggles to find appealingly valued stocks in Spain and TRG had no exposure there at 31 December 2018 (end-H119).

Exhibit 5: Portfolio sector exposure (% unless stated)

Portfolio end-April 2019

Portfolio end-April 2018

Change (pp)

Industrial goods

25.6

23.2

2.4

Basic materials

15.1

16.2

(1.1)

Financials

13.8

15.1

(1.3)

Business providers

13.4

12.8

0.6

Consumer goods

13.2

11.6

1.6

Technology

12.9

13.9

(1.0)

Retail providers

3.7

6.0

(2.3)

Natural resources

2.4

1.2

1.2

100.0

100.0

Source: TR European Growth Trust, Edison Investment Research

In sector terms (Exhibit 5), industrial goods remains the largest weighting, illustrating the broad opportunity set in attractively valued smaller industrial companies across Europe. Again, the sector weightings have not substantially changed over the 12 months to 30 April 2019. There is relatively little exposure to consumer goods and services (retail).

New purchases in the past year include German non-prescription drugs company Dermapharm and Dutch dredging and marine infrastructure firm Boskalis Westminster (both now in the top 10 holdings), as well as Norwegian liquefied natural gas shipper Flex LNG and Germany-listed online lifestyle and home furnishings retailer Westwing. Flex LNG is part of a mini-theme alongside Gaztransport et Technigaz (GTT), which owns the technology for producing LNG container liner membranes. Beckett says new emissions standards for container ships being introduced in 2020 mean that for some operators it will make sense to switch to powering their vessels with LNG, which would be a source of opportunity for both Flex LNG and GTT. The manager sometimes buys stocks at initial public offering (IPO), and in April 2019, Scandinavian professional information services provider Karnov Group was purchased at IPO, immediately entering the top 10 holdings.

The most significant recent exit is from Brainlab, a longstanding unquoted holding that had been in the TRG portfolio since before Beckett began managing the trust. He had been looking to exit the position for some time and found a willing buyer in a German family office that was already familiar with the management of the image-guided surgery firm. Other recent sales include Puma, which had become highly valued and was at the top of TRG’s market capitalisation scale, and Showroomprivé, a flash sales website that had underperformed in a competitive market. XXL (a Norwegian sports retailer) and Vaisala (a Finnish weather equipment maker) were both sold on concerns over capital discipline, whereas the position in German 3D printing machinery firm SLM Solutions, which had failed to deliver on promised growth, was also exited.

Performance: Long-term good; short-term wobbles

Exhibit 6: 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: Three, five and 10-year performance figures annualised.

Exhibit 7: 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 EMIX Smaller Europe ex-UK

(6.4)

(4.4)

(5.0)

(11.9)

(3.6)

4.7

4.6

NAV relative to EMIX Smaller Europe ex-UK

(4.4)

(2.5)

(3.0)

(10.0)

(3.3)

2.3

8.5

Price relative to FTSE World Eur ex-UK

(6.5)

(5.0)

(5.9)

(17.6)

(2.2)

14.9

31.8

NAV relative to FTSE World Eur ex-UK

(4.5)

(3.0)

(3.9)

(15.8)

(2.0)

12.3

36.7

Price relative to FTSE All-Share

(5.2)

(2.5)

(5.5)

(13.4)

6.1

24.9

30.1

NAV relative to FTSE All-Share

(3.2)

(0.5)

(3.5)

(11.6)

6.4

22.1

34.9

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

As shown in Exhibit 6, TRG has posted negative sterling returns over one and 12 months to 30 April 2019, underperforming the benchmark EMIX Smaller Europe ex-UK index in both NAV and share price total return terms. However, year-to-date (to 14 June), TRG has outperformed the benchmark, producing a respectable NAV total return of c 14.2%, versus 13.3% for the index. Its longer-term performance record remains compelling, with annualised absolute returns of c 10–13% over three, five and 10 years. It has also outperformed the benchmark in both share price and NAV total return terms over five and 10 years. As shown in Exhibit 7, longer-term returns have also been strong versus European large-cap stocks and the broad UK equity markets. Beckett says that any stabilisation in economic data, with an associated reduction in investor risk aversion, would be a positive support for TRG’s performance.

TRG’s performance has suffered in the more volatile market conditions over the last 12 months, for a number of reasons. In the early part of the period (and also in the recovery from the Q418 sell-off), investors continued to back highly valued companies with earnings momentum and eschew those on lower ratings with recovery potential. As fears began to emerge over a slowing global economy, an end to ultra-loose monetary policy and the potential impact of US-driven trade disputes, a ‘flight to safety’ meant that smaller companies – particularly those at the smallest end of the market cap scale – underperformed, as did more cyclically exposed stocks. TRG’s value cyclical slant, coupled with its smaller-company focus, therefore weighed on performance, although Beckett says stock selection also had a significant impact. In H119 (to 31 December 2018), positive contributors to performance included French engineering technology firm Gaztransport et Technigaz, Swedish holdings Ambea (care homes) and JM (housebuilding), Germany-listed UK company Dialog Semiconductor, Finnish software firm Basware and newly listed Italian tech stock Carel Industries. However, these were outweighed by negative contributions from stocks including Finnish names Lehto (housebuilding) and Outotec (mining services), Norwegian sports retailer XXL (sold during the period), Dutch oil services company Fugro, and Germany-listed home and lifestyle retailer Westwing, whose IPO Beckett says was poorly managed.

Discount: Wider than average but close to peers

At 14 June 2019, TRG’s shares traded at a 14.6% discount to cum-income NAV. This was somewhat wider than both short- and longer-term averages (11.5% over one year, 9.8% over three years, 10.4% over five years, and 12.8% over 10 years). After widening in the aftermath of the 2016 Brexit referendum, TRG’s discount steadily narrowed over the following 12 to 18 months alongside a particularly strong period of NAV performance, and from September 2017 to January 2018, the shares frequently traded at a premium to NAV. However, as volatility began to return to global equity markets from February 2018 onwards, TRG’s discount reverted to a level more in line with both its history and most of its peers. It had narrowed somewhat from a 12-month high of 14.4% in August 2018, but strong NAV performance brought it back to near this level in early April, before narrowing again as the share price began to reflect the NAV upturn, and then widening amid widespread market volatility in May.

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

Source: Refinitiv, Edison Investment Research

Capital structure and fees

TRG is a conventional investment trust with one class of share. There were 50.1m ordinary shares in issue at 14 June 2019. Until 2010, the trust had a hard discount control mechanism, which obliged the board to buy back shares if the discount to NAV exceeded 10%. Although it retains the authority to repurchase up to 14.99% of shares or allot shares up to the equivalent of 5% of the share capital, in order to manage a discount or a premium, TRG uses these powers sparingly and the only repurchases in the last seven years were in the months following the UK’s vote to leave the EU in 2016. With the shares moving to a premium to NAV in the second half of 2017, 395,000 shares (0.8% of the share base) were allotted in FY18, raising £5.0m.

Gearing is permitted up to 30% of net assets and is available via a £100m multicurrency overdraft facility with HSBC Bank. If fully drawn, this would represent gross gearing of c 19.9% (based on 14 June 2019 net assets). Net gearing stood at 9.0% at 31 May 2019, up from 8% at 28 February, which was the joint-lowest month-end level in the last 12 months, having ranged up to 15.0% with an average of 10.5%.

Janus Henderson Investors is paid an annual management fee of 0.6% of TRG’s net assets up to £500m and 0.5% thereafter. The new tier was introduced with effect from 1 October 2018. A performance fee may also be paid if TRG’s NAV total return outperforms the benchmark EMIX Smaller Europe ex-UK index by more than 1.0% on a rolling three-year basis. The fee is set at 15% of the outperformance, subject to a cap on total fees at 2.0% of net assets. For FY18, ongoing charges were 0.71% (FY17: 0.75%) and a performance fee of 0.20% (FY17: 0.70%) was paid, bringing total fees to 0.91% (FY17: 1.45%).

Dividend policy and record

Although it invests primarily for capital growth, TRG’s investments have generated sufficient revenue income for the trust to pay a small annual dividend over many years. Until FY17, dividends were paid annually in November, made up of a steadily growing final dividend and supplemented by a special dividend of varying size. Since FY18, the trust has moved to paying an interim and a final dividend, in April and November, respectively. Total dividends of 19.0p (5.0p interim and 14.0p final) for FY18 were 31.0% higher than the 14.5p (11.5p final and 3.0p special) paid in respect of FY17. So far in FY19, a 7.5p interim dividend has been declared, a 50.0% increase on H118. Dividends have been fully covered by income for more than a decade (c 1.2x covered in FY18). TRG has a large revenue reserve, equal to 41.9p per share after accounting for the FY18 final dividend, which is sufficient to fund the dividend at the same level as in FY18 for more than two years. Based on the current share price and the last two dividends, TRG has a yield of 2.5%.

Peer group comparison

Exhibit 9: AIC European Smaller Companies peer group as at 14 June 2019*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Ongoing
charge

Perf.
fee

Discount
(cum-fair)

Net
gearing

Dividend
yield

TR European Growth

429.4

(13.2)

43.6

65.7

241.3

0.7

Yes

(14.6)

109

2.5

European Assets Trust

397.6

(0.6)

35.4

64.0

293.9

1.1

No

(6.3)

105

5.7

JPMorgan European Smaller Cos

570.9

(9.1)

40.2

72.4

255.9

1.1

No

(13.8)

100

1.9

Montanaro European Smaller

166.0

7.4

78.2

100.3

310.6

1.2

No

(9.7)

101

0.0

Sector average (4 funds)

391.0

(3.9)

49.4

75.6

275.5

1.0

(11.1)

104

2.5

TRG rank in sector

2

4

2

3

4

4

4

1

2

Source: Morningstar, Edison Investment Research. Note: *Performance to 13 June 2019. TR: total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

TRG is a member of the Association of Investment Companies’ European Smaller Companies sector, a small peer group of four well-established funds. The trust is the second-largest in the group. In NAV total return terms, TRG’s performance is somewhat below the sector average over one, three, five and 10 years, ranking fourth, second, third and fourth, respectively. However, absolute returns have been positive over three, five and particularly 10 years, with annualised total returns of c 13% pa or more over all these periods. The trust’s underperformance of the sector in the recent market sell-off reflects its geared exposure (the other funds are largely ungeared), as well as its value bias and its focus on companies further down the market capitalisation scale than its peers, which have more of a small- to mid-cap approach versus TRG’s micro- to small-cap focus. TRG has the lowest ongoing charges but is the only one of the four peers to charge a performance fee. Its discount is currently the widest in the sector. TRG has the second-highest dividend yield in the group, although it is worth noting that the highest-yielding fund, European Assets Trust, has a high distribution policy paying out a fixed 6.0% of NAV (which may come as a partial return of capital), whereas TRG’s dividend is fully covered by income.

The board

There are five independent, non-executive directors on the board of TRG. The chairman, Audley Twiston-Davies, joined the board in 2000 and took up his current role in 2002. Christopher Casey was appointed in 2010 and is chairman of the audit committee, while Andrew Martin Smith has been a director since May 2008. Two of the directors – Alexander Mettenheimer (appointed in 2011) and Simona Heidempergher (appointed in 2014) – are resident in continental Europe. The directors’ professional backgrounds are in investment management, accountancy and banking.

General disclaimer and copyright

This report has been commissioned by TR European Growth Trust and prepared and issued by Edison, in consideration of a fee payable by TR European Growth 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.

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 Edison analyst 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 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

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

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 TR European Growth Trust and prepared and issued by Edison, in consideration of a fee payable by TR European Growth 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.

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 Edison analyst 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 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

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

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 TR European Growth Trust and prepared and issued by Edison, in consideration of a fee payable by TR European Growth 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.

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 Edison analyst 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 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

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

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 TR European Growth Trust and prepared and issued by Edison, in consideration of a fee payable by TR European Growth 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.

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 Edison analyst 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 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

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

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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Research: TMT

EML Payments — Creating value from stored value

EML Payments’ focus on niche areas of the stored value payment card market is paying off, with strong revenue growth and expanding operating margins forecast over the next three years. Recent deals strengthen EML’s market-leading positions in the mall gift card and Australian salary packaging markets. Medium-term organic growth is supported by the roll-out of existing customers’ programmes, geographic expansion, the trend for customers to shift from unregulated vouchers to regulated e-money products, and the introduction of new digital solutions. Profitability should also be boosted by the shift to self-issuing. We expect organic growth to be boosted by further acquisitions.

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