The Merchants Trust — UK market is ‘a stock picker’s dream’

The Merchants Trust (LSE: MRCH)

Last close As at 22/05/2024

GBP5.88

−3.00 (−0.51%)

Market capitalisation

GBP883m

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Research: Investment Companies

The Merchants Trust — UK market is ‘a stock picker’s dream’

The Merchants Trust (MRCH) has been managed by Simon Gergel at Allianz Global Investors for the last 17 years. He describes the valuation backdrop in the UK market as ‘a stock picker’s dream’, as in aggregate, UK stocks are trading at the low end of their 20-year range, and company valuations vary significantly, thereby affording the manager opportunities to identify reasonably priced businesses that have strong fundamentals and are operating in industries with favourable dynamics. Gergel’s strategy has proved successful as MRCH is comfortably ahead of its benchmark over the last three, five and 10 years. Growing income is an important feature of the trust, and it has paid higher dividends for the last 41 consecutive years. Reflecting the board’s confidence that this trend can continue, MRCH’s first two FY24 interim dividends are 3.6% higher year-on-year, which is an acceleration in growth versus FY23, when the annual dividend was a more modest 1.1% above the level paid in FY22.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

The Merchants Trust

UK market is ‘a stock picker’s dream’

Investment trusts
UK equity income

9 October 2023

Price

513.0p

Market cap

£755m

Total assets

£849m

NAV*

505.1p

Premium to NAV

1.6%

*Including income. At 5 October 2023.

Dividend yield

5.5%

Shares in issue

147.1m

Code

MRCH

Primary exchange

LSE

AIC sector

UK Equity Income

Financial year end

31 January

52-week high/low

604.0p

483.0p

597.6p

485.7p

*Including income.

Gearing

Net gearing*

14.3%

*At 31 August 2023.

Fund objective

The Merchants Trust’s investment objective is to provide an above-average level of income and income growth, together with long-term growth of capital, through investing mainly in higher-yielding large-cap UK companies (up to 10% of the fund may be invested in overseas equities). The benchmark is a broad UK stock market index.

Bull points

Long-term record of outperformance versus the UK stock market.

Attractive above-market dividend yield and commendable 41-year record of higher annual payments.

Competitive fee structure.

Bear points

Rising inflation and interest rates, and a slowing UK economy, increase the risk of profit warnings.

UK has been out of favour with global investors since the 2016 Brexit vote.

Relative performance is likely to struggle in a growth/momentum-led market.

Analyst

Mel Jenner

+44 (0)20 3077 5700

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

The Merchants Trust (MRCH) has been managed by Simon Gergel at Allianz Global Investors for the last 17 years. He describes the valuation backdrop in the UK market as ‘a stock picker’s dream’, as in aggregate, UK stocks are trading at the low end of their 20-year range, and company valuations vary significantly, thereby affording the manager opportunities to identify reasonably priced businesses that have strong fundamentals and are operating in industries with favourable dynamics. Gergel’s strategy has proved successful as MRCH is comfortably ahead of its benchmark over the last three, five and 10 years. Growing income is an important feature of the trust, and it has paid higher dividends for the last 41 consecutive years. Reflecting the board’s confidence that this trend can continue, MRCH’s first two FY24 interim dividends are 3.6% higher year-on-year, which is an acceleration in growth versus FY23, when the annual dividend was a more modest 1.1% above the level paid in FY22.

Strong NAV outperformance versus the benchmark over last three years

Source: Refinitiv, Edison Investment Research

Why consider MRCH?

Gergel has remained disciplined, adhering to his clearly defined investment process, even when his quality and value fundamental approach has been out of favour. This approach has resulted in MRCH’s solid record of outperformance versus the UK market over the medium and long term. The trust also stacks up well against its 19 peers in the AIC UK Equity Income sector, with its NAV total return ranking second over the last three years and fifth over the last five years.

Income is a very important element of the MRCH story. The trust has paid out higher dividends for the last 41 consecutive years, earning it the 12th-highest position in the AIC’s list of 20 funds that have a record of at least 20 years of consecutive dividend growth. MRCH consistently offers a higher dividend yield than the broad UK market (currently 5.5% versus 3.8%, respectively) and, over the long term, the trust’s dividend growth has exceeded the rate of UK inflation, providing shareholders with a real income.

There is robust demand for MRCH’s shares. In FY23, its share base was increased by around 10%, raising c £69.3m, and share issuance has continued in FY24. The trust regularly trades at a premium; the latest 1.6% premium to cum-income NAV is not dissimilar to its average 0.8% premium over the last 12 months.

MRCH: A high-quality UK equity fund seeking both income and capital growth

Gergel has managed MRCH since 2006 and has followed a disciplined investment process based on three pillars: fundamentals (focus on a company’s industry structure and competitive position, its financial metrics and ESG factors); valuation (in absolute and relative terms, along with dividend yield); and themes (industry and secular issues, the macroeconomic outlook, and the stage of the business cycle.) In essence, the manager seeks quality businesses that are trading at a discount to their estimated intrinsic worth. Gergel is prepared to back the courage of his convictions by investing in out-of-favour sectors and has adhered to the trust’s long-term successful investment process, including through difficult periods of relative performance.

Exhibit 1: MRCH’s upside/downside capture over the last 10 years

Source: Refinitiv, Edison Investment Research. Note: Cumulative upside (downside) capture calculated as the geometric average NAV total return (TR) of the fund during months with positive (negative) benchmark total returns, divided by the geometric average benchmark total return during these months. A 100% upside (downside) indicates that the fund’s TR was in line with the benchmark’s during months with positive (negative) returns.

MRCH’s cumulative upside capture over the last decade is 127%, which is modestly higher than its 124% downside capture, showing that on average the trust performs slightly better on a relative basis in a rising than a falling market. These figures are meaningfully different than 100% (which would imply that MRCH generally trades in line with the UK market), illustrating Gergel’s unconstrained approach and his willingness to have sector and stock weightings that differ markedly from the benchmark.

Portfolio holdings fall into one of three ‘buckets’

Classic value: companies that are unloved, under-owned or misunderstood. Fundamentally sound businesses without major structural risks. The manager says it is important to avoid ‘value traps’ (shares that appear inexpensive, but whose valuation is warranted due to structural challenges or disruptive threats to an industry). Typically, short/medium holding periods.

Franchise: quality companies with sustainable competitive advantages. Long-term growth potential to compound value. The manager aims to buy at attractive valuations and not overpay for growth. Typically, medium/long holding periods.

Special situations: unique situations with unusual share price drivers that are often uncorrelated with the economy or financial markets. These include turnarounds, workouts, spin-offs, balance sheet restructurings and countercyclical businesses. Holding periods are variable.

An industry that Gergel currently finds interesting is housebuilding. While other investors may shy away from these businesses given rising mortgage rates and a cost-of-living crisis, the manager takes a longer-term perspective and believes that with depressed industry valuations, coupled with structural demand for more housing, housebuilding stocks are an attractive investment opportunity.

MRCH’s portfolio breakdown

Reflecting the trust’s relatively low portfolio turnover, which was c 28% in FY23, there were only small changes in MRCH’s sector exposure in the 12 months to end-August 2023. The largest were a 2.9pp higher weighting in industrials and a 3.4pp lower allocation to consumer staples stocks. Versus its benchmark, the notable differences are overweight positions in industrials (+5.3pp) and utilities (+3.4pp), with underweight exposures to healthcare (-3.6pp) and basic materials (-3.1pp).

Exhibit 2: Portfolio sector exposure versus benchmark (% unless stated)

Portfolio end-
August 2023

Portfolio end-
August 2022

Change
(pp)

Active weight
vs benchmark (pp)

Financials

21.4

23.4

(2.0)

(1.3)

Industrials

17.7

14.9

2.9

5.3

Consumer staples

13.9

17.3

(3.4)

(1.2)

Consumer discretionary

13.2

12.8

0.4

1.3

Energy

12.5

11.1

1.4

1.2

Healthcare

7.7

6.3

1.4

(3.6)

Utilities

6.9

6.1

0.8

3.4

Basic materials

3.9

3.6

0.3

(3.1)

Real estate

2.8

3.1

(0.2)

0.4

Telecommunications

0.0

1.5

(1.5)

(1.2)

Technology

0.0

0.0

0.0

(1.2)

100.0

100.0

Source: MRCH, Edison Investment Research. Note: Excludes cash. Numbers subject to rounding.

Exhibit 3: MRCH’s sector exposure versus its benchmark

Source: MRCH, Edison Investment Research. Note: Excludes cash. Numbers subject to rounding.

Exhibit 4: Portfolio market cap (left) and geographic (right) exposure (at 31 August 2023)

Source: MRCH, Edison Investment Research

Exhibit 4: Portfolio market cap (left) and geographic (right) exposure (at 31 August 2023)

Source: MRCH, Edison Investment Research

Exhibit 4 shows MRCH’s market cap and geographic exposures. In the year ending 31 August 2023, there was a notable higher allocation to midcap stocks (UK 250, +10.1pp) with lower weightings in large cap (UK100, -4.7pp) and small cap (-2.7pp) stocks. There were negligible changes in the trust’s geographic exposure over the period.

At end-August 2023, there were 52 (non-derivative) holdings in the portfolio, which was the same number as 12 months earlier. The top 10 made up 33.9% of the fund, which was less than 35.7% a year earlier; six positions were common to both periods.

Exhibit 5: Top 10 holdings (at 31 August 2023)

Company

Sector

Portfolio weight %

31 August 2023

31 August 2022*

GSK

Pharmaceuticals & biotechnology

4.8

3.7

Shell

Oil, gas & coal

4.7

4.3

British American Tobacco

Tobacco

3.7

4.5

BP

Oil, gas & coal

3.4

3.4

Rio Tinto

Industrial metals & mining

3.1

3.1

DCC

Industrial support services

3.0

N/A

IG Group

Investment banking & brokerage

2.9

3.8

SSE

Electricity

2.8

N/A

Energean

Oil, gas & coal

2.8

N/A

WPP

Media

2.7

N/A

Top 10 (% of portfolio)

33.9

35.7

Source: MRCH, Edison Investment Research. Note: *N/A where not in end-August 2022 top 10.

Recent portfolio activity

In August 2023, the manager sold MRCH’s BMW position, as it had performed well, and paid significant dividends, despite a challenging consumer backdrop. The automotive industry has benefitted from high new and used-car prices, due to supply issues, during and after the global pandemic. As supply constraints are easing and consumer budgets remain under pressure, Gergel decided to lock in profits.

The manager initiated a position in XP Power, which is a manufacturer of a broad range of power supplies. These products can be mission critical and designed for specific applications, providing XP with a meaningful barrier to entry and the ability to generate high margins. The company has a blue-chip customer base and structural growth opportunities, for example, from the healthcare, semiconductor and industrial sectors. Gergel was able to buy XP’s shares at an advantageous price as the company had to deal with issues including supply-chain interruptions during COVID-19, an inventory rebuild and a downturn in the semiconductor industry. The manager anticipates that XP’s historical growth profile will resume.

In June 2023, Gergel sold MRCH’s two small positions in Vodafone Group and Ashmore Group, which had proved disappointing. Vodafone has suffered from competitive challenges in the mobile phone industry. The position was initiated during the pandemic in anticipation of an acceleration in the company’s business growth, but this has not materialised. According to the manager, Ashmore has a competitive advantage in emerging market asset management, especially in fixed income. However, the business is cyclical and fund outflows have put additional strains on the business. Subsequent to the sale, Ashmore reported results, which included an increase in its variable compensation, and its share price has continued to languish.

There was an above-average level of portfolio activity in May 2023. Inchcape returned to MRCH’s portfolio, as it has a strong position operating as an agent for car manufacturers in overseas areas, such as for Toyota in Hong Kong. The major automobile companies are focusing on the larger regions, encouraging Inchcape to take on more franchises in smaller markets that were being served by independent companies, who are struggling to supply the required software and services. Inchcape’s share price de-rated following an acquisition of a business in Chile, providing Gergel with a favourable entry point.

There is a new position in Marshalls, which is a provider of building products for new build, refurbishment and commercial properties. The industry is under pressure in a higher interest rate environment, while the company acquired Marley (a roofing specialist), which increased its debt level. Gergel believes that Marshalls is a good-quality business that is temporarily depressed.

The manager is bullish on the outlook for the reinsurance sector due to firm pricing and a lack of new capacity. He switched MRCH’s position in Swiss RE into Lancashire Holdings on valuation grounds. There was also a relative valuation switch in the banking sector as Gergel sold the trust’s holding in NatWest Group and reinvested the proceeds in Lloyds Banking Group, which having had to fund its pension obligations is now in a better position to return cash to shareholders.

Back in April 2023, the manager sold MRCH’s position in BAE Systems, which is the UK’s largest defence contractor and had been in the portfolio for many, many years. Having been a very important contributor to the trust’s performance (BAE’s share price had doubled in 18 months), Gergel considered that the company was fully valued.

Gergel’s perspectives on the current investment backdrop

The manager comments that the UK is one of the least expensive markets with a forward P/E multiple of around 10x, which is at the low end of its 20-year range, unlike the US, which is trading around 20x and at the high end of its 20-year range. Gergel notes that the UK remains polarised, providing good opportunities for active stock pickers. At the end of H123, 43% of the UK All-Share index was trading at or below a 10x forward P/E multiple, while 16% was on a multiple above 20x.

According to the manager, the last few months have been difficult for value investors, which has provided additional interesting opportunities. He suggests that while there are pockets of weakness in the UK economy, such as housebuilding, where businesses are being negatively affected by higher interest rates, operationally most sectors are performing ‘fairly well’.

The UK has been out of favour with international investors and there have been significant fund outflows since the June 2016 Brexit vote. However, Gergel opines that the policy gap between labour and the conservatives is very narrow, with leaders of both parties being more centrist than their predecessors, so a change in government is unlikely to be a stock market-moving event. The manager suggests that to a certain degree politicians are constrained by asset markets, pointing to the violent moves in equities and bonds in response to former Prime Minister Liz Truss’s radical proposals around tax cuts and government borrowing.

Gergel comments that the UK is not an outlier in terms of its economic performance, particularly given the recent material upgrades to historical growth by the Office for National Statistics. He anticipates that there will be more takeovers of UK companies and an increase in share repurchases, which should support the UK market. Using history as a guide, a market that starts to perform relatively better than other regions tends to attract additional buyers.

Performance: Solid mid- and long-term outperformance

There are 20 funds in the AIC UK Equity Income sector. On 5 October, MRCH’s NAV total returns ranked second over the last three years (26.1pp above the mean) and fifth over the last five years (8.8pp above the mean). The trust’s returns were below average over the last one and 10 years, ranking 17th and 14th respectively.

MRCH’s valuation was above the sector average, and it was one of five funds trading at a premium. It had a higher-than-average level of net gearing and a dividend yield that was 50bp above the mean, ranking fifth.

The trust is classified as a mid-cap value fund by Morningstar, along with four of its peers: abrdn Equity Income Trust, The Law Debenture Corporation, Lowland Investment Company and Shires Income. MRCH’s NAV total returns rank fourth out of the five funds over the last year, first over three years, second over five years and third over the last decade.

Exhibit 6: AIC UK Equity Income sector at 5 October 2023*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield

Merchants Trust

748.7

1.0

54.1

19.3

62.5

0.8

0.6

No

114

5.5

abrdn Equity Income Trust

145.3

(7.0)

21.2

(16.8)

23.3

2.1

0.9

No

115

7.5

BlackRock Income and Growth

37.1

8.6

29.3

16.2

80.5

(11.0)

1.2

No

107

4.1

Chelverton UK Dividend Trust

32.4

(2.6)

34.0

(12.4)

39.1

9.7

2.4

No

160

8.3

City of London

1,942.8

6.0

33.3

16.1

65.5

0.3

0.4

No

105

5.2

CT UK Capital and Income

289.0

3.4

25.4

8.3

66.4

(4.0)

0.6

No

108

4.2

CT UK High Income Units

99.7

2.8

10.7

1.6

36.6

(4.9)

1.0

No

115

5.3

Diverse Income Trust

249.1

(6.9)

4.2

(0.2)

63.7

(6.4)

1.1

No

100

5.2

Dunedin Income Growth

388.2

9.6

16.7

26.0

64.5

(10.3)

0.6

No

110

5.0

Edinburgh Investment

1,041.9

15.6

45.5

12.7

70.0

(9.0)

0.5

No

109

4.0

Finsbury Growth & Income

1,699.1

1.7

8.2

20.5

129.8

(4.2)

0.6

No

101

2.3

Invesco Select UK Equity

102.4

5.1

31.9

18.4

80.4

(14.2)

0.8

No

106

4.7

JPMorgan Claverhouse

377.9

5.8

27.1

8.6

64.1

(6.4)

0.7

No

110

5.4

Law Debenture Corporation

1,014.7

10.9

43.1

29.8

109.1

0.3

0.5

No

113

3.9

Lowland Investment Company

293.2

8.0

34.8

(3.1)

39.4

(13.6)

0.6

No

113

5.6

Murray Income Trust

886.8

7.7

21.3

25.2

71.7

(8.4)

0.5

No

112

4.6

Schroder Income Growth

177.1

6.7

29.9

13.5

68.6

(10.2)

0.7

No

113

5.4

Shires Income

68.9

3.4

20.9

14.6

67.3

(6.0)

1.0

No

124

6.3

Temple Bar

672.3

13.2

66.8

7.2

42.9

(6.1)

0.5

No

111

4.1

Troy Income & Growth

161.4

3.1

2.5

4.9

59.5

(1.3)

0.9

No

101

3.1

Sector average (20 funds)

521.4

4.8

28.0

10.5

65.2

(5.1)

0.8

112

5.0

MRCH rank

6

17

2

5

14

3

6

5

5

Source: Morningstar, Edison Investment Research. Note: *Performance to 4 October 2023. NAV with debt at par. TR, total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

Exhibit 7: Investment trust performance to 30 September 2023

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.

As shown in Exhibit 8, MRCH has given back some of its relative performance over the last six months so now trails its benchmark over the last year. However, it is comfortably ahead of the broad UK market over the last three, five and 10 years in both NAV and share price terms.

Exhibit 8: 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 blended benchmark*

(1.4)

1.2

(4.6)

(0.7)

33.7

17.2

11.6

NAV relative to blended benchmark*

(0.9)

(0.5)

(3.6)

(1.1)

29.2

12.7

10.4

Price relative to CBOE UK All Companies

(1.4)

1.2

(4.6)

(0.7)

33.7

17.2

10.2

NAV relative to CBOE UK All Companies

(0.9)

(0.5)

(3.6)

(1.1)

29.2

12.7

9.1

Price relative to CBOE UK 100

(2.0)

0.9

(5.1)

(1.5)

28.8

14.3

9.7

NAV relative to CBOE UK 100

(1.5)

(0.8)

(4.1)

(1.8)

24.5

9.9

8.5

Source: Refinitiv, Edison Investment Research. Note: Data to end-September 2023. Geometric calculation. *Blended benchmark is UK 100 Index until 31 January 2017 and UK All-Share Index thereafter.

Gergel explains that performance ‘has been tricky’ so far this year. Growth stocks have recovered, having derated in 2022, and mid- and small-cap domestic businesses, where MRCH is overweight versus the benchmark, have underperformed. The manager suggests that the trust’s underperformance in recent months in essentially a mix effect rather than as a result of stock-specific issues.

Looking at MRCH’s performance over the last 12 months, positive contributors include: BMW (automobiles & parts); CRH (construction & materials); Conduit Holdings and SCOR (both non-life insurance). Not owning Diageo (beverages) has also added to the trust’s performance.

Stocks that have detracted from MRCH’s performance include IG Group Holdings (investment banking & brokerage), which experienced softer trading in Q223. St. James’s Place (investment banking & brokerage) reduced the pricing for some of its longest-serving clients. Mobico Group (formerly National Express Group, travel & leisure) struggled to find enough drivers and then had to increase drivers’ wages. Stocks that have performed well and are not represented in the portfolio include HSBC (banks) and Rolls Royce (aerospace & defence).

Exhibit 9: Five-year discrete performance data

12 months ending

Share price
(%)

NAV*
(%)

Benchmark
(%)

UK 100 large-cap
Index (%)

30/09/19

2.2

(1.0)

2.6

3.2

30/09/20

(26.6)

(24.6)

(16.6)

(18.1)

30/09/21

69.8

64.1

27.8

25.3

30/09/22

(2.7)

(2.3)

(4.0)

0.9

30/09/23

13.0

12.5

13.8

14.6

Source: Refinitiv. Note: All % on a total return basis in pounds sterling. *NAV with debt at market value.

Dividends: Higher dividends for more than 40 years

Having increased its dividends for 41 consecutive years, MRCH ranks 12th on the AIC’s list of 20 dividend heroes (funds with at least 20 years of consecutive dividend growth). Over time, the trust’s dividend growth has meaningfully exceeded the rate of UK inflation, thereby providing real income growth to shareholders.

MRCH’s FY23 fully covered annual dividend of 27.6p per share was a modest 1.1% increase yearon-year. Demonstrating its confidence in the trust’s portfolio income generating ability, the board has announced two 7.10p per share interim dividends in respect of FY24, which are 3.6% higher than the 6.85p per share first two dividend payments for FY23. At the end of FY23, MRCH had revenue reserves of 16.3p per share, equivalent to 0.6x the last annual payment.

Exhibit 10: Dividend and revenue history last 10 years

Source: MRCH, Edison Investment Research

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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.

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London │ New York │ Frankfurt

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United Kingdom

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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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