I am delighted to report to you for the first time as Chair of the abrdn Equity Income Trust plc ("the Company"), having taken over the role in February. I would like to thank Mark White for his commitment to the Company over the last nine years and his steely focus on income delivery.

Revenue

Total income in the six months of the financial year was largely unchanged at £4.71m compared to £4.70m for the same period last year. Management fees and administrative expenses charged to revenue were up 5.5% at £406k compared to £385k in 2022.

After interest costs and tax, net earnings were marginally down 3.0% to £4.08m and the revenue per ordinary share was 8.60 pence per Ordinary share compared to 8.75 pence per Ordinary share in 2022.

Typically, the Company earns between 30% and 40% of the total income for the year in the first six months, and this year looks to be on track to be in that range. As a result, given the outlook for the rest of the financial year, the Board remains confident that the full year earnings will be sufficient to cover the proposed dividend.

Performance

In the six months to 31 March 2023, the Company delivered a NAV total return of 3.3% which underperformed the total return of the FTSE All-Share Index of 12.3%. However, on a more positive note, the Board was encouraged by the share price total return of 13.5% during the period, which resulted in the most significant narrowing of any discount in the UK Equity Income Sector.  The share price discount reduced from around 10% in November 2022 to a small premium at 31 March 2023, following the announcement of the Company's full year results last December.

The capital performance is disappointing, and was particularly affected by the fall in energy prices which led to holdings such as Thungela Resources and Diversified Energy reversing the gains they had made in the previous six months. 

However, the Board recognises that it has set the Manager the task of ensuring that the dividend is covered by earnings in the current year, with an expectation of sustainable growth, and the portfolio is positioned accordingly.

The Investment Manager's Review provides a more detailed explanation of the drivers of the Company's performance.

Share Rating

The Board is pleased to be able to report that the Company's share price discount to NAV, on a cum income basis, has narrowed steadily from 8.8% on the first day of the period to a small premium of 0.1% at the end of the period.

Since the beginning of December 2022 the discount has typically traded at less than 2%, and averaged 1.2%, and for brief periods has traded at a premium, which is a far cry from the four months prior to December 2022, when the discount averaged 8.6%. 

It is also worth noting that while the share price had been trading at a wider discount than the average for the sector, this situation has reversed.  The very sharp move in the discount last December and the fact that it has been sustained at this level suggests to the Board that the market appreciates the focus on delivering a covered and sustainably growing dividend and the Board intends to maintain that focus.

Dividends

The Board declared its plans for the dividend for the current financial year in last year's annual report and the proposed schedule is unchanged at this time.

The first three interim dividends for the current year will be 5.7 pence per Ordinary share. The first of these was paid to Shareholders on 22 March 2023 and the Board announces that the second interim dividend of 5.7 pence per Ordinary share will be paid on 22 June 2023 to Shareholders on the register on 26 May 2023 with an associated ex-dividend date of 25 May 2023.  The third interim dividend of 5.7 pence per Ordinary share will be paid in September and the fourth interim dividend will be determined when the accounts are being finalised in November / December.  The Board's expectation remains that the fourth interim dividend will be at least 5.7 pence per Ordinary share, making a total payment for the year of at least 22.80 pence per Ordinary share.

Based on the share price at 31 March 2023, this puts the Company on a dividend yield of 6.9%, which is amongst the highest of any equity investment trust.

Gearing

At 31 March 2023 £25m of the Company's £30m loan facility was drawn and net gearing amounted to 14.8% of assets, compared to 15.0% in September 2022. The borrowing is in the form of a revolving credit facility which cost 5.0% at the end of the period.

Buybacks

In the first two months of the period under review, the company bought back 100,417 shares at an average price of 310.9 pence per share and a weighted average discount of 10.0%. Since the beginning of December, the share price has traded at levels very close to the underlying NAV, negating the need for any further buy backs. Shares bought back are held in treasury.

The Board continues to monitor the discount and premium and will re-issue treasury shares if a material premium persists or buyback shares into treasury if the discount is considered too wide in absolute and relative terms.

Board

As I mentioned above, I was delighted to assume the role of Chair from Mark White on 2 February 2023.  Mark retired as Chair and as a Director at the AGM in February 2023 having served on the Board since November 2013.  Mark Little succeeded me as Chair of the Audit Committee at the same time.

Outlook

There seem to have been storm clouds on the economic horizon for some time now and we do not see much sign of them dissipating in the near future. Having said that, we are of the view that despite them looking ominous, there remain opportunities in the market that, as our Manager has demonstrated, can be pursued. The macro environment is going to remain challenging with respect to inflation, the cost-of-living crisis, and the war in Ukraine. However, the indications are that they are not going to be quite as damaging, economically, as was being predicted six months ago; the UK was expected to have gone into recession but that has not yet happened.

The Bank of England raised interest rates to 4.5 per cent on 11 May 2023, and warned it would not hit its inflation target until 2025.  Investing against such a backdrop remains challenging. However, the Board has maintained its guidance to the Manager that delivering a covered and sustainably growing dividend is the primary focus. The Board has reviewed the dividend projections and reaffirms its intention to pay three interim dividends of 5.7 pence per Ordinary share and to ensure that the full year's dividend will be at least 22.80 pence per Ordinary share.

 

Sarika Patel
Chair
15 May 2023

 

Discrete performance (%)

Source: abrdn, total returns. The percentage growth figures are calculated over periods on a mid to mid basis. Past performance is not a guide to future results.

 

Important information

Risk factors you should consider prior to investing:

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
• The Company may charge expenses to capital which may erode the capital value of the investment.
• The Alternative Investment Market (AIM) is a flexible, international market that offers small and growing companies the benefits of trading on a world-class public market within a regulatory environment designed specifically for them. AIM is owned and operated by the London Stock Exchange. Companies that trade on AIM may be harder to buy and sell than larger companies and their share prices may move up and down very sharply because they have lower trading volumes and also because of the nature of the companies themselves. In times of economic difficulty, companies listed on AIM could fail altogether and you could lose all your money.
• The Company invests in the securities of smaller companies which are likely to carry a higher degree of risk than larger companies.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. abrdn Investments Limited, registered in Scotland (No. 108419), 10 Queen’s Terrace, Aberdeen AB10 1XL. Both companies are authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at www.abrdnequityincome.com or by registering for updates. You can also follow us on social media: Twitter and LinkedIn.