Lowland Investment Company PLC Fund Data

UK equity markets rose modestly during June. Investors were encouraged by hopes of a resolution to the conflict in the Middle East, which resulted in a fall in the oil price to levels close to where it was trading before the conflict. In our view, if oil prices remain subdued, it could give the Bank of England (BoE) a reason to view any uplift in inflation as temporary. Therefore, while the market continues to price in approximately one UK interest rate increase later this year, we do not consider this likely. From a political perspective, Prime Minister Keir Starmer resigned towards the end of the month. However, the market reaction has so far been muted, with government borrowing costs and sterling largely unchanged. Among the best performers during the quarter was Halfords. This was due to an encouraging trading update in which both its retail and garage businesses grew their toplines, and profits grew modestly despite significant operating cost headwinds (such as the step up in the national living wage). Other strong performers included commercial property owner Segro, following a takeover approach from Prologis, a larger US peer. Among the largest detractors was Volex, a producer of power components such as cables for use across a broad range of industries including datacentres. It reported good results with revenue growth of 14% and operating margins reaching 10.2% (above the target range of 9-10%). However, its shares had previously performed well and there may have been some profit-taking by investors. During the month we added to the existing holding in Smiths News, a newspaper and magazine distributor. The company had previously been focused on England (particularly the South of England) but has begun to win work nationally, including national contracts with News UK and Associated Newspapers. While these contracts will require a level of upfront investment, they bring the potential for growth that we do not believe was reflected in the valuation at the time of purchase. We also added to the holding in premium pub group Young's, which has a pub estate across London and the South East. Elsewhere, we added a new holding in soft drinks group AG Barr. The 12-month forward price-to-earnings (P/E) ratio had fallen to a 10-year low, and we believe the firm has scope to grow its sales and earnings via brands such as Boost and by taking further manufacturing in-house. We funded these additions by selling the holding in energy distributor DCC following a takeover offer from private equity. While uncertainty surrounding the economic outlook has undoubtedly increased as a result of the evolving conflict in the Middle East, UK share prices entered this period at already depressed levels relative to overseas equity markets. This meant that, at the end of June, the portfolio was trading on a 12-month historic P/E ratio of 13x, a level we continue to view as attractive for businesses that are often well managed and run conservative balance sheets.

UK equity markets rose modestly during June. Investors were encouraged by hopes of a resolution to the conflict in the Middle East, which resulted in a fall in the oil price to levels close to where it was trading before the conflict. In our view, if oil prices remain subdued, it could give the Bank of England (BoE) a reason to view any uplift in inflation as temporary. Therefore, while the market continues to price in approximately one UK interest rate increase later this year, we do not consider this likely. From a political perspective, Prime Minister Keir Starmer resigned towards the end of the month. However, the market reaction has so far been muted, with government borrowing costs and sterling largely unchanged. Among the best performers during the quarter was Halfords. This was due to an encouraging trading update in which both its retail and garage businesses grew their toplines, and profits grew modestly despite significant operating cost headwinds (such as the step up in the national living wage). Other strong performers included commercial property owner Segro, following a takeover approach from Prologis, a larger US peer. Among the largest detractors was Volex, a producer of power components such as cables for use across a broad range of industries including datacentres. It reported good results with revenue growth of 14% and operating margins reaching 10.2% (above the target range of 9-10%). However, its shares had previously performed well and there may have been some profit-taking by investors. During the month we added to the existing holding in Smiths News, a newspaper and magazine distributor. The company had previously been focused on England (particularly the South of England) but has begun to win work nationally, including national contracts with News UK and Associated Newspapers. While these contracts will require a level of upfront investment, they bring the potential for growth that we do not believe was reflected in the valuation at the time of purchase. We also added to the holding in premium pub group Young's, which has a pub estate across London and the South East. Elsewhere, we added a new holding in soft drinks group AG Barr. The 12-month forward price-to-earnings (P/E) ratio had fallen to a 10-year low, and we believe the firm has scope to grow its sales and earnings via brands such as Boost and by taking further manufacturing in-house. We funded these additions by selling the holding in energy distributor DCC following a takeover offer from private equity. While uncertainty surrounding the economic outlook has undoubtedly increased as a result of the evolving conflict in the Middle East, UK share prices entered this period at already depressed levels relative to overseas equity markets. This meant that, at the end of June, the portfolio was trading on a 12-month historic P/E ratio of 13x, a level we continue to view as attractive for businesses that are often well managed and run conservative balance sheets.