Stock split proposed for soaraway Shin Nippon

Stock split proposed for soaraway Shin Nippon – Baillie Gifford Shin Nippon has extended its impressive run of results with a 46.1% increase in its NAV over the year to 31 January 2018 and a 54.2% increase in its share price over that period. By contrast, its comparative index, the MSCI Japan Small Cap Index, rose by [just] 17%. On a rolling three year basis, Shin Nippon’s NAV rose by 145.5% and its share price by 187.2% versus 75.0% for the MSCI Japan Small Cap Index.

[QD comment: as the chairman points out, this fund is now one of the top three performing trusts of any type over three, five and ten years. He is also “encouraged by the outlook”. This is attracting new investors to the trust – £55.8m worth of shares were issued last year – but the premium is on the high end, close to 10% at the time of writing, and this makes the shares more vulnerable in the event of a turn in sentiment towards the Japanese market]

The shares are trading at 963p, a sub-division of each of the current ordinary shares of 10p shares into five ordinary shares of 2p nominal value is proposed.

The Board has approved a modest amendment to the investment policy to allow an increase in the individual holding size at time of purchase from 3% to 5% of total assets. At the AGM they will also be seeking approval to increase the aggregate annual limit in the Articles of Association for directors’ fees from £150,000 per annum to £200,000.  This is proposed to allow for a temporary increase in Board numbers – two directors will retire in 2019 and the Board wants to recruit their replacements early to ensure a smooth handover.

Extract from the manager’s report

The managers say that “Some of our favourite online disruptors continued to perform well and are taking innovative measures to expand their addressable market. Fashion e-commerce website operator Start Today recently launched its own branded clothing that is customized based on each individual user’s body measurements. For a nominal fee, users are sent a unique bodysuit fitted with tiny sensors that allow them to record accurate measurements which are then electronically transmitted to Start Today. In addition, it has also started offering a personal styling service for users, all of which should improve customer engagement. Specialist staffing company Outsourcing was the biggest positive contributor to performance. It is continuing to benefit from the tight labour market in Japan, has been raising prices and reported a more than doubling of profits in its most recent annual results. IRISO Electronics, which makes connectors for cars, and Optex, a leading global manufacturer of sensors for security systems and factory automation, also performed strongly. They saw robust demand for their products as car electrification and industrial automation remained strong global themes. Among the healthcare stocks in the portfolio, holding company Noritsu Koki was the standout performer. Its shares have almost tripled in value since our initial purchase just over a year ago. The new management team has exited the legacy photo processing business and has used the proceeds to build an impressive portfolio of potentially high growth healthcare-related companies. 

Among the poor performers were companies beset by internal management issues and unfavourable industry changes. Both Cookpad, a user-generated recipe website, and Yonex, a global brand of badminton equipment, continue to suffer from poor operational execution by management. Condominium builder Takara Leben and specialist running shoes manufacturer ASICS are both struggling to adapt to shifts in consumer preferences although we are encouraged by steps taken by management so far to address these issues.”

BGS : Stock split proposed for soaraway Shin Nippon


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