The UK market continued to tick higher in August, as newswires were filled with company results, Brexit negotiations and rising North Korean tensions. Evenlode rose +0.9% compared to a rise of +0.5% for the IA UK All Companies Sector and +1.4% for the UK market. The fund’s strongest contributors were Smith & Nephew, Microsoft, Unilever and Diageo, all of which benefited from recent positive results. In terms of negative contributors, shares in Fidessa and WPP weakened after releasing interim results. For WPP, we acknowledge current industry headwinds, but think longer-term potential is positive thanks to a strong competitive position and a business model increasingly oriented to digital services and data analytics. WPP’s dividend yield of nearly 5% is growing and well supported by free cash flow. We viewed Fidessa’s recent results as reassuring, and the company remains committed to consistent, meaningful investment in organic growth. Elsewhere, the fund has benefited (since the month end) from Aveva’s agreement to combine its business with Schneider Software – a deal that looks attractive for shareholders and has a clear strategic and commercial logic.
In a tough economic and geopolitical environment, we are reassured by the progress Evenlode companies are making, and in particular the free cash flow that the aggregate portfolio continues to generate, which helps support the dividend flow. The fund went ‘ex’ a second quarter dividend of 1.54p* on 1st September, in-line with the first quarter and +6.2% year-on-year. Over the medium term, I continue to view moderate real dividend growth as a realistic aspiration for the asset-light businesses on which Evenlode is focused.
*B Income shares, estimated.